Archive for the ‘Business Models’ Category

Next Stop…..Governator Central

copy-of-img_4803.jpgWeek 5: 18-22 Feb: We moved onto San Jose, California, on Sunday 17th after a 6hr delay at Kansas City airport which was closed due to severe snow storms. During the delay some of us slept and some worked!! It was warmer in CA to say the least, about 20C! Monday was spent in San Fran touring about seeing most of the sites around Fisherman’s Wharf. Owen and I also cycled across the Golden Gate bridge to what I think is one of the best viewing points in the city.

On Tuesday 19th we went to ‘Wilson, Sonsini, Goodrich & Rosati’, the premier legal advisor to technology and growth enterprises worldwide, as well as the investment banks and venture capital firms that finance them. Two representatives from WSGR discussed IP issues in technology ventures.

2ndlife.pngIn the afternoon we visited Linden Labs, which was founded in 1999 by Philip Rosedale to create a revolutionary new form of shared experience known as Second Life. Second Life is a 3D virtual world entirely created by its Residents that’s bursting with entertainment, experiences, and opportunity. The Second Life Grid provides the platform where Second Life resides and offers the tools for business, educators, nonprofits, and entrepreneurs to develop a virtual presence. Headquartered in San Francisco, Linden Lab has over 200 employees spread across the U.S., Europe, and Asia. Although our visit to Linden Labs was brief we had a change to get some insight into where Linden Labs is going with Second Life in the future. They were more than willing to answer all our questions. Second Life generated some interesting debate among the group. Some of the group had difficulty seeing its practical usefulness, whereas the rest of us saw endless opportunities for the platform in the future.

sbiodesign.jpgWednesday 20th saw us at Biodesign, a Stanford University initiative encouraging multidisciplinary approaches to biology and medicine. Biodesign are refining a method that produces both world-class innovators and state-of-the-art medical devices. We were introduced to the biodesign leadership (incl Sandy Miller) and fellows from both the US and India. We had a chance to tour the Stanford campus during lunch before continuing with a seminar by a biodesign spinout company – Simpirica Spine. The CEO gave us some practical insight in the startup process based on his own experiences. He shared his experience of equity dilution through various rounds of investment as well as many other

msstartupzone.jpgOn Thursday we visited Microsoft’s campus in Silicon Valley where we met Dan’l Lewin, corporate vice president of Strategic and Emerging Business Development, Don Dodge from Microsoft’s Emerging Business Team (& ex-Napster VP), Roy Levin Distinguished Engineer and Director, Microsoft Research Silicon Valley, as well as the general manager of the Microsoft Startup Zone. I had the privilege to chat with Roy after the formal presentations about pervasive computing and how he envisions its realisation in the future. I have my own specific thoughts on the matter but it was insightful to have a conversation with such a seasoned computing researcher and visionary.

Following the slightly rushed MS visit we went to the British consulate in San Fran. They offered us the opportunity to utilise their extensive network in Silicon Valley. Also they detailed some grant support which is available for us to attend conferences and companies in the US. In the afternoon we visited iRhythm, a biodesign startup in the medical devices area. The CMO at iRhythm, Uday, detailed some of trials and tribulations of starting a business. Uday’s talk was very impressive, he provided practical and insightful advice for us going forward and starting our businesses.

otl.gifOn Friday we attended Stanford’s Office of Technology Licensing. Linda Chao brought us through Stanford’s approach to technology licensing and related equity issues. This proved a very interesting talk as probed Linda for information on how University spin-offs are handled by one of the world’s leading research and teaching institutions. Basically Stanford claims IP on everything developed through the use of their resources. Not only do they pay for IP protection, such as patenting, but they are also willing to enforce IP – this being the main reason why anyone would want to license IP they generated from an institution such as Stanford.

johnhennessy.jpgOn Friday afternoon, after a long tour of Stanford’s campus we all attended the launch of Stanford’s Entrepreneurship Week and their annual Innovation Tournament – which this year requires entrants to add as much value as possible to a rubber band(s) within 1 week. Prof. John Hennessy, President of Stanford, gave the introductory speech for the launch in which he talked about Karl Schramm, the Kauffman Foundation and its global role in entrepreneurship education.


Entrepreneurial Finance – Ramana Nanda

ramana_nanda.jpgDay 12, Tuesday 5th Feb: Ramans Nanda is assistant professor of business administration at the Harvard business school. He currently teaches Entrepreneurial Management in the first year of the MBA program.  He has also had teaching experience in Entrepreneurial Finance at MIT’s Sloan School of Management. Ramana went into brilliant detail on how to value new ventures seeking ‘Series A’ VC funding. He was very thorough in detailing VC Term Sheet pitfalls. We went through a case study on start-up valuations and used this as basis to discuss the finer details of valuation techniques & formulae. Some of the obvious techniques for valuation:
– Projections, bottomup – Discounter Cash Flow (DCF)
– Competitors/Comparables
– Whats in the package – team, IP, products etc..
– “VC method”

In relation to the “VC method” Ramana focused on the dynamic relationship between Projected Market Value, Discount Rates, Post Money Valuation and VC investment. After a brief well needed interval Ramana proceeded to discuss Convertible Preferred Stock and Participating Convertible Preferred Stock. This was something covered by Niall O’Donnell last week but Ramana’s version was from a academic stand point whereas Niall’s appeared to be derived more from practical experience as a VC. The seminar then changed to a discussion on the Board of Directors and various issues related to Director selection including:
– Experience – in business, with vast contacts/networks
– Scientific Advisory Board – implies legitimacy (used where appropriate)
– Widespread resources across various Directors
– Odd number of Directors – avoid stalemates
– Authority/conflict of interest issues related to have VPs on board alongside CEO

Angel & VC Equity

mhudson.jpgDay 8, Wednesday 30th Jan: Marianne Hudson from Angel Capital Association spoke with us about ‘Trends in early stage equity and Angel investors’. Marianne emphasised a few key points surrounding angel investment:
– Angel funding is more likely as seed funding
– Seek our angels that can make an intellectual contribution
– Who can provide advice, not just $$$
– How to value company accurately pre-investment
– Value based on a combination of IP, contracts, sales, brand/goodwill
– Usually a 4x sales valuation
– Identify angels with whom you have chemistry, thrust, rapport
– Use referred angels – more likely to obtain investment
– Angels assume you’re going to exit
– Family business => not for equity investment
– Pitching for angel funding – Passion is key
– If you haven’t attracted investments from some of your friends and family money – why not? Also have you invested your own money?
– They’re looking for the type of people who have been working long hours unpaid on a project.
– The person is the product being pitched to angels…
– Kauffman Foundation’s resources for funding sources available online at the KF’s eventuring website.

On Wednesday I also went to a meeting with Merrilea Mayo, Director, Future of Learning Initiatives at the Kauffman Foundation. She is currently involved in a project to deploy learning-centric sports applications on mobile devices. I volunteered with three of the other Global Scholars to meet Merrilea and discuss the project and some ideas I had about location-based sports/educational games, Bluetooth tagging and Bluetooth pushing. We also volunteered to assist the software company developing the J2ME app with evaluations of the current prototype of the application.

nodonnell.jpgNiall O’Donnell is a Kauffman Associate and Fellow, and is currently working with RiverVest venture capitalist firm.  Dr. O’Donnell has drug discovery and development experience and a strong background in immunology. He has been involved in the formation of early-stage biotechnology companies, including a start-up developing novel peptide-based therapeutics for the treatment of pulmonary and liver fibrosis.  In addition, he has worked with an Eli Lilly spin-out developing treatment for Crohn’s Disease by targeting Toll-like receptors. And last but not least Niall is from Omagh in CO. Tyrone, Northern Ireland! Niall gave us insight into his industry and advice on how to approach Angel and VC funding. Some key points from his seminar:
– Niall provided us with a sample Term Sheet for future reference when negotiating VC terms

– Types of funding:
      – 3xF’s, Angel 50-100K; VCs up to 20/30M, Hedge funds 100s Ms
– Don’t take money from people who don’t add value to the team
      – Enlist respected advisors & mentors
      – Find out their track record of investments and exits
      – Do you like and thrust them? Rapport?
– Exit horizon – how far along is it?
– Parallel lines in embedded graph details sweet spot which combines
      – % risk failure – how far along timeline/lifecycle
      – Company value – VC will try to invest exactly at point ‘Series A’
      – Cumulative cost – not shown in this graph

– “No one ever got sacked for buying legacy solutions!”
– Partner with bit 800lb gorilla in the industry! – show them how good your product is.
Valuing company:
– Overvalue – pointless as wont get funding
– Undervalue – want fair market value
– Comparisons are king – review similar companies that obtained funding recently (analogous to house prices on the same street!!)


– Convertible preferred stock vrs participating preferred stock
      – Non-participating – profits shared based on equity from start
      – Participating – investor gets initial investment out first
– Anti-dilution policies in VC Term Sheets
      – Full ratchet anti-dilution – maybe for mezzanine funding when near IPO; or dangerously close to something truly innovative. But to be avoided at all other times!
      – Weighted average anti-dilution – standard/common approach
      – No anti-dilution terms – VC keeps same shares – very unlikely
– Board members
      – Odd number
      – Founder, 2-3 VCs, Independent specialist (with entrepreneurial track record and market knowledge)
– Term sheets – some key red flags
      – 3X or above – would imply investor gets 3 times initial investment before
      – Full ratchet
      – Board with no industrial experience (lifestyle board)
      – Big board => dysfunctional (maybe 5/7)
      – Only 1 investor/VC – lack of opinion and network
      – No shop – stops me…
            …shopping around for other VCs
            …potentially finding the true market value of the company
      – Voting byclass – VC can block exit/new investment
      – Options pool – good investor will want to recharge options @ each round
            Provides incentives – need to carve this out at start.
            Series A 15-20%; Series B 5-10 % of total shares.
– Beware of VCs pushing Series A expenditure to allow them to invest more at Series B before value decreases too much!

mrk.gifOn Wednesday night we watched a film about Ewing Marion Kauffman’s life, titled: “Mr. K: A Common Man With Uncommon Vision”. This film biography captures Ewing Kauffman’s unconventional approach to life as a great American entrepreneur, Major League Baseball team owner, and philanthropist. It was a very inspiring film and I highly recommend watching it. Key to the whole story was his dedication to: sharing profits, working hard, his employees or associates as he called them. By the time Mr Kauffman’s company reached its IPO stage everyone shared in the wealth, making many people millionaires many times over, from admin assistants to VPs!

IP – Peter McDermott & Andrew Torrance

mcdermott_peter.jpgDay 7, Tuesday 29th Jan: Our first seminar in week 2 was on IP. Peter McDermott a patent attorney with Banner & Witcoff Ltd in Boston led a seminar titled “Gathering, Protecting & Avoiding Intellectual Property”. Peter works with technology-based businesses to obtain and enforce patents and other intellectual property rights, both domestically and internationally. Mr. McDermott’s practice focuses on corporate management’s coordinated procurement, licensing and litigation of intellectual property rights, in support of competitive market position, including strategic re-examination and reissue of patents before the United States Patent and Trademark Office. Peter initially emphasised that an integrated approach to IP was key. His talk was in two parts – getting IP protection, preventing infringement of other peoples’ IP protection.

Getting IP protection
Gathering evaluating and protecting company’s IP
Primarily a competition tool
Should follow, not lead (in most cases), the company’s business plan
Develop an IP protection strategy
IP is 2 edge sword, offense/defense

Patents – some key points
Doesn’t give you the right to practise the invention
20 years duration in US
Can back-date claim if someone is infringing, back to first date of publication
To stop competitor you need issued patent
To threaten competitor only need published application (assumption of issuance!)
Patenting system extremely slow & inefficient – up to 5 years for issuance – potentially the product-life of software!
Idea must not have been available to public before application (Use NDA – This means the idea was not available to the public)
Prior Art – all previous related material e.g. earlier patents, published articles/media etc… that describe the same thing, or something that’s similar. Or offered it for sale
Most patents based on improvements on previous patents, truly pioneering ideas very rare; tweaks
Filed, 18 month pass then publication
Defensively – can the patent claims stop me from what im doing
      – No – too broad – invalid
      – No – Too narrow – not describing what im doing
Offensively – im seeking patent protection
      – Forget about the claims of a patent
      – Look at disclosure of their patent – does it describe what I want to do – to the point where my invention is obvious because of that disclosure

Trade Secrets
– No government registration
– Very difficult to protect in a digital world
– Policies & agreements in place to prevent employees leaking trade secrets

Copyright© (incl code, novel, structure)
– In US you have to register it if you want to sue based on it
– For s/w only first & last 25pages of source code (ummm, I’m thinking ALOT of ‘Hello world’ statements!!!)

Trademark image, sound, perfume, colour
– Can use REHEAT™ without registering, REHEAT® otherwise
– Goal: develop IP strategy that identifies, captures IP and evaluates if worth protecting, or required & protect if so
– Create a IP protection program
Employee policies & procedures
Employee record keeping
      – Management review & decision making about invention records
Secure IP if makes sense
What to seek patent protection on:
  1 – Is it technically feasibly?
  2 – Assuming 1 is true – is it marketable/commercially interesting?
  3 – Assuming 1&2 are true – is it patentable?
Only file patents where you intend to do business!

 Pitching ideas to companies
– I don’t have a patent, but will they agree not to use it if I pitch it to them…?!
– They will require you sign a CDW – confidential disclosure weaver
– The CDW will honour your patents/copyright, and beyond that they’ll use your idea for free => gambling!
– Solution with big companies:
      – Disclose results
      – Tease them with potential
      – They’ll proceed with NDA if they’re intrigued and want more details

Preventing infringement of other peoples’ IP protection
      – In US no obligation to determine whether you’re infringing
      – Wilful infringement – knowingly ignore patent => triple damages
Set aside portion of budget to ensure not infringing?
– Does the patent keep competition sufficiently at bay – little bit different but does the same job – hardly worth patenting
– Some companies deliberately ignore other patents/prior art – because they think that statistically they’ll get sufficient boost from presumption of validity that comes with getting an issued of patent. Prefer to face prior art with patent than before they’ve got one. Very risky strategy.
– Idea must be “different enough”.  Once issued, bad guys must prove that its not “different enough” by ‘clear and convincing’ evidence.

– Not patentability now?? – make your product the cheapest, fastest, prettiest, some unique feature that may possibly be patentable eventually
– What if a component infringes a patent resulting in claim
– Some components will infringe eventually. Put clause in contracts – sue supplier in scenario. If you can get the terms in the supply contract!
– Don’t just rely on IP for protection – use contracts to fill holes between IP => indemnification
– Maybe get infringement insurance to cover potential costs – expsensive

– Must read boiler plate on RFQ (request for quote) of potential big clients that we wish to supply to – any IP embodied in our proposals becomes free for them to use – licensing for free!! Only got the right to make a pitch -> bad day!!
– If you’re totally ignorant to infringement you’ve some chance, avoid the following:
      – Inducement to infringe
      – Contributory infringement
– International patent apps – ‘intend to use’ application – before you show your hand to the world – if registerable have short period of time that you’ve begun use
– IP treaties & international law – use base country to expand patent into other countries
– Rights accrue through use with a trademark, e.g. if claiming a domain name back as celebrity through ICANN. If have federal trademark (R), then better chance of getting domain back.
– Find a good IP lawyer to give advice over long periods of time – difference between getting patent, trademark, domain, saving millions by making right decisions beforehand, before walking into infringement

atorrance.jpgIn the afternoon Andrew Torrance led a seminar on patenting and its role in business strategy. The seminar focused around a project called ‘The Patent Game’ which Andrew is working on at the University of Kansas. The Patent Game is a multi-player game which emulates the role that patents and manufacturing has on businesses. Basically the game allows players to control certain products and either produce those products or patent them. Other players are simultaneously making these same decisions so in this way the game emulates a commercial environment.

Basically what I gained from this session is that Patenting is not a fix-it-all approach which should be adapted by default within a business strategy. There are obviously times when its would be stupid NOT to patent an idea but the point was that its not a pre-requisite for making a project profitable. If one rushes to market and produces/manufactures first rather than spending time waiting for patents to be issued this can prove to be a more successful strategy. In addition time spent executing IP defence and prosecuting on infringements is time spent not developing your project and company.

New Venture Bootcamp – Ted Zoller

ted_zoller.jpgDay 5, Friday 25th Jan: We spent all of Friday with Ted Zoller. Ted is Executive Director of the Center for Entrepreneurial Studies and Adjunct Assistant Professor of Entrepreneurship at the University of North Carolina at Chapel Hill. Professor Zoller has taught entrepreneurship courses at UNC since 1999. He is the founding instructor of “Launching the Venture,” which has increased the number of companies to spin-off from UNC-Chapel Hill. He is a former associate dean, high-tech entrepreneur and American Management Systems, Inc. principal. He was founding director of economic development at the College of William & Mary, where he developed Jefferson Park, an advanced technology research park. During his two seminars with us he concentrated on the formation of new companies, and in particular the fundamentals of dreaming up, designing and developing business models for new ventures.

Ted’s seminars covered the following topics:
– Born global – can you potentially be a globally oriented entrepreneur from the very beginning – how do you accomplish that?
– Entrepreneurship in the economy – initiative, function and role, catalysts that bring it all together.
– Opportunity recognition – not just the innovation that’ll bring the opportunity to market, its how the market sees that innovation, how do you realise the potential of the innovation?
– Seeking the value proposition – what does it mean to translate your innovation into a discrete value proposition.
– Business model development – applying ideas of global entrepreneurship to the extraction of a business model – how do you design a business model to be truly globally aware & take full opportunity of the information intense knowledge network that we can exploit

We spent a substantial amount of time analysing the composition of a concise value proposition and worked through some examples from Global Scholars’ projects. This practical exercise prooved invaluable to me. I have spent large amounts of time perfecting elevator pitches for various projects but actually manifesting a proposition in a comprehensive written sentence prooved more difficult that I anticipated. I assume this is something that any entrepreneur struggles with, especially when you’re so close to a project! Ted, generously, invited us to revise our propositions and work with him over email to perfect them. He also encouraged us to complete a narrative business model and complimentary diagrams for analysis/criticism upon his return at his second set of seminars on February 8th.