Download - Entrepreneurship Chap 13
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s
Launching a High Technology Venture
Patterns of Entrepreneurship
Chapter 13
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Screen Technologies for New Ideas Prepare the Strategy, Product Positioning
and Alliance Plan Determine Capital and Resources Talent and Management team Implementation
Framework for Launching a Technology
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Screen TechnologiesIdentify systems and technologyInvestigate environment for technological and
market conditions Plan the technology projectPerform feasibility analysisExecute market forecasts and benchmarking
Framework for Launching a Technology
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Technology Trends
• Internet is changing the model of computing
• Software architecture of the internet will become the software architecture for the enterprise
• Computing infrastructure (datacenter) will be the next surprise; fueled by “ASP Services”, outsourced “compute tone”, and internet “geoscale”
• The “real-time enterprise” will drive carrier demand at increasing rates of growth & create Oracle/SAP scale companies
• Operations systems to reduce operating cost & total cost of ownership will be a major issue/opportunity
• Evernet – everyplace, every time, every device thru “mobile IP” (but not a lot of money for new ventures)
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The New IPInfrastructure
Network Issues & Trends
• Everything over IP
• Two layer network
• Value added services
• Internet based SW architecture
• Skills shortage
• Mission critical technology
• Rapid, unpredictable growth
• Legacy encapsulation
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Prepare Strategy and Positioning
Prepare Pilot testing of new technology product – Beta site testing in a few selected locations
Develop a marketing plan to roll out the product– Consider how the product will be positioned and determine pricing plan
Use alliances for cost sharing and efficiency– Be proactive in locating companies to network
– Leverage resources.
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Determine Sources of Financial Needs
Leverage Intellectual Properties
Develop Exit strategy
Determine Capital and Resource Requirements
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Players In Private Equity
Private Equity/VC Firms
Kleiner Perkins
Oak Investment Partners
Advent International
Private Equity/VC Firms
Kleiner Perkins
Oak Investment Partners
Advent International
Buy-Out Firms
KKR
Hicks Muse
Forstmann Little
Buy-Out Firms
KKR
Hicks Muse
Forstmann Little
Captive Corporate Firms
GE Capital
Intel
Nestle Venture Capital
Captive Corporate Firms
GE Capital
Intel
Nestle Venture Capital
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Capital
Risk (ß)
Valuation
Idea isFeasible
TechnologyWorks
A CustomerBuys
SeedFunding
R&DCapital
Go-to-MarketCaptial
ExpansionCaptial
P(success) = 30%Req’d IRR = 100%
P(success) = 40%Req’d IRR = 70%
P(success) = 50%Req’d IRR = 50%
P(success) = 80%Req’d IRR = 30%
Funding Milestones – The Right Way
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The VC “LANDSCAPE” in 2000
# of VC Firms in Existence
# of Professionals
# of First Time VC Funds Raised
# of VC Funds Raised This Year
VC Capital Raised This Year ($B)
Avg VC Fund Size Raised This Year ($M)
Source: NVCA Yearbook 2001; Venture Economics
1980
87
1035
24
57
2.08
36.5
1990
375
3794
14
82
3.20
39.0
2000
693
8368
164
497
105.05
211.4
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The Committed Capital Bubble
0
5
10
15
20
25
30
35
40
1995 1996 1997 1998 1999 2000 2001
0
1
2
3
4
5
6Uninvested VentureCapital
Years of UninvestedCapital
Years of UninvestedCapital at 1995Investment Pace
Source: VentureOne
Years
Accu
mu
late
d C
ap
ital
Over-
com
mit
men
ts (
$B
)
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The Illiquid Bulge
From 1995-2000:
14,463
978
1,529
1,180
10,776
Companies funded
Went public
Were acquired
Went out of business
Remaining
Source: Venture Economics; Venture Source
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A Generic Late 90’s Model
Round Type Date
Amount Raised (MM)
Pre-Money Valuation
(MM) IRR Multiple
1 Seed Jan-97 $ 5 $ 35 79% 18.37
2 1st Jan-98 $ 10 $ 100 65% 7.35
3 2nd Jan-99 $ 25 $ 200 59% 4.04
4 3rd Jan-00 $ 60 $ 600 52% 1.52
5 IPO Jan-01 $ 1000
$ 100 Million
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A Generic Early 90’s Model
Round Type Date
Amount Raised (MM)
Pre-Money Valuation
(MM) IRR Multiple
1 Seed Jan-90 $ 0.50 $ 2 101% 32.53
2 1st Jan-91 $ 3.00 $ 10 70% 8.13
3 2nd Jan-92 $ 8.00 $ 32 50% 3.30
4 3rd Jan-94 $ 13.50 $ 100 32% 1.32
5 IPO Jan-95 $ 150
$ 25 Million
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Why It’s Great To Be An Entrepreneur - TODAYUS Venture Capital Partnership ReturnsVersus Public Market Returns
Funds Formed 1969-1999 (quarterly returns)
-30
-20
-10
0
10
20
30
40
50
60
Quarter
Qu
arte
rly
Ret
urn
VC Partnerships
Nasdaq
Source: Venture Economics/NVCA
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The HALF-EMPTY view
• Technology led slowdown• Consumer Reaction pile-on• Sept 11 • The WAR• 2002 is history!• Financings Unavailable• Stay afloat, tread water, hunker down
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The HALF-FULL view
• Less competition• Time to develop technology• Focus: sustainable advantage,
value-add• Better critique, Better ventures,
Higher Bar• Longer Term View/Horizon• Lower Funding => Lower Risk
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Market Exists today, high growth, addressable
Management Industry experience, operating track record, vision and guts, trust/ethics
Business Case Convincing value proposition, product vs. service, strategy (chasm!), profitability “in
sight”
Technology Defensible, scalable, open, “breeder vs. broker”
Liquidity Cash management & fund raising
Clear Exit Based on market share not “raw” technology value
Self Discipline Don’t get creative; expectation pact and process
Venture Investment Criteria
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Investment Process
FirstMeeting
FirstMeeting
InitialInformationPack Sent
InitialInformationPack Sent
ConfidentialityAgreement
ConfidentialityAgreement
2nd Info Pack/More Meetings2nd Info Pack/More Meetings
IndicationOf InterestIndicationOf Interest
InitialDue Diligence
InitialDue Diligence
EarlyReadEarlyRead
ProposedTermsheetProposedTermsheet
Full DueDiligenceFull DueDiligence
ClosingClosing
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Carry out Recruitment and Selection Build the Best Team Consider Outsourcing
Attract Talent and Build the Management team
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Technology - Transfer Partnerships– A computer hardware company and software
company can combine to benefit each other
– Setting up joint licensing arrangements
Equity Investment Partnerships
Global Partnerships
– A technology company received needed cash, and a European company received stock and access to cutting-edge software
The New World of Partnerships - Building Strategic Alliances
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Consider Minority Equity As Strategic AlternativeConsider Minority Equity As Strategic AlternativeConsider Minority Equity As Strategic AlternativeConsider Minority Equity As Strategic Alternative
AcquisitionAcquisitionAcquisitionAcquisition Joint VentureJoint VentureJoint VentureJoint Venture Minority EquityMinority EquityMinority EquityMinority Equity
Control
Synergy
Goodwill
Capital
Starting Point
Complex
Short-Term
Simple
Committed
Insider
Pre-Acquisition
A+A+A+A+ CCCC
AAAA AAAABBBB BBBB AAAA BBBB
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Marketing Partnerships
– Combining value added services between two companies.
Supplier Partnerships
– Customer-vendor relationships where one can perform a specialized service more effectively than its partner.
The New World of Partnerships - Building Strategic Alliances
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Evaluate potential partners carefully
– Most partnerships fail
– Perform due diligence– Select number 2 or 3 in the market as a partner
Assess possible mutual benefits critically
Strengthen the partnership through “skin in the game”
Strive for open communication
Partnership Criteria Evaluation