Attracting investors to startups

Cursos de Capacitação Avançada Atração de Investidores para Startups,

uma Visão Internacional

Erik SanderMaio/2016

CoordenaçãoFinanciamentoRealização Oferecimento

©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.

Attracting Investors to Startups:International Vision

May 2016

Erik Sander

Executive Director, Florida Engineering Experiment Station

Director, UF Engineering Innovation Institute


The information on these slides and in the accompanying presentation is for general educational and informationalpurposes only, and is not intended and should not be construed as legal advice to be applied to any specific facts or circumstances. Any party to an actual transaction should engage legal counsel toadvise them on suchtransaction.

Disclaimer


Thursday

8:30 – 9:15 am Introduction to the Workshop,Participants,and Objectives;Discussion

of Tech Transfer inBrazil

9:15 – 10:15 am The University of Florida Technology Commercializationand

InvestmentEcosystem

10:45 – 12:00 pm What Do Investors Think and What Do They Look for in University

InvestmentOpportunities

12:00 – 1:30 pm Lunch

1:30 – 5:30 pm How do Investors Review University Investment Opportunities

Friday

8:30 – 8:45 am Start-off Questions andExpectations

8:45 – 10:00 am How Can a University Best Work withInvestors

10:00 – 11:00 am Structuring a Successful Investment - Doing the Deal

11:00 – 12:30 pm Wrap-up and FinalThoughts


Introduction to the

Workshop, Participants,

and Objectives

Introduction to the workshop

What participants would like to learnand can expect to understand


Walkaway Goals How do investors think about university spinoff companiesas

investmentopportunities?

What are the criticalchallenges?

What are some avenues and means to gather investorinterest?

How can universities best work withinvestors?

What are the realities of investor-academecollaborations?

What is needed to make this systemwork?


The University of Florida

Tech Commercialization and

Investment EcosystemUniversity of Florida and State of Florida university technology

spinoff company investment strategies and programs.

The history of how the university technology commercialization office and programs were built to a Top 10 program in the US today

Public/private investment partnerships that support technology commercialization


Why are Investors Interested?

University Technology Licensing

5,435 licenses executed (up 4.5% over prioryear)

1,461 options executed (up 7.7%)

549 executed licenses containing equity (up17%)

914 startup companies formed (up11.7%)

4,688 startups still operating as of the end of FY2014 (up 11.4%)

965 new commercial products created (up34.2%)

6,363 U.S. patents issued (up11%)

Source: AUTM 2014 Licensing Survey(www.autm.net)


Source: Association of Technology Managers Infographic access April 2016 - http://www.autm.net/AUTMMain/media/Resources/Documents/AUTM_Infographic_FY2014.pdf


http://www.autm.net/AUTMMain/media/Resources/Documents/AUTM_Infographic_FY2014.pdf

Florida’s HeritageBut did youknow………

3rd largest state – 19.5M residents, of which 5M speak a foreign language, primarily Spanish

Florida would be the 21st largest economy in the world

1st for Innovation (Fast Company)

3rd for high-tech businesses and 5th in high-tech employment (TechAmerica Cyberstates)

Internationally recognized innovation clusters


Fin. & Prof. Services

Manufacturing

Florida’s Future

Biotech

Life Sciences

Health Care

Pharma.

Biomed Eng

Med. Devices

Renewable Energy

Nanotech

Hydrogen

Agri-

business

IT & Software

Microelect.

Telecomms

Modeling/Simulation/ Training

Photonics / Lasers / Optics

Aviation /Aerospace

Homeland Security

Defense


The Innovation Economy

Ideas

People

Capital


People

SD

CA NH

FL

MA

KS

AK

MS

AL

ID

GA

y = 1894,7x +20115

R² =0,8157

$30.000

$35.000

CO

$40.000

MD

NY

$45.000

VA

$50.000

17,0

GS

PP

er

Ca

pit

ab

yS

tate

GSP Per Capita vs.% w/ > Grad or Pro Degree40 States (w 10 Outlier States andDC Removed)

$55.000

5,0 7,0 9,0 11,0 13,0 15,0

% of the Population with Graduate or Professional Degrees by State

Source: The National Center for Education Statistics, NCES, 2005-2007©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.

10.000

20.000

30.000

40.000

50.000

60.000

70.000

0

0,00% 5,00% 15,00% 20,00%

Ad

jus

ted

GS

PP

er

Ca

pit

a(N

oN

AIC

S2

1)

10,00%

% 18-64 Population w/ Degree

Bachelor, Graduate &PhD Degrees to Adj GSP Per Capita

% 18-64BachDeg

Linear (% 18-64Bach Deg)

% 18-64GradDeg

Linear (% 18-64 GradDeg)

Emp PhD %18-64

Linear (Emp PhD % 18-64)

ImpactTop10 PhD Top10 PhD Top1

Impact

2nd10 d102nd10

y =8,000,000

R² =0.9

x +24304

729 19X 21X2

n

3rd10

4th10

3rd10

4th10

3rd 10

4th10

Bottom10 Bottom10 Bottom10

y = 427746x +10061

R² =0,9196

y = 374050x -16324

R² =0,9694


Ideas

Source: NSF Science and Engineering Indicators


Grants &

Sponsored

Research

Venture Capital

& Public Equity

Basic

Research,

Discovery

Feasibility

Study

Engineering Model

Product Development/ Design

Commercialization

Market Roll-out

Distribution Channels

Manufacturing

Regulatory

Where we fit in a startup’s funding cycle

“Valley of Death”


Risk Mitigation - Florida Corridor Matching Grants

Research Program

Partnership among 3 universities, 20 economic development orgs, and14 community colleges started in1996

$60M+ in state funds matched by $120M in company funds

$1B in federal follow-on grants

1,300 research projects

375 company partners

300 faculty; 2,600 students & research assistants

103 patents plus 146 patent applications projected to have resulted

Enable Corridor High Tech Companies to Conduct Applied Research with UCF, USF and UF Professors and Graduate and DoctoralStudents

Grants Range From $10,000 to$100,000


Supports 26 universities and institutions

Leverages $2B statewide research infrastructure to build great companies and products that improve and savelives

Delivers company creation, building and fundingprograms

Mentoring and coaching to prepare for fundraising

Comprehensive due diligence process

Investor Advisory Board screens and provides feedback

CEO Council of individuals looking for “next opportunity”

Seed funds that require private investor match

Creation of statewide angel investornetworks


Institute at a Glance

~100 applications received for support and funding

34 companiesfunded

$40 MM private capitalraised

~300 jobs YTD; projections exceed ‘000s

$74,000 average salary per job created

Global visibility for Florida and Florida companies; Media coveragein 34 countries


Seed Capital Accelerator Program

Created in2011

$8.5M for loans ranging between $50,000 and $300,000 to bridge the gap

Requires recipients to match 1:1 with private investmentdollars

Results todate:

Funds 98% committed: 28 companies approved for funding; 25 funded

Funded companies have raised 3–5x private investment (>$25MM)

Avg. salary per job created = $74,000


Florida Technology Seed Capital Fund

Created in 2013; launched Fall2013

$4.275M available in seed funds

Funding provided to spinout companies in the formofconvertible notes or equity – Fund will beevergreen

First funding up to $300,000; requires 1:1 match

Second funding for select companies up to $200,000; requires2:1 match

Applications exceed available funds 4:1; All funds committed by June2014 (est.)


Florida Angel Nexus (FAN)

Capital attraction forFloridacompanies

FAN Chapters Groups of Angels +‘Side

Car’Funds

Geography | Expertise |University

Affiliation

Recruit & Coordinate Members

Cultivate Local Deal Flow

Host Chapter Meetings


University of Florida Major, public, comprehensive, land-grant, research university

Annual economic impact $8.76B/year; 106,000 jobs.

4,000 faculty and 50,000 students in 16 colleges and 200+ research, service and education centers, bureaus andinstitutes

$700M in annual research expenditures; $100M from industry

5,000 proposals submitted and 2,400 new awards receivedannually

300-350 inventions; 80+ tech licenses; 15-20 spinoffs annually

Cross-campus entrepreneurship and innovation programs–15-20 student spinoff companiesannually

Trusopt®

Sentricon®

Gatorade®


UF College of Engineering Comprehensive andlarge

2nd largest MS program

10th largest PhD program

14th largest undergrad prog.

Strong researchfunding

~$70M annual expenditures

~15% from industry

Over the last 5 years:

536 invention disclosures

896 US and Foreign patentapplications

254 US and Foreign patentsissued

185 executed license and option agreements

30 start-up companies from licensed technology

5-6 student startups annually

2X national average per research dollar in patents issued

4X national average per research dollar in the number of start-up companies


Gainesville Technology Incubators Biotechnology DevelopmentInstitute

35,000 sq ft; 19 labs, 13 offices

Small and large animal facilities

Gainesville Tech Enterprise Center

30,000 sq ft; 3 labs; 15 offices

Mix of biotech and other

Center for Innovation & EconomicDev. Santa Fe College endeavor

Low to high tech

Florida Innovation Hub

48,000 sq ft; 24 labs; 40 offices

Substantial space for service providers & investors

24©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.


Hacker Space

Starter Space

26

Entrepreneurial Community Initiatives


Entrepreneurship and innovation are happening at hyper-speed.

Public policy must support this new innovation economy to be competitive.

Chart taken from“Grounded – The Price isWrong”,The Economist,September 28, 2013


What Do Investors Think and What

Do They Look for in University

Investment OpportunitiesThe investor mentality in general, and investor opportunities and

concerns specific to university created technology.

How investors look at just-created vs. growing university spinoffcompanies.

Differing investor strategies for shorter term (e.g. IT) vs. longer term (e.g. bio) related companies in considering investment decisions.

Investment Structures and Investor Types

Parts of this presentation compliments of Bill Rossi, University of Florida. His

contributions are gratefullyacknowledged.


The Biggest Challenge is Cultural

Open-Publish

Long Term Focus

Basic Research

Disciplinary Depts.

Edge of the Envelope

Collaboration

Organized Anarchy

Focus on Science

Closed-Proprietary

Shorter Term Focus

Applied R&D

Multi-disc. Programs

Risk Management

Primarily internal R&D

Project Management

Focus on $

Industry CultureUniversity Culture Small Tech Comp.


Bridging the Valley of DeathF

un

din

g/

In

tere

st

Govt.Funding

Tech Push Market Pull

Industry

Product Development

University

Research Commercialization

Univ.Research

Valleyof Death

Industry Development


Virtual companies

form to spin off a UF

technology

Develop an alphaproto. & product/

process docsDevelop BP,

mkt. study,

investor pres.

CEO

CBO

(faculty)

CTO

(faculty)

Inventor

(faculty)

Tech. Dev. Team

(IPPD)Bus. Dev. Team

(CEI)

Prior art,

freedomto

operate,

patentability

CLO

(faculty)

LegalTeam

(LCL)

Integrated Tech Ventures - Bridging the Valley

31


Who Are Investors?

What are They Investing?

Financial investors -Money

Employees – Life; familytime

Board, advisors, mentors – Time;reputation

Strategic Allies – Time; reputation; theirops

Vendors – Contractterms

Customers – Reputation;reliability

Family and friends – Faith in you;money

All do a basic ROIanalysis

Can you succeed and what does it mean tothem

What’s your ValueProposition


Founders

Friends, family, fools

Angels

Crowdfunding

Grants

Venturecapital

Retainedearnings

Debt instruments

The Investment Stack

Source: Wadhwa, Vivek, Aggarwal, Raj, Holly, Krisztina and Salkever, Alex, Making of A Successful

Entrepreneur: Anatomy of an Entrepreneur Part II (November 17, 2009). Kauffman Foundation Small

Research Projects Research Paper No. 2. Available at SSRN: http://ssrn.com/abstract=1507384

Charts by Alberto Mena and Dave Foster accessed at Businessweek.com

(http://images.businessweek.com/ss/09/11/1117_making_of_an_entrepreneur)


http://ssrn.com/abstract=1507384

http://images.businessweek.com/ss/09/11/1117_making_of_an_entrepreneur)

Investor Mentality (The Upside)

What’s the ValueProposition

What are your products or services that can come from the tech;How does your tech integrate; Can an intellectual property fence be built

Who’s on the team and can they pull thisoff

What’s the market size, niche, growth rate, potentialpenetration, composition

Who are thecompetitors

What’s the marketing, sales, and distributionstrategies

What are the primary milestones and requirements to get there

What’s the financial plan and fundraisingstrategy

What’s myopportunity


Investor Mentality (The Downside)

R&D risks, alpha, betatesting

Intellectual property infringement risks

Scale-up and packagingrisks

Market introduction risks – Initial acceptance, the first 5 customers, regulatory, competitor position, marketgrowth,

Customer acceptance / mindsharerisks

Production risks – Infrastructure, off-shoring, key materialsuppliersand costs/marketdrivers;

Financial risks - Fundraising, financial, price point, margincushion, market penetration, marketing, distribution channels, sales force, capitalexpenditure;

Personnel risks – Recruiting business and technical teams;Whathappens if a key playerleaves

35©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.

People are the Key

3 4 5

ReturnonInvestment

MarketSize

Proprietary, Unique

PotentialforGrowth

Recruit

experienced

CEO,40%

Assemble CEO-

type board;

15%

0 1

Business model

outweighsteam

deficiencies,

7%

2

Get CEO

beforeseeking

venture capital;

3%

ManagementQuality

Factors in VCinvestment

decision

Incomplete

management

team?Let VCrecruit

CEO; 35%

Profit Dynamics, Inc., VC Survey –2002

(www.capital-connection.com)


VC reasons to decline investment Lack of experienced management team(40%)

Didn’t fit investment criteria, industries, geographic area (17%)

Insufficient market size or need (13%)

No competitive advantage, non-compelling technology (13%)

No clear execution strategy (10%)

Company too small, will not grow large enough(10%)

Company too early stage (8%)

No industry barriers to entry for competitors (6%)

Risk to projected return too high(6%)

Low margins, industry is facing margin pressure (4%)

Valuation too high(4%)

Company isn’t profitable; entrenched competitors; not referred to VC ;poor job presenting; viewed VCs only as funding source(4%)

Source: Profit Dynamics, Inc., VC Survey – 2002 (www.capital-connection.com/vcsurvey.html)


http://www.capital-connection.com/vcsurvey.html)

http://www.capital-connection.com/vcsurvey.html)

Evolutionary vs. Revolutionary

Better-Faster-Cheaper

Incremental improvement

Value proposition tied to level of perceivedimprovement

Typically lower risk / lower return

Brave NewWorld

Gamechanger

High risk – Technology,Manufacturability, Market acceptance, Regulatory

Highreturn


Customer Wants vs. Needs

Value is contextuallydriven

Value is in the eye of thecustomer

What are the alternatesolutions

Is this a new need or an ongoingheadache

Many times the customer’s solutionis current SOP – it’s thecompetition

Sometimes the customer isn’t theuser

Understand what your technology means to the customer or user


Roadmapping Clear Expectations


Perceived Risk & Perceived Value

are Inversely Related

Risk Spectrum – Science, technology, commercialization,production, market,management

Success reduces risk and increases business’ perception oftech. valuation

Risk reduced at keymilestones

Technology – Precursors, prototype, alpha, beta, scale-up

Business – IP freedom to operate, patent issue, external fundraise, market intro, customers, scale-up, competition


Roadmapping – Risk Reduction

ValuationEvaluation

AcademicCorp. R&D

LitigationVC Biotech Invest. Banker

PharmCo.

Technology Risk

Information available at time of valuationTherapeutic target Competitive profile Patent position

Spec. disease Reg strategy

Indication Toxicology Man. costs

Actual sales Actual profits

Highest Least


Roadmapping - Key Milestones/Requirements

Key business, technology, partnership, etc. milestones

Isolate key decisions and issues that need immediate, near-term, or long-term resolution

Stage Gating the Process Mitigates Risk

Key Requirements – Technology, personnel, regulatory, financial, distributionchannels, external purchases/licenses, etc.

Patent Filing

Company

Acquireslicense

Tech / Product

Development

1Q2016Business

Development

1st install

ProjectInitiation

2nd install

Go-No Go on

FundingTranche

R&DMilestone

Building Pipeline

--XX

-- XX

3Q2016 4Q2012Q2016

Go-No Go on

FundingTranche

R&DMilestone


Debt

Loans

Guarantees

Debt-equity arrangements

Equity

CommonStock

Preferred Stock

Options andWarrants

Investment Structure


Seed Start-up Series A (1st Round) Series B(2nd Round) Late

Stage(Mezzanine)

Founder Money

Friends and Family

Angels

Vent

ure Capital

Strategic Partners

Public Equilty

Mezzanine/Late Stage Funds

Supplier and Trade Credit

Commercial Loans

Asset-Based Lenders

Public Debt

Commercial PaperRequired rates of returnper annum

100-80% 80-50% 50-35% 35-25% 25-10%Financing ecotypes bystage of development

Source:

Professor

KimbleByrd,

Rowan

University


Financing Resources MapSOURCE OF FINANCING VC ANGELS F&F ASSET LOANS TRADE CREDIT

RelativeScore low-high low-high low-high low-high low-high

COST OF MONEY 8-10 6-8 5-8 1-3 0-2

FUND-RAISING EXPENSES 0-2 4-6 3-6 3-5 0-2

DEPTH OF POCKET 7-9 5-7 3-5 1-4 0-3

COLLATERAL REQUIREMENTS 0-2 1-3 1-3 7-10 2-5

RISK BEARING ABILITIES 7-10 6-8 3--6 0-3 0-2

REPUTATION AND SIGNALING 8-10 5-7 0-3 0-3 0-3

MANAGEMENT SKILLS 7-10 5-7 0-4 0-3 0-2

SPEED OF DECISION 7-9 5-7 3-5 7-10 6-9

INDUSTRY/PRODUCT KNOW 7-9 5-7 1-5 5-8 0-3

FLEXIBILITY 7-9 6-8 5-8 0-3 0-3

CONTROL TENDENCIES 7-9 5-7 3-6 0-2 0-2

Source:Professor Kimble Byrd,RowanUniversity


Business Angels

Means

High Net Worth Individuals

Extensive Business Experience

Invest $20k-$2M range

Modes

Financial

Operational

Entrepreneurial

Guardian

Motives

Psychological“Income”

Interest in Tech

SocialUtility

Economic DevelopmentSource:Professor Kimble Byrd,RowanUniversity


Options and Warrants



IRR “Pocket” Table


Equity Ownership and Dilution Pre-money Valuation = Current Valuation; Example $1M

Share Price = Pre-money valuation / Pre-money issued shares Example: $1M/1M shares issued = $1.00 per share

Issued Shares (in investment round) = Investment $ / SharePrice Example: $200k / $1.00/share = 200,000 shares

Post-money Valuation = Pre-money valuation + Investment$ Example: $1M + $200k = $1,200,000

Post Investment Equity Positions

Investor = Issued shares / Post-money shares Example: 200,000 shares / 1,200,000 shares = 16.7%

Original Shareholders = Pre-money shares / Post-money shares Example: 1,000,000 / 1,200,000 = 83.3%


Capital Raise Valuation Example


FINANCINGROUND

SEEDSTARTUP SERIESA SERIESB EXIT

TIMES

RETURN

POSTMONEY

VALUATION $1,000,000 $5,000,000 $15,000,000 $75,000,000 75X

FOUNDERS

Investment Sweat 28X

%Equity 90% 72% 40% 40%

Value $900,000 $3,600,000 $5,950,000 $28,000,000 28X

FAMILY ANDFRIENDS

Investment $100,000 35X

%Equity 10% 8% 5% 5%

Value $100,000 $400,000 $733,333 $3,500,000 35X

ANGELS

Investment $1,000,000 $500,000 10X

%Equity 20% 22% 22%

Value $1,000,000 $3,260,000 $15,400,000 10X

VCs

Investment $5,000,000 6X

%Equity 33% 33%

Value $5,000,000 $28,100,000 6X

The Cap Table



How do Investors Review

and Vet University

Investment OpportunitiesModels that illustrate how investors review very early stage

opportunities, such as those coming from universities.

These models can serve to inform university technology commercialization professionals on vetting their university research outcomes in light of how investors may view them as opportunities

for spin-off companies.


The Value Proposition –

The Simplest AssessmentModel

What Economically

Substantial Problem

Can You

Uniquely Solve

and Make Money


Simple Opportunity Analysis Model

English BizSpeak

Who are you Management Team; StrategicAllies;

Partners; Boards; Vendors

What are youdoing Product / Service Offering;

Core Technology; ProductLines

Why can you do it better than anyoneelse Competitive Advantage;Distribution

Channel; Marketing Plan; Key Resources

Who cares, why do they care, and how

much do they care

Market; Market Needs Analysis;Revenue

Model; Customer Profile

What do you need to get itdone Investment Sought, Partnership,

Technology, Distribution Channels

How will you benefit Financial Plan, Revenue Model and

Streams, Profitability

How can others benefit Investment / Partner Opportunity


A More In-Depth

Entrepreneurial

Opportunity Feasibility

Analysis


Pro

fit

/L

oss

What Can We Learn?

Time to Profitability Product Life Cycle

Market

Penetration

Rate

MarketShare


Global Opportunity Analysis

Define the Value Proposition – Better-Faster-Cheaper orBrave New World

Determine if attractive to entrepreneur,customers,investors, employees, & partners

Identify strategy to maximize upside & mitigate risk Leverage relationships, Establish options, Incrementalfunding;

Borrowed resources; StrategicPartners

Technology – The means to the business end If based on technology alone, need a significant increase in product

quality or reduction incosts


Global Opportunity Analysis

Dimension Window ofOpportunity

Large Market Size - Investors typically want to see sales of $50 million in 5 years (share along with size)

Rapid Market Growth - Rapid sales/income growth justifies investmentrisk; Easier to enter; Less stable market shares

Timing – Selling SUV’s during an energy shortage

Estimate key elements and magnitude of effort andpayback(cost/benefit analysis)

What do you have to do to accomplishobjective

What resources do I need and how do I get them

What do you get back – what’s the payout


Market Analysis

Market structure

Fragmented - niches of under-servedcustomers

Monopolistic – have to take on the big gun

Perfectly competitive - commodity, low margin business

Market size - $100 million minimum; Toolarge may mean mature; toosmall may mean not enoughgrowth

Market growth - Growth rates of 30-50% attractive

Market capacity - Can existing competitors meetdemand

Market share attainable - Potential to be a leader; 20%+ share

Market Players - Identifying & reaching key customers (Key Companies, Motivation of decisionmakers)


Profit Potential Analysis

Steady and rapid sales growth first 5-7years

Attain critical mass for market control and economies of scale

Tipping Point – slow initial growth, but then extremely fast

Recurring revenue - Lowers cost & increases barriers toentry

Growing debt capacity supported by hard assets orearnings

Investable - Can create value in 3-5 years; Convert equity with30-40%IRR

Time to breakeven and positive cash flow less than 3 years

Margins

Gross Margin over 40% provides cushion for fixed costs

Net Operating Margin of less than 10-20% can be risky in many industries


Durability Analysis

Imitative competitors (Starbucks & new entrants; Restaurant Row)andProduct substitutions (E-mail vs paper mail; Steak vschicken)

Changing technology - Lower costs or better productsforcompetitors

Shifts in customer preferences - Juice to water

Personnel turnover - Lose key people

Supplierleverage

Buyerleverage

Purchasing power - Wal-Mart dictates what they will pay and on what terms

Price - If costs increase, Wal-Mart may not allow price increase

Quality standard - Wal-Mart dictates quality standard


Skills, Resources Analysis

What skills are brought to the table

Inventory of founders

Who supplies missing skill resources

Skill outsourcing vs in-house(control)

Advisory boards

Strategicpartners

Capital – a necessary resource, but having capital no guarantee of success


Regulatory Compliance Analysis

Licenses

Can you get them and holdthem

Operating procedure

Can you comply with the rules

Product approvals andtesting

FDA, EPA, OSHA, meeting standards

Insurance and bonding


Scalability Analysis

Product vs.service

Costs scale with production (Gross Marginanalysis)

Product / service deliverymechanisms

Bigger facility oroutsourcing

Replicate concept in anothergeography

Franchise


AQuantification-Based

Tech Assessment Model


V2RTechnologyCommercialAssessment

TechnologyName/ Source

Weight

(0-1)

Rating

(1-5)

Weighted

Score

Weight

(0-1)

Rating

(1-5)

Weighted

Score

IPAssessment CommercialAssessment

1 IPisDefensible 5 5 0.8 Resultsof SignificantSponsored Research 2 1.6

1 IP Position(Patented,Copyrighted,Pending,Search) 5 5 0.8 Conformsto RelevantStandards 4 3.2

0.8 NoPrior Claimsto the Technology 5 4 0.6 ImprovementorCostReduction> 20% 4 2.4

0.3 InventionRemainsConfidential 5 1.5 0.5 LowProductionRisk 3 1.5

0.3 NoNearTermPublicationsPending 5 1.5 0.5 SustainableCompetitiveAdvantage 3 1.5

0.25 Lit SearchCompleteand Clean 5 1.25 3.2 Total 16 10.2

3.65 Total 40 18.25

ResearcherAssessment

TechnologyAssessment 1 Expert is TechnologyChampion 5 5

1 Foundational Technology for MultipleProducts 4 4 0.8 Expert has RealisticExpectations 3 2.4

1 IdentifiableandSignificantBenefits/ Breakthrough 5 5 0.8 Expert is EntrepreneuriallyMinded 2 1.6

1 Tech. Dev.Stage(PaperStudy,LabDemo, Prototype) 3 3 0.8 Expert ready to Workwith Company 4 3.2

0.8 ScalableProducts 4 3.2 0.5 Expert has Dealt in Commercialization 1 0.5

0.8 ShortDevelopmentTime Frame 4 3.2 3.9 Total 15 12.2

0.8 LimitedandDefinableCapEx 4 3.2

0.6 TechnologyStateof the Art 4 2.4 TotalCumulativeScore 139

0.6 EasilyDemonstrable 3 1.8 Total CumulativeWeightedScore 91.35

0.5 Additionto ExistingV2R Portfolio 3 1.5 V2RTechnologyCommercialAssessment

General CommentsandConcerns0.4 LongProductLifeCycle 3 1.2

7.5 Total 37 28.5

MarketAssessment

1 Fills Identifiable andMarketable Need 4 4

0.9 MarketSizable 5 4.5

0.7 Market GrowingSubstantially 5 3.5

0.7 DefinableNiche 3 2.1

0.7 Large PotentialMarket Share 3 2.1

0.6 MarketAccessible 5 3

0.5 Absenceof Direct CompetitiveProducts 3 1.5

0.5 LowBarriersfor V2RMarket Entry 3 1.5

5.6 Total 31 22.2


Investor Financial

Analysis of Startups




Income Statement – A snapshot over a time period, typically a year showing how a company got to its current state. Indicates theefficiency and profitability of the business.

Balance Sheet – A snapshot in time showing Assets, Liabilities,andresultant Shareholder Wealth. Indicates financial health - today.

Cash Flow Statement – An ongoing analysis focusing on liquid assets andliabilities to assess the financial resources to pay the bills and short termcashneeds.

Pro-forma – Financial projections showing projected business growth

Key Financial Ratios – Means to assess company health based on financialindicators

Basic Accounting Statements



Income StatementABC Tech,Inc.

Income Statement (in 000’s)

Fiscal Year2015

Revenue:Gross Sales(Revenue

Stream1) $3,000

Gross Sales (Revenue

Stream2) $5,000

Gross Sales $8,000

Cost of Goods SoldDirectLabor $1,100

DirectMaterials $30

Cost ofSales $30

Cost of Goods Sold $1,160

Gross Margin $6,840

Gross Margin (%) 61.3%

Fixed Expenses:R&D $400

Office Expenses $100

OperatingSupplies $15

Rent $36

VehicleExpenses $20

Etc. $1,000

Total Fixed Expenses $671

EBIDTA $5,269

Net Margin (%) 65.9%

• Distinguish RevenueStreams

• Cost of Goods Sold – Costs that vary with production andsales

• Gross Margin - Percentage ofsales to cover fixed expensesand EBIDTA

• Fixed expenses (The Nut) need to be covered regardless of sales

• Understand industrystandards and deviations


THE critical statement for most startups - CASH ISKING

Many forms, but follows the premise of the income statement (Revenue less expenses), but on a “cash”basis

Managed monthly or morefrequently

Critical bridge between management and operations (Salesterms; Employee compensation; Vendor payments;etc.)

Cash Flow Statement


Pro-forma Revenue Model –Prioritize

revenue streams (multiple products, sales, licenses, warranties, upgrades, etc.)

Assumptions are critical –clearly explain the context

Market penetration in relationto competition

Market structure and growth

Understand industrystandards; justify deviations– especially in marginsand sales &marketing


Key Financial Ratios Profitability

Gross Margins

Operating Margins

NetMargin

Return on Assets(ROA)

Return on Equity (ROE)

Liquidity

Current

Quick / Acid Test

Risk

Debt

Debt toEquity

Efficiency

Inventory

DSO

Investment TurnoverSource:Professor Kimble Byrd,RowanUniversity


How Can a University

Best Work with InvestorsWays to engage with and present opportunities to investors ranging

from Technology Opportunity Spotlights to Academic/Investor Hybrid PresentationModels.

Types of investment terms that attract investors and the reasoning behind theseterms.

The session will also include a review of a typical investment due diligence package as well as a typical investment term sheet.


Technology

Marketing /

Opportunity

Sheets for

Investors


Technology

Marketing /

Opportunity

Sheets for

Investors


A Process for Project Scoping, ProjectManagement

and Reporting Out

A Hybrid of an Academic and Industry Presentation


UF Engineering Innovation Institute

www.eng.ufl.edu/innovation

Project Title

PI’s andAffiliations


http://www.eng.ufl.edu/innovation

Value Proposition

• The one slide “Executive Summary” -Establishes audience receptivity to youropportunity

• Summarize key products / services whichyour technology will enable

• Describe:1. The economically substantial problem

2. That products / services coming from your technology uniquely solves

3. And how that can be best brought to market







Research Team

• Provide a brief introduction of the research team and any outside partners in the project



Research Project Overview

• Overview research activities– Summarize accomplishments to date vs.

objectives set at the beginning of theproject

– Identify objectives still to bemet

• Provide a brief overview of resultant

technologies

• Summarize key technology features on

which a product / service would be basedUF Engineering Innovation Institute




Products / Services Overview

• Outline products and services enabled byyour technology emphasizing product features, functions, and customer benefits

• Is this an evolutionary or revolutionaryoffering– Better-Faster-Cheaper - Ability to build market share with

higher quality / performance or lowerprices

– Brave New World – Strategy to attract earlyadopters

and penetrate market with newproduct

• Include an overview of the revenue streamsthat might be generated by the products / services enabled by your technology





Intellectual Property• Outline intellectual property position

– Invention disclosures and patent

applications submitted

– Invention disclosures and patent

applications planned for the near term

• Outline relevant known intellectual

property of others, either within UF

(complimentary) or outside of UF

(competitive)







Competitive Analysis• Summarize competitive products & technologies

and define your competitive advantages

• Consider a Competitive Matrix comparing your technology against competitive products / technologies for key user features such as cost, performance, ease of use, etc.

Key User

Feature 1

Key User

Feature 2

Key User

Feature 3

Key User

Feature 4

YourTech

Competitive

Tech1

Competitive

Tech2

Competitive

Tech3


http://www.eng.ufl.edu/

Market Overview• Market Opportunity – Key market problems /

needs being addressed

• Market Identification – Your plan to identify the highest potential customer base; Whomight be the early adopters

• Market Structural Characteristics– Market size (annual revenue) and growth rate

(historical and predicted annual percentagegrowth)

– Is this a niche of a largermarket– What major drivers or trends have or willimpact

your market

– Technology changerate







Regulatory Environment

• Summarize the regulatory requirements

that a company will have to address to

bring your technology / product to

market



Next Steps and

Resource Requirements

• Summarize key technology development and funding requirements and use of funds

• Isolate key decisions and issues that need near-term vs. long term resolution

• Summarize who would be the highest potential commercialization partners and why they are key to commercialization

• Planned next steps in development / commercialization process





Structuring a Successful

Investment

Also KnownAs

Doing the Deal


University Tech Transfer and Investors

A Shared Philosophy Enables Success

Creating Value forOne

Creates Value forAll


The Deal

An economic agreement that allocates upside andrisk

What each party brings to the deal and how badly they want it drives deal structure andnegotiation

Systemic Problem - Projections involve subjective differences of perception of upside and risk (market penetration, pricingeconomy, market, cash flows,competition)

No Deal is Perfect – Strive for satisfaction, notperfection

The Devil is in theDetails


Key Deal Terms

Basic terms governing distribution of value /equity

Key Milestones and performance incentives and penalties

Additional rights andobligations

Mechanisms to provideinformation

Default and Remedial ActionClauses


A Good Deal Simple yet robust—works in manyscenarios

Each party’s incentives taken intoaccount

Allows for constructivecommunication

Based ontrust

Notunfair

Does not trapcompany

Improves chances for venturesuccess©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.

Key Drivers of Negotiations

Cash andTime

“Burn rate” and “Runway”

Key element affecting the entrepreneur’s bargaining power

Risk

Typically assessed differently by the investor than by the entrepreneur

Investor needs tailored to investment instrument

Debt – lowest risk / return

Preferred stock - Less risk than lower classes

Common stock - shared risk

Staged equity investment – options to abandon or reduce valuation

Valuation – A product of theabove


Some Principals of Valuation

Value is subjective and in the eye of thebeholder

Entrepreneurial finance rather than corporate perspective - Long term value vs. quarterly earnings

Most tenets of corporate finance near useless in valuing high-risk entrepreneurial companies

Entrepreneurial valuation features cash, time, risk, andvalue


Some Valuation Methods

Historical = Sunk Costs +“Appreciation”

Comparables

Valuation/terms of “similar” deals (company maturity, space, market penetration, etc.)

Discounted multiples of P/E or free cash flow

Present value of future earnings streams andcosts

Predetermined investor ownership requirement based on risk/return perception

Horse Trading - Negotiating


Review of an Investment Term

Sheet and Due Diligence Package


Final Thoughts


Some Keys to Investment Collaborations

Investing in university spinoff companies takes a very longterm approach.

Peer review add credibility to the research.

Multidisciplinary, collaborative team research produces uniqueresults– a key for universityspinoffs

The license and forget model typically doesn’twork

Recognize different motivation/reward systems

University - sponsored research, understanding science, publishing (peer recognition), education

Industry - time/cost to market, proprietary position

Doing more deals is usually better than driving a deal intotheground


Final issues discussion

Lessons learned

Go-forward actions


Florida Engineering Experiment Stationwww.eng.ufl.edu/FLEXStation

Erik Sander, Executive Director

352-392-6000

[email protected]


http://www.eng.ufl.edu/FLEXStation

mailto:[email protected]


Quer saber mais sobre a Rede Inova SP?

Acesse:

E-mail: [email protected]

Facebook: facebook.com/redeinovasaopaulo

Site: www.inovasaopaulo.org.br

Tel: 19 3521 2556



https://www.facebook.com/redeinovasaopaulo/

http://www.inovasaopaulo.org.br/