TCF...CIF..WTF(unding)? How to prepare a winning application

transcript

TCF…CIF…WTF(unding)?

How to prepare a winning

application

The Process

Technology Commercialization Fund

Purpose:

Fund product development to position a company for follow-on investment

Early-stage companies in MD meeting eligibility requirements

$100K Investment for up to 12 month projects

1st of every month

Program Contact:

Henry Ahnhahn@tedco.md

Cybersecurity Investment Fund

Purpose:

Fund product development to position a cybersecurity company for follow-on investment

Early-stage “Cybersecurity” companies in MD

$100K Investment for up to 12 months

15th of every month

Program Contact:

Ron Kaeserkaese@tedco.md

TCF Eligibility Requirement

Contract or license with:

• MD university,• Federal lab with

partnership agreement, or

• Other not-for-profit in MD

Affiliation with:

• One of Maryland’s ‘Qualified’ incubators

• RBI2, ACTiVATE, or INNoVATE programs

For-profit with less than 16 FTE employees

• At least 50% working in Maryland

• Potential for growth in MD

AND AND

Pre-revenueOR

Pre-institutional Investment (Less than $500K investment)

CIF Eligibility Requirement

For-profit with less than 16 FTE employees

• At least 50% working in Maryland

• Potential for growth in MD

Pre-revenueOR

Pre-institutional Investment (Less than $500K investment)

Review Timeline

Month 1 Month 2

Application Due Date

Compliance Review + Site Visit

Preliminary Review:2nd Wed of the month

Preliminary Review:1st Monday of the month

Pitch to Committee:3rd Wed of the month

Pitch to Committee:1st Wed of the month

Reference checks / Additional due diligence as necessary

TCF/CIF Reporting Requirement

Milestone Reports and invoice

Quarterly (April, July, October, January): Financial statement

Annual (April of each year):

State and federal income and payroll tax returns

Financial statement (full year)

Annual economic reports (Revenue, # employees, money raised)

8% simple interest

May convert to equity or another form of investment after the company raises $500K or more (TEDCO’s option)

No discount or cap provision

TCF/CIF Convertible Note Terms

Where do I get more information?

W W W . T E D C O . M D

Where do I get more information?

Request for Application

Funding Document

Application Link

Program Manager

Checklist

The Project

Project Orientation

Empirical evidence that the technology works

Commercial market(s)

identified

Target market justified

Designed to strengthens

IP position

Project within company’s commercialization pathway

Project Orientation

Moves technology through next step(s) toward commercialization

Leverages additional resources (Federal / Academic / Incubator / …)

Achievable with the team proposed, funding allocated, and within 12 months

A Good Project

Importance to Business

Project success likely to increase valuation of technology and company

Advances along commercialization pathway

Builds business network

A Good Project

Importance to Business

Success attracts follow-on funding

Plan for follow-on funding

The Ask

Planned Uses of Funds

Anticipated Sources of Funding

A Good Project

Milestones

Three milestones of nearly equal budget (tranches)

Demonstrable achievement

TEDCO informed if changes need to be made

Closeout site visit scheduled as project end nears

Timely receipt of Comprehensive final report

Achieving technical/budget/schedule milestones

A Good Project

Budget

At least 80% “direct” funding to the technology project

25% paid upon signing of the Project Agreement

Entrepreneur does not need to float the start

Three 25% progress payments

50% company match (may be in-kind)

Company match keeps pace with TEDCO funding

TEDCO informed if changes need to be made

A Good Project Example

Entrepreneur licensed US Army technology

Added further collaboration to leverage resources

Started a company

Received funding through TEDCO

Joined local Incubator

Software development (neighbor in Incubator)

Product is a Research tool sold world-wide

Company remains small with 4 to 5 employees

Outsources 4 to 5 manufacturing jobs locally

Rural community now has 8 to 10 high tech jobs

Financials

Financial Projections

Financials are not separate from the business plan. They are a different way of representing that plan

The key to securing investors is telling a consistent, believable story, and your numbers should tell the same story as your elevator pitch

Investment Needs

Strive to match critical milestones to capital needs

Figure out what level of traction and commercialization different stage investors (i.e. angel, early institutional, series A) need to see, then develop a credible plan to get to each of those discrete points

Avoid common mistakes, such as:

Projecting negative cash flow (or leaving too narrow a cushion)

Spending significantly less than the amount invested

Raising a dollar amount incommensurate with the magnitude of the opportunity

Investment Needs

On the cost side of things, avoid fixing different categories in operating costs at a certain percentage of revenue

Instead, take the time to build out an actual headcount model, driven by key assumptions around how many leads salespeople can generate and follow up on and how much progress developers can make

Revenue Model

Use both the top-down and bottom-up approaches as aides. The worst models rely on only one (e.g. we will grow from 1 – 5 % market penetration in the next five years). Ideally these two approaches will converge

Research the implications of GAAP revenue recognition on your revenue model

Marketplaces that do not take on inventory risk should recognize only their commission as gross revenue, but companies that utilize channel sales partners recognize all the revenue with lower margins

Revenue Model

Keep any industry-specific sales cycle dynamics in mind

Retailers see sales spikes in December

Education technology companies see MRR increases at the end of their sales cycles

Being conservative is good, but never be conservative about metrics that are core to the value proposition

Operating Metrics

Let key operating metrics drive both sides of the model. When revenue numbers fall behind projections, operating metrics help inform why

General metrics that all companies should be tracking

Cost per customer

ARPU and lifetime value

Burn rate

Revenue model-specific metrics

Churn for SaaS

CPM for advertising

Example

Selling software into the corporate wellness space

Top-down (macro) approach:

Total employer-provided insurance market: $700 B

Roughly 2 pct. spent on wellness by payers and self-insured companies

Approximately $14 B market for corporate wellness

Example

Bottom-up (micro) approach:

27 MM firms in the USA

21 MM are nonemployer firms

5 MM have fewer than 10 employees

1 MM have 10 – 100 employees

About 100,000 have 100 – 500 employees

About 20,000 have 500 employees or more

Segmenting the Market

Nonemployer firms and firms with fewer than 10 employees are non-addressable; few offer coverage to employees

Large firms with over 500 employees are more likely to be self-insured, have high actuarial standards, long sales-cycles, and like to run wellness programs themselves

Opportunity is in the middle of the market

1 MM have 10 – 100 employees

About 100,000 have 100 – 500 employees

Assumptions

Friends & Family, development of prototype

Founder plus one engineer

Series Seed I, pilot with a few companies

Founders responsible for sales, marketing

4 engineers necessary for development

1 account management/support person

Assumptions

Series Seed II, acquisition and onboarding of ten paying clients

5 salespeople

2 account managers

1 marketer

5 engineers

Series A, start tapping into the payer and self-insured market

Additional sales people to close higher quality deals

Additional development to add features unique to the Tier 1 market

Projections

($K) 2015 2016 2017 2018 2019

Customers 5 15 45 140 220

Revenue - $ 450 $ 1,350 $ 7,200 $ 21,400

COGS $ 10 $ 90 $ 270 $ 1,800 $ 6,500

Gross Margin $ (10) $ 360 $ 1,080 $ 5,400 $ 14,900

SG&A $ 350 $ 900 $ 2,180 $ 2,900 $ 3,500

R&D $ 300 $ 560 $ 1,300 $ 1,400 $ 1,500

EBITDA $ (650) $ (1,110) $ (2,400) $ 1,100 $ 9,900

Investment $ 700 $ 1,200 $ 3,000 - -

EoY Cash Balance $ 50 $ 150 $ 750 $ 1,850 $ 11,750

What is TEDCO

Looking For?

What is TEDCO Looking For?

An innovative, possibly disruptive, seed stage, technology-enabled solution to a big problem.

Biologic/diagnostic

Medical device

Health IT / Tele-health

Enterprise software

Web application

Engineered product

You get the picture…but, not simply a “me too” play.

TEDCO TOP 10 LIST

Please follow the instructions in the Request for Application (RFA).

It sounds simple, but you’d be surprised!

And, remember, the “customer” is always right.

Prepare a high quality proposal that has been refined with the help of outside advisors.

It’s a competitive process – and you’re up against previously funded plans, not simply with those submitted “last month”.

And, remember, we use outside reviewers who see 100’s of plans.

TEDCO TOP 10 LIST

Show us a technology, not just an idea.

Significant Discriminator/IP that directly impacts competitive position

Preliminary data:

Life Sciences – in vitro studies

Engineered products – prototype & lab testing

Software – MVP & some user feedback

And, remember, we can always point you to other, more stage-appropriate funding options

TEDCO TOP 10 LIST

Show us a team, not an individual.

We understand “stage-appropriate”

Blend business acumen with technical expertise

Identify no/low cost external resources that can help fill holes

Demonstrate that you understand what new hires are needed and when

And, remember, marketing & sales is a commonly overlooked skill set

TEDCO TOP 10 LIST

Show us a company, not just a technology.

Revenue model w/ customer validation

Go-to-market plan

Realistic channel strategy

Target segment and follow-on segments

Breadth and depth

And, remember, this all needs to be linked directly to your P&L projections

TEDCO TOP 10 LIST

Show us a clear, compelling value proposition.

Will anyone actually buy what you’re selling? Why?

Beta testers or early adopters (paying or not)

Evaluate competition, including “do nothing”

Be careful about a value proposition built on incremental cost savings

And, remember, don’t forget to identify the paying customer

TEDCO TOP 10 LIST

Show us a validated understanding of customer & market.

Minimize macro research report market size data

Do some actual market research; talk to potential users and build from the “bottom up”

If you’re a platform, identify a target segment

Life Sciences – address FDA & reimbursement pathways

And, remember, your market research conclusions should be embedded into your P&L projections

TEDCO TOP 10 LIST

Show us a solid go-to-market plan.

Can be a really powerful differentiator among competitive proposals

Address the classic 4 P’s of marketing

And, remember, don’t expect the customer to alter it’s buying habits to suit your plan

TEDCO TOP 10 LIST

Show us a financial projections with clear, reasonable assumptions that link directly to the other elements of your plan.

Can also be a really powerful differentiator among competitive proposals

Include operating metrics so the reviewer can evaluate the “size of the problem”

Support the amount of money you’re raising

And, remember, don’t run out of cash and don’t make math errors.

TEDCO TOP 10 LIST

#10…

Show us a set of project milestones that actually advance the company.

Be realistic

Be detailed

And, remember, TCF/CIF is intended to get you either to the next fundraising inflection point or to revenue generation.

TEDCO TOP 10 LIST

#11… because we all love Spinal Tap!

Show us that you’re an effective communicator.

Follow the RFA

Balance between technology & business

Don’t assume that TEDCO’s reviewers are experts in your technology –pitch so your grandparents get it

Get outside help with your pitch…and practice

And, remember, please have your proposal & presentation proofread by someone not familiar with your application.

TEDCO TOP 10 LIST

Stephen Auvil

Senior Vice President, Technology Transfer & Commercialization

410.715.4166

sauvil@tedco.md

Questions?