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Welcome to Ideas 2 Business

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Spark 100k Challenge

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@sparkauckland

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$100KCHALLENGE

IDEAS 2BUSINESS JULY

1

LAUNCH PAD

$100K GRANDPRIZE GIVING

IDEASCHALLENGE

LAUNCH

VISION 2

+ INNOVATOR SERIESBUSINESS

MAR

MAYTO

ONE-ON-ONE CLINICS

AUG10

JULY

1st Prize:$25,000 seed capital+ 6 Months Incubation at Icehouse

2nd Prize:$15,000 seed capital+ 3 Months Incubation at Icehouse

3rd Prize:3 Months Incubation at Icehouse+ $5,000 seed capitalUniServices Research Commercialisation Prize:$5,000 seed capital Deadline: 10th August

12pm midday

• Discuss your business idea one-on-one with our experienced industry experts.

• Receive help and guidance on developing a more effective venture summary and on validating and developing your idea for the $100k Challenge.

Deadline: 12th August 12pm noon

Registrations open today – go towww.spark.auckland.ac.nz to secure a clinic time

• Learn what makes a good venture summary • Tips from $100k Challenge judge • Ask a $100k Challenge judge your questions

Held on the Wednesday 29th Julywww.spark.auckland.ac.nz to register

WORKSHOP - RECEIVE GUIDANCE FROM $100K CHALLENGE JUDGE

Networking

$100k Team Builder

Seeking teammembers

Offering to join a team

• Register for a certificate on our website

• Collect at $100k Workshop and Qualifiers Ceremony

Certificate of Attendance

Feedback

110+ ventures launched

$200+ million in investment

Created 400+ jobs

Dr. Deb Shepherd

Welcome

Ideation Game

Session 1: Value Proposition: knowing your customers

Session 2: Business Model CanvasBreak: 10.40am - 11.05am

Session 3: Intellectual Property and Legal Matters Lunch: 12.45pm - 1.40pm

Session 4: Knowing your Numbers

Session 5: Building Teams

Session 6: Business Model

Break: 10.40am - 11.05am

Next Steps: Entering the Challenge

An Entrepreneur's storyNetworking: 4.30pm-6.30pm

Outline

Ideation GameI2B 2015

Stage 1: Brainstorming problems

Select 1 topic

Brainstorm loads of problems

5 minutes

Energy

Internet

Education Food & Beverage

Technology

Health

Environment

Stage 2: Brainstorming solutions

Select 1 problem

Brainstorm loads of solutions

5 minutes

ProblemSolutions

Solutions

Solutions

Solutions

Stage 3: Business proposition

Select 1 solution

Brainstorm a business proposition

5 minutes

BusinessPropositi

onSolutionProblem

Duncan LedwithSession 1: Market Validation

Mark HeineHudson Gavin Martin

Session 2: Intellectual Property and Legal Matters

Understanding Intellectual Property

Presented by Mark Heine

Purpose of this Session

• What constitutes Intellectual Property

• How to protect Intellectual Property

• How to exploit Intellectual Property successfully

Types Intellectual Property

1. Copyright

2. Confidential Information / Trade Secrets

3. Trade Marks

4. Patents

5. Designs

6. Layout Designs

Copyright

Copyright Act 1993

Exclusive rights given to the owner of an original work Right of exclusive use

Right to stop copiers Right to distribute Right to license others to use Moral rights

Automatic right – no registration

©

Duration of Copyright

Generally life of the individual author plus 50 years Literary, artistic works

If computer generative, 50 years from creation If industrially applied:

25 years for artistic craftsmanship 16 years for other artistic works

Copyright (continued)

Protects original works Literary (includes computer programs) and dramatic

works Musical and artistic works Sound recordings, films, communication works,

typographical arrangements

The work must be original Low threshold Not merit based

Protects the expression of an idea, not the idea itself

Copyright Author

The author is the owner unless:

The work is authored in normal course of employment in which case the employer is the owner;

The work is authored by a contractor carrying out a “commissioned work” in which case the “commissioner” is the owner; or

There’s an agreement to the contrary

Copyright (continued)In addition to copyright:

Moral Rights Right to be identified as author or director Right not to have work falsely attributed to you Right to object to derogatory treatment of the work

Not assignable Expire when copyright expires (or 20 years after death with false

attribution)

Example – Copyright Infringement

“Down Under” (2010) Single recorded by Australian rock group Men at Work in 1981. Went to no. 1 in Australia, NZ, Canada, USA, UK, Ireland,

Denmark and Switzerland. In 2009 Larrikin Music sued members of Men At Work for

copyright infringement, alleging that part of the flute riff had been copied from the song “Kookaburra sits in the old gum tree”.

Held: Larrikin’s copyright had been infringed because Down Under reproduced a substantial part of the Kookaburra song.

Larrikin to receive 5% of royalties from “Down Under” from 2002 onwards.

Copyright Summary

Pros Automatic No registration Free Long duration – life of author plus 50 years

Cons Records to show proof of ownership Prevents copying not independent creation

Confidential Information and Trade Secrets

What is confidential information?

Confidential information and trade secrets are valuable commercial assets.

Includes a wide variety of business knowledge and secrets E.g. production secrets, marketing information, computer code

Unregisterable

Information must be: Confidential; and Disclosed in a manner indicating confidence

A manner indicating confidence…

Information is marked confidential

Confidentiality/non-disclosure agreements

Contractual protection Mutual and one-way NDAs Jurisdiction clauses

Example – Breach of Confidence

Cadbury Schweppes v FBI Foods – Supreme Court Canada 1999 1970s - Mott’s began producing Clamato juice– mixture of tomato juice, spices and clam

broth. Mott’s licensed the production and sale of Clamato to Caesar Canning (Caesar). To enable it to produce Clamato, Mott’s gave Caesar information about the recipe and

manufacturing methods. Mott’s later terminated the Clamato licensing agreement. After licence was terminated,

Caesar used the Clamato formula to create a new type of tomato juice. Mott’s sued in breach of confidence – Caesar had knowingly and improperly used

confidential information that Mott’s had given to Caesar for the purpose of producing Clamato under the license, not for producing its own competing product.

Held: Clamato recipe was confidential information – Mott’s had used time, money and effort to produce it. Caesar’s obligation of confidence was based on the licencing contract, common understanding in the food industry that recipes not widely known should be kept confidential, and because the recipe had been communicated to Caesar for the limited purpose of producing Clamato under the licence.

Held: Canning had misused the confidential information because they used it to produce a competing juice, a purpose for which it had not been given.

Trade Marks

What is a trade mark?

“Unique identifier” often referred to as a “brand” or “logo”

Distinguishes products from a competitor product

Does not need to be registered but this has benefits

if registered; if unregistered

Helps create brand association E.g. origin, quality, status

Examples of trade marks

Word - e.g. ZESPRI

Device - e.g.

Shape - e.g.

Colour - e.g. for “block chocolate”

Examples of trade marks

Sound - e.g. a squeak on a plate

Smell - e.g. the smell of cinnamon for “pharmaceutical preparations and substances”

Signature – e.g.

Animation – e.g.

Trade Marks (continued)

Benefits of registration:

Exclusive right to use your trade mark in NZ to promote your goods

Deter others from trying to imitate your brand or benefit from its success

Prevent dilution of marks

Helps to ensure that you will not infringe on others’ rights

Trade Marks (continued)

Registration - Trade Marks Act 2002 Class based Territorial Duration is infinite, if fees are paid

To register a trade mark: Must be distinctive Must be a trade mark – i.e. used to identify products/service

Example – Trade Mark Infringement

Coca-Cola v Pepsi (December 2013)

Coke registered trade mark for 3D shape for its contoured bottle for goods including non-alcoholic drinks (using this shape since 1915)

Pepsi launched contour shaped bottle in NZ in 2009 Coke argued that the Pepsi bottle was ‘similar’ to its shape trade mark and

was likely to confuse or deceive the public – thus infringed trade mark Held: Pepsi did not infringe Coke’s shape trade mark Must compare Coke’s trade mark to Pepsi bottle without Pepsi branding –

as bottle design / product packaging can indicate origin of goods Pepsi bottle was not similar – e.g. Coke TM had pronounced pinch at

bottom, broad horizontal belt, concaved neck – not on Pepsi bottle No evidence of any confusion or deception

Trade Mark Summary

Pros Indefinite Relatively cheap Powerful marketing tool

Cons Territorial Exclusive right (not monopoly) Market policing

Patents

Patents

Registration required

Protection for 20 years (subject to payment of renewal fees)

Monopoly

Territorial

Must be an application, not an idea not obvious, and new or novel

Patents (cont.)

Covers products processes of manufacture improvements to existing products or processes business methods

First owner is registrant (inventor unless he has assigned his rights)

Confidentiality essential prior to application for patent registration

Example – Patent Infringement

Apple v Samsung Ongoing lawsuits relating to design of smartphones and tablets. Began April 2011 – Apple alleged that eight of Samsung’s Android phone and

tablets infringed Apple’s patents, e.g: Bounce-Back Effect, i.e. the bounce-back that users get when they scroll

to the bottom; On-screen Navigation; Double-Tap to Zoom; Siri voice search technology (later suits).

Samsung filed similar complaints in Seoul, Tokyo, Germany and UK alleging that iPhone 4 and iPad 2 infringed Samsung’s patents.

Apple successful in US – damages of 450 million but Samsung products will stay on shelves.

Samsung has won rulings in South Korea, Japan and UK. Litigation is ongoing – Apple continues to add Samsung products to its suits as

they are released, Samsung now alleges that “all generations” of iPhone and iPad infringe its patents.

General Advice

Strategic Decisions

Incorporate a company or enter an agreement between your team members

Understand what constitutes the Intellectual Property

Who owns the intellectual property?... Company Individual Joint ownership

Strategic Decisions

Before starting to market or sell a product or services, seek professional advice regarding: “Freedom to operate” searches Novelty or opportunity assessments Correct form of protection

To register or not… Protection vs. speed to market Cost of registration Cost of dealing

Thank you

Alastair MarsdenSession 3: Knowing Your Numbers

Spark: Ideas 2 Business

What basic numbers do I need to understand?

Value creation for new innovations or start-ups

DECISIONS

INVESTMENT FINANCING

WHAT TO INVEST IN

HOW TO PAY FOR IT

“SUCCESS” IS JUDGED IN TERMS OF VALUE CREATION

WHY UNDERSTANDING NUMBER IS IMPORTANT? INVESTMENT PROCESS

THE IDEA(Planning)

ESTIMATECASH FLOWS

EVALUATIONOF CASH FLOWS

ACCEPT/REJECT INVESTMENT OPORTUNITY

ONGOING EVALUATION

- R & D- New Products- Market

validation

Role of numbers – Financial Statements

■ Statement of Financial Position■ “Income” or “Profit and Loss Statement”

(or “Statement of Financial Performance”)

■ Statement of Cash Flows■ Statement of Movement in Equity

Statement of financial position

■ Statement of financial position (Balance sheet)

Assets = Equity + Liabilities

A = E + L

Statement of financial position

■ Personal asset: Asset = Equity + Liabilities House = My equity + BNZ Mortgage 500,000 = 200,000 + 300,000

■ Business asset: Assets = Equity or + Liabilities

= Shareholders’ funds

1,000,000 = 700,000 + 300,000

Statement of financial position64

$3,000Shareholders’ funds or equity

$4,000

Non-current assets $2,000 Liabilities $1,000

$5,000 Total equity and liabilities

$5,000

ABC Ltd

Balance sheet as at 30 June 201X (NZ$)

Current Assets

Total assets

The Accounting ReportsBalance Sheet (start) Income

Assets Liabilities

Equity

Revenue

Net Profit

Contributions

Changes in equity

Less Expenses

Distributions

Assets

Equity

Balance Sheet (end)

Liabilities

Changes in Equity

Cash flowOperatingInvestingFinancing

Changes in cash

Irwin/McGraw-Hill

Financial Models

Why need a financial model

• Analytical View:  Forces you to construct numbers around each assumption you have about your business model.

Roadmap:  A model can be a time-line of what you expect to happen – i.e., a roadmap for your business.

Risk Assessment:  to identify the key levers (and sensitivities) of the business helps: -Illuminate the risk points of your start-up;-To help us predict and monitor our "cash burn rate"

Solar Trash Can

Source: http://news.brown.edu/features/2011/02/belly

Is there an opportunity? Yes – in the US garbage trucks consume over 1 billion gallons of fuelAverage truck costs over $100 per hour to operateBy compacting rubbish may cut the number of pick-ups and save labour costs?

Business Model – Developing the Numbers

Question: What market validation analysis may you wish to undertake if this project was at the initial stage of the idea or project development?

Market Validation

• After we have undertaken market validation – know:– Costs to establish or produce product or service– Customers, the problem and how currently solved– How much is the customer willing to spend to solve

their problem– Competitors and price of competitive products– Market size, potential growth rate

Solar Trash Can

Development / Idea and Seed

• Initial market Validation

Start-up

• Product design• Patent

investigation • Build Prototype

• Test Product• Market Product

Survival /Early Expansion

• Patents / IP• Regulatory

Approval

• Small scale production

• Initial salesGrowth Stage

• New model features

• Ramp up production and sales

Time 0 “X” Years

Financial Projections: Bottom-up ModellingAt the initial idea / start-up stage we are often concerned with (i) cash forecast only; and (ii)how long to achieve first sales and customer acquisition costs (iii) capital costs. For example

– R&D expenses– Market (beta) testing– Production costs– Costs to set up distribution channel– Marketing, brand building.– Employee costs– Sales costs – how long to achieve sales/ ramp up production– Legal and accounting costs– Lease / rental costs– Other fixed costs – e.g., rent, telephone, power.– Costs of any fixed assets

Top-Down Revenue Forecasting

• More useful years 3 onwardsSteps1) What is total market size? – Often based on 100%

market penetration.2) Current penetration or degree of current market

saturation.3) Projected market penetration of new product on year-

by-year basis4) What is your business’ share of the projected market

penetration and revenues (based on market competition and response to existing market incumbents).

Top-Down Revenue Forecasting

• Revenue ForecastingRevenues = Demand for

Product /service× % Market share ×

Price per unit of product / service

• Expense breakdown consider typical industry key ratios – e.g.

Gross margin (GOGS) as a % of revenuesCosts as % revenuesR&D as % of revenue

Accounting Income Statement

We can now project the business’s future performance■ Income or P&L Statement

RevenuesLess ExpensesOperating profitLess Tax on operating profitNet operating profit after tax (NOPAT)→ Measures assets’ performance funded all capital providersLess Interest expenses (net of tax benefit)Net profit after tax (NPAT) → Measures performance of funds provided by equity or shareholders

Cost Structure

• Fixed Costs– Employee numbers– Other fixed costs e.g. rent, power, telephone

• Variable Costs – these are a function of sales or revenues – e.g., cost of raw inputs into making a product.

• The higher your fixed costs the higher your risk.

Breakeven Analysis: Some Basics

• Basic Equation – Accounting Breakeven:Sales (S) - Variable Costs (VC) – Fixed Costs (FC) = zero

• What do S – VC represent• S- VC = No of units sold × gross profit per unit

Where gross profit per unit = sale price per unit – variable cost per unit.

BUT Accounting Profits NOT equal CASH: An example

Revenue Recognition:

Implication – we need cash to fund working capital

Product marketing

OrdersReceived

Production Inventory

Dispatch Goods & Invoice Customers

Cash Received

Recognise for Accounting• Revenue can be Measured• Expectation Customer will

Pay

Statement of Cash Flows – often more important that accounting profits

Statement of Cash Flows:

• Where did cash come from – Where did it go?

Three Sources:• Operating Activities (Cash from sales less cash costs)• Financing Activities ( new equity / money FFFs etc.)• Investing Activities

• Cost of set-up or fixed asset costs

Projections of Cash FlowsSimple Excel Cash Book

June July August SeptemberOpening cash 15,000 6,800 1,700 -2,950

Cash receipts from operationsReceipts from sales 150 150 250Cash receipts from financingReceipts from new equity / FFFs 1,000Total cash Receipts 1,000 150 150 250

Less cash paymentsCash payments from operationsPurchase goods / services -1,000 -1,000 -1,000 -1,000Wages -500 -500 -600 -600Marketing -1,000 -1,000 -500 -1,000Operational costs -200 -200 -200 -200Administration -250 -250 -250 -250Rent / power -150 -150 -150 -150Other -100 -150 -100 -150Sub-total -3,200 -3,250 -2,800 -3,350

Cash Payments from InvestingMachinery -2,000 -1,000Software development -2,000 -2,000 -1,000Prototype product -4,000Sub-total -6,000 -2,000 -2,000 -2,000

Total Cash Payments -9,200 -5,250 -4,800 -5,350

Closing cash 6,800 1,700 -2,950 -8,050

Month

Cash Flow

• Cash in and out of the business• Cash burn rate – how much time until the

business will run out of money

• Profitable business can run out of cash and fail

0

Cash flow

Time

Irwin/McGraw-Hill

Sources of Finance

Development /

Idea

Seed

Start up

Survival / Early Expansion

Growth and early maturity

Stage

Sources of Capital

Own Finance and FFFs

Angels

VCs

Private Equity

BootstrappingInnovator / Entrepreneur to:– “live on a shoestring”– Mortgage his/her house– Use credit cards– Barter for products / services

Friends, Fools and Family• A significant source of funding in the NZ market at the

development or idea phase.• Not sophisticated but is it loan, gift or shares. Need to define

(don’t want “giver” to decide ex-post)

Sources of Finance at Development / Idea Stage

Angel Investors – Some reasons Why

1. Make MoneyPlus others such as:• Give something back / benefit New Zealanders• Access to deal flow• Part of network/club/team, excitement, fun,

passion• Keep up with Trends etc.

Valuation of Start UpsThe Dave Berkus Method www.berhomics.comAssume: Max valuation of an entity is $2.5 million.Thus

If Exists Add to Company Value(1) Sound idea (base value, product)

$500,000(2) Prototype (reduce technology risk)

$500,000(3) Quality management (execution risk)

$500,000(4) Strategic relationships (market and

competitive risk)$500,000

(5) Product rollout or early sales(financial or production risk)$500,000

Also see website of Bill Payne: Scorecard method

Crowd Funding

Gaming crowd backs NZ studio with US$2.5m• A kiwi game development studio (Grinding Gear Games

popular online role-playing game Path of Exile ) has been left stunned after a crowdfunding round aimed at raising "a few hundred thousand" ended up raking in US$2.5 million (NZD$2.9).

• Source: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10862594. Ben Chapman-Smith, Friday Feb 1, 2013

Financial Conducts Bill and NZX new markets• Financial Markets Conduct Bill effective April

2014– Peer-to-peer equity investment and lending via an

Online Platform

See for example, http://www.snowballeffect.co.nz/

• New NZX Growth Markethttps://www.nzx.com/companies/NZX/announcements/248270

Equity Crowd Funding http://www.snowballeffect.co.nz/

• Register – The investor registers to use Snowball Effect

• Make Investment – Identify a company to invest in, and commit to invest any amount between the minimum set by

the company and the maximum amount being raised– Investments are made via a secure platform– Funds are held in trust from the time the commitment is made through to the company's offer

closing• Offer Closes

– The offer remains listed for a period determined by the company, up to a maximum of 60 days– Companies that reach their funding targets receive their capital once the funding round closes,

and shares are issued to investors– Companies that do not reach their target walk away, and any funds raised are returned to

investors• Post-Offer

– As a shareholder you can expect ongoing communications from the company - they have statutory obligations, but also have an incentive to keep you engaged as part of their "crowd"

– Snowball Effect does not manage this communication, but we will offer tools and services to companies to facilitate and encourage ongoing flows of information to investors

Peer-to-peer lendinghttps://www.lendingclub.com/

. Notes are graded A1 through G5 and carry an interest rate commensurate with their risks, so you can build a portfolio that fits your investment objectives.

In Summary: What do owners / innovators / investors want to know

when starting up a business?• Current statement of financial position;• Key revenues and cost drivers with assumptions;• Expected cash generation and “cash burn” rate;• How much funding do you require?

You also need to think about:• At what stage should you raise funds?; and• Source of funding?

END

Good luck!

• Meet new people• Gain valuable contacts

Networking Questionnaire

Ben O’Brien - StretchSenseSession 4: Teams

Dr Deb ShepherdSession 5: Business Model

Turning first class ideas into world class businesses

(C) Alex Osterwalder Business Model Canvas

The Business Model Canvas

Defining: Business Model

“A business model describes the rationale of how an organization creates, delivers, and captures value.”

– Osterwalder & Pigneur (2010; p. 14)

“Create value for customers, entice payments, and convert payments to profit.”

– Teece (2010; p 173)

Customer SegmentsFor whom are we creating value?

Who are or most important customers?

Mass Market?

Niche Market?

Segmented?

Diversified?

Multi-sided platform?

Value PropositionsWhat value do we deliver to the customer?

Which one of our customers’ problems are we trying to solve?

Which customer needs are we satisfying?

What bundles of products and services are we offering to each customer segment?

Newness (new set of needs)PerformanceCustomization“Getting the Job Done”DesignBrand/StatusPriceCost ReductionRisk ReductionAccessibilityConvenience/Usability

ChannelsThrough which Channels do our Customer Segments want to be reached?

Which are most cost-efficient? How are our Channels integrated?

Direct: Sales force, Web salesIndirect: Own stores, Partner stores, Wholesaler

Customer RelationshipsWhat type of relationship does each of our Customer Segments want?

What kind of relationship do we want? How much would this cost?Would this fit with the rest of our business model?

Personal AssistanceDedicated Personal Assistance

Self-ServiceAutomated Services

CommunitiesCo-creation

Revenue StreamsFor what value are our customers really willing to pay?

How would they prefer to pay? How can we structure this so that we can actually make money from it?

How much does each REVENUE STREAM contribute to overall revenue?

Asset saleUsage fee

Subscription FeesLending/Renting/Leasing

LicensingBrokerage fees

Advertising

Pricing Mechanisms

Fixed Menu PricingPredefined prices are based on static variables

Dynamic PricingPrices change based on market conditions

List Price Fixed prices for individual products, services or other VALUE PROPOSITIONS

Negotiation (bargaining)

Price negotiated between two or more parties depending on negotiation power

Product feature

dependent

Price depends on the number or quality of VALUE PROPOSITION features

Yield management

Prices depends on inventory and time of purchase (e.g. hotel rooms or airline seats)

Customer segment

dependent

Price depends on the type and characteristic of a CUSTOMER SEGMENT

Real-time-market

Price is established dynamically based on supply and demand

Volume dependent

Price as a function of the quantity purchased Auctions Price determined by outcome of competitive bidding

Key Resources

Physical

Intellectual Property

Human

Financial

What Key Resources do our Value Propositions require?

Our Distribution Channels? Customer Relationships?

Key ActivitiesWhat do we need to do make our VALUE PROPOSITION happen? Our DISTRIBUTION?

What about our CUSTOMER RELATIONSHIPS?

ProductionProblem SolvingPlatform/Network

Key PartnershipsWho are our main PARTNERS and suppliers?

What do we get from them? (RESOURCES) What do they do for us? (ACTIVITIES)

• Optimization and economy• Reduction of risk and uncertainty• Acquisition of particular resources

and activities

Cost StructureWhat are our important costs?

What are our most expensive RESOURCES? Most expensive ACTIVITIES?

Cost Driven: • leanest cost structure• low price value proposition • maximum automation• extensive outsourcing

Is your business more…Value Driven • focused on value creation • premium value proposition

111

Summary- Know your Business Model Intimately

• How do we make money in this business?• What is the underlying economic logic that explains how we

deliver value to customers?• What are all of our revenue, funding, investment channels• What is our margin position in the supply chain?• What is our “easy to explain” story that gets everyone

aligned around how we create value?• How do we clearly capture our business:

– E.g. Sam Walton of Walmart: “put good sized stores into little one horse towns which everybody else was ignoring”

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