Entrepreneurship (Elective)SIBM

Kaushik Gala, 2009

New Media

“New media is a term meant to encompass the

emergence of digital, computerized, or networked

information and communication technologies in the

later part of the 20th century.” - Wikipedia

New Media

Cell phone

SMS, MMS

Ring tones

Games

VAS

Internet

E-commerce

Email

Instant Messages

Blogs

Social Networks

Digital Audio-Video

DVD

Video sharing / streaming

Set-top box / TiVo

Satellite radio

Impact of New Media

Profitability

Craigslist, Interactive Brokers, …

The Long Tail

Amazon, Netflix, …

Network Effects

Orkut, Twitter, …

Craigslist

Craigslist

Craig Newmark’s mailing list (1995)

Changed to a website w/ categories

Incorporated as a company in 1999

Current

500+ cities

10 billion+ page views per month

30 million+ new classified ads per month

2 million+ job listings per month

Community-driven (eg. censorship)

Privately-held

http://en.wikipedia.org/wiki/Craigslist

http://www.freerepublic.com/focus/f-news/1555189/posts

A. F. A. P. (‘Delightfully communist’)

As free as possible

<1% paid classifieds (NY rentals, jobs)

No online ads

< 30 employees (at-least 10x less than competitors)

“Craigslist exists to help Web users find jobs, cars, apartments and dates —

and not so much to make money.”

http://dealbook.blogs.nytimes.com/2006/12/08/craigslist-meets-the-capitalists/

“Livingston: What advice would you give to someone thinking about starting a

startup?

Newmark: Trust your instincts and your moral compass. I’ve used that phrase

too much in this conversation. The deal is: we’re not pious about this. We try

hard not to be sanctimonious. This is the way people really live; we just don’t

talk about it.

http://www.foundersatwork.com/

Online Ad Verticals

Jobs

Monster.com

Real estate

Zillow.com

Personals

Plentyoffish.com

Autos

Edmunds.com

Newspaper industry – Classifieds revenue

http://www.techcrunch.com/2007/11/21/spiral-death-watch-newspaper-ads-in-the-can/

http://www.kelseygroup.net/news/2008/evansink_080209.htm

Newspaper industry – Classifieds revenue

http://www.longtail.com/the_long_tail/2008/03/of-fly-eyes-and.html

Interactive Brokers

‘Deep discount’ broker

Eg. Stock options brokerage fee = $1 vs. $30 for high-end brokers

Technology driven trading & market making firm

“Sells liquidity”

Software API

Automated (algorithmic) trading → High volumes

Accounts for almost 15% of global equity options volume

Founder: Thomas Peterffy

Programmer, systems (quant) trader

Fight w/ CBOE

Electronic market making (smart order routing)

Forget marketing, focus on efficiency!

http://en.wikipedia.org/wiki/Interactive_Brokers

http://www.iinews.com/site/pdfs/IIMag_InteractiveBrokers_Nov_2005.pdf

The Long Tail

http://longtail.typepad.com/about.htm

The Long Tail

a. k. a. Fat tail, Power law, Pareto distribution

Chris Anderson

Clay Shirky

“a shift away from a focus on a relatively small number of "hits"

(mainstream products and markets) at the head of the demand curve and

toward a huge number of niches in the tail.”

Statistical view

A high-frequency or high-amplitude population is followed by a low-

frequency or low-amplitude population which gradually "tails off“.

The events at the far end of the tail have a very low probability of

occurrence.

http://en.wikipedia.org/wiki/The_Long_Tail

Impact of The Long Tail

Area under tail gaining significance

Popularity ≠ Profitability

"The biggest money is in the smallest sales.“

Embrace niches

Aggregate dispersed audiences

From scarcity to abundance

More expensive to evaluate than release

Cut prices. And keep cutting until the point where ‘free is not worth it’.

Upsell

“People who bought x also bought . . .”

http://www.changethis.com/10.LongTail

Why now? New media!

Online business model reduces costs of storage & distribution

Store rent (Shelf space)

Labor

Transportation

Payments

Web technology enables the Long Tail

Can showcase much wider variety of products on a website

Fulfill ‘niche’ demand

Search engines

Recommendation engines

Free sample/preview

http://www.changethis.com/10.LongTail

Amazon, eBay, Netflix, . . .

No retail presence

Significant cost advantages

Demand aggregation

Serve ‘niche content’ profitably

20-30% of Amazon’s sales come from TLT

Leveraging users

eBay’s feedback scores

Netflix movie reviews

Amazon book lists

Algorithms

Recommendation engine

Search & preview (eg. Google books)

Netflix $1M Prize

For developing an algorithm/system that substantially (10%+) improve the accuracy of

predictions about how much someone is going to love a movie based on their movie preferences

http://www.netflixprize.com/rules

http://ebusiness.mit.edu/research/papers/176_ErikB_OnlineBooksellers2.pdf

Mobile

Music

Mobile music sales > physical music sales in India

Ringback tones, ringtones and master tones – NOT full tracks!

Games

Casual gamers → Lightweight, niche game development

Apps

iPhone – 15,000+ apps, 500M downloads, $100M+ revenue

Epocrates

On-demand drug information

Free

50,000+ downloads by doctors

iFart

“Novelty app”

$0.99 per download

$40,000 in 2 days

Network Effect

Network Effect

a. k. a. Network externality

“the effect that one user of a good or service has on the value of that

product to other people.”

Examples

Phones

Software

“Winner takes all” (Monopoly, lock-in)

New Media

Accelerate speed of adoption

Being first > Being best ?

Viral effect

User participation

Content

Apps

http://en.wikipedia.org/wiki/Network_effect

Facebook, Digg, …

Allow people to connect, create content, participate, “hang out”

General: MySpace, Orkut, Classmates, Bebo, Hi5, Ning, …

Niche: LinkedIn (biz), Last.fm (music), Flixster (movies), Reddit (news), …

http://www.techcrunch.com/wp-content/digg-users-chart.png

http://www.fastcompany.com/magazine/115/open_features-hacker-dropout-ceo-facebook-numbers.html

http://nielsen-online.com/blog/2008/08/26/facebook-the-network-effect-at-work/

Twitter

Social messaging / micro-blogging

140 character max., “What are you doing”?

Simple, open interface (API), multi-platform, constantly evolving

4-5M users in < 3 years

But, where’s the money?

Massive hosting costs

No revenue model, yet

Database is a goldmine

Revenue models

Smart advertising

Freemium model for API access

Revenue sharing with apps, like iPhone

“Suggested” friends

http://en.wikipedia.org/wiki/Twitter

The Savviest User of New (Social) Media?

Obama’s Social Media Toolkit

Social media + Micro-targeting = Multiplier effect!http://www.edelman.com/image/insights/content/Social%20Pulpit%20-

%20Barack%20Obamas%20Social%20Media%20Toolkit%201.09.pdf

What about India?

Orkut (2M+ users), Bigadda, …

Naukri, 99acres, Carwale, …

Seventymm, Bigflix (Online movie rentals)

Flipkart (Online book seller)

TempoStand (Promotes independent bands and solo artists)

Opportunities

Mobile VAS - music, games, personal finance

Local language content

Niche magazines

???

Read

Marc Andreessen

Guide to startups

Multi-part series

Start here: http://blog.pmarca.com/2007/06/the_pmarca_guid_1.html

The Psychology of Entrepreneurial Misjudgment

http://blog.pmarca.com/2008/03/the-psychology.html

Paul Graham

Essay archive: http://paulgraham.com/articles.html

Watch

Academic Earth: Video lectures from the world's top scholars.

http://academicearth.org/subjects/entrepreneurship

Corporate Venture Capital

“An initiative by a corporation to invest either in young

firms outside the corporation or units formerly part of

the corporation.”

Corporate Venture Capital

Decisions

What industries to invest in?

Complementary?

How to structure a corporate parent-funded investment channel?

Division? Subsidiary?

Get best partners (for deal flow, quality, reputation, stage)?

Get best portfolio (for high value, reduced risk, timing)?

Strategic and/or Financial

Corporate Venture Capital - Trend

http://www.strategicventureassociation.com/documents/SVAPresentation-July2008.pdf

Corporate Venture Capital - Issues

http://www.strategicventureassociation.com/documents/SVAPresentation-July2008.pdf

Corporate Venture Capital – New Model

http://www.productgenesis.com/archive/Henry_Chesbrough_Presentation.pdf

Corporate Venture Capital – India (eg. Intel)

In India since 1998

$250M India Technology Fund (2005)

60+ investments

Jan 2009

$23M in 3 companies

One97 Communications (a Delhi-based mobile value added

services company), online B2B marketplace IndiaMART.com

and vocational training institute Global Talent Track

http://www.intel.com/capital/india/default.htm

Intel Capital

http://www.intel.com/capital/download/Intel_Capital_India_Overview_Jan_2009.ppt

Intel Capital

http://www.intel.com/capital/download/Intel_Capital_India_Overview_Jan_2009.ppt

Intel Capital (India)

http://www.intel.com/capital/download/Intel_Capital_India_Overview_Jan_2009.ppt

Intel Capital (India)

http://www.intel.com/capital/download/Intel_Capital_India_Overview_Jan_2009.ppt

Series A ‘Cap Table’

$3.5M pre-money valuation, $1.2M investment

Approx. 17M shares

Post-money Dilution factor = $1.2M / $4.7M = ~ 25%

1 – 0.25 = 0.75

Pre-money Post-money

(Exhibit 3)

Valuation $3.5M $4.7M

$ per share $3.5M / 17M = $0.21 $4.7M / 17M = $0.28

Founders 44.2 / 0.75 = 59% 44.2%

Angels (Series A) -- 24.9%

ESOP 29.6 / 0.75 = 39% 29.6%

$0 → $0.21 → $0.28

Series A (Pre- & Post-money)

59%

0

39%

Pre-Money

Founders

Angels

ESOP

44%

25%

29%

Post Money

Founders

Angels

ESOP

Series A (ESOP)

Pre-Money

Founders

Angels

ESOP

44%

25%

29%

Post Money

Founders

Angels

ESOP

Series B

$50M pre-money valuation, $45.5M investment

Approx. 17M shares

Post-money Dilution factor = $45.5M / $95.5M = ~ 48%

1 – 0.48 = 0.52

Pre-money Post-money

(Exhibit 3)

Valuation $50M $95.5M

$ per share $50M / 17M = $2.95 $95.5M / 17M = $5.6

Founders 44.2% 44.2 * 0.52 = 22.5%

Angels (Series A) 24.9% 24.9 * 0.52 = 12.7%

VCs (Series B) -- 48%

ESOP 29.6% 29.6 * 0.52 = 15.1%

$0 → $0.21 → $0.28 → $2.95 → $5.6

Liquidation Preference

Liquidation Preference: 1x Purchase Price

“In the event of any liquidation or winding up of the Company, the holders of

the Series B Preferred shall be entitled to receive in preference to the holders

of the Common Stock a per share amount equal to 1x the Original Purchase

Price plus any declared but unpaid dividends.”

Option

Either get paid in proportion to equity stake

Or get paid per liquidation preference

Downside protection for VCs Won’t let founders make money & themselves take a loss

http://www.altgate.com/blog/2008/05/how-liquidation.html

http://www.feld.com/wp/archives/2005/01/term-sheet-liquidation-preference.html

Liquidation Preference (1x)

$50M $100M $200M

Series B

investors

choose to

get paid 48%

Series B $24M (!) $48M $96M

Rest $26M $52M $104M

Series B

investors

choose to

get paid liq.

pref. (1x)

Series B $45.5M $45.5M $45.5M

Rest $5.5M $55.5M $155.5M

Liquidation Preference (2x)

$50M $100M $200M

Series B

investors

choose to

get paid 48%

Series B $24M $48M $96M

Rest $26M $52M $104M

Series B

investors

choose to

get paid liq.

pref. (2x)

Series B $91M $50M $91M $91M

Rest - $9M $109M

Series C

Down round

$95.5M → $80.7M

$ per share = $80.7M / 17M = $4.75

Anti-Dilution clause of Series B term sheet kicks in

A mechanism in response to a subsequent round of financing that involves

issuing shares at a lower price than first-stage investors received.

A broad-based weighted average ratchet almost always involves preferred

stock, in which early investors have a conversion price ("price X"), while a

later round of investors receive preferred shares with a lower conversion price

("price Y").

A weighted average price is calculated that will effectively reprice the shares

issued at price X and price Y

http://www.investopedia.com/terms/b/broadbasedwar.asp

http://www.startupcompanylawyer.com/2007/08/04/what-is-weighted-average-anti-dilution-protection/

$0 → $0.21 → $0.28 → $2.95 → $5.6 → $4.75

Series C

Exhibits 5, 6, 7, 8

Pre-money Post-money

(Proposed)

Post-money

(Revised)

Founders 22.5% 12.4% 11.4%

Angels (Series A) 12.7% 6.9% 6.4%

VCs (Series B) 46.5% 45.2% 30.4%

VCs (Series C) -- 19.9% 28.6%

ESOP 15.1% 13.3% 21.3%

Liq. Pref. 2x 1x

Startup Financing

http://www.angelblog.net/Startup_Funding_Sources_of_Financing.html

http://paulgraham.com/startupfunding.html

Friends & Family

Easy to find

“Love money”

Quick transaction

Downsides

Mix business with personal relationships

Dealing with losses

Limited value-add

Startup issues

Connections to angels/VCs for later rounds

Legalities

Equity stakes

Term sheets

Consulting

Consulting project → Product → Startup

Cash flow

Customer validation

Downsides

Low risk, low return

Dealing with clients vs. Developing the product

No fear of failure?

Angel Investors

VHNIs

Understand startups

Contacts, advice, follow on financing

Flexibility in term sheets

Issues

Valuation

Exit

At their mercy?

Seed Funds

Early stage investments, ~ angels

Influence business model

Seed funds = Incubators?

High risk, high reward

Bet a little, test a little?

People > Idea

Tech savvy

Downsides

Too much control?

Formal process → Delays

Venture Capitalists

Fund structure

Managers + Limited partners

Success begets success?

Reputation

Contacts, follow on rounds, exits

Downsides

Too much control

Formal process → Delays

Vesting

Exit pressure

Governments, etc.

Government grants, NGOs, Social institutions, …

Downsides

Painful process

Restrictive terms

Type of product/service

Location

Employment

Spending

Corporate VC

Strategic and/or financial motives

Domain expertise

Customer base, contacts

Downsides

Not really a VC

Commitment

Team ($) conflicts

Eg. Intel Capital

http://www.intel.com/capital/

Angel Investing

Angel Investing (HBS)

3 months turnaround, 1% investment rate

Investment amounts: Seed → VC

4 year holding period

Preference

Industry/Sector

Location

Market potential

Relationships!

Due diligence: None → VC style

Andy Bechtolstein: $100K cheque to Google after a chat

http://www.businessweek.com/magazine/content/08_17/b4081112242665.htm?chan=smallbiz_smallbiz+index+page_ge

tting+started

http://wistechnology.com/articles/4363/

Angel Investing – Big Business

http://www.unece.org/ceci/ppt_presentations/2007/fid/Claire%20Munck.pdf

Angel Investing – Big Business

http://www.angelcapitalassociation.org/dir_downloads/resources/What_Ents_Should_Know_About_Angels.pdf

Angel Investing – Trends

More, larger deals

Partnering with VCs

Co-investing with other angels (Angel Groups)

Holding back capital to make follow-on investments

Anti-dilution

Government support

Tax

Women & minorities

http://www.ibfconferences.com/ibf/control/presentation/Workshop%202.pdf

Angel Groups in India

Indian Angel Network

http://www.indianangelnetwork.com/

Entrepreneurial & operational background

Simple term sheet

Quick turnaround

Mumbai Angels

http://www.mumbaiangels.com/

Mentoring

Networks

Silicon Valley experience

Note:

Biz-Plans, Due diligence

1cr+ ?

Angel Investments in India

http://www.businessworld.in/index2.php?option=com_content&task=view&id=2175&pop=1&page=0&Itemid=2243

VCs

Venture Capital (HBS)

$20B+ industry worldwide

Typically: 5-year time frame, 30%+ target IRR, 30% net stake

Market > Team > Idea ?

Limited partners

Pension funds, Universities, Foundations, Banks, …

Management fee (2% p.a.) + Carry

1 out of 10 = Big winner

But which one?

Too much money, too little time

And even less talent

VC Investments – Buyer Beware

99% startups do not need VC fundings

Too early, too small, no IP, control

VCs fund 1 in 100 deals

Exit dilution for VC-funded founder: 90%

Liquidation preference

VCs get paid first!

Portfolio marriages

Ugly divorce!

Never say “no”

Delay → Information (for the VC, not the entrepreneur)

http://avc.blogs.com/a_vc/files/nyu_venture_capital_when_you_need_it_when_you_dont.ppt

VCs face declining returns

http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/

VCs face skewed returns

http://paul.kedrosky.com/archives/2005/07/22/skewness_in_ven.html

VCs in India

2006

$349 million in 36 deals

$8.7M median deal size

2007

$928 million in 80 deals

$9M median deal size

2008

$740 million in 125 deals

VC = PE ?

http://infotech.indiatimes.com/News/VCs_tighten_purse_strings_in_Q4_/articleshow/3946809.cms

http://www.domain-b.com/management/m_a/20080222_dow_jones.html

VCs in India

IVCA

http://www.indiavca.org/

VC Circle

http://www.vccircle.com/

SEBI

http://www.sebi.gov.in/investor/venturecap.html

VC vs. Entrepreneur

VC vs. Entrepreneur (HBS)

Goals

Create product/company vs. Return on investment

Reputation

Degree of control

Business model

Operations

BoD

Term sheet

Exits

When, how, how much?

Failure

Term Sheet – Type of Stake

Convertible Debt

Bridge loan

Converts to equity in next round

Avoids valuation hassles

Simple terms

Preferred Stock

Priority over common (founders’) stock

Voting privileges

Convertibility (at time of exit)

Participating rights (get back initial investment + share in capital gains)

Redemption rights (Get payout / dividend over time)

http://www.venturehacks.com

Term Sheet – Ownership & Control

% equity for investor vs. founder vs. ESOP

Board participation

Covenants

Operational milestones

Exits, M&A

Future rounds

Ratchets

Anti-dilution for existing investors

Guard against stock splits, special dividends, etc.

India: 26% stake minimum to block board resolution

http://www.venturehacks.com

Skill Versus Luck in Entrepreneurship & VC

The predicted success rate of entrepreneurs with a track record of

success is 30.6%, compared to only 22.1% for serial entrepreneurs

who failed in their prior venture, and 20.9% for first-time

entrepreneurs.

VC funding has a minimal effect on the performance of

entrepreneurs with good track records. Where VCs do matter is in

the performance of first-time entrepreneurs and serial entrepreneurs

with histories of failure.

Venture capital firms add little value to talented, successful entrepreneurs.

If prior success were pure luck, we would not see this pattern.

http://papers.nber.org/papers/w12592.pdf

Business Plan

http://www.sequoiacap.com/ideas/

Business Plan

http://www.sequoiacap.com/ideas/

Business Plan – Ditch It ?

VCs don’t have the time to read one

Busy founders don’t have the time to create one

It’s constantly changing

Sharing detailed (confidential) information requires an NDA

VCs won’t sign one

Nobody knows

How team / product / market will evolve

What’ll happen 2/3/5 years from now

“Nothing slows down a VC as much as a comprehensive business plan.”

Y Combinator

Specializes in funding early stage startups

Software and web services

Small investments (< $20,000) in return for small stakes (2-10%)

Value-add

Work together on ideas

Help entrepreneurs deal with investors & acquirers

Formalities (incorporation, equity stakes, etc.)

Funding in batches

Demo Days

http://ycombinator.com

Vinod Khosla

Co-founder, Sun Microsystems

VC, KPCB

Over half his investments at KPCB from 1996 to 2001 were infusions of $1

million or less into barely formed startups

Juniper Networks returned KPCB's invested capital over 1,000 times.

Khosla Ventures (2004)

Seed stage ‘science projects’

New areas (bio fuel)

Innovative, but not yet commercially viable

http://www.nriinternet.com/NRIentrepreneurs/USA/A_Z/K/Vinod_Khosla/3_May31_2005.htm

http://battakiran.wordpress.com/2008/07/22/vinod-khosla-smartest-guy-in-silicon-valley-%E2%80%93-by-richard-

shaffer/

Vinod Khosla

His highest returns came disproportionately from investments where he put in

less than $1m (seed stage), and from where he had a board seat.

Note: 60-100% success rate are an anomaly!

http://paul.kedrosky.com/archives/2006/07/04/the_seed_ventur.html

Venture Hacks

Advice for entrepreneurs

Do’s & dont’s

Term sheets

http://www.venturehacks.com

Archiveshttp://venturehacks.com/archives

Top 10 Term Sheet Hackshttp://www.slideshare.net/venturehacks/top-10-term-sheet-hacks-presentation-725011

Kauffman, Center for Venture Education

http://www.kauffmanfellows.org

“To identify, network and develop future global leaders of the venture capital

industry.”

2-year program

Fully funded by employer (VC firm)

What is Entrepreneurship?

“the practice of starting new organizations or

revitalizing mature organizations, particularly new

businesses generally in response to identified

opportunities.” – Wikipedia

Faster . . . Better . . . Cheaper . . . New!

‘Value Proposition’

Café Coffee Day

SMS

Reliance Fresh

Orkut

Inox

IRCTC

Starting a New Venture

IdeaPrototype

(R&D)Marketing Sales Customers Revenues Profits $$$

Money

Starting a New Venture (Reality)

Idea

Prototype

(R&D)

Marketing

SalesCustomers

Revenue

Profits

$$$

or

Knowledgeable & Bankrupt

Market Matters Most . . . Mostly

1. Market

2. Team

3. Product / Service

Everything else is secondary:

Location

Legalities (regulation, patents)

Economy (recession)

Sales & marketing channels

. . .

Money?

http://www.gapingvoid.com/Moveable_Type/archives/002782.html

Then again, cash flow is king.

A Million Ways to Startup Success

Opportunism

“the art, policy, or practice of (resourcefully) taking

advantage of opportunities or circumstances often

with little regard for principles or consequence”

-Webster

Opportunistic Entrepreneur

Adaptive

Rapid growth

Breadth of skills / experience

High social awareness

Interested in discovering & exploiting opportunities

Innovative

???

Opportunist: Long-Range Low-Risk

Develop plans for the long run & consciously weigh

options

"Don't regret later because you did not try”

Risk-averse propensities

Higher short-range risk but low longer-term risk

Minimize personal risk by involving outside sources

Engage with formal networks

http://www.entrepreneur.com/tradejournals/article/53590484_1.html

Opportunistic Decision Making

“Entrepreneurs = Decision makers who identify and capitalize on opportunities through approaches that emphasize innovation, profitable venture identification, effectiveness rather than efficiency, and ambiguous situations.”

“Entrepreneurial profit opportunities exist where people do not know what it is that they do not know, and do not know that they do not know it. The entrepreneurial function is to notice what people have overlooked.”

“Whenever major changes take place, turmoil and confusion result in the marketplace, creating situations that are ripe for exploitation by opportunistic decision makers.”

Examples: ???

http://www.allbusiness.com/human-resources/employee-development-problem-solving/102133-1.html

Opportunistic (Startup) → Strategic (Growth)

“Building a long-lived firm requires comprehensive changes. Instead of relying upon

opportunistic adaptation to exploit niche opportunities, they have to formulate and

implement ambitious long-term strategies.”

In order to scale (grow) the entrepreneurs behind the business must adopt a strategic

rather than an opportunistic approach.

In particular they must perform three key tasks:

1. articulate audacious goals and purpose for the business

2. switch from tactician to strategist by formulating a strategy (a set of general rules

and boundaries) for achieving those goals

3. effectively implement the strategy by translating the general rules into specific

actions and decisions

This is in contrast to the nature of a startup business, which is intuitive, adaptive,

opportunistic and niche oriented.

http://www.thompsonlaw.ca/pdf_folder/beyondstart.pdf

Opportunistic Entrepreneurs in India

Dhirubhai Ambani

Stay Hungry Stay Foolish – Rashmi Bansal

Deep Kalra (makemytrip.com), Rashesh Shah (Edelweiss Capital), Nirmal

Jain (India Infoline), Vikram Talwar (EXL Service), K. Raghavendra Rao

(Orchid Pharma), Jerry Rao (Mphasis), Shivraman Dugal (Institute for

Clinical Research in India), Shankar Maruwada (Marketics), Ruby Ashraf

(Precious Formals), Deepta Rangarajan (IRIS), and Cyrus Driver (Calorie

Care)

???

Richard Branson

English billionaire industrialist, Virgin Group

(First successful business venture at age 16)

http://en.wikipedia.org/wiki/Richard_Branson

Virgin Group (A Branded House)

“Virgin, a leading branded venture capital organization, is one of the world's most

recognized and respected brands. Conceived in 1970 by Sir Richard Branson, the

Virgin Group has gone on to grow very successful businesses in sectors ranging

from mobile telephony, to transportation, travel, financial services, leisure, music,

holidays, publishing and retailing.

Virgin has created more than 200 branded companies worldwide, employing

approximately 50,000 people, in 29 countries. Revenues around the world in 2006

exceeded £10 billion (approx. US$20 billion).

In our customers' eyes, Virgin stands for value for money, quality, innovation, fun

and a sense of competitive challenge.”

http://www.virgin.com/AboutVirgin/WhatWeAreAbout/WhatWeAreAbout.aspx

The Ultimate Opportunist?“In an era dominated by strategists, Branson is an opportunist.”

“Like most high-caliber entrepreneurs, Richard Branson is every inch an opportunist.”

“Branson is creative, opportunistic, and dedicated to those activities he engages.”

“Luck, energy and opportunism have combined to create Branson.”

“part Warren Buffett, part P.T. Barnum.”

“Ever the entrepreneur, Branson will seek every opportunity to make a fast buck and get

some free publicity.”

Knighted for ‘Services to Entrepreneurship’“Even at an early age, I planned long term and learnt to wait for reward.

Be bold, but don’t gamble.

I have fun running the Virgin businesses, so a setback is never a bad experience, just a

learning curve.

The odd bit of luck goes a long way.

The very idea of entrepreneurship not only conjures up thoughts about starting up

businesses and building them, but also the more frightening prospect of taking risks

and failing. It’s the last part that puts so many people off taking a leap into the

unknown and working for themselves.

Since 80% of your life is spent working, you should start your business around something

that is a passion of yours.”

http://www.amazon.com/Screw-Lets-Do-Lessons-Quick/dp/0753510995

http://opportunistmagazine.com/wp-content/docs/08.pdf

Technology Commercialization

“The process of transforming technology

inventions into products / services that

have strong market demand.”

Agenda

Technology Commercialization

Challenges

R&D

Suitability

Lab → Market

IP Commercialization

Incubators

Venture Center

IC2 Institute

Cambridge

Bayh-Dole Act

India

Technology Commercialization - Challenges

People

Inventor, Technologist, Entrepreneur, Investor

Intellectual Property

Cost, legalities

Incentives

Scientists

Professional managers

VCs

Regulation

Equity financing, Stock options

IP enforcement

Eco-system

R&D Funding → Commercialization Success

http://www.rcr.ku.edu/ra_101/2008_handouts/Prducts_of_Rsrch/int_prop_tech_com.pdf

Global R&D Metrics

http://www.venturecenter.co.in/nanoworkshop/Talks/Day1/Translating-Science-into-Technology070108.pdf

Global R&D Spend

India spends ~ $30B p.a.

http://www.venturecenter.co.in/nanoworkshop/Talks/Day2/DavidSecherPune2-stick.pdf

Technology Commercialization - Challenges

Science & Technology R&D OrganizationsAgharkar Research Institute (ARI)

Armament Research & development Establishment (ARDE)

Armed Forces Medical College (AFMC)

Automotive research Association of India (ARAI)

Centre for Development of Advanced Computing (C-DAC)

Centre for Materials for Electronics (C-MET)

Central Water and Power Research Station (CWPRS)

Defence Institute of Advanced Technology (DIAT)

Giant Metrewave Radio Telescope (GMRT), TIFR

High Energy Materials Research Laboratory (HEMRL)

Indian Institute of Science Education and Research (IISER)

Indian Institute of Tropical Meteorology (IITM)

Inter University Centre for Astronomy and Astrophysics (IUCAA)

Microbial Containment Centre (MCC), ICMR

National AIDS Research Institute (NARI)

National Centre for Cell Sciences (NCCS)

National Centre for Radio Astrophysics (NCRA)

National Chemical Laboratory (NCL) & many more . . .

Suitability for Commercialization

Clear value proposition

Translates to products / services

Large (fast growing) target market

TAM, SAM, SOM

“Edge”

IP, Know-how

Barriers to entry

Not too low, not too high

Platform technology

Multiple products

Standalone technology

Minimum complementary technologies/ investments required

Lab → Market

http://www.venturecenter.co.in/nanoworkshop/Talks/Day3/TechtransferPune.pdf

Lab → Market

Market research

Primary, secondary

Manufacturing capabilities

Prototype → Pilot → Mass, geographic location

Initial set of customers

Proof of concept

Risk identification

Quality, reliability

Legislation, regulation

Eg. Biotech

Product positioning

Sales & distribution, branding

Lab → Market (Options)

License

Quick

Terms – exclusivity, field of use, royalty rates, etc.

Incremental innovations

Spin-off

High risk, high return

Novel technology

Multiple competencies

Partner

Access to market / manufacturing / …

“Custom” innovation

Lab → Market (Accelerate)

$$$

Government

Professional investors

Market pull (instead of Technology push)

Sales & marketing expertise

Partner

Development (vs. research)

Manufacturing (vs. prototyping)

Effective networking & communication

http://www.steab.org/docs/Technology_Commercialization.pdf

IP (Patent) Commercialization

Assign (sell), license or assert

Carrot vs. stick

Considerations

Exclusivity, Geography, Field of use, Royalty rates

Cross-license

Litigation

Patent Portfolios

Eg. Qualcomm

$$$

IBM licensing revenue > $1B per year

Intermediaries

Intellectual Ventures

IPVALUE

Ocean Tomo

Incubators

Technology Incubators

Office space

Lab, prototyping facilities

Project (support) staff

Legalities (incorporation, etc.)

Patent filing

Technology (domain) experts

Entrepreneurs-in-residence

Beta customers

Seed fund

Access to angels, VCs

Several thousand worldwide; long time to success (decades!)

Venture Center

Affiliated to the NCL Innovation Park

Access to NCL R&D

Not-for-profit technology business incubator

Infrastructure

Office space

Labs

Learning

Library

Training

Seed fund?

Government

http://www.venturecenter.co.in/

IC2 Institute

Interdisciplinary research unit of The University of Texas at Austin

Master of Science in Technology Commercialization (MSTC)

One year degree program

Austin Technology Incubator

Works with early stage technology companies to increase their odds of

success and decrease their time to capital and markets

Global Commercialization Group

Lockheed Martin India Innovation Growth Program

2-year, nation-wide project, created to enhance the growth and

development of India’s entrepreneurial economy

Cambridge Enterprise Group

http://www.enterprise.cam.ac.uk/

Cambridge Center for Entrepreneurial Learning

Movement of human capital

Repeated business and technological experience, through serial and

habitual entrepreneurship

Narrow “gene pool”.

Flow of funds from venture capital is largely within a social network –

which possesses technical and managerial human capital

Pareto effect

Close friendships and tribal belonging

Sense of internal promiscuity

http://siteresources.worldbank.org/EDUCATION/Resources/278200-1119034601454/1295724-

1163541919153/WB_STI_Shai_Vyakarnam_25July07.ppt

Bayh-Dole

US, 1980, Public Law 96-517 = the Bayh-Dole Act

“rights to inventions resulting from government-sponsored research

at universities would be assigned to the universities.”

Enabled technology transfer, spin-offs, IP commercialization

Royalty sharing with inventors

Unintended consequences

For the love of money

Profits being (mis) used

Restrictive IP law

High prices

http://en.wikipedia.org/wiki/Bayh-Dole_Act

http://www.cogr.edu/docs/Anniversary.pdf

http://money.cnn.com/magazines/fortune/fortune_archive/2005/09/19/8272884/index.htm

India

NRDC

http://www.nrdcindia.com/

Angel Funding

Equity participation, ranging from Rs. 10 lakhs to Rs. 30 lakhs

DST

http://www.dst.gov.in/

Seed fund (grant)

DSIR

http://dsir.gov.in/tpdup/tepp/tepp.htm

Technopreneur Promotion Programme (TePP)

Upto Rs 50 lakhs per startup

Specific areas

Elderly

Clean tech

Social impact

Terms & conditions!

Bottom-line: We need

Skilled Labor

Scientists, engineers, experienced entrepreneurial management

Technology R&D

University, Corporate

Specialized Infrastructure

Clusters, Labs, Tech Parks

Risk Capital

Pre Commercialization, Pre Seed and Seed Capital

Technology transfer

University-Industry Centers; Fair, fast and transparent tech transfer policies

www.clevelandfed.org/Research/conferences/2006/november/ppt/SmithDonPresentation.ppt

Business Schools & Entrepreneurship

Where’s the motivation?

Where’s the innovation?

B-Plans

Good fun, but that’s about it?

So what can we do?

Get involved with inventors / innovators / entrepreneurs

Product-market fit

Business model development

Fund raising

IC2 Institute – MSTC Curriculum

Converting Technology to Wealth

Marketing Technological Innovations

Technology Management and Transfer: Theory and Practice

Financing New Ventures

Strategic Analysis for Technology Commercialization

Legal Issues of the Commercialization Process

Managing Product Development and Production

The Art and Science of Market-Driven Entrepreneurship

Creative and Innovative Management

Internationalization of Technology

Technology Enterprise Design and Implementation

Risk Analysis

Why Not To Do A Startup

Emotional roller-coaster

Uncertainty

Nothing happens unless you make it happen

“No”

Hiring

Sweat & Equity

Indian culture

Work-life balance

Luck

X factors (Randomness)

Recession, Market crash, ‘Acts of God’

Statistics

Dentist or Entrepreneur ?

http://blog.pmarca.com/2007/06/the_pmarca_guid_1.html

"Entrepreneurship is the last refuge

of the trouble-making individual.”

“Nothing spurs one into entrepreneurship like the sudden,

unexpected decline in his opportunity costs.”

Innovation

“The act of introducing something new.”

“Any creative idea, getting implemented or realized

successfully.”

Innovation, by Joseph Schumpeter

1. The introduction of a new good or of a new quality of a

good.

2. The introduction of a new method of production.

3. The opening of a new market.

4. The conquest of a new source of supply of raw

materials or half-manufactured goods.

5. The carrying out of the new organization of any industry

(eg. the creation or breaking up of a monopoly)

The Theory of Economic Development, 1934

Innovation, Apple style

Product-oriented culture

Hire people who want to make the best things in the world

Saying no to 1,000 things

Focus on user experience

Iterate

Perfection, simplicity, elegance, . . .

Focusing their attention on basic human activities instead of basic

corporate activities

‘Network’ innovation

“stitching together its own ideas with technologies from outside and

then wrapping the results in elegant software and stylish design” -

Economist

Steve Jobs2005 Commencement address, http://news-service.stanford.edu/news/2005/june15/jobs-061505.html

Newton vs. iPhone

Newton

Born 1989, Released 1993, Died 1998

Pen-based PDA

Ahead of its time

Over hyped, under delivered

???

Apple’s Errors

Decided not to license its OS

Innovation, at any cost / Innovate or die!

High cost, high risk ‘integrator’ model NIH syndrome

Pricing

vs. Microsoft ???

http://www.fastcompany.com/node/48286/print

Zoho

Wide range of web-based products

Driven by user feedback

APIs

Taking on Google/Microsoft, with no VC money

Building a brand (vs. selling out to MS/Yahoo/…)

Revenue model: 1M free users → 10k (low price)

paid users

“Freemium”

TutorVista

Online tutoring

$100 a month vs. $40 an hour

Clear value proposition

Salaried employees, working from home

Matching teachers w/ learners?

Redbus.in

Online ticket booking, across multiple bus

operators

Organizing a fragmented, under-served market

Clear revenue model

Regional languages

Offline?

Quillpad

Online transliteration

Intelligent, intuitive, phonetic

No special fonts, keyboards, etc.

Platform to enable regional language content

http://quillpad.in/hindi/hindi_index.html

Grameen Bank

Extend credit to lowest income borrowers

No collateral

High credit risk

No contract enforcement

Daily interest rates upto 20%

Risk mitigation

Women

Lender-borrower relationships

Prosper, Kiva

Peer to peer, online lending

Cut out the banks

Cut out the middle-man

Help entrepreneurs

Diversify risk ($25 max per loan)

Market-driven interest rates (Prosper)

STD ISD PCO

Sam Pitroda

C-DOT

1980s Telecom revolution

Community telephone

Operated by entrepreneurs

Revenue = % of Phone charges

Aggregation of demand

Cyber cafes

Nirma

Detergent products for poor, rural consumers

Low cost manufacturing (labor intensive)

Wide distribution network

Special packaging for daily purchase

Value pricing

18% gross margin

Amul

Khira District Milk Co-operative / Anand Milk Union

Limited

Processing, distribution, branding

Decentralized organization

Cut out the middlemen / traders

Indirect employment for many

2M+ farmers

Lijjat Papad

Decentralization (Sarvodaya)

Women as owners

Daily payments

J-I-T

Quality

42000+ employees

300cr+ revenue

http://in.rediff.com/money/2005/apr/15lijjat1.htm

eChoupal

ITC initiative to make supply chain more efficient

Link directly with 4M+ rural farmers for

procurement of agricultural / aquaculture produce

Middlemen: Exploitation → Management

6500 centres, 40000 villages

Bonus:

1 of the top 5 alternative channels for LIC Policy sales

Accounts for 10% of the national weather insurance market

Jaipur Foot

Artificial limb (prosthesis)

Rs 1500

Free by BMVSS

Wearer can run, pedal, . . .

Humane delivery system

Design & material innovation

Aravind Eye Care System

High volume eye care

60% patients get free services

High resource utilization (24x7)

Lens cost $5 vs $25

Surgery costs $300 vs $3000

Process innovation

Eye camps, Temp nurses, Training

1 gram Gold

Gold coins in denominations of ½ gram and 1 gram

Not imitation jewelry

Reliance Money, ICICI Bank, India Post

Systematic investing for the unbanked?

Rs. 8,000-crore gold coin market, dominated by

unorganised jewellery stores

Not just BoP

Gift market (1 gram gold = Rs 1300)

Tata Nano

Rs 1 lakh target price point

Cost innovation

Design, materials, features, (subsidies), etc.

Safety? Environment?

Entrepreneurship (Elective)SIBM

Kaushik Gala, 2009