startup: lessons learned guidelines and trends€¦ · in most cases the startupper plans since the...

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STARTUP: LESSONS LEARNED

GUIDELINES AND TRENDS

Massimo Vanzi e-mail: [email protected]

www.italianangels.net

©2014 – Massimo Vanzi

Contents

•  About me and Accent – my first “entry” in the startup world

•  History and lessons learned in the spinoff and LBO process

•  An innovative startup, what it is; Startuppers, who they are

•  From Research to Innovation to Money, a difficult path

•  Supporting and investing in high-tech startups, focusing on Italy vs. other countries; role of “Business Angels”

•  Equity investing vs. classical Italian entrepreneurship model

•  IAG, who we are and what we do

•  Q&A


A few Accent products (2007-2008)

q  UMTS Base Station for ST

q  Navigation BaseBand for Garmin

q  Security Chip for emerging markets PCs

q  USB Memory Stick

q  Wireless Joystick for MS XBOX360

q  Assisted GPS processor


A few Accent products (2008-2009)

q  Multimedia DECT/Bluetooth cordless phone

q  Bluetooth aftermarket product for Automotive and home automation applications

q  Locking security systems, radio controlled cylinder w/transponder

q  Media processor for home multimedia

q  IC with sensors and RFID interface designed to monitor the exposure of perishable products to environmental factors such as heat, pressure, humidity, etc.

q  In-tyre sensors monitoring data to be used for car Dynamic Control Systems including energy scavenging technology

Triaxial Accelerometers


Accent, my first “startup-like” experience

1999 Business Model change to Design & Supply Chain Services

2006 LBO with help of french VC, italian PE, a few business angels and a few of Accent managers

2008 Business Model change to Product Company (Smart Metering Chip Market)

1993 Corporate Spinoff as a JV between ST Micro and Cadence Design Systems Inc.

1993 2002 2006 2010 2008 2014 1999 2004 ...

2014 Not far from a Trade Sale

1993 Business Model is Engineering Design Services


Lessons learned during the money search process for the LBO

•  Very different approach among VCs, PEs and Banks; VC’s look for an exit (98% today is a trade sale), PE look first for EBITDA, much less risk taking attitude than VC, more money available per single deal, finally Banks have NO risk taking attitude

•  The process is long and it seems a never ending story, new people entering the “stage” and need to remake the good old story again and again and again……..

•  Be optimistic, but just a bit, you pay for too much optimism afterward

•  Business angels and advisors are very usefull (if credible people expert in the field)


What is Innovation

It is rather easy to convert good money into good research, Much more difficult to convert good research into good money

INNOVATION

RESEARCH


INNOVATION IN EUROPE


10 maggio 2014

Fmi, in Italia non è il costo lavoro ma l'innovazione il vero gap delle imprese La minaccia principale per la competitività delle imprese italiane, e quindi per l'export, la crescita e l'occupazione, non arriva tanto dal costo del lavoro, «sempre meno importante». Ma piuttosto dalla insufficiente capacità di «innovare ed espandersi», complice delle dimensioni troppo piccole delle nostre imprese per competere sui mercati globali. A dirlo, in un dietrofront insolito per un'istituzione che ha sempre chiesto tagli e flessibilità al mondo del lavoro, è il Fondo monetario internazionale, in un paper, uno studio a firma dell'economista Andrew Tiffin, che non riflette la posizione ufficiale del Fmi ma punta a «delineare alcune implicazioni per l'agenda di riforme strutturali delle autorità italiane». La premessa del Fmi smonta l'architettura delle teorie tradizionali, che chiedono "lacrime e sangue" per i lavoratori. I costi d'impresa possono essere un "driver importante" per la competitività. Ma i modelli più avanzati del Fmi dicono che «l'aumento dei costi dei fattori produttivi in Italia non si è tradotto in un aumento equivalente dei prezzi relativi dei beni italiani, in parte a causa del ruolo delle importazioni a basso costo da Paesi a bassa inflazione».


What is an Innovative Startup

– 1-2 strong entrepreneurs, most successful stories rely on a couple of key founders

– A smart product/service idea with a credible and scaling market

– as much as possible “technology based” to make it sound and more easily sellable

–  Innovative can be the market, the product, the technology, the sales process, etc.

– a credible team

–  lots of hard work and some €€€€€€


ITALIAN R&D

}  Quality of basic research }  Cumulative R&D investments are €17B (4% of GDP), whose 30% from universities

and 20% from public and non-profit (ICE, Cotec, Istat)

}  400k scientific publication in the period 1998-2008 ranking 8th in the global classification (7th for number of citations) (Thomson Reuters, 2008)

}  Biotech: 233 clinical trials in progress during 2009 (Ernst & Young 2010)

}  Overall quality of basic research in Italy is good to very good, so what? }  Issues in turning research into innovation and business

}  Italy spends a considerable amount of money in research even if less than other developed countries, BUT, our real problem is to turn R&D results into business initiatives and then into jobs and wealth

}  Lack of efficient technology transfer offices }  Universities do not create company culture and do not facilitate enough spinoff

initiatives }  Scarcity of skilled executives with strong entrepreneurial skills }  Lack of guidelines from state and industrial community }  Italian scientists do not think business and have very small entrepreneurial spirit


10##9.5#

10.5#

11#

13##12.5##12##11.5#

45#

40#

35#

30#

25#

20#

15#

10#

5#

0#

Twin Graphs!

Overall impact of italian

pubblications vs total european!

% pubblications!with international authors!

SOURCE: SCImago Journal % Country Rank 2013!


0%#

5%#

10%#

100#20%#

80#15%#

25%#

30%#

0#

20#

40#

60#

120#

140#

2008# 2009# 2010# 2011# 2012#

Twin Graphs!

Nr. New Spin-Off !

% VC Investiments!

SOURCE: Rapporto Netval 2013, Venture Capital Monitor 2008-2013!


We are not able to value our technologies and people!


33%!

29%!

25%!

13%!Managerial skills!

Business model!

Go-to-market strategy!

Founders committment!

We are not able to value our technologies and people!

SOURCE: Il Sole 24 Ore!

16

Where ideas get started

Mind the Bridge – CrESIT, 2012 67% of startup ideas exit in some way from universities or research centers. There’s a need of a strong push to applied research.


He is fast: He manages information

Nonconformist, demanding, persistent

He regards life as a chance

Innovator

He works far more than average

He takes risks

He is pragmatic and calculates

risks

He bears margins in

mind

He thinks about failure as a part of

success

WHO IS AN ENTREPRENEUR

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MR. STARTUPPER, WHO ARE YOU? DEMOGRAPHICS

FEMALE 11%

MALE 89%

Mind the Bridge – CrESIT, 2012

33 yrs.

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MR. STARTUPPER, WHO ARE YOU? EDUCATION


PhD/MBA(11%) MASTER (42%) BACHELOR (53%)

6-8% ABROAD

21

Web and ICT prevail as industrial sectors


ITALIAN STARTUP – WHAT Most are “wannabe startups”, 5% are spinoffs of existing companies looking for diversification Mind the Bridge – CrESIT, 2012 Italian Startups by Industry

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ITALIAN STARTUPS – WHERE

Italian Startups Geolocation 52% Northern Italy


21% Central Italy

11% of Italian startups are incorporated abroad §§   Mostly US & UK

14% of not yet established startups are planning to incorporate abroad

15% Southern Italy


STATUS OF ENTREPRENEURSHIP IN ITALY

Source: CrESIT 2010 ITALY: INDUSTRY CONTRIBUTION TO GDP (2009)

}  Lack of large companies }  In Italy SMEs are 99,8% of the total

}  Mostly mature business }  Primarily Services (67% of GDP), Manufacturing is only 24% }  Innovative industries play a minor role (2-5%)

}  Strong family business vocation }  “One man only at the helm.” }  “Companies are life-long enterprises.” (to be given to heirs) }  “First get some revenue and considerable profit, and then invest.”


 At the opposite of traditional Italian entrepreneurial model

 In most cases the startupper plans since the beginning to sell his baby at the right moment, become very rich and then start new ventures

 Maximum focus on growth of company value and consequently on revenue growth and INNOVATION at 360 degrees

 End result is that the startup industry grows at a rate 50 times faster than traditional model both as revenues and number of employees

 Generating wealth and jobs, mostly young people

 In the US in the period 2002-2011, 80% of new jobs has been generated by companies with less then 5 years of life (Kauffman Foundation-MTB)

STARTUP ENTREPRENEURIAL MODEL


COMPARING ENTREPRENEURIAL MODELS

If you ever asked yourself why Italian GDP has not grown in the last 20 years while the rest

of the world, including Europe, grows at a much faster pace, it is enough to analyse the

pervasiveness of the startup entrepreneurial model within our industrial sector

Traditional/SMEs Startup

Risk taking attitude Low High

Governance Man only/ Family Founder Team + investors

% failures Medium / Low High (not “failures” but “experiences”)

Innovation / R&D Low / Very low High

Average Duration Long Depends

Growth rate (Revenues / Workforce / Value)

Low / Very low High / Very high

Funding Method Dept Money for Equity

©2014 – Massimo Vanzi 26

Just to be clear about Startup EM

•  The Startup entrepreneurial model is just a way to start a NEWCO

•  After 5 years successful startup become SME and then hopefully large companies

•  Because of this you will never find a relevant contribution to our GDP by startup alone

• BUT •  Startup is a culture, a way of life, a way of making business, a way of

managing a company, where:

–  Innovation is a MUST

–  Risk taking attitude is a MUST

–  Growth is a MUST

–  And all these characteristics of founders, managers and people are kept into company DNA forever


ITALY: KEY ISSUES

}  Issues I’ve seen in my last five years in IAG, limiting the birth of

innovative high tech startups in Italy:

}  Lack of a real entrepreneurial approach and of a sound risk taking attitude

}  Lack of company culture and market approach in our R&D teams

}  Difficult to create the starting team with the necessary credibility to be funded

}  Quality of business plans

}  Lack of management expertise to support Execution

}  Obstacles in Exits due to lack of a large company substrate and of a modern stock market

}  AND MONEY?


STATUS OF VENTURE FINANCE IN ITALY

}  Lack of an established venture capital community

}  Of the €3.8B invested yearly (avg. 2005-2009), only approximately €70M went to early-stage investments (AIFI & Pricewaterhouse-Coopers 2005-2009)

}  Only 255 start-ups were able to get funded in the period, with an average deal size of €1M (AIFI & Pricewaterhouse-Coopers 2007-2009)

}  Small size of the stock market does not help

}  The stock market capitalization to GDP ratio is lower than 60%, versus 140% in the United States and 170% in the United Kingdom (IMF & World Federation of Exchange)

}  The lack of large companies makes exits much more difficult

US 29,7 Silicon Valley

10,8 Europe 7,41

Italy 0,169

Italy Europe Silicon Valley US Annual VC Investments (B US$) 2008

[Source: Dow Jones Venture source, PWC/National VC Association, AIFI]


Funding Models

Seed Start –Up Expansion Established

Investment Risk

Alto

Basso

Founders, Family & Friends

Venture capital & Strategic Investors

Commercial Banks

Equity markets

Development Stage

Private Equity Prizes, Grants, Government, Regional EU

Focus on company value growth Focus on short/medium term returns

Funding Gap

closed by

BA

And CF


The term Business Angel is born in Broadway NY at the beginning of last century. Angels were art and show business lovers philanthropist who funded the birth of this business in the US.

Angel investing is a match between: •  Business Angels; individuals who contribute their

time, knowledge, contacts and/or money to growth businesses in exchange for equity or (convertible) debt to be repaid

•  And an entrepreneur who needs financing to grow his/her business

What does “Angel investing” mean


Some numbers (US data)

Angel Investing is remunerative, but risky, if implemented sporadically:

•  Average multiple per investment: 2,6x in 3,5 years (average IRR 27%)

•  50% of investments perform a loss (investment period 3 years)

•  30% of investments perform fairly , with multiples between 1-5x (investment period 3/4 years)

•  20% of investments perform well, with multiples over 5x (investment period 4/5 years)


Period 02.08 – 09.13

Deal flow by sector


Portfolio by sector

Update October 2013


Deals screened by geography

Period 07.10 - 09.13

(19%)

(25%)

(9%)

(22%)

(13%)

(3%)

(0%)

(3%)

(0%)

(0%) (3%)

(6%)

(0%) (0%) (0%) (0%)


Some final considerations to emerging entrepreneurs”

•  Despite the numbers I gave you, there is money available to support good innovative startups, also in Italy and growing!

•  There is plenty, in our Universities and research groups, of: –  Good technology projects

–  Sound R&D approach

•  There is great lack in our brilliant people of: –  Real entrepreneurial mental approach

–  Risk taking attitude

–  Willingness to work very hard for a few years with basic salary (hoping to become rich at the end)

–  Market analysis and company structure know-how (key difference between US and Europe)

–  Credible, well written, pitches and business plans

–  Execution experience (management)

©2014 – Massimo Vanzi 36

And a few guidelines

•  Use as much as you can seed money from F&F&F and Institutions (district, regional, state, european, school, etc.), to consolidate your idea and generate IPRs

•  Try not to give too much “power” too early to VCs

•  Look for industrial partners when your product development can take advantage of it

•  Put maximum emphasis in the development of the elevator pitch/business plan

•  Assemble as early as possible a credible team (3-4 people) with complementary experiences; it helps if at least one of them has previous startup experience (either successful or not)

•  Take advantage of Business Angels/Expert Advisors, they can help a lot early stage companies to minimize their lacks and boost their strengths

•  Be prepared to work a lot!


THANKS FOR YOUR ATTENTION!

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