High Tech Venturesfor

UWI

Thomas Lynch CEO Reasoning Technology

512-782-9706

2011 05 11

Part I - What is a Business

A Healthy Business➲ Delivers a product to customers in exchange for

money, and the money is distributed to stakehold-ers.

➲ Stakeholders: customers, suppliers, employees, owners.

➲ Customer happy, sees product as more valuable than price paid

➲ Supplier happy to change goods into dollars great-er than their costs.

➲ Employee happy as money enriches their lives➲ Owners happy as initiative to take risk turns reward

A Healthy Business is a Money PumpAll Stakeholders Benefit

➲ Fruit grower converts fruit to money at market.

➲ Fruit grower is also a customer for other businesses - for example for insecticides

➲ Within the constraints of being a good cor-porate citizen and the business's mission statement, the only purpose of a business is to make a profit.

Pillars of a Business

➲ finance and accounting➲ marketing and sales➲ operations - from supplies to price paid➲ product development➲ administration

A business must have all these pillars

Part IIEntrepreneurship

An Entrepreneur➲ Wants to become rich by building and hav-

ing ownership in one or more healthy busi-nesses, has confidence in doing better than the 'expected value' of return.

➲ Building a start-up is a kind of business in itself requiring a unique skill set. Lets call the act of building a business the “venture stage”. The product of the venture stage is a mature healthy business

Levels of Financial Maturity(Adapted from Maslow)

Money enables people to enrich themselves and those around them

When bad bankers foreclosed on homes and then received a bonus - the problem was greed, not money. To avoid money would be to avoid food and shelter, taking care of friendsand family, avoid engaging society for its betterment, and to avoid being able toimplement one's visions for the future.

A business is a vehicle for bringing dreams of a better world to reality - this is particularlytrue of high tech businesses..

We engage in entrepreneurship to become rich for this reason.

rich > 1M facilitated to think outwardupper class < 1M asset to society (taxes) trust investormiddle class < 70k take care of friends and familypoor < 20k food and shelter for themselves

Expected Return*Nudist on the Late Shift - extrapolated

Your age at time of bust/success

Time Passed

Probability of Retiring

Probability of Being Flat Broke

28 4 0.1 0.932 8 0.19 0.8136 12 0.27 0.7340 16 0.34 0.6644 20 0.41 0.5948 24 0.47 0.5352 28 0.52 0.48

Expected Return For Employee

➲ Expected Return (average) on venture roughly the same as that for working a regular job

➲ The big difference is in the shape of the risk curves, the startup has tails paying off big, and for losing big

➲ When startups payoff big it is really big: tele-phone, light bulb, airplane, .., computer, PC, cell phone .. (things change the world, when the light goes on there is change, when it doesn't it is the same as before - asymmetry)

~The Business Building Process

➲ identify a good product (verified through market research)

➲ write a business plan (plan of execution)➲ raise venture funds (phased, see next slide)➲ erect the pillars of the business (execute)

Problems➲ Bootstraps -- need funds to get the com-

pany to the stage of baring revenue.

➲ Execution -- a great deal of work must be done to transform funds into a healthy com-pany

➲ Predict the Future -- even after perfect exe-cution, independent of all else, the market decides if the product is to be a success.

Venture Investment

➲ Addresses the Boot Straps Problem➲ Venture Investor Provides Money to Build

the Business ➲ Because of the Execution Problem, and the

Predict the Future Problem, the venture in-vestor has only a small chance of receiving a great return on his/her/its investment -- he/she/it will need a lot of convincing to throw the dice and take a chance.

➲ Venture investing is done in stages, with assessment at the beginning of each stage

Types of Venture Investment

➲ Equity - stocks - ownership in company➲ Debt - bank loan - must be serviced

➲ Friends and Family - might make holiday get to-gethers difficult later

➲ Angel - rich person - in US must be 'qualified'➲ Corporate - company interested in project➲ Venture Fund - distributes and ameliorates risk

Items that Help Convince a Venture Investor

➲ Technical Market Research study -- addresses the Predict the Future Problem

➲ Business Plan addresses the Execution Problem

~Evolution of a Startup First Two YearsUpon Success at Each Step Move to Next

➲ Identify a feasible product apparently of high value to a market

➲ obtain friends and family or self-funding and ● do a technical marketing study to better ascertain the

revenue potential● build a rough prototype or simulation● apply for patent coverage

➲ obtain seed funding● identify an early adopter or customer gating event● create a first version● develop a marketing strategy

➲ obtain series A funding ● refine product, implement said marketing strategy ..

~Venture Stages Software Company, In the Wild

~amount stage goal20k Friends and Family market research, prototype450k Seed Stage early adopter demonstrate revenue2M A round proper company niche market14-40M B round global large corporation

Instead of In the Wild -- Partner with an Established Company

A lower risk alternative to series A and Series B is to developthe product for an existing company. The venture companyis then a 'research lab', or is acquired by the other company.The A round and B round work is taken over by the buyer.

The Coconut Stand

➲ finance: exchange coins at bank, park accumulated funds in freezer. Self evident accounting. Accounts receivable and payable in cash. Typical items machette, land owner encouragement.

➲ marketing and sales: identification of good location for point of sale. Developing enticing come-on lines for tour-ists, investigate competition for pricing, develop bargaining prowess.

➲ operations: manual cart transport, harvesting of coconuts, manning of point of sale, exchange of coconut water for cash.

➲ product development: bottled water, new operations for gathering bottles and pouring, internal financing, work with marketing for pricing and slogans.

➲ administration: do as the guy with the machete says ;-)

Starting a Coconut Stand

➲ promise auntie a $20 return if she will give you $40 to buy a used cart and machete. (Primary plan was self funding but couldn't get the money together)

➲ implement operations leading to sales➲ give auntie a cut of profits once a week until $60 is

reached➲ if paying back takes too long auntie takes the cart,

machete, and inventory and sells it to your cousin

The First Silicon Valley Entrepreneur:Emperor Norton

➲In 1849 he inherited $2 million dollars (adjusted 2011 dollars)

➲Had a great idea to corner the rice market in San Francisco, started buying ship loads of rice - the scheme collapsed. Due to outstanding con-tracts he lost it all.

➲ Disappeared for a while, then re-emerged as

“The United States Emperor and Protector of Mexico”

Emperor Norton➲ He decreed that a bridge be built over the bay -

and a tunnel under - both which happened.➲ He became a hit in the newspapers over his

tirades against the eccentricities of politicians. ➲ He made his own money - and it was accepted

in San Francisco ➲ The metropolitan theater had a stage play

where a famous actor played his role. ➲ Mark Twain used him as a character in his writ-

ing.➲ 10,000 to 30,000 people went to his funeral

Ambition vs. Greed

Ambition.

➲ Work Hard ➲ Make Sophisticated Plans ➲ Build Structures that make

money.● Have strong character● Works in groups● Has strong sense of ethics● Leaves a legacy

Greed.

➲ Work Hard ➲ Make Sophisticated Plans ➲ Build Structures that make

money.● Have strong character● Works in groups● no ethics● no desire to leave anything

behind

Entrepreneurship requires Ambition, it can fail badly with Greed

Frontier Mentality vs. Individualism

Frontier Mentality.

➲ Strong Belief in Freedom➲ Strong Character ➲ Adventurer● Builds towns and farms● Neighbors (team members)

work together as community

● Builds a legacy

Individualism.

➲ Strong belief in Freedom➲ Strong Character ➲ Adventurer ● Makes Campsite● Works for self● Builds for self

Americans are Frontier People, Not IndividualistsEntrepreneurship requires a Frontier Mentality

Part IIIWhy Universities are a Natural Fit

In the Process of Creating Start-Ups

Where do You Find .. ??

➲ People who have a passion for their work, even working until midnight sometimes

➲ People who mix work and fun and enjoy an ad-venture

➲ Educated people capable of thinking of things that have not been thought of yet anywhere in the world

➲ People with few other obligations and can come through an adventure that does not profit

where? ===> at a University

Overlap: Friends and Family StageUniversity Advanced Study

Friends and Family Stage

➲ Lots of research studies

➲ Build Mockups➲ Make lots of presentations,

attempt to make a point➲ Mentors important➲ Expenses already being

paid due to being at U

University Advanced Study

➲ Lots of research studies

➲ Build Mockups➲ Make lots of presentations,

attempt to make a point➲ Professors are important➲ Paying for tuition, room,

board

Even if the statup does not make it to the Seed Stage the studentlearns a great deal from the experience - and learning is what auniversity education is about.

Overlap: Seed Stage

Seed Stage

➲ make case for venture funding

➲ equip labs➲ pay for student workers➲ create case for series A

➲ cost ~$300,000 (excludingprincipal salary)

University Research Project

➲ apply for grants

➲ equip labs➲ pay for student worker➲ create case for further re-

search➲ costs ~$150,000

Seed stage work has a lot in common with university research

Company Sponsor

➲ Avoid A and B rounds➲ A good alternative to a stand alone venture for a

university project.➲ The company sponsor ● may become the first major customer, then the

venture will spin out of the university● may just buy the product and hire the students● may hire the students if the result didn't turn out● may request a new round of research

Other Alternatives

➲ After the seed stage pitch for an A round from a VC, then take the project off campus

➲ Move the project to an incubator

Part IVWhat Some Universities Are Doing

EPFL - Lausanne

➲ Joint research projects with other universities, and shared endowments, for example with the Dubai fund

➲ Joint research projects with industry. Professor and lab are quasi part of the sponsor companies. E.g. in pharmaceuticals

➲ Innogrant program - $150,000 grants to help profess-ors do research destined to be commercialized (hope-fully). Professor is still making salary etc. This is roughly seed stage.

➲ On site incubators, and program to bring projects from the university into the incubators

Stanfordhttps://sen.stanford.edu/

➲ There are an incredible number of startups and in-dustry labs around Stanford, students and staff move back and forth

➲ There is a blurring of where university and industry start and end

➲ Start-up groups are 'clubs' and social events -- work and fun are the same

➲ Mentoring programs with people doing startups

➲ Regular meetings with venture capitalists where stu-dents can present their ideas

UWI is Planning

➲ Business School is putting in place a curriculum to train people to be entrepreneurs - it is well funded, solid in concept, and well connected.

➲ The general public will be able to access a website to learn how to incorporate and find export markets.

➲ There is a SEED with the law school, though it is unclear what they are doing. The person in charge never got back to me.

The University programs are Focused on: Education

Bajan Activities

➲ A small venture fund, BIM➲ Angel investors anxious to adopt projects➲ Invest Barbados trying to attract investment➲ Imagination Center, an ICT incubator➲ Prime Minister and University president

prepared to support entrepreneurship➲ a culture that is looking forward and anxious,

good energy here➲ and even youth programs

World Wide - There is Competition➲ President Obama told the U.S. Congress on Feb 24th:

“The weight of this crisis will not determine the destiny of this nation. The answers to our problems don't lie beyond our reach. They exist in our laboratories and our universities; in our fields and our factories; in the imaginations of our entrepreneurs and the pride of the hardest-working people on Earth. ''

➲ There are now entrepreneurship initiatives in U.S. States, Universities world wide, and countries world wide. CIBER which UWI joined has 33 centers in the US all talking to different countries. USAID and JOBS is a global initiative that intends to educate the world in Entrepreneurship.

Part VObservations

High Tech Ventures have LeverageMore coconut carts, jewelry vendors, etc. are not

going to improve the standard of living of people in Barbados, create an export market, or reverse the diaspora, these are the areas to work in:

➲ Pharmaceuticals

➲ Clean Energy

➲ ICT

➲ Entertainment (video games to music)

How to Be Educated and Unemployed

➲ Be unemployed in more than one country simul-taneously by learning to speak foreign lan-guages in absence of another special skill.

➲ Be unemployed because you are dead: Go into battle with a weapon but no ammunition

➲ Learn to be an entrepreneur, but do not have special knowledge in another area

Successful Entrepreneurs are largely experts in their areas of endeavor and know their markets extremely well.

Most Startups are Evolutionary➲ 8 turn disk head startup was crated by a man who did

the 6 turn disk head at IBM. This will make sense if you an expert on hard drives.

➲ Microsoft started with the Seattle monitor - an existing DOS already written. (Both Bill Gates and Paul Allen were computer nerds ..experts.)

➲ Andy Grove left National Semiconductor where he was already doing IC chips to start Intel. Processors already existed at that time. .. Same for Jerry Sanders who started AMD.

Successful Entrepreneurs Stand on the Shoulders of Giants

Requisites:

➲ * a supportive cultural context➲ * high level of education➲ a context of advanced industry (giants to stand on)➲ a context of venture funding

UWI has the first and second, lacks the latter two

Part VIAnd Emperor Norton Says:

(suggestions)

Emphasize Partnerships With Industry➲ Bring Back Intel ! Create a job function for someone to

specifically in begging existing healthy business high tech projects to have a presence here (pharm, clean energy, ICT, entertainment)

➲ Meet with industry people, students and staff, align re-search topics with what industry wants - explore ques-tions topical to industry targets

➲ Solution for the F&F stage to Series A problem

➲ This needs to happening before standalone ventures and VC funds can take hold.

(this is not invest Barbados, but UWI)

Implement Quality Processes

➲ Create a six sigma program within the entrepreneurship push

➲ It should work across university and industry

➲ Must be that six-sigma leaders are empowered

➲ Someone specifically responsible for making sure market research is done to match up re-search proposals with companies and VCs, identifies candidates for Imagination Center

Interdepartmental Co-operationResearch Projects

➲ Joint research projects where a technical stu-dent researches a product and a business stu-dent does the market research

➲ Have law students in IP make class projects of filing for coverage on student projects and file as these as provisionals in the U.S. (costs $125 per application)

Leverage the Tourism Industry➲ Campus needs infrastructure to support pedestrians

visitors:● Hotel - long term housing● Office space● Shops● Restaurants● Walkways to beach● reroute road to behind university - so UWI extends as

a green campus down to beach● Make this a great place to be with interaction between

industry researchers, international visitors and rotat-ing staff, and local students - so that famous project leaders and Nobel winners are looking for excuses to take a sabbatical here

● Rename beach, install “UWI beach cam” on Internet

Make Stanford a Sister University

➲ Parallel curriculum in parts, so one may➲ Arrange to allow some class hours to transfer➲ Have a 'for a semester' staff swap➲ leverage the tourism industry so the visitors go

back saying wow➲ .. Edinburgh might be a good choice also, those

guys need more sun

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