hardware startups 101: tips for "career engineers" (nesosa 2015; favalora)

Client Confidential

Hardware Startups 101for “Career Engineers”

March 2014 to NES-OSA

Gregg Favalora

CTO – VisionScope Technologies, LLC

[email protected]

Visit http://bit.ly/hwstartupsbos

for links to the cited meeting calendars,

pitch deck fundamentals, books, etc.

http://bit.ly/hwstartupsbos

Lightning-fast HW Startup Survey Course

• What will you learn tonight?

• Case Study: Actuality Systems searching for a market

• Nine critical factors: “Traversing Gregg’s Tripod of

Tripods”

• The 10-step path for aspiring entrepreneurs


Product Customer Development (Prod. Def’n.)

Affordable Manufacturability

Patents

Admin / Legal

Financing / Legal / Accounting / Taxes

Board of Directors: Bosses, Allies

Quality Systems, Design Ctrl. (med dev)

Psychology Outbound Marketing, Sales

Attracting and Retaining Talent

Seeing & dealing w/ stress, bozos






Tripods”



A Company’s Lifecycle [Ideal versus actuals]

Startup

Profitable

M&A or IPO

“Lifestyle Business”

Dissolution

Client Confidential


You Can’t Predict the Ride’s Result or Duration

10

Actuality

Systems

Actuality

Medical

Series A

$1.5M

Note

$0.8M

Series B

$3M

Series C

$6.5M

Notes

$2.5M

1997 2004 2009

PerspectaRad

Acquisition

By OFH

Sold

Patents

2011

Vision

Scope

Client Confidential


1997 – 1999: *Huge* initial struggle for $$

Persisted tenaciously...

ka-ching!


2000 – 2004 – Actually, a ton of fun

• 6 full-time employees

• Tiny office in Reading (128)

• Engineering

• Ship betas & product

• Rounds of funding

• Winning awards, getting grants

& customers

• Bringing in seasoned exec team

• ...a whole new set of challenges

& excitement

Build it, baby!

Client Confidential


Phase 1: $1.5M, Proof-of-concept

1997-2001

• 100 million pixel display

• grad-school dropout

• ** three years ** to $

• undocumented sole-

sourced stuff (DLP)

• only 6 people

Gregg Favalora, re: Actuality Systems

Client Confidential



1997-2001





sourced stuff (DLP)

• only 6 people

Phase 2: $8M, Look for Market

2002 – 2006

• Started selling prototypes

• For “whole product” added an API for

standard 3D graphics (OpenGL)

• Selling products vs. components

• Failed to identify segment with

sufficient ROI for a $100k product


Client Confidential



1997-2001





sourced stuff (DLP)

• only 6 people


2002 – 2006







Phase 3: $2M, Pivot out of HW

2007 – 2009

• Good clinical studies, but no VC

interest. PIVOT: became a medical

software company for prostate cancer

• Attend procedures in OR, understand

reimbursement, hire VP Clinical, study

successful competitors... * recession *


Client Confidential



1997-2001





sourced stuff (DLP)

• only 6 people


2002 – 2006







Phase 3: $2M, Pivot out of HW

2007 – 2009

Good clinical studies, but no VC

interest. PIVOT: became a medical

software company for prostate cancer

• Attend procedures in OR, understand

reimbursement, hire VP Clinical, study

successful competitors... * recession *

Phase 4: Wind down, asset “sale”

2009

• ~70 shareholders (!) approve sale to

my new employer, OFH

• Became wind-down CEO 2009

• Patent broker, 150 prospects

• Almost-sale in 2010; depressing!

• Actual sale in 2011, gave some $

back to investors



Key Lesson

• Step outside your “engineer hubris” and give deadly-

serious thought and sales experimentation towards

answering this question as soon as minimally viable:

HOW MANY OF THESE CAN WE SELL

AND AT WHAT PRICE

• Disregard “build it and they will come.” Only trust $$$.






Tripods”




Patents

Admin / Legal







What Will Be On My Mind as a Startup CEO?

Client Confidential


Avoid My 12-year Fishing Expedition

Gregg

The Elusive

“Market”

Client Confidential


The Chasm

http://www.disrupthealthcare.org/2013/03/selling-hospital-based-incubator-idea.html

Client Confidential


Want to Sell More than 100 of your Widget?

Source: Crossing the Chasm

Product must:

provide value

be “whole”


Customer Development

• Key lesson – buy these books

– The Four Steps to the Epiphany: Successful Strategies for

Products that Win (Steven Blank)

– Crossing the Chasm: Marketing and Selling Disruptive Products

to Mainstream Customers (Geoffrey Moore)

– (Free e-book) Bringing a Hardware Product to Market (Elaine

Chen)

• These are listed in the Online Handout


Cheap Prototypes & Affordable Production Runs

• In this audience, you’re the experts.

• Avail yourselves of Maker Spaces, pay univ. shops, …

• Read Ben Einstein’s “Hardware by the Numbers” (online)

– Typical costs for contract manufacturing runs

– Seek affordable packaging

– You’ll learn the basics of financing, too

• New England-based contract manufacturers, box builds

– E.g. Cirtronics is fast, careful, quality, friendly

Remember there’s an Online Handout with references:

Client Confidential


Use makerspaces

Artisan’s AsylumSomerville, MA



Patents

Admin / Legal







“Boring but important”(as The Week magazine likes to call it)


Money, Money, and Legalities

• Legal

– Network into an affordable, startup-smart attorney

– Get a good NDA early, as to help to not-trash some patent rights

• Taxes

• Accounting

• Financing your Startup

– (A) Write your BUSINESS PLAN & make a PITCH DECK

– (B) Raise the money

– (C) Execute towards the goals in (A)

– (D) Repeat to A; if you’ve missed the goals, your own stake will

take a big hit.


Fundamental Constants of Financing

• Unless you’re a recent Stanford dropout with a software

startup concept in Palo Alto, the Constants are:

• Financing-to-financing period (T):

18 months

• First call-to-closed round (t[financing]):

9-12 months

• % of founder time chasing $:

75% (in my opinion)

Client Confidential

The Pitch Deck: see the online handout

• Customer Problem

• Product Overview

• Key Players (team)

• Market Opportunity

• Competitive

Landscape

• Go-to-market

Strategy

• Stage of

Development

• Critical Risks

• Financial Projections

• Exit Options

• Funding

Requirements

Source: Christopher Mirabile’s Inc. piece


A one-slide visualization of “dilution”

Source: http://www.bothsidesofthetable.com/2011/10/14/understanding-how-dilution-affects-you-at-a-startup/


Actuality’s financing rounds (1999-2008)

Series A ($1/share) (2000) $ 1,500,000

“2001 Note” 807,500

Series B ($0.2826/share) 3,499,996

Series C ($0.35/share) 6,499,998

Note 1 (Mar 2006) 1,445,134

Note 2 611,206

Note 3 (2008) 536,356

$14,900,189

70%Gregg’s Equity

at Start-up

0.7%Gregg’s Equity

at Last Round

Client Confidential


Board of Directors

Great core

technology! Have

you considered this

other market?

Happy to help you

raise money for

your next round.

I bet the founders don’t

suspect the evil lurking

within this particular

Board Member…

MUAHAHAHA


Characters to be Wary Of

• GOOD consultants are great;

– Get references, and then work with them on well-defined tasks

– [Lens design example]

• TRICKY consultants are hard to spot. Watch out for:

– Racking up a lot of deferred fees with little to show for it

– [Business development example]

– [“Not actually nice mentor” example]

Client Confidential


Regulated market? Think carefully…

Some topics required for compliance with 21 CFR 820 (cGMP), for example:

general provisionsquality system requirementsdesign controlsdocument controlspurchasing controlsidentification and traceabilityproduction and process controlsinspection, measuring, and test equipmentacceptance activitiesnonconforming product

CAPAslabeling and package controlhandling, storage, distribution, and installationrecordsservicingstatistical techniques

It demands organization-wide mind for Quality, plus the costs for certifications, etc.



Patents

Admin / Legal







Client Confidential

Sales for Engineers

• One-paragraph, iPhone-

friendly email intro. Take as

much time on the subject line

as on the very brief contents.

• Explicitly respect people’s time

• In demos, “you” not “I”:

– NO: “With our feature-rich

software, I can click here…”

– YES: “You can learn about your

customers with ClientSort 2.0…”

• Use less techno-jargon.

• The two best words are “for

example.”

• Smile, use first names, talk

about happy things

• Email their PR people

• Email one of their VCs

• Try to Shopify it – sell

prototypes (FCC / UL though)

• Don’t use gimmicks, e.g. don’t

use Re: unless it really is

• READ SOME ACTUAL

BOOKS ON SELLING

0 0

00

0 0

stretch breakyou’re doing great, almost done

The Bourne Identity






Tripods”



Launchpad: Steps 1-5

1. Enter the waters, pick cofounders. [ cite: Greenhorn ]

2. Quickly find MVP, try for POs. [ cite: Blank, Chen ]

3. Get a good NDA, find startup-friendly att’y

4. Prototype [ cite: HW by the Numbers; HW-friendly

makerspaces ]

5. Enter competitions & startup accelerators [ cite ]

Client Confidential

ASIDE: Bplan Competitions, Accelerators

• MassChallenge

• MIT $100k

• MITX Awards

• Babson

• Dartmouth (Tuck)

• HBS Alumni

• Hellenic Business

Network

• WPI Venture Forum

• Yale Entrepreneurial

Society

• MassChallenge

• TechStars

• Bolt

• Blade

• LearnLaunch x

• Greentown Labs

• Rock Health

• Healthbox

• […]

Business Plan competitions Accelerators, Funds

Client Confidential


Two big well-regarded competitions

• MassChallenge

• Global (really!)

• APPLY BY APR 1 (2015)

• 4 months

• Office space

• Mentorship

• Network

• $2 million cash awards

• $10 million in-kind

• “…128 winners…”

• No equity taken

• Three contests / rounds:

• Pitch

• Accelerate

• Launch (Mar 13 2015)

• $350k cash + prizes

• In-kind prizes


Launchpad: Steps 6-10

6. Try like heck to sell it & market it.

7. Get a mentor; get your ducks in a row about financing.

8. Open a 100-row investor-tracking sheet, try to get 18

months of money for your 12-month milestone

9. Accept or select Board Members with great care

10.Launch, publicize, & ramp!

bit.ly/hwstartupsbos


Good luck! Email me any time!

Gregg FavaloraVisionScope Technologies, LLC

[email protected]


hardware startups 101: tips for "career engineers" (nesosa 2015; favalora)

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