23 march 2005 [email protected] new directions in deal flow & venture creation world bank &...
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23 March 2005 [email protected]
New Directions in Deal Flow & Venture Creation
World Bank & Government of TurkeyWorld Bank & Government of Turkey44thth Knowledge Economy Forum Knowledge Economy Forum 23 March 2005, Istanbul, Turkey23 March 2005, Istanbul, Turkey
Innovative Ventures Inc.Innovative Ventures Inc.Grand Rapids MI USAGrand Rapids MI USA
Moscow RussiaMoscow Russia
Thomas NastasThomas NastasPresidentPresident
[email protected]@IVIpe.comwww.IVIpe.comwww.IVIpe.com
23 March 2005 [email protected]
New Directions in Deal Flow & Venture Creation
Excellent Potential to:
1. Sell Technology from Domestic SMEs to Western Buyers
2. Integrate Domestic Technology with Western Talent for local/Global Customers
23 March 2005 [email protected]
New Directions in Deal Flow & Venture Creation
Today’s Message1. How Attract Investors/Capital to Your Country?
2. How Determine Interventions Needed? (What’s Needed?)
Finance & Financial Engineering, VC, IP, Business Plan Help, Centers of Excellence, Incubation, Capital Markets, Tax Incentives, Grants, SBIR programs, etc?
3. How Help SMEs, Creation of Technology & SMEs?
How Do You Get Started? Solutions & Priorities
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalRealities of VC (in Efficient Markets)
Equity is a Great Product, but:1. It’s Expensive (% ownership)2. Very Selective-1/100 SMEs seeking VC receive $
$$-High Risk/High Return (Actual/Potential Deal Flow Pursuing Large
Markets ($50-$100MM)People (Technical, Mkting, Mgt, Support staff,
etc.)3. Requires Access to Liquidity (Capital Mkts &/or
Strategic Buyers (Domestic or Foreign)
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalIndividual EventCompany has enough $$Mgt Capable & FocusedPD SuccessfulMfging & Component Sourcing SuccessfulCompetitors Behave as ExpectedCustomers Want ProductPricing is CorrectPatents Issued & Enforceable
Combined Probability of Success
Low Success Rate = Invest 1 of every 100 deals
Probability
80%80%80%80%80%80%80%80%
17%
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalEmerging Markets Have Much $$ (e.g., E. Europe & CIS)
EBRD, IFC & US Govt. Supported Funds ($1B+)Intel Capital (Corporate VC, much $$$ & budget)Russia Technologies (Alfa Group, $20MM)Baltic Investment Fund & Scandinavian FundsE. European Funds, Enterprise Investors (Poland), Advent, Horizonte, etc.
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalWhy are More $$ Not Finding its Way to Early Stage – Regional Tech Investment?
Capital Seeks the Highest Rate of ReturnStrong Domestic Growth in Non-tech Sectors, Retailing, Distribution, FMCC, etc.
Competition from Other Asset Classes with = &/or > Liquidity, ex. Stock Mkt., Bonds, even Real Estate
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalMany Tech Opts Focused on Int’l Mkts
Where Demand IsGaining Access is Expensive Penetration & Growth Takes Much Time
Emerging Market Quality & Quantity of Deal Flow is Poor
Few Opportunities Meet Req'ts for Success
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalRealities of Emerging Market VC
1/200 SMEs seeking VC in emerging markets receive $$$ Reasons, high rejection rates:
Undeveloped OpportunityLack of Uniqueness/No or Poor Competitive
AdvantageToo much $$$, too much time & too little rewardPeople (mgt/employees)Lack of Transparency, No Clear Title/Ownership
of the IPWhat to do with the SMEs that are rejected? Ignore? Sympathize? Seek New Solutions?
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalThe GoForward Plan™ For You1.Document & Benchmark the Deal Flow
Global Value or Domestic Use & Those % Not Interesting
2.Attract Corporations/Corporate VC to Confirm Deal Quality & Potential as Supplier Technology Go After Corporations that Do Business in Your Country
3.Leverage Interest to Get Technologies Adopted to Build Supply Chains- Creates More & Better Deals
4.Example: IVI, Shell Oil, Russia & Technologies for the Petroleum Industry
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalBackground on IVIUS VC Funds (1986) The Michigan Product Development Fund ($5MM-Gov/Private)
International VC & PE Funds (1992)Canada ($100MM-Bus. Dev. Bank)
Europe ($10MM-EU, $-Financière Saint Dominique, Paris)
Africa ($-IFC, $-World Bank) E. Africa ($5MM), Sub-Saharan ($200MM), South Africa ($30MM)
Kazakhstan ($-USAID, $30MM EBRD)
Russia ($30MM-EBRD & USAID)
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalMkt. Dev: IVI, Tech VC & Russian Technology1997: Transact Russian VC Deals-General Economy2000: Investigate IT Deals/Sector2002: Evaluate (Russian) E&P Technologies
For Service Suppliers (Halliburton, Schlumberger, etc.)2004: Seek VC Investments. Partner w/Shell
Technology Ventures/Internal Incubation Dept.Objective: Id/finance Russian technologyTransfer of IP (License/Sale)VC Investment in Existing Company or Create New Company to execute technology into market-Build the Supply Chain
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalImproving Access to More $$: IVI Strategy
Bring More Corporations to Russia & the CIS Corporate Characteristics to Execute: A Must: Do Business in Russia/CIS & Global Search
for Technology-Fund R&D with SMEs, Universities, Nat Labs
Better: Internal Incubation GroupBest: Internal VC Dept., & Invest in VC Partnerships
Objectives: Create Cross-Border Funding of R&D/VC & Supply Chain Linkages
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalIVI/Shell Initiative
1. IVI Approached Shell. IVI & Shell Co-Fund Budget to Execute. 100% Private Sector Financing
2. IVI Created a Database for Contact Generate Deal Flow-SMEs & Institutes
3. Evaluate Deal Flow (IVI & Shell staff) Name of Technology/What it Does Benefits/Value of the Technology Performance Data/Benchmark to Competition IP Status What Does the Developer Want to Do
3. Conclusions & Next Steps Decisions (IVI & Shell)
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalResults: 100 Technologies/4 Short-listedArtificial Lift & Advanced Drilling
Enhanced Oil Recovery
Non-Seismic Exploration
Novel Well Construction, Smart Fields & Wells
Hydrocarbon Processing
Earth Modeling
Russian Specific Conditions
Renewables Off-Shore
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalResults & Examples: R&D & Equity Investment Opportunities Exist
Sources of Deal Flow
SMEs59%
Individuals3%
Institutes38%
SMEs
Institutes
Individuals
© Innovative Ventures Inc, 2004
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalResults & Examples: Co-Dev. & Sales Transactions Possible
Stage of Development (Technology)Ready for
Mfging/Delivery to customer
10%
Selling1% N/A (not available)
3%
Testing18%
Prototype16%
R&D52%
R&D
Prototype
Testing
Ready forMfging/Delivery tocustomerSelling
N/A (not available)© Innovative Ventures Inc, 2004
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalResults & Examples: Actions Needed for Commercialization Partner Needs of Russian Side
N/A (not available)3%
Prototype Financing12%
Production/Market Financing
10%
Commercialization Assistance
25%
Customer1%
R&D Financing49%
R&D Financing
Prototype Financing
Production/MarketFinancing
CommercializationAssistance
Customer
N/A (not available)
© Innovative Ventures Inc, 2004
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalResults & Examples: Finding
Technology is Possible
Deals by Russia City
Other, 20% Yekaterinburg/Ufa/Kazan
(Urals Region), 8%
Nizhniy Novgorod, 9%
Tomsk/Novosibirsk Region, 11%
Moscow/Moscow Region, 52%
Moscow/Moscow Region
Tomsk/NovosibirskRegion
Nizhniy Novgorod
Yekaterinburg/Ufa/Kazan(Urals Region)
Other
© Innovative Ventures Inc, 2004
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalResults & Examples: Tech Dev. Matches
Strategic Priorities of Int’l Partners & BuyersDeals by Technology
Production44%
Exploration15%
Refining8%
Pipeline4%
Alternative Energy10%
Other19%
Exploration
Production
Refining
Pipeline
Alternative Energy
Other© Innovative Ventures Inc, 2004
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalResults & Examples: Enabling &
Platform Technologies of Strategic Priority ExistDeals by Specific Technology
Devices31%
MWD Drilling9% Refining/Oil Processing
13%
EOR17%
Sensors15%
Software15%
Sensors
Software
EOR
Refining/OilProcessingMWD Drilling
Devices
© Innovative Ventures Inc, 2004
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalResults & Examples: The Majority of IP is Protected
IP Status
In process for Russia/CIS 12% Russia/CIS patent issued
45%
In process for International (e.g., USA,
Europe, etc) 3%
International patent issued (e.g., USA, Europe,
etc) 10%
None 27%
Information not provided 3%
Information not provided
None
In process for Russia/CIS
Russia/CIS patent issued
In process for International(e.g., USA, Europe, etc)
International patent issued(e.g., USA, Europe, etc)© Innovative Ventures Inc, 2004
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
Capital Reasons: Technologies Interesting or Rejected
Interesting & w/Follow-up for R&D & VC Investment:1. Opportunity Unique – Test Data, although not to Int’l Standards2. Global Application. Domestic Use & Potential to Upgrade 3. Developers Responsive-Want to do business
Rejected: 1. No Uniqueness nor Competitive Adv/Tech for a Service Supplier2. No test/performance data-no projected performance, no targets3. Developers Not Responsive
Note: Rejection not due to lack of IP, Bus. Plans, VC, Mgt., Capital Mkts, Financial Structures, Tax Incentives, etc. Rejections are Fixable
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalConclusions with Shell Oil (Corporate VC)1. Create Business Models to Increase Sales
Opts. to Mix & Match Russian & Western technologyMatch Russian platform technologies w/Western
strengths in systems, mgt, planning & executionMix others w/Western technologies & skills as
enabling & complementing technologies to create the total solution
2. Localize Product Content-Create New Supply Chains & Reduce Mkt. Barriers3. Develop the Market-Increase Revenues
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalResults: GameChanging Solutions w/Global
Value Distributed Temperature/Pressure System
(Sensors/Software) SME Technology
Disc Crystallizer (Refining) SME Technology
EOR 2 Stage Combustion Technology (Institute Tech)
Low Frequency Seismo-Acoustics-3 km/20km (Inst) Novel Well Testing (Software) (Institute Tech) Ceramic Vitrification of the Borehole (Institute Tech)
(Case-less Lining)
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
Capital Results: Solutions for Russia Specific Needs
(E&P, Transport, Processing, etc.)
Ex: Cold Weather, Large Geography, Off-Shore
Applications where performance 1 step below
world class, but significantly lower cost/$$
Developed in environment of cheap oil & different (Russian) E&P policy vs. international
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
Capital Opportunities to Capitalize
Expand commercialization in Russia w/Western bus dev know-how, mgt., enabling & complementary technologies
Upgrade to world standards for value pricing & price sensitive segments
Example: Russian Gas Separation & Sphere Plastics (cold weather) Technologies
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalThe GoForward Plan™1. Characterize the Deal Flow, Performance & Quality2. Establish Industry Consortiums. Go After Corporate
Investors vs. Financial Investors3. Fund the Consortium. There are very few private
sector investors that fund the budget4. Capitalize on what you have 1st. Define where
technology exists/needed and exploit those5. Then Spend Time &$$ to Create New Technologies6. Later IP Funds, Quasi-Equity, SBIR, Grants, Yozma
23 March 2005 [email protected]
Technology In Many Places!
Just Look & Define
ButcherButcher
Genetic Engineering & Breeding
RaisingSlaughter
Processing into Ham, KielbasaDistribution, Storage &
DeliveryRetail Locations
23 March 2005 [email protected]
GameChanging Opportunities with Russian
E&P TechnologyThe IVI GoForward Plan™ CIS High Technology Oil & Gas Consortium
Several Oil Multinationals & Service Suppliers (Oil & IT)
Objective: Finance & Commercialize Russian Technologies (IP, R&D & VC Equity Investment)
• Upstream & Downstream• Renewables• Related Technologies used in the business, IT,
sensors, comm., etc.
23 March 2005 [email protected]
Commercializing Innovation w/o Venture
CapitalWorld Bank & Government of TurkeyWorld Bank & Government of Turkey44thth Knowledge Economy Forum Knowledge Economy Forum 23 March 2005, Istanbul, Turkey23 March 2005, Istanbul, Turkey
Innovative Ventures Inc.Innovative Ventures Inc.Grand Rapids MI USAGrand Rapids MI USA
Moscow RussiaMoscow Russia
Thomas NastasThomas NastasPresidentPresident
[email protected]@IVIpe.comwww.IVIpe.comwww.IVIpe.com