entrepreneurship 101: different forms of entrepreneurship
DESCRIPTION
An outline of various technology business structures. * Is your business going to be a consulting practice? a service company? a product company? * What are the different needs of the different types of companies? * Where can you get money to launch your business - should you borrow or take investment dollars? Learn the answers to these and other questions facing a would-be entrepreneur. Speaker: Tony Redpath, course co-ordinator and MaRS Venture Group AdvisorTRANSCRIPT
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MaRS
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Different Forms ofEntrepreneurshipPresented by:
Tony Redpath
Business Advisor, MaRS Discovery District15 November 2007
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Three basic questions:
What does my business look like ?
What resources do I need?
How do I fit into the rest of the world?
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Overview
Different types of business
Where do they fit into the rest of the world
How do you finance your business
What factors do investors look at
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Technology Commercialization
KNOWLEDGE Universities / Hospitals
Government Labs
PATENTS (Novel, Useful, Non-Obvious)
Marketplace
ConceptR & D ProjectLab Prototype
Engineering ProjectEngineering Prototype
Production Sales
Company I
Concept R & D ProjectLab Prototype
Engineering ProjectEngineering Prototype Production Sales
Company II
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Business types - Consulting
You provide advice, based on your specializedknowledge
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Technology Commercialization
KNOWLEDGE Universities / Hospitals
Government Labs
PATENTS (Novel, Useful, Non-Obvious)
Marketplace
ConceptR & D ProjectLab Prototype
Engineering ProjectEngineering Prototype
Production Sales
Company I
Concept R & D ProjectLab Prototype
Engineering ProjectEngineering Prototype Production Sales
Company II
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Consulting …. Cont’d
Can start as a one-person business
May have a technical, management, ormarketing focus
Often stay small, but consulting engineeringfirms can be large (e.g Hatch Associates)
Often operate via a virtual network ofconsultants
Need liability insurance
Capital costs low
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Business types - Consulting
Q: How much should I charge?
* A: What is the client’s alternative cost?
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Business types: Service
You provide a service to existing businesses
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Technology Commercialization
KNOWLEDGE Universities / Hospitals
Government Labs
PATENTS (Novel, Useful, Non-Obvious)
Marketplace
ConceptR & D ProjectLab Prototype
Engineering ProjectEngineering Prototype
Production Sales
Company I
Concept R & D ProjectLab Prototype
Engineering ProjectEngineering Prototype Production Sales
Company II
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Service business…. Cont’d
Technical service businesses often provideanalytical services
May provide custom clinical trials
Classic IT service providers
Can be very small or very large
Capital costs can be quite high
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Business types: Product
You have real article ( pharmaceuticalcompound, medical device, consumerproduct….) that you wish to take to the market
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Technology Commercialization
KNOWLEDGE Universities / Hospitals
Government Labs
PATENTS (Novel, Useful, Non-Obvious)
Marketplace
ConceptR & D ProjectLab Prototype
Engineering ProjectEngineering Prototype
Production Sales
Company I
Concept R & D ProjectLab Prototype
Engineering ProjectEngineering Prototype Production Sales
Company II
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Product …. Cont’d
Examples range from cottage industry craftproducers up to General Motors
Capital needs vary widely, but there will usuallybe a need for at least working capital
“Mercedes in the driveway” vs. high growth
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Types of Financing
Debt
You borrow from someone, using some asset assecurity, an amount that will have to be repaid
Equity
You sell a piece of your venture to someone inexchange for an investment in the venture
Bootstrap
You self-fund by using the profits of yourbusiness to grow the business
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The Lemonade Stand Example
Assume you’re 8 years old and you need$20 to set up a lemonade stand
Revenues Debt 50:50 Equity
Rain $10 lender loses $10 partner loses $15
entrepreneur gets $0 entrepreneur gets $5
Cloud $30 lender is even partner loses $5
entrepreneur gets $10 entrepreneur gets $15
Sun $50 lender is even partner makes $5
entrepreneur gets $30 entrepreneur gets $25
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Sources of Debt Financing
You – your mortgage
You – your credit cards
The 3 F’s – Friends, Family and Fools
Banks Can lend to you (e.g. line of credit) or to your venture
Lend against assets or receivables
Venture Debt funds
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Sources of Equity Financing
The 3F’s again – Friends, Family and Fools
Angels (aka high net worth individuals)
Generally like to invest in areas that they have worked inor are comfortable with
Can add valuable hands-on experience
http://www.angelinvestor.ca/
http://www.mapleleafangels.com/186103_186104.html
Venture Capital Funds
Different funds invest at different stages in the growth ofa company
http://www.cvca.ca/
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Special Financing Sources
Proof of Principle / Idea to Innovation
http://www.researchnet-recherchenet.ca/rnr16/viewOpportunityDetails.do?prog=205&view=search&terms=proof+of+principle&org=CIHR&type=AND&resultCount=25NSERC Idea toInnovation (I2I) Program
http://www.nserc.ca/professors_e.asp?nav=profnav&lbi=b4
NRC - IRAP
http://irap-pari.nrc-cnrc.gc.ca/main_e.html
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The Financing Life Cycle
Risk
SalesInv
estm
ent
Concept Start-up Growth Expansion
Grants
Venture Capital
Public Markets
Seed Funds
Angels
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The Financing Life Cycle
Risk
Sales
Inves
tmen
t
Concept Start-up Growth Expansion
Grants
Venture Capital
Public Markets
Seed Funds
Angels
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The Financing Life Cycle
Risk
Sales
Inves
tmen
t:
Self-fi
nanc
e
Concept Start-up Growth Expansion
Grants
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• Stage of Development• Impact & Application• Sustainable Advantage
What do Financing Sources LookFor ?
Technology Risk
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Technology Risks
Stage of Development (concept ? proof of concept ?prototype of product)
Product development path (costs and “risks”)
Technology impact
Scope of application
Competitive technologies
Disruptive technologies
Reliance on infrastructure
Ease of scale-up, technology transfer, copy
Manufacturability and costs
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IP Risk Market Risk
• Stage of Development• Impact & Application• Sustainable Advantage
• Reputation / Leadership• Commitment• Market Knowledge• Experience
Due Diligence and ValuationCriteria
• Size and Growth• Dynamics• Competition• Customers• Distribution Channels
• Nature and Scope• IP Form• Ownership• Enforceability• IP Building• Freedom to Operate
Technology Risk
Execution Risk
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Intellectual Property Risks
Nature of the invention
Scope of the invention
IP form: Patent, know-how, software
Ownership of IP - Lingering rights of fundingagencies or students
Level of IP protection – NA, worldwide
Competitive research activity, patent activity,availability of Licensees
Prior disclosure - publications or conferences
Enforceability
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Market Risks
Market size, dynamics and growth potential
Route to market, access, scalability
USPs of the products or services
Nature of the customers
Lead customers
Market or industry drivers
Competitive landscape and profit margins
Regulatory barriers or opportunities
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Execution Risk
Management vision for the company
Management leadership ability
Commitment and drive
Recognized technology expertise
Knowledge of the market, networks
Skills required to move the technology throughall stages of development and product launch
Reputation in the marketplace