Venture Capital Ecosystem & Technology Commercialization Marco Rubin Exoventure Associates, LLC March 31, 2009
TOPICS Venture Capital Ecosystem
VC as a Strategic Asset Investment Magnitude The Ecosystem Typical Prescribers Reaching Investors Impact of the Meltdown
Technology Commercialization Process
Motivations The Decision Space Business Spectrum Start-up Trajectory Closing Remarks
I. VENTURE CAPITAL ECOSYSTEM
VC AS A STRATEGIC ASSET Generates disproportionately large economic contribution to the economy: VC-backed companies generated 10.4M jobs 17.6% of the GDP $2.3T in sales Source - National Venture Capital Association/Thomson 2006
Approximately $30B in annual U.S. deployments managed by: Stage - seed through growth Thesis - IC-T, clean tech, life sciences, materials Geographic location - local, regional, national, international
Asset class comparisons: VC - capital deployed risen from $13.1B (‘97) to $30B (present) ~ 500 firms (US) Hedge - capital under management ~ $2T in 2007 by 9000 firms (worldwide)
INVESTMENT MAGNITUDE US venture capital market
6351 6,000 4590
$75
2547 $49.5
$50 2211 $25 $13.1
$94.8
5,000
$17.9
4,000
3321 $36.5
Number of Deals
Amount Invested ($B)
$100
2577 2648 2477 2226 2354
3,000
$27.2 $29.9 $24.2 $22.1 $19.7 $22.4
2,000
2432
1,000
$0
0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Amount Invested ($B) Number of Deals Source: Dow Jones VentureOne/Ernst &Young
THE ECOSYSTEM Incubators, Accelerators and Economic Development Authorities Government Agencies and NGOs
Investment Community
Strategic Corporations
RESOURCES
Events and Social Networking
Universities and Affiliated Laboratories
Service Providers, Consultants and Advisors
Associations and Advocacy Bodies
TYPICAL PRESCRIBERS - Research before launching capital campaign -
Associations – outreach and advocacy National Venture Capital Association www.nvca.org Angel Capital Association www.angelcapitalassociation.org National Association of Seed and Venture Funds www.nasvf.org
Advocacy & Education – information and research Kauffman Foundation www.kauffman.org Stanford Entrepreneurship Network www.sen.stanford.edu Harvard Business School www.hbs.edu/entrepreneurship
Service Providers – legal and accounting firms PWC (MoneyTree Report) Cooley Godward, Kornish (Capital Call)
Regional Investment Organizations (Investment Capital) Ben Franklin Technology Partners www.benfranklin.org Delaware Innovative Fund www.difonline.com
REACHING INVESTORS
Before approaching people for money or access, become comfortable with this – build professional relationships first.
It is human nature to understand who they are dealing.
Angel groups and venture capital firms pay close attention to who brought them a deal. The source matters.
You will need advocates on the ground to establish a local presence.
Fund raising is a universally difficult, time-consuming task. A weak economic situation makes the challenge greater.
IMPACT OF THE MELTDOWN
Venture capital had been trending to larger funds under management
Angel investors are being approached by more established prospects
Limited partners are keeping money as evidenced by VC capital calls
VCs have eliminated weaker portfolio co.s preserving cash for the strongest An already high bar for start-ups has been raised even higher.
II. TECHNOLOGY COMMERCIALIZATION
MOTIVATION - Why are you going into business? -
Are you trying to create economic wealth? Founders? Investors? Employees?
Are you motivated to create more than just profit? Change the world? Drive social good? Validate innovation?
How much capital will you require to build your business? Where will it come from? Outside the company or organically?
Are you creating a growth firm or are you creating a lifestyle firm? How will you convince others to join you in your journey?
What business form will your idea take?
THE DECISION SPACE
APPROACH
A. Start-up?
+ + + + +
PLUSES
MINUSES
High reward Wealth creation Ecosystem formation Job creation Learning
- High risk - Steep learning curve - Results in years/decades - Loss of control
B. Licensing IP
+ Inventors focus on IP + Royalties may be large + Least capital outlay
-
C. Joint venture
+ Risk sharing + Deep -pockets + Leverage brand
- Multiparty complexity - Loss of control
Least return IP valuation Renter vs. owner? Enforcement?
COMMENTS
Ability to attract institutional capital in country? Desire to create presence abroad?
IP licensing process such as iBridge application – www.ibridgenetwork.org
May be most feasible to generate and retain resources in-country
BUSINESS SPECTRUM - Where does your innovation live? -
Disruptive Service-Centric
IP/Technology-Centric
• Ex. – Amazon, EBay, Salesforce.com, Skype
• Ex. – Qualcomm, Motorola, MedImmune, Cisco, Intel
• Focus – innovative technology enabled service
• Focus – proprietary assets as the “IP fortress”
• Founders – marketing, sales, product management
• Founders – highly technical or scientific
• Orientation – market pull
• Orientation – tech push
START-UP TRAJECTORY Mature
VALUE
Early adopter
Early majority
Late majority
• Ideation • Science • Invention
Chasm Events
Key Metric & Anti Metric
Investment Community
Service Providers
Facilitators
TIME
• Bootstrap co./seed • Unfinished technology, team • Launch α/β products • Lifestyle-v-license-v-investment?
• Institutional investors • Launch more products • Develop core team
• Grow revenue/get anchor • Build stable products/new product research • Build professional team Key Motivations • Acquisition or IPO?
• Innovation, e.g., patents • Fragmented revenue, if any • Profitability
• First sales • Profitability
• Top-line revenue growth, e.g., $5M+ in trailing revenues • Product line diversification
• Friends, family & fools • Angels • Grants etc
• Seed/early stage VCs • Occasional corporate • Placement agents • Grants etc.
• Later stage VCs • Investment banks • Corporate investors
• Dreams of wealth • Save the world • Both • ROI for investors • Strategic relevance for corp.interests • R&D / new vendors
• Legal • Financial/Accounting/ Insurance • Search firms • Public relations/media • Other - matchmakers; boot camps; online plan repositories; directories; bus. plan services
• Earn fees • Gain market share
• Associations and societies • Economic development authorities • Incubators
• Networking & lobbying • Jobs creation • Co. creation
GOAL START-UP
TEAM TEAM
Proven Domain
TECH TECH Built Built Protected
Clean Structure MARKET MARKET Sizeable Sizeable Strategic Strategic
IP AS A STRATEGIC ASSET
U.S. UNIVERSITY IMPACT Bayh-Dohl Act - catalytic legislation (1980) ushered in new innovation Allows academic institutions to own IP funded by federal research One outcome has been the tech transfer/ tech licensing offices Established 4,100 new companies since 1980, 2/3 of which still operating Executed 30,000 active tech transfer licenses generating $1.3B in income Filed ~ 8,000 patents in 2003
CLOSING REMARKS Big innovations are a great start…but seldom determine success Your venture must become economically sustainable Demand-based (pull) businesses tend to garner greater market adoption Advisory boards may be valuable – use Linked In and other assets to extend your know-how and reach. Capital markets and corporate partners are becoming even more selective
CONTACT INFORMATION Exoventure Associates, LLC 400 North Washington St. #106 Falls Church, VA 22046 USA Office 703.533.3133 Marco Rubin mrubin@exoventure.com www.exoventure.com