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CONNECT WITH US#SparkUoA
www.spark.auckland.ac.nz
/sparkchallenge
@SparkUoA
@sparkauckland
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Look through your workshop pack!
Entries close on 10 August!
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Spark 100k Challenge
$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
• Register for a certificate on our website
• Collect at $100k Workshop and Qualifiers Ceremony
Certificate of Attendance
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
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
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 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
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.
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
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.
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
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
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
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?
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”