dr. guriqbal singh jaiya director small and medium-sized enterprises division world intellectual...
TRANSCRIPT
Dr. Guriqbal Singh JaiyaDirector
Small and Medium-Sized Enterprises DivisionWorld Intellectual Property Organization
www.wipo.int/sme
The The Relevance of IP for Relevance of IP for Acquiring/Securing Acquiring/Securing Financing: Making Financing: Making
Intangibles More TangibleIntangibles More Tangible
Managing IP Assets -Denise Raybould, Associate, BDO Kendalls
Stages of Technology Transfer:From Research Support to Economic Growth
Research Support
Inventions Disclosure
Patents
Licenses
Startups
New ProductsHigher Standard of living
Economic Growth
More in Tax RevenuesFederal State
Corporate EndowmentNew Jobs
IS A COMPANY READY?IS A COMPANY READY?
• Business plan?• Stage of development of the company• Type of investment?• Valuation?• Management team ready?
• Has the management team enough time and energy to raise funds?• Is the team shaped to talk to investors?• Does the company know where to go?
Positioning for a Capital Positioning for a Capital InjectionInjection
Strategy•Business model•Resourcing•Target investors
PEOPLE
TECHNOLOGYMARKET
Valuation / Building value
Capital Injection
Add value before raising Add value before raising capitalcapital
►Documentation and PresentationDocumentation and Presentation►Government grantsGovernment grants►Intellectual Property ProtectionIntellectual Property Protection►R&D PartnersR&D Partners►In principle agreementsIn principle agreements
►LicencesLicences►CustomersCustomers
The “Ask and Offer”The “Ask and Offer”
►Financial ProjectionsFinancial Projections►Business and IP valuationBusiness and IP valuation
►Critical negotiating toolsCritical negotiating tools►Justifies assumptionsJustifies assumptions►Forces in depth researchForces in depth research►Forces decision makingForces decision making►Makes you strong and confidentMakes you strong and confident
SOURCES OF START-UP CAPITAL SOURCES OF START-UP CAPITAL (USA)(USA)
PERSONAL SAVINGS (78,5%)
BANK LOANS (14,4%)
FAMILY MEMBERS (12,9%)
EMPLOYEES / PARTNERS (12,45)
FRIENDS (9,0%)
VENTURE CAPITALISTS (6,3%)
MORTGAGED PROPERTY (4,0%)
GOVERNMENT LOANS (1,1%)
OTHERS (3,9%)
Other ways of raising money Other ways of raising money through IPthrough IP
►LicensingLicensing►SaleSale►AuctionsAuctions►DonationDonation►GrantsGrants
Methods of ValuingMethods of Valuing
►Market ApproachMarket Approach►Cost ApproachCost Approach►Income ApproachIncome Approach
Market ApproachMarket Approach
►What are others paying for What are others paying for a similar IP? What is the a similar IP? What is the market value? market value?
►Extensive knowledge of Extensive knowledge of comparable data requiredcomparable data required
Cost ApproachCost Approach
►Economic principle of Economic principle of substitutionsubstitution
►Reproduction cost (Exact Reproduction cost (Exact replica)replica)
►Replacement cost Replacement cost (Different form or (Different form or appearance)appearance)
Income ApproachIncome Approach Present value of future income Present value of future income
streamstream►Future Income Stream (Economic Future Income Stream (Economic Income)Income)
►Duration (Life: Legal, contractual, Duration (Life: Legal, contractual, judicial, physical, technological, judicial, physical, technological, functional, analytical, economic)functional, analytical, economic)
►Risk (Uncertainty of receiving Risk (Uncertainty of receiving expected income; interest rates expected income; interest rates and investment climate)and investment climate)
IP Due DiligenceIP Due Diligence
►In order to obtain financing In order to obtain financing whether debt or equity those who whether debt or equity those who are providing the financing will are providing the financing will need to be satisfied as to whether need to be satisfied as to whether the company is worthy of it.the company is worthy of it.
►Important to be “investor ready”. Important to be “investor ready”. That is show that you have taken That is show that you have taken all possible steps to identify, all possible steps to identify, protect and manage your IP assets. protect and manage your IP assets.
START-UP CAPITALSTART-UP CAPITAL
►25% start with less than $5,00025% start with less than $5,000
►50% start with less than $25,00050% start with less than $25,000
►75% start with less than $75,00075% start with less than $75,000
►Less than 5 % with $ 1,000,000 Less than 5 % with $ 1,000,000 or moreor more
The Paradox of Access to The Paradox of Access to FinanceFinance
►BanksBanks►Venture Capitalists Venture Capitalists have money have money ►Stock ExchangeStock Exchange
ButBut argue that there aren’t enough good argue that there aren’t enough good
projectsprojects
What is a good project? What is a good project?
A Good Project!A Good Project!
A good project is a project presenting in A good project is a project presenting in thethe
eyes of an investor:eyes of an investor:► acceptable risk profileacceptable risk profile► a good perspective of returna good perspective of return
this means:this means:► access to market = access to market = innovationinnovation► profitsprofits
Source of High Risks Money Which are today these sources ? we may regroup these in 3 major groups:
Business Angels: we are basically talking here about rich private individuals who are ready to invest much needed “seed capital” at a very early stage of development of a company, i.e. for new and speculative projects. Their role is extremely important, when we talk about raising money between USD 0.5 and 2 million.
Venture capital investors: these are usually private equity funds managed by professionals. They seek to identify and finance the rapid growth of high potential young firms that embrace innovative products, processes or technologies. This way, they generate substantial rewards from successfully overtaking existing business paradigms. Note that very often, traditional finance institutions do invest a small part of their funds into alternative investments such as these V.C. funds.
Last but not least, Governments: The first computers, the first commercial jet planes were built in the U.S.A. as funded by DoD contracts. The U.S.A and Europe have set up specific programs to promote new science and technology businesses. These are key tools in helping scientists to engage into new business ventures.
N.B: A business environment – laws, taxes, etc… – which encourages private and commercial investors to invest into risk taking ventures is an absolute prerequisite.
Government First: U.S.A. The U.S. example – the Small Business Innovation Research program
SBIR awards take the form of contracts for the development of technologies required by agencies of the US Government. They provide 100% of the funding needed plus a small profit element. The “norm” is USD 850 K for each project. Small business can win and run multiple projects in parallel. The SBIR analysis below is done for the UK Government in an attempt to copy and adapt it:
Government First: U.S.A.The U.S. example – the Small Business Innovation Research program
Established in 1982, it is the World’s largest seed capital program for science and technology business.
The law stipulates that 2.5% of all federal agencies’ external R&D research must be done through SBIR. Furthermore, the US has established a very large set of policies to favor small US businesses in government procurement.
Government First: The European Union
The first program in Europe: COST – an international framework for European Co-operation in the field of Basic Scientific and Technical Research ( www.cost.esf.org )
Established in 1971, COST allows the co-ordination of nationally funded research by maximising European synergy and raising the level of scientific interaction at the scale of Europe. Its budget for the period of 2002-2006 was of 1.5 Billion Euro.
COST Actions cover basic and pre-competitive research. Ukraine as a Non-COST country took part in 15 actions.
From March 2006, Ukraine initiated consultation to discuss potential full membership.
Government First: The European Union
The primary goal of EUREKA has always been to raise the productivity and competitiveness of European industry and national economies through its ‘bottom-up’ approach to technological innovation. Since its inception in 1985, substantial public and private funding has been mobilized to support the research and development carried out within the EUREKA framework.
Through its flexible and decentralized Network, EUREKA offers project partners rapid access to a wealth of knowledge, skills and expertise across Europe and facilitates access to national public and private funding schemes.
The internationally recognized EUREKA label adds value to a project and gives participants a competitive edge in their dealings with financial, technical and commercial partners.
Through a EUREKA project, partners develop new technologies for which they agree the Intellectual Property Rights and build partnerships to penetrate new markets.
Ukraine was granted full membership on 9 June 2006. Currently a total of 15 projects have been developed with Ukrainian participants for a total of 1.1 M. Euro.
EUREKA – an international framework for European Co-operation in the field of Marketable Scientific and Technical Research ( www.eureka.be )
Public Public InterventionsInterventions
Mix of non-financial and Mix of non-financial and financial support servicesfinancial support services
This means that intermediaries have to
(1) provide value-added services; and (2) become more professional
Finding Innovation Funding Finding Innovation Funding InnovationInnovation
25 April 200725 April 2007
Access to finance for West Access to finance for West Midlands SMEsMidlands SMEs
Patrick Palmer – Head of Access Patrick Palmer – Head of Access to Finance at Advantage West to Finance at Advantage West
MidlandsMidlands
What sort of initiatives are What sort of initiatives are there?there?
►Demand side initiativesDemand side initiativesProvision of better information of what is available;Provision of better information of what is available;Investment Readiness programmes.Investment Readiness programmes.
►Supply side initiativesSupply side initiativesGrants to support Research and Development and Grants to support Research and Development and
certain “Proof of Concept” activity;certain “Proof of Concept” activity;The Research and Development Tax Credit;The Research and Development Tax Credit;Grants for capital investment in certain areas;Grants for capital investment in certain areas;A range of venture capital funds;A range of venture capital funds;Encouragement of Business Angel activity;Encouragement of Business Angel activity;Small Firms Loan Guarantee Scheme;Small Firms Loan Guarantee Scheme;Community Development Finance Institutions.Community Development Finance Institutions.
Demand Side Demand Side ActionsActions
►Better informationBetter informationwww.westmidlandsfinance.com;;
►Investment Readiness Investment Readiness programmesprogrammesRoute to Investment (R2i);Route to Investment (R2i);CONNECT / InvoRed.CONNECT / InvoRed.
R2iR2i►Provided through the Business Link network and Provided through the Business Link network and
funded by Advantage West Midlands and the ERDFfunded by Advantage West Midlands and the ERDF►Comprising four stages:Comprising four stages:
Increasing Increasing AwarenessAwareness of funding sources; of funding sources;EducationEducation of businesses in funders’ requirements; of businesses in funders’ requirements;Developing applications and businesses to ensure Developing applications and businesses to ensure
they are “investment ready” (they are “investment ready” (Complex Complex DevelopmentDevelopment););
Post Investment SupportPost Investment Support..►Access through Business Link West MidlandsAccess through Business Link West Midlands
Telephone 0845 113 1234Telephone 0845 113 1234website www.businesslinkwm.co.ukwebsite www.businesslinkwm.co.uk
A tailored programme delivered across the West Midlands that helps technology based businesses from pre-incorporation to 2nd or 3rd stage funding:
•Get ‘Investor-ready’;•Understand finance options ;•Make the pitch; •Find investment
•Flexible programme with 2 streams
Green Stream - Fast-track grooming for later stage companies
InvoRedInvoRed
Amber Stream – for early stage companies
Supply Side Actions - Supply Side Actions - GrantsGrants
►DTI Grants operated by AWM –DTI Grants operated by AWM –Selective Finance for Investment in Selective Finance for Investment in England and Grant for Research England and Grant for Research and Developmentand Development
►Grants available through Business Grants available through Business Link – Diversification, AccelerateLink – Diversification, Accelerate
►Mercia Spinner, Technology Mercia Spinner, Technology Transfer FundTransfer Fund
Grant for Research and Grant for Research and DevelopmentDevelopment
►Grant is available under four categories:Grant is available under four categories:Micro projects;Micro projects;Research projects;Research projects;Development projects;Development projects;Exceptional development projects.Exceptional development projects.
•Grant is only available to SMEs;Grant is only available to SMEs;•Available Available throughoutthroughout the West the West Midlands;Midlands;
•AWM have secured ERDF money to AWM have secured ERDF money to support this grant scheme.support this grant scheme.
Grant for Research and Grant for Research and DevelopmentDevelopment
Type of grantType of grant EmployeEmployee e
numbersnumbers
Grant as % Grant as % of eligible of eligible expenditurexpenditur
ee
Grant Grant rangerange
Micro (small Micro (small development development projects)projects)
< 10< 10 50%50% £2,500 - £2,500 - £20,000£20,000
ResearchResearch < 50< 50 60% - 65%60% - 65% £20,000 - £20,000 - £75,000£75,000
DevelopmentDevelopment < 250< 250 35% - 40%35% - 40% £20,000 - £20,000 - £200,000£200,000
Exceptional Exceptional developmentdevelopment
< 250< 250 Up to 35%Up to 35% £200,000 - £200,000 - £500,000£500,000
Grant for Research and Grant for Research and DevelopmentDevelopment
Key criteria are:Key criteria are:►Technologically innovative;Technologically innovative;►Technical risks and R & D challenge;Technical risks and R & D challenge;►Commercial potential and market need;Commercial potential and market need;►Exploitation prospects;Exploitation prospects;►Management and project team abilities;Management and project team abilities;►Commercial and financial viability;Commercial and financial viability;►Intellectual property secureIntellectual property secure;;►Additionality;Additionality;►Wider aspects – sustainability and design Wider aspects – sustainability and design
considerations.considerations.
Technology Transfer FundTechnology Transfer Fund
►Available in the Central Technology Belt, Available in the Central Technology Belt, but extending its area of activity;but extending its area of activity;
►Provides proof of concept funding Provides proof of concept funding (ranging from £5k - £25k) for new start-(ranging from £5k - £25k) for new start-ups and existing SMEs;ups and existing SMEs;
►Currently confined to medical Currently confined to medical technologies and advanced materials technologies and advanced materials technologies;technologies;
►Delivered by Birmingham Research and Delivered by Birmingham Research and Development Ltd with AWM and ERDF Development Ltd with AWM and ERDF fundingfunding
Supply side actionsSupply side actionsSmall Firms Loan Guarantee SchemeSmall Firms Loan Guarantee Scheme►Provides Government guarantees on loans from Provides Government guarantees on loans from
private sector providers to small firms under 5 private sector providers to small firms under 5 years old with viable business proposals but years old with viable business proposals but insufficient security for conventional finance;insufficient security for conventional finance;
►Loans may range from £5,000 to £250,000 and Loans may range from £5,000 to £250,000 and for periods from 2 to 10 years;for periods from 2 to 10 years;
►Guarantee is for 75% of the loan;Guarantee is for 75% of the loan;►Operated through commercial banks and Operated through commercial banks and
administered by the Small Business Service;administered by the Small Business Service;►““Small” = less than 200 employees, turnover Small” = less than 200 employees, turnover
less than £5 million (non-manufacturing £3 less than £5 million (non-manufacturing £3 million)million)
Supply side actions - Loan Funds/Supply side actions - Loan Funds/Community Development Finance Institutions Community Development Finance Institutions
(CDFIs)(CDFIs)SourceSource RangeRange LocationLocation
Princes Trust -18-30yrsPrinces Trust -18-30yrs £250-£5k£250-£5k RegionRegion
Halal Fund –non interest basedHalal Fund –non interest based £7.5k -£7.5k -£35k£35k
RegionRegion
Arrow FundArrow Fund £1k -7.5k£1k -7.5k B’ham & SolihullB’ham & Solihull
Aston Reinvestment TrustAston Reinvestment Trust £2k-50k£2k-50k B’ham&NSolihullB’ham&NSolihull
3b3b Up to Up to £20k£20k
B’ham & Black B’ham & Black CountryCountry
Black Country Enterprise Loan FundBlack Country Enterprise Loan Fund Up to 5kUp to 5k Black CountryBlack Country
Black Country Reinvestment SocietyBlack Country Reinvestment Society Up to Up to £50k£50k
Black CountryBlack Country
Impetus – Marches Rural Impetus – Marches Rural Reinvestment TrustReinvestment Trust
Up to Up to £50k£50k
Rural MarchesRural Marches
North Staffordshire Risk Capital North Staffordshire Risk Capital FundFund
£10-50k£10-50k North StaffsNorth Staffs
Michelin Development FundMichelin Development Fund £5k+£5k+ Stoke-on-TrentStoke-on-Trent
Coventry&Warwickshire Coventry&Warwickshire Reinvestment TrustReinvestment Trust
Up to 50kUp to 50k Coventry& Coventry& WarksWarks
Regional Financial and Equity Value Regional Financial and Equity Value ChainChain
Infrastructure:business angels
networks, incubators, etc.
Intermediaries: advice, investment readiness, tutorship
Human capital: professional fund managers, state
aids experts
Entrepreneur’s own resources
and reinvestment
capacities
Equity VCFFF
Pre-seedUniversity spin off
IPOBusiness Angels
CorporateVenturing,
Seedcapital
FFF : Family, Friends, Founders; BA : Business angels; VC : Venture capital; IPO : Initial Public Offering
- Grants - Loans- Micro-credits - Loans on trust - Guarantees - Reimbursable advance- Proof of concept
Prerequisites
Mezzanine
Public
funding
Risk taking investors:private, public
- Banks - Factoring- Guarantees - Micro-credits - Leasing - Export credits
Private funding
Regions and Access to FinanceRegions and Access to Finance Case Study of the Case Study of the Rhône-AlpesRhône-Alpes
(France)(France)
Source: RHONE-ALPES CREATION
PROJECTSHigh-tech
(strong potential)
INDUSTRY ANDINDUSTRIAL SERVICES
(product- or process-based innovation)
SMALL INDUSTRIES(CAPACITY SUBCONTRACTING)
SERVICES AND TRADE
(traditional, moderately innovative activities)
MICRO BUSINESSES TRADE CRAFTS
TRAINING – ADVICE- SUPPORT
Incubators CREALYS GRENOBLE
INNOEXPERT(CCI Lyon)
BUSINESS CENTRE(EM Lyon)
BUSINESS INCUBATORS
(NOVACITESFRAC CREATION)
Business development and reception service(CCI)
SponsorshipLocal platforms
Entreprendre en FranceBanks + Comité SofarisCCI + professionalsChartered accountants(ATEN)
« 3 hours – 3 days »
FINANCING
« Venture Capital » (National or International)(Sudinnova, Siparex Venture, Banexi, Partech)
« Seed capital » - National (thematic) (I Source, Emertec, BioAm,…) - Regional (Amorçage Rhône Alpes)
« Business development venture capital »Rhône-Alpes Création Banque Pop., Crédit AgricoleRhône-Dauphiné Développement
DEVELOPMENT TYPES
« Réseau Entreprendre » (Loans on trust + Sponsorship)
« ARJE » (Regional repayable short-term loans for new businesses—1-5 years)
« P.C.E. » (BDPME loans)
« Mille et Un Talents »(Regional grants)
ANVAR
LOCAL
FUNDING
REQUIREMENTS
SCALE
« Local platforms »(Loans on trust)Local initiative platformADIE
BusinessAngels
€300,000+
€300,000
to
€45,000
€45,000
to
€15,000
€15,000
to
€7,500
Sup. de Co. Grenoble
Case Study Wales (United Case Study Wales (United Kingdom)Kingdom)
The region of Wales (UK) re-organised all its financial services The region of Wales (UK) re-organised all its financial services aroundaround
a single organisation called Finance Wales (a single organisation called Finance Wales (www.financewales.co.uk))
to provide the following financial services and products:to provide the following financial services and products:
► Community loansCommunity loans amounting to US$ 10.000 to US$ 100.000 amounting to US$ 10.000 to US$ 100.000 for the social economyfor the social economy
► Xenos: its Xenos: its business angels networkbusiness angels network► Spinout: unsecured loans without interest of up to US$ 50.000 Spinout: unsecured loans without interest of up to US$ 50.000
for for university spinoutsuniversity spinouts► Venture capitalVenture capital: up to US$ 1.500.000 per financial pool and : up to US$ 1.500.000 per financial pool and
US$ 3.000.000 in totalUS$ 3.000.000 in total► MezzanineMezzanine: US$ 20.000 to US$ 800.000: US$ 20.000 to US$ 800.000► Loans: from Loans: from micro-creditmicro-credit of US$ 2000 to US$ 20.000 to of US$ 2000 to US$ 20.000 to
loansloans of up to US$ 1.200.000 of up to US$ 1.200.000
Roadmap to Financing Roadmap to Financing OptionsOptions
Sweat equity
Science for Hire
Debt
Equity
Profit
Founders
On Spec
Corporations
Federal
Family, friends
Personal creditbanks
Fed,State loans
Referral networkAccountants
AttorneysSuccessful entrepreneurs, etc
Business angels
LicensingPartnerships
IP sale
Venture Capital
Investment banker
Corporations
Financing Options as a Financing Options as a Function ofFunction of
Application & Resources Application & Resources RequiredRequired
$ REQUIRED
A lot
A little
Few Many
•Spin-off•Joint venture•Equity investment
•Joint R&D•Licensing•Strategic alliance•Equity investment
•Bootstrap•Angel investment•Debt financing
•Partnerships•Licensing•Angel investment
APPLICATIONS
THE ENTERPRISE FINANCING THE ENTERPRISE FINANCING PROCESSPROCESS
Financingneeds
Financing stage
HighRisk
LowRisk
Growth
SEED STAR T-UP PH ASE EARLY GROWTH EXPANSION
MARKET GAP
MARKET GAP
THE ENTERPRISE FINANCING THE ENTERPRISE FINANCING PROCESSPROCESS
Corporate Fundand
Venture Capital
Idea Start-Up Market introduction Growth Maturity
InnovationSeed CapitalFunds and
Publicfunding
Commercial and Savings Banks
Time
Efforts made by financiers Risk
Cash flow
Transfer
PrivateInvestors
andBusinessAngels
THE ENTERPRISE FINANCING THE ENTERPRISE FINANCING PROCESSPROCESS
R&D Start-upEarly
growthAccelerating
growthSustaining
growthMaturitygrowth
Proof ofConceptFunding
SeedCorn
FirstRound
SecondRound
DevelopmentCapital
ReplacementCapital
MBO / MBIDevelopment
Capital
Founders, family and friends
Public Sector
Business angels
Venture capital funds
Corporate venturing
Public listing / IPO
Source ofFunding
Type ofFunding
Stage inCycle
Investment Investment ContinuumContinuum
Angel market addresses the $500K Angel market addresses the $500K investment gap between love investment gap between love
money and serious moneymoney and serious money
High
Low
Seed Start-Up Early Growth Established
Level of Investment
Risk Assumed by
Investor
Founder, friends and family
Business Angels
Venture Capitalists
Commercial banks
Equity Markets
Corporate VC
* “Angel Investing” Osnabrugge & Robinson
VENTURE CAPITAL (Formal & VENTURE CAPITAL (Formal & Informal)Informal)
► Institutional operators Institutional operators (formal venture (formal venture
capital)capital) ► Private subjectsPrivate subjects► Banks Banks ► InsuranceInsurance► Corporate venture capital Corporate venture capital
► Non-institutional operatorsNon-institutional operators (informal venture capital)(informal venture capital)
► Business Angels Business Angels
FORMAL AND INFORMAL EQUITY FORMAL AND INFORMAL EQUITY PROVIDERSPROVIDERS
* Source: van Osnabrugge, 1998, p.2
Personnel Firms funded Due diligence Investment's location Contracts used Monitoring ex-post Exiting the firm Rates of return
Business Angels Entrepreneurs Small, early stage Minimal Of concern Simple Active 'hands-on' Of lesser concern Of lesser concern
Formal venture capital Investors Large, mature Extensive Not important Comprehensive Strategic Highly important Highly important
FORMAL AND INFORMAL EQUITY FORMAL AND INFORMAL EQUITY PROVIDERSPROVIDERS
VC– Easy to find via directories
– Your request is only one among many hundred a VC receives
– Can often via syndication provide large investment
– Thorough and formal due diligence and investment process
– Exit route very important
BA– Difficult to find
– Request often strong personal involvement
– Limited amount to invest
– Investment decisions often quick and less formal
– Syndication more and more usual
– Exit route less in focus
BUSINESS ANGEL (BA) - BUSINESS ANGEL (BA) - DDefinitionefinition
“A Business Angel is a middle aged male with reasonable net income, personal net worth, previous start up experience, who makes one investment a year, usually close to home or office, prefers to invest in high technology and manufacturing ventures with an expectation to sell out in three to five years time”. (Kelly and Hay, 1996)
”Business angels (informal investors, independent investors) are investors who provide risk capital directly to new and growing businesses in which they have no prior connection”.(Harrison and Mason, 1996)
BUSINESS ANGEL (BA)BUSINESS ANGEL (BA)
• male, rarely female• successful experience as an entrepreneur or manager• high net worth individual and / or sophisticated investor• have a declared propensity to invest and to risk in a start-up firm• invest their own money (around 50K – 250K euro) (part of their cash capital: 20 - 30 %)• Seeking profit, but also fun (seeking minimum 20% return)• are willing to share their managerial skills and their enterprise background• often invest in their region of residence• make one investment a year• prefer high-technology and manufacturing• take a minor participation – medium term investment• are willing to wait for an exit for 3-5 years
Attitudes, behaviour and characteristics:
ANGEL’S – Success SANGEL’S – Success StoriestoriesCompany name Angel Investor Business Investment Value at Exit
Apple Computer (Name Witheld) Computer hardware
$91.000 $154 million
Amazon.com Thomas Alberg Online bookshop
$100.000 $26 million
Blue Rhino Andrew Filipowski
Propane cylinder replacements
$500.000 $24 million
Lifeminders.com Frans Kok Internet e-mail reminder service
$100.000 $3 million
Body Shop Ian McGlinn Body care products
£4.000 £42 million
ML Laboratories Kevin Leech Kidney medical treatment
£50.000 £71 million
Matcon Ivan Semenenko Bulk containers
£15.000 £2.5 million
Source: partially adapted from unpublished data provided by Amis Ventures in 1999
ANGEL STRATEGYANGEL STRATEGY
• New products or technological improved products in an existing market• A product or service that can be taken to market without further development (i.e., past the initial concept stage)• Creation of new markets• Company’s growth should be expected to be higher than market growth• Increase of market share against competitors• Superiority regarding competitors
High-growth start-ups: new businesses that are likely to see sales grow to around € 1M and employment to between 10 and 20 people in early years and export oriented.Key selection criteria of risk capital investors (generally):
ANGEL DUE DILIGENCE ANGEL DUE DILIGENCE PROCESSPROCESS
TechnologyTechnology developmentProduct developmentProcess developmentProduct supplyDeliveries
MarketMarketingSalesPRCompetitorsIPR
OrganizationRecruitment BoardNetwork of service suppliersOffice
Economy / FinanceCash forecastFinance activitiesCost estimateBudget
Angel MotivationsAngel Motivations► Altruistic - willing to provide:Altruistic - willing to provide:
AdviceAdvice - financial and management - financial and management ContactsContacts - broad range to assist in development of venture - broad range to assist in development of venture Hands-on InvolvementHands-on Involvement - at basic level, if required - at basic level, if required GovernanceGovernance - Board of Directors / Advisors - Board of Directors / Advisors CredibilityCredibility - sends good signals to customers, partners & - sends good signals to customers, partners &
investorsinvestors
► PragmaticPragmatic Will hand off involvement to next level of investors …Will hand off involvement to next level of investors … Therefore will use same criteria as VC to evaluate Therefore will use same criteria as VC to evaluate
opportunityopportunity 57% of companies with angel investment achieve VC 57% of companies with angel investment achieve VC
fundingfunding 10% of companies with no angels achieve VC funding10% of companies with no angels achieve VC funding
Dr. Allan Riding, Carleton University research on Ottawa angels
Types of Business Types of Business AngelsAngels
► ProfessionalProfessional Doctors, lawyers, Doctors, lawyers,
accountantsaccountants► MicromanagementMicromanagement
Very hands on with lots of Very hands on with lots of experience, but may be experience, but may be toxictoxic
► EnthusiastEnthusiast Usually retired, investing is Usually retired, investing is
a hobby, little value adda hobby, little value add► CorporateCorporate
Retired senior managers Retired senior managers looking to support their looking to support their investments or create a new investments or create a new senior job for themselvessenior job for themselves
► EntrepreneurialEntrepreneurial Most active, successful Most active, successful
entrepreneurs looking to entrepreneurs looking to diversify portfolio or expand diversify portfolio or expand current businesscurrent business
“Millions of years of evolution, and that’s the latest model?!?”
Investing Investing ApproachesApproaches
Sprinkle and Sprout Sprinkle and Sprout ApproachApproach
- Investors make many Investors make many smaller investmentssmaller investments
- Bet on Bet on managementmanagement
- Follow-on investment Follow-on investment in successful sproutsin successful sprouts
- Fewer than 25%Fewer than 25% of of the “sprinkled seeds” the “sprinkled seeds” sprout successfully *sprout successfully * * ONSET Ventures
research
Heavy Lifting Heavy Lifting ApproachApproach
- Investors make Investors make fewer, larger fewer, larger investmentsinvestments
- Understand Understand marketmarket
- Active involvement, Active involvement, Advisory BoardAdvisory Board
- 75% of investees 75% of investees succeedsucceed * *
THE U.S. ENTREPRENEURSHIPTHE U.S. ENTREPRENEURSHIPSUCCESS STORIESSUCCESS STORIES
► FIRST COMPANY WHICH ACHIEVED $ 100 MILLION SALES IN THE FIRST COMPANY WHICH ACHIEVED $ 100 MILLION SALES IN THE FIRST YEAR:FIRST YEAR:
COMPAQ INC.COMPAQ INC.► PRODUCT: PORTABLE PC’SPRODUCT: PORTABLE PC’S► HEADQUARTERS: HOUSTON, TEXASHEADQUARTERS: HOUSTON, TEXAS
► FIRST COMPANY WHICH ACHIEVED $1 BILLION SALES IN THREE FIRST COMPANY WHICH ACHIEVED $1 BILLION SALES IN THREE YEARS:YEARS:
SUN MICROSYSTEMS INC.SUN MICROSYSTEMS INC.► PRODUCT: WORKSTATIONS + SOFTWAREPRODUCT: WORKSTATIONS + SOFTWARE► HEADQUARTERS: MOUNTAIN VIEW, CALIFORNIAHEADQUARTERS: MOUNTAIN VIEW, CALIFORNIA
► FIRST COMPANY WHICH ACHIEVED $4 BILLION SALES AT INITIAL FIRST COMPANY WHICH ACHIEVED $4 BILLION SALES AT INITIAL PUBLIC OFFERINGPUBLIC OFFERING
NETSCAPE COMM. CORP. (BOUGHT BY AOL IN 1999)NETSCAPE COMM. CORP. (BOUGHT BY AOL IN 1999)► HEADQUARTERS: MOUNTAIN VIEW, CA HEADQUARTERS: MOUNTAIN VIEW, CA www.home.netscape.com
Price/sharePrice/share
(in US (in US $)$)
19951995 Larry Page & Sergey Brin@Stanford UniversityLarry Page & Sergey Brin@Stanford University
19971997 15 000 US 15 000 US $$ creditcards creditcards
100 000 US 100 000 US $ B.A. Andy Bechtolstein (Sun $ B.A. Andy Bechtolstein (Sun Microsystems)Microsystems)
Patent OTLPatent OTL
0.060.06 fin 1998 fin 1998 960 000 US 960 000 US $ 3 B.A.$ 3 B.A.
OTL receives2 % of the sharesOTL receives2 % of the shares
0.500.50 mai 1999 mai 1999 25 000 000 US 25 000 000 US $ 2 V.C.$ 2 V.C.
Kleiner Perkins (Sequoia)Kleiner Perkins (Sequoia)
2.342.34 2001 2001 15 000 000 US 15 000 000 US $ of which Yahoo$ of which Yahoo
8585 août 2004 2 718 281 828 US août 2004 2 718 281 828 US $ I.P.O.$ I.P.O.
295295 2005 2005 4 000 000 000 US 4 000 000 000 US $ Capital $ Capital increaseincrease
A Financial Chronology of A Financial Chronology of Google.comGoogle.com
NB: turnover. 200 000 US $ 1999
8 000 000 000 US $ 2006 Source: Hervé Lebert
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Amgen: A Capital Amgen: A Capital VentureVenture
►World’s largest biotech company World’s largest biotech company ►Founded 1980Founded 1980
$19 million venture capital $19 million venture capital investmentinvestment
►2007 Financial Year2007 Financial Year $14.8 billion revenues$14.8 billion revenues $4.8 billion profit (before tax)$4.8 billion profit (before tax)
►Market capitalisation: $51 billionMarket capitalisation: $51 billion
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Venture CapitalVenture Capital► Invest in:Invest in:
Private companies with high growth potentialPrivate companies with high growth potential Launch, early development, or expansionLaunch, early development, or expansion Management buy-outs and buy-insManagement buy-outs and buy-ins
►Raise funds for investment from:Raise funds for investment from: Private and public pension fundsPrivate and public pension funds Endowment fundsEndowment funds Foundations, corporations, wealthy Foundations, corporations, wealthy
individualsindividuals
►Looking for >5-fold return on Looking for >5-fold return on investment within 5 yearsinvestment within 5 years
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Venture CapitalVenture Capital►Profit and risk sharingProfit and risk sharing (high risk – high (high risk – high
return)return)►10 to 15% of portfolio will give very high 10 to 15% of portfolio will give very high
returnsreturns►Detailed due diligence Detailed due diligence ►High level of hand holdingHigh level of hand holding►Ownership and control of business sharedOwnership and control of business shared►Patient, flexible financing (5-7 years to Patient, flexible financing (5-7 years to
exit)exit)►Highly selective financing – importance of Highly selective financing – importance of
deal flowdeal flow
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Exit StrategyExit Strategy►Exit through the stock exchanges Exit through the stock exchanges (“IPO”)(“IPO”)
►Sell to another VC Sell to another VC company/strategic investorcompany/strategic investor
►Strategic mergers and Strategic mergers and acquisitionsacquisitions
►Issues in Exit :-Issues in Exit :- Minimum return expected by Minimum return expected by VC fund.VC fund.
Minimum equity size for public Minimum equity size for public issueissue
Venture Capital Venture Capital DriversDrivers
Money
Limited PartnersPension Funds
IndividualsCorporations
Ins CompaniesForeign Sources
Endowments
80% of capital gains + principal
2.5% Annual FeeGeneral Partners20% capital gains
IPOs and Mergers
Equity
Money
Entrepreneurs
Fund Providers Venture Capital Firms Portfolio Companies
Customer(Revenue to VC firms)
Management(SG&A)
Supplier(Cost of Goods Sold)
Venture Capital is a money distribution business where entrepreneurs compete for “shelf space” and where only 1 in 100 companies get funded!
What VCs are Looking forWhat VCs are Looking forProductsProducts
► A novel biological or chemical hypothesisA novel biological or chemical hypothesis► A well understood mechanism of actionA well understood mechanism of action► Proof of principleProof of principle► Significant unmet needSignificant unmet need► A strong IP position (both freedom to operate A strong IP position (both freedom to operate
and power to exclude)and power to exclude)► A strategy for partnering so that the risks A strategy for partnering so that the risks
associated with the timing of FDA approval associated with the timing of FDA approval can be passed on to someone else (although can be passed on to someone else (although clear clinical endpoints are a plus)clear clinical endpoints are a plus)