Collaborative Innovation: The Enterprise + Startup ConnectionBrian Steketee, founder and CEO of Modustri

ACG Breakfast, Feb 2017

Serial Entrepreneur with some Fortune 500 experience

Before that…. I cut my teeth on leading Innovation for many other fortune 500 brands

By 2020, sharing is a global $26B business~Forbes Magazine, 2013

People will maximize asset utilization as a way of life and share products, services, labor, transportation, materials… 4

5

“Your team distilled down 70 years of our technology in one year and executed a better strategy”

– Ken Hoefling, Vice President and Officer, Caterpillar

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“We are at the forefront of a revolution in the heavy equipment industry. Emerging technologies are changing the way

we can help customers maintain a competitive advantage and achieve new levels of equipment productivity and

profitability. Our alliance with Modustri will be key in making this happen.”

– Greg Folley, Vice President of Analytics & Innovation Division

“Our parts monitoring and management tool has been a leader in the equipment management industry for 75 years, but we’re always looking for ways to step up our game. Our relationship with Modustri will allow us to take advantage of emerging technology that gives our customers more information on parts and components to maximize uptime. The days of being reactive are over.”

– Doug Hoerr, Vice President of the Reman, Components & Work Tools Division

Some key themes for today

1. What is innovation?

2. Identifying your path to growth

3. Vetting you partner

4. Structuring the right kind of deal

Innovation is… not just...

A new product

Jump the curveGuy Kawasaki

You can’t do things 10% better, you must do things 10 times better.

1.0 Ice Harvester

2.0 Ice Factory

3.0 Ice Box (aka Refrigerator)

If you define yourself by what you do, and not the benefits you provide then you can’t jump to the next curve “Guy Kawasaki”

Identifying your path to growth

What type of relationship are you looking for?

I want to be a supplier

Consider special circumstances – IP, incentives

What motivates an entreprenuerial and innovative team doesn’t always work within corporate guidelines

Freedom to operate

I want to be a partner

Think of the vehicles – JV, Alliance, Equity

Think of the complications – IP, goal alignment, fit

Mutualism— both entities benefit

Channel

Speed

Fortune 50 Company

I need commitments to support scale

Let’s share the risk / reward and have the right provisions to address that

Let’s account for that in our plans

So do we

How can we both benefit from it

Can you support us globally?

Are you going to be around in 12 months?

We want your speed but probably wont be able to go as fast as you do

We want consistency and stability

Do you have IP?

What am I looking for from you?

Small Market Company

Vetting the partnership (It’s a lot like dating)

Alignment

When you are ready to start datingMutual due diligence is crucial….

Talk to her ex-boyfriendsMake sure to meet her parents

Is this a long term or short term type commitment? Are you truly aligned?

Will she get jealous if you are spending time with other friends?Will your friends like her friends?

No plan has ever survived the ”REORG”

If it’s not in writing it doesn’t matterDoes your success metrics align with your partners? Are your KPIs in your documents?

Simple contracts survivePricing, Volume, and the importance of guarantees

Consider your governance and voting structureSet rules for governing key issues you may have to delay the discussion on

Don’t forget about the soft metrics

Address IP up front

Without an executive champion (on both sides),find something else to do

Prepare for the antibodies

Create ”mechanics” to address

Structuring the right deal

Don’t underestimate the value of experts that know what good looks like

MODUSTRI, COPYRIGHT © 2015 ALL RIGHTS RESERVED CONFIDENTIAL // CATERPILLAR28

Respect the process

You can’t measure a partnership purely on a DCF model

How Angry Birds started

Financing the deal

Drive towards a contract with “bankable” terms (involve your bank or investors in this process)

Don’t forget about the tax implications – Licensing v IP sale v standardGet innovative – upfront loans with capped paybacks for programs

Investors like revenue numbers – technology will not be your problem

Find alternative financing mechanisms and make sure not to overspend

Never underestimate the time it takes to get a deal done Always maintain at least 12 months of funding and appreciate the time to get a deal done

Make sure it’s a win/win – zero sum games fail in the end

What to capture in the agreement

Design the business model, goals, and projections into the contract and stick to themA clause that plans for a renegotiation

Include break up clauses and rational plans to address disagreementsIf you have IP, or joint development, define up front the the compensation methods that may last beyond the term

Soft Metrics

Governance

Warrants, Options, and mutually aligned goals

Crabs in a bucketPerception is more important than reality

Up front v earn out

Assume up front your five year plan won’t happenDon’t underestimate the unknowns

Line up your buyer ahead of time

Planning for the exit

Q & A

Brian Steketee, FounderModustrim +1.312.259.0800 // o +1.888.266.0950

Brian.Steketee@Modustri.com

Modustri.com