New Models inCollaborative R&D
Chris Roberts
Founder and CEO, PixSell Inc.
NASA: Turning Goals Into Reality
June 10-12, 2003
Williamsburg, VA
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Technology Transfer FromGovernment to Business:
Entrepreneurial Perspectiveÿ Innovation = Invention + Exploitationq Invention = Creative Process, Laboratory Discoveryq Exploitation = Develop and Deliver Application of the
Invention to One or More Users or Markets
ÿ Innovation is a Slow ProcessÿDifficult to Innovate ConsistentlyÿHigh Risk- High Reward: How Government Can
Help Manage Risks
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Business Risk Categories
ÿTechnical Risk
ÿMarket Risk
ÿFinancial Risk
ÿPolitical Risk
ÿPersonnel Risk
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Patience Is a Necessary Virtue
ÿ Innovation Process Can Be Very Slowq Internet invented 1969,
• Mosaic Browser 1992• DotCom Business Boom late 1990s
q Transistor Invented at Bell Labs 1949• First Commercial Product 1959
ÿReasons for Slow Pace of Innovationq Cultural Conservatism: It’s Not Broke, So Don’t Fix Itq My “Paradigm”is Just Fine Thank Youq Cost vs. Benefit Is Not Apparentq Not Invented Here Syndrome
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Charity Begins in the Lab?
ÿ Inventing Lab May not Benefit Directly FromSuccessful Innovationq ATT/Bell Labs (Transistor) (Fairchild, National
Intel, TI)
q Xerox PARC (Ethernet, Mouse, GUI) (3Com,Apple)
q DARPA (Internet, Distributed Interactive Simulations)DotComs, NetScape, Computer Games
q Sandia Labs (Clean Room Technology)
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Failure Is Always An Option!
ÿ90% of All Small Businesses Fail withinFirst 5 Years (Remember the Dot.Bombs)ÿMIT Study Found 90% of HighTech
Businesses w/Technical Management TeamsFailedÿBUT – 80% of HiTech Businesses
w/Business Management Teams SucceededÿInventor May Not Benefit from Innovation
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Winners and Losers inTechnology Innovation
ÿThe Superior Technology Does NotAlways Prevail in the MarketplaceÿBetamax vs. VHSÿMS Office vs. Lotus, WordPerfect, Harvard
GraphicsÿDOS/Windows vs. Apple OS, CPM, OS2,
Linux, Unix,ÿAmiga, Macintosh vs. IBM PC
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Critical Success Factors forG2B Collaborative Innovation
ÿStaffing
ÿMetrics
ÿFinancing
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Key Players on a SuccessfulEntrepreneurial Technology
Venture
ÿ Idea Generator: Technical Lead, Scientist,Creative Thinkerÿ Product Champion: Entrepreneur, Idea-Exploiterÿ Program Manager: Business Support and
CoordinationÿResource Sponsor: Financier, Coach
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Program MetricsGovernment vs. Business
ÿ Government Metricsÿ Process and Programmaticÿ No. Agreements Signedÿ No. VC Investments madeÿ Total VC dollars investedÿ $ From Tech Licenses
ÿ No. R&D projects w/Industry ÿ Political and Economicÿ No. New Jobs Createdÿ No. $ Invested Locallyÿ No Embarrassments
ÿ Technicalÿ Benefit to Agency From New Productsÿ Advance in State of the Art
ÿBusiness Metricsq Revenue
q Profit
q Market Share
q Growth Rate
q Time to Market
q Return on Investment
q Liquidity for Investors
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Financing Innovation inStages
ÿ Financial Lifecycle Stagesÿ Requirements Usually
Grow over Timeq Seed or Startup: Product
Development, MarketResearch
q First and Second Stage:Begin Product Roll-out,Full Scale Operations,
q Third Stage – Majorexpansion, new products
q Mezzanine, IPO
ÿ Sources of Moneyq Personal Assetsq Friends and Familyq Angel Investorsq Venture Capital Fundsq Banksq Strategic Partnersq Public Markets (IPO)q Contracts, Grants, SBIRs
ÿ Introduction to Moneyq Investment Bankersq Accountants and Lawyersq Venture Forums
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Welcome to Venture Capital
ÿWhat is a Venture Capital Fund?
ÿWhere Do they Get their Money?
ÿHow Much/How Little Will VCs Invest
ÿWhat do VCs Look For in an Investment?
ÿHow Do VCs Make Money?qRule of Thirds
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Recent Trends In VentureCapital Investments
Venture Capital Investments
0100020003000400050006000700080009000
1990
1992
1994
1996
1998
2000
2002
Year of Investment
Number of Deals
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Recent Trends In Size ofVenture Capital Investment
Size of Venture Capital Investments
02468
101214
1990
1992
1994
1996
1998
2000
2002
Year of Investment
$Millions
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Total Annual Venture CapitalInvestments
Total Venture Capital Investment by Year
$0$20,000$40,000$60,000$80,000
$100,000$120,000
1990
1992
1994
1996
1998
2000
2002
Year of Investment
Investment $Millions
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Venture Capital Trends Overthe Last 5 Years by Quarter
Venture Capital Transactions by Quarter
0
500
1000
1500
2000
2500
1997
-1
1997
-4
1998
-3
1999
-2
2000
-1
2000
-4
2001
-3
2002
-2
Investment Date
No. Deals
Average Venture Capital Investment by Quarter
$0$2$4$6$8
$10$12$14
1997
-1
1997
-4
1998
-3
1999
-2
2000
-1
2000
-4
2001
-3
2002
-2
Investment Period
$Millions
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What Does Venture CapitalCost?
Seed or Startup Stage: 50-60% ROI – 10 times investment in five years
First & Second Stage: 30-50% ROI - 5 to 7 times investment in five years
Third Stage & Mezzanine: 20-30% ROI
Percentage Ownership of a Company that a VC Requires to Make 30% Annual
Annual Return On Investment
Based On Estimated Market Value of the Company After 6 Years
Co.Value ($M) $20 $40 $60 $80 $100
Investment ($M) 4 96% 48% 32% 24% 19%6 N/A 72% 48% 36% 29%
8 N/A 96% 64% 48% 38%
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VC Equity OwnershipDemand
$20 $40 $60 $80 $100
$4 Million
$8 Million0%
20%
40%
60%
80%
100%
Company Value
VC Equity Ownership %
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Venture Capital inAerospace
ÿVery Few Sources
ÿMature Market
ÿSlow Growth Rates
ÿLarge Investments Required
ÿLong Time to Market
ÿLarge Number of Failed Ventures
ÿAbsence of Pool of Happy Investors
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Different Approaches toCollaborative R&D
ÿNASA/State of MS Joint Venture: MSCIÿNASA SBIRsÿNAVY – Center for Commercialization of
Advanced Technology (CCAT)ÿDepartment of Energy Labs –Outsourcing
(Battelle, Lockheed Martin)ÿCIA - In-Q-Tel [Quasi Venture Capital]ÿArmy – Applied Communication and Information
Networking (ACIN) [Defense Incubator]ÿGPS
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Observations on SBIRs
ÿAdvantagesq No equity dilution
q Retain IP ownership
q Customer focused
q Follow-on potential inphase 2, phase 3
q Leverage of privatecapital encouraged(DOD Fast Track)
ÿ Disadvantagesq Topics Selected by Govt.
q Multiple Program Objectives
q Limited Phase 1, 2 Funding
q Lengthy decision cycle
q Low Probability of Award
q Complex Application Process
q Fixed Schedule ofProcurements
q Slow Payment
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Think Orthogonally!
ÿDo not confuse the source lab with the end market
ÿGood technology can be applied anywhereq Cryogenic quenching turbine blades vs. cutlery
q Microwave amplifier tubes Radar vs. Kitchenappliance
q Rocket motor technology consumer ceramics/BBQ,electronic packages, GNC > automated securitytracking systems
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Recommendations forGovernment Programs
ÿEmbrace Risk, Help to Mitigate Technical,Financial, PersonnelÿMake Decisions FasterÿSeek Out and Work With Entrepreneurs,
Business Schools, Investor Groups,Venture Forums, Business PlanCompetitions