March 2, 2010 - This week, BT Ireland will kick off an innovative program focused on giving 53 of Ireland’s top student performers the entrepreneurial experience of a life time.

The students, award winners from the BT Young Scientist & Technology Exhibition, will take part in four days of training and mentoring to experience the process of translating innovative science and technology into compelling commercial value propositions.

The So what? who cares? why you?® methodology provides the program’s core structure and entrepreneurial training platform. William McAuliffe, Business Development Manager, BT, said: “BT Young Scientist & Technology Exhibition has a long and iconic history in Ireland of fostering scientific thinking among high-school students. This year we are expanding our scope to ignite entrepreneurial thinking in our future science and technology stars, and to expose them to the process of translating scientific innovations into commercial opportunities. So what? who cares? why you?® has made this possible, with a unique methodology for commercialization, and tools tailored to inspiring young scientific and technical minds about entrepreneurship.”

The BT Business of Science & Technology Program rewards top performers from the BT Young Scientist & Technology Exhibition with exposure to the process of identifying the commercial opportunities inherent in scientific ideas and inventions. The selected students receive input from prominent Irish executives, mentorship from BT experts in business and marketing, as well as structured training in entrepreneurship based on the So what? who cares? why you?® methodology, which also underpins several youth entrepreneurship programs underway in North America.

Larry Taylor, Marketing Manager, BT,added: “Working with Wendy Kennedy on design of the BT Business of Science & Technology Programme has been incredibly rewarding. She has given us a great amount of support, time and guidance to develop this product and was the driving force behind our approach to using real-world case studies from within Ireland to deliver the program.”

Working in teams as simulated start-up companies, the students will learn how to identify, articulate and demonstrate the commercial opportunity that their assigned scientific idea represents. Industry experts will also provide the students with perspective and real-world experience throughout the three days. The program culminates with each student team making a formal presentation to a panel of executives serving as a mock group of investors. Top-performing teams from the week will be invited to participate in summer internships with an Irish university.

Wendy Kennedy, President of wendykennedy.com inc. and architect of So what? who cares? why you?®, said: “These young people represent tomorrow’s leaders, and by sewing the seeds of entrepreneurial thinking at this early age we can prepare a new generation of company builders and commercially savvy scientists, engineers, and researchers.”

For more information: BT Science & Technology Exhibition website: http://www.btyoungscientist.com/ BT Business of Science & Technology Programme web page: www.btyoungscientist.com/all-you-need-to-know/biz.php

Information about Wendy Kennedy and her worldwide alliance partners So what? who cares? why you?®:

http://www.wendykennedy.com/partners.html

Wendy Kennedy succinctly summarises the theme of increasing the odds by improving the front-end in this keynote delivered in US earlier this year.

In addition, Wendy covers:

1. Improving the due diligence approach by changing the conversations with inventors
2. How process visuals are incredibly powerful to engage with scientists and researchers
3. Evoking commercial thinking and commercial value with the ideas people
4. Developing a community of commercialisation to raise an idea

Morgan Cradock is proud to be an exclusive partner of Wendy’s commercialisation methodology So what? who cares? why you? for delivery in Australia - see www.morgancradock.com

1. Clever startups leverage their prior networks to a huge degree
2. They bring in experts at the right time and only listen to the gap in their information
3. They define a segment attack plan, i.e. they don’t try to lead from the beginning rather they prove themselves in a sequence of customer engagements to gain credibility.
4. Bright technical people are the very best people to be delivering a pitch to investors once their story is peppered with the commercial aspects gained in points 1 - 3 above
5. They hire big guns when it is absolutely necessary to spend those dollars and not until then.
6. They make $1,000 go a very long way because it’s always their money.

There are lots of other lessons to share but these are our top 6.

Good luck with your commercialisation journey.

Customers

Competitors

Channels

Category

So what? who cares? why you? is a methodology for articulating the business opportunity that an entrepreneurial idea represents. It’s also a framework, which means that once a company has it, they can use it again and again.   Morgan Cradock is the exclusive partner for workshop and mentoring delivery in Australia and New Zealand of Wendy Kennedy’s trademark So what? who cares? why you? methodology and toolkit.

Now that you know what the 4 pillars are you must use them to help your business planning. And why listen to us?

For every 3,000 raw technical and scientific ideas, only one will become a commercial success.  Why?  One reason is no matter how good the ideas are, investors and other business backers often can’t easily see the commercial opportunity that they represent.  And you need investors and business backers to take your idea to market.

There are many different answers on this and my view takes it from a “founders’ equity perspective”. What do I mean by this?  The less capital the founders give away early on the more likely they will own a majority stake after several rounds of capital raising.

One of the best ways to preserve founders equity is for a business to grow through internally generated cash, or put another way, sales.  At the start of a business or the launch of a new product for a business, more cash will be flowing out investing in the R&D, marketing, paying staff costs, overheads, than will be coming in from new sales.  

There will always (or should be) a tipping point where income from sales equals outgoings on a monthly basis.  Careful here because this does not mean the company is making a profit for that year, since there will be the previous months of costs that are sitting in the expense account.  However, when the company is generating at least an equal amount of cash to the cash going out, this is a company at its Boot-strap position.  

The Boot-strap position signals something very important to investors.  The problem that the company set out to solve is a problem that customers want solved and they are willing to pay for it.  Some of the risks have been taken out and the issue becomes one of scalability with projections based on a more reasonable data set.

Now with some numbers….

NB. Assume in the below example that the opportunity for the same technology Company A and Company B are working on did not go away due to a 12 month time lag.

• In 2009, Company A has not hit the Boot-strap mark and obtains $400k in capital injection (say, from a syndicate of 15 known contacts) in return for a 40% stake in the Company.  We say the post-money valuation is $1 Million.
• Company B, on the other hand, decided to spend 1 year to reach the Boot-strap mark before it decided to take in $400k in capital in 2010.  The investor in Company B perceived that the investment risks were lower because Company B had more proof points of value creation during the last 12 months - and importantly had customer feedback.  In addition, based on the past, the future milestones and what Company B planned to spend the $400k on appeared (from the investors perspective) to have more certainty that the Company’s shares would increase in value.  The post-money valuation in this instance was $2 Million, with the investor only receiving a 20% stake in Company B for the same $400k injection.

1. THE POINT: If $400k capital is only the first of a series of capital-raising rounds, then the founders of Company B will have more equity to play with and will be able to keep control for longer.
2. THE POINT:  If both Company A & Company B sell to a large company in 2013 for $20 Million, then the founders impatience in the first 12 months will have cost them at least $4 Million.  

Morgan Cradock will soon be launching a new software product to help companies develop a strategic capital raising road-map.  We really need to know what features or problems you encounter in your own capital raising process.  

Please sign up to our CapitalRaisePro software email list and give us your input.  We’ll let you know when the product is available - probably within the next 3 months.

In this weekend’s MyCareer section of The Sydney Morning Herald journalist Yvonne Nicolas interviews an entrepreneur in the Hearing Device market space.  

The problem, according to the article, is that 1 in 6 people (in Australia - but presumably the stats for the rest of the world are similar) who suffer from hearing loss struggle to hear conversations when there is background noise.

It has taken Justin Miller, the CEO of Sensear, three years to make headway and it is only now that Sensea will “stand on its own feet” according to the article.  That’s a long time to keep the enthusiasm levels going against the back drop of all the tasks required of a start-up founder of new technology products.  Just how does a researcher like Justin make it through the tough times and stay dedicated to the initial compelling vision?  Passion. Passion. Passion.  It’s the entrepreneurs equivalent to the retailer’s location, location, location.

Even if you have the passion you will still need to get investors on board, build out a full capability management team, get early customers to engage, and take on a grueling travel itinerary convincing other people to buy-in to your vision.  Having a well thought through approach to these many conversations from the start is essential.

Have a listen to this interview with Monster’s founder Jeff Taylor, to understand whether your next big idea could have what it takes to change the face of a market segment.

http://www.startupnation.com/media/episodes/1544/podcast-big-business-big-ideas.asp

Multi-level organisational structures that exist in large companies impede innovation.

At least, that is the viewpoint currently touted in business schools and boardrooms across the globe. But is it true? And if so, how can start-ups take advantage of the innovation shortfall in large companies?

There will always be advantages to size and scope: Nokia and Google are examples of companies that continually innovate despite their size. But some argue that the industrial company was built for optimization, not innovation.

Very large companies erect any number of barriers to innovation. They often allocate resources based on what has worked in the past, instead of looking forward to what could determine the future. And established hierarchies tend to play down new threats to the existing order.  

One of the preferred ways that large companies perpetually renew and innovate is through acquisition of smaller, more innovative firms. For example, large technology companies in search of new ideas, new products, trained knowledge workers, strategic relationships and additional market share have a great deal to benefit from ‘strategic’ acquisitions of small firms.

So how can start-ups position themselves as an attractive target for acquisition?

 Founders of a start-up need to realistically explore a possible acquisition from the perspective of the buyer. Important purchase criteria will include IP licensing, business ownership, financial position, growth opportunities, market reputation and customer and supplier contracts. Any shortfalls or liabilities in these areas will make the proposition less attractive.

There are risks for small companies with any acquisition proposal. Many small business owners have been ‘courted’ by a larger company, investing hundreds of hours in preparing and sharing information, only to be ‘jilted’ by the prospective acquirer at the 11th hour.

And if the acquisition does go ahead, many large deals do not deliver on promised synergies. What may appear on paper to be a beneficial deal may end up ‘pear-shaped’ due to a lack of adequate planning, an overly-aggressive timetable to close the deal, a failure to realistically look at post-closing integration or assumed synergies that don’t materialise.

But that’s not to say that acquisition is not a winning strategy for start-up companies, and many founders have achieved positive outcomes by successfully attracting and executing on an advantageous acquisition. The key criteria is sharing business records and proactively addressing any issues in advance of attracting a buyer.

The Hunter Central Coast Innovation Festival stepped up to a new level of raising awareness today of the great smarts that exist within the Hunter and University of Newcastle.  

The good and the great amongst the academic community show-cased their most recent projects and collaborations with industry.  Of huge significance was the work Dr Michael Stockenhuber and Prof Paul Dastoor presented.

Starting with Dr Stockenhuber, senior lecturer in Chemical Engineering at University of Newcastle, his research collaboration with Airbus to convert their Airplane’s auxiliary energy system to fuel cell based power generators was staggering.  Dr Stockenhuber response to an audience question, “What makes a Happy Client?”, was, “They give me money again [for more research]“.  And I think this about sums it up.  The research funding that industry can provide as well as the commercial application of new technologies is paramount to the energy researchers.

Is there any field of research that Professor Paul Dastoor is not a genius and leading guru in?  

His first commercial venture, Keystone Medical, is a pump infusion device for the hospital home-care market.  But this wasn’t what he was talking about today.  His and his team’s latest research endeavors are in the area of organic solar technologies.  Paul has a vision to paint the world with a thin film that converts solar into electricity.  

Professor Dastoor would prefer we removed our traditional thinking hats from that of ‘energy efficiency’, citing that the recent discoveries of 5% efficiency is not the point.  The point is that if we could coat vast areas of the globe with a thin film - and all the other components to actually trap and use the energy source - that we wouldn’t need to worry about 5% efficiencies.

Without question there is significant research being undertaken.  The challenge, as always, becomes a question of what is the path to market for commercialisation?  In the case of Airbus, they paid for the research and own the predominant rights to the IP developed.  However, the know-how built up by Dr Michael Stockenhuber and his team will persist and who knows what revenues the University will generate for further work in this vital area - what I simply call, “The airplane weight-loss segment of the market”.  Why do I say “weight-loss”?  Very simple.  If the fuel-cell power generation can work then this will replace hydraulics and failsafe systems which weigh a lot.  If you can cut down the weight of the airplane then the main power source becomes cheaper - longer distances can be covered, more passengers can go aboard, etc, etc.  

In the case of Organic Solar, this is a very well-signalled technology.  Take for example the Hybrid vehicles we see on today’s roads. The true winners amongst those investing huge dollars in that segment were the major car manufacturers such as Toyota and definitely the losers were the early-in venture capitalists.  Large companies have significantly deeper pockets than early stage venture capitalists who may be tempted to get on the band wagon early, and I think this is another one of the Hybrid car segments that VCs would do well to avoid for their shareholders.  When a disruptive technology, as is the case with surface coatings that can convert solar to electricity, you can bet that the large incumbents (perhaps in non obvious areas in this case) are being well advised, by hordes of very clever futurists, to be taking an offensive strategy on this technology.  

Going further on the point of well-signalled technologies and venture capitalists preferring to play in markets that will grow rapidly and will not be necessarily huge, one alternative funding route for these types of technologies is a JV arrangement with the emerging technology divisions of, say, a major paint manufacturer or a major ink-jet production company.  Fortunately, the people in these divisions are easy to identify and are open to this type of model.

I look forward to seeing the progress of the Energy research from University of Newcastle and wish them every success in all their ventures.  Without their commitment we would still think the world was flat.

‘Ask an Expert’ asks Michael Cradock for his views

Ask an Expert

Q: We are looking for funding for an idea that is attracting a lot of interest. Is there a table or formula for working out how much, as a percentage, we give away? We already have the idea and need this money for R&D. The less we give away the better, but how do we know what is fair? – Roger

There are two things you need to know about investors. First, the share price is the most relevant feature (not percentages per se) and investors want the share price to increase between consecutive capital raising rounds.

So, seed capital investors (I am assuming this is the first outside capital your company is looking for) investing $100,000 in Round 1 at a share price of 0.05 cents will want to know that new investors investing in Round 2 in 12 months time will acquire shares at 0.10 cents for the same $100,000 invested.

Second, the view of the investor is that there must be an identifiable exit route and an identifiable exit valuation. Professional investors in technology/R&D companies sort market value investment opportunities into one of three categories. They pick whether your company can become a $50 million, $100 million or $250 million market capital valuation, then work backwards to determine the value of the company today.

They will simply use a multiple factor of the return on their investment that they would be happy to accept as the reward for the risk they are taking. The earlier stage the company is in, the higher the multiple.

For seed stage investing, anything from 10 to 30 times is the multiple range that you can expect to be negotiating on.

Working out the formula

Let’s put this all together in simple dot points to get to today’s valuation:

• Let’s say the opportunity you are offering investors is a $100 million market value exit prize.

• Then let’s say that the seed stage investor wants a 20 times return for the risk that they could lose all their money.

• Today’s valuation can be no more than $5 million.

• You need $500,000 of R&D investment for the next 12 months to seize the opportunity ahead of you.

• When you and the investors look at what you will achieve with the $500,000, you all believe there is a significant risk in raising further capital at a Round 2 price of $10 million.

• So, in order to make sure that you can raise the next round of finance, you price today’s valuation at a discount to the $5 million.

• You pick 60% as the discount factor to apply to $5 million, because of the unknowns in the year ahead and to leave room for other investors.

• The result is a valuation on today’s company of $2 million. This is the post-money valuation, i.e. after including the $500,000 of investment.

So, if the investor puts in $500,000 and the post-money valuation is $2 million, then $500,000 divided by $2 million gives you the answer you seek, i.e. 25% of the company will need to be ‘given away’.

Hopefully, the above explains the mechanics of what you are really negotiating on when an investor says, “I want 40% of the company for $800,000, or I want 10% for $200,000″. They are both saying the same thing, i.e. the exit could be $50 million and the risk deserves a multiple return of X. Your job is to get investors to focus on the prize and show them what you will do in the next 12 months to increase shareholder value.

Using available data

My advice to you is to first agree with your investor on what the potential future valuation might be via reference to other company data that has achieved an exit or is quoted on a stock exchange.

Many entrepreneurs fail to use available data. There are stock exchanges in the UK (AIM) and in the USA (NASDAQ) that provide you with plenty of companies to compare to. You can always discount these valuations to suit your particular case.

Once you agree on the future valuation, then you can discuss the existing technology roadmap, risks and options that might open up and what reward there should be for the risks inherent in the business over the 12 months until the next capital raising round. You then account for any other investments required.

Your goal is to raise large amounts of capital only when you have proven the viability of your business model. No start-up should raise all its capital in one go, otherwise you risk extreme dilution. This is a fact you will have to come to terms with.

Your goal now is getting to the next stepping stone and funding round. It’s wise to have a capital raising expert on your team who is aligned and is given incentive to raise the capital you need at consecutive rounds so that you can focus on the hard part, developing the technology and getting customers to buy the technology.

This question answered by:

Michael Cradock, 
Director of Morgan Cradock, a management consultancy specialising in capital, strategy and people 

If any reader would like specific advice in relation to capital raising then call Michael on 02 4946 8765 or email at michael@morgancradock.com

Regional Innovation Advisory Service (RIAS) programs are being held in Port Macquarie 14 – 15 May and Central Coast 28 May to help inventors and innovative small businesses from the regions develop new ideas.

The programs themed ‘Building on Bright Ideas’ include free seminars and free one-on-one consultations with innovation experts.

The opportunity is for anyone with a bright idea about a new or improved product, service or process looking for help to take things to the next step towards commercialisation.

The RIAS programs are an initiative of the NSW Department of State and Regional Development. [MORE]

Invitations and details for download can be found here:

• Port Macquarie - http://www.idc-hunter.org.au/content/pdf/RIAS_09_Port_Macquarie_INVITATION.pdf
• Central Coast - http://www.idc-hunter.org.au/content/pdf/RIAS_09_Central_Coast_INVITATION.pdf