Cleantech Open Academy 2011

Geoffrey Moore

• New Book: Escape Velocity
• The world is moving on and we're stuck
• Each of the technology stages require a different model
  • Models: Solutions, products, systems, maintenance
• Scale: Complex vs volume both have sweet spots but energy falls outside
• Startups always starts with complex model: direct sales force, custom solutions, etc
• Arc of execution needs to go: Project ->  Solutions -> Products -> Systems
• Cross chasm: Find mission-critical segment-specific customer, create solution, domain expertise and high price 

Randy Komisar

• Partner: Kleiner Perkins Caufield & Byers
• Books:
  • Getting to Plan B
  • The Monk and the Riddle
• Silicon Valley has embraced a culture where failure is learning
• Many businesses make the mistake of sticking to their plan rather than looking at what assumptions were wrong and correcting course.
• If VC involved in a business, they will be driving to liquidity, which might be totally opposite from how we want to run our business
• Don't ever take money from someone that hasn't had to make payroll
• MBA investors bet on the numbers, he bets on the people
• Debt is "hamburger helper". However, with too much debt you can't course correct because the bankers are in control.
• (Randy's last year presentation about Plan B has some great info too)

Business Plan Essentials

Speakers:

• Tom Kosnik: Stanford Technology Ventures, teaches entrepreneurship at Stanford
• Elizabeth Sumary Rubio: CEO StorWatts, was in Cleantech Open last year
• Adam  Rentschler: One of 3 judging co-chairs, 3rd CEO gig, high tech, some VC

Discussion:

• Moving from traditional business plan to worksheets submitted online
• Executive summary most important, most VCs won't read more than 2 pages, they don't even want to see a business plan
• However, globally, you need a full business plan
• Guy Kawasaki: "The Zen of Business Plans"
  • Focus on executive summary
  • Have the best author write it and get input from team. Don't assign sections because it will look choppy.
  • Do the pitch first
  • Keep it clean: don't use acronyms and 
  • Limit financial projects and key metrics to one page. Just cash flow statement for 5 years.
  • Write deliberate: pretend we are sure of the future, don't say we are going to adapt or pivot.
• Judging
  • Market validation and Understanding
  • Product/Solution
  • Business Model
  • Industry Atractiveness
  • Team
  • Presentation Quality (10%, rest are 18%)
• Exec summary
  • Cut out words - make it short
  • Fire your biggest shots
  • Start off with a compelling story of pain
  • Don't summarize plan
  • Highlight IP
  • Shine light on team, quickly tell education but also significant milestones
• Business plan
  • Avoid jargon, choose verbs carefully, avoid adjectives
  • Review with multiple audiences
  • Commit to memory
  • Market size is key investment criteria
  • Competitve advantage chart must tell investors why you will win
  • "Bottom up" more important than "top down"
  • Product: the more real the more credible, show it, photograph it, demonstrate it!
  • The business model is the business plan
  • Financials can't help you - they can only hurt
  • Early year financials, don't build and account system - just be able to answer questions
  • End state financials must approach market benchmarks
  • Know Plan B financial projections
• Winning plans
  • Get out of building and talk to stakeholders
  • A big opportunity
  • Credible team
  • Technology or execution differentiation
  • Identified customers
  • Go-to-market strategy
  • No red lights
  • 10 or 20 pages, rest in appendix
• Pitch
  • Whats the problem?
  • How do you solve it?
  • How big is the market? (Get it right)
  • Show me!
  • Risks and mitigation
  • Other: Defensibility, team, how to get there, summary of numbers, summary of capital need
  • Let team introduce themselves and answer questions

 

Patents and Trade Secrets

Speakers from Wilson Sonsini

• Suzanne Bell: IP Technology Transactions, Clean Tech
• Peter Eng: Patent Counseling

Discussion:

• Issues: Conflicts with rights of former employers, assignment of founder's rights, other contributors, third party rights.
• Trade Secrets: Need confidential markting, agreements, physcial, data.
• Patents: Apparatus, process, business methods, designs.
• Provisional patents are not examined but are simply placeholders. A utility patent needs to be file later.
• Patent filing timing is critical: if you miss the year deadline it is gone
• However, if you don't know how to get to the end results, don't file. Wait until you have a high-level of confidence that solution will work.
• A provisional patent needs as much technical detail as a utility patent
• Canada and US has 12 month grace period, rest of world there is no grace period
• If you blow it, can file an improvement patent
• Demonstrating or showing a product without an NDA constitutes use
• Patents cost $5k to $10k
• Patents are a right to exclude but not a right to practice. If there is a super-set patent, it can trump it.
• Government grants
  • Generally don't require IP rights. Large businesses need a waiver. Small business need to disclose and file patent, otherwise the government has the right to file. 
  • The government retains right to license back, but this is usually not an issue. March-in rights haven't also been practiced
  • There is usually a US manufacture clause, but this can be worked around
  • If using subcontracter, need to have them assign rights to us

 

Finding and Understanding the Customer

Speakers: 

Christina Ellwood: Founder/CEO, Moreland Associates
Tom Kosnik: Stanford

• Market traction milestones
  
  • eureka (idea),
  • cha-ching (first sale),
  • Two thumbs up (first applause in target segment),
  • momentum (explore multiple segment, pick one),
  • building buzz,
  • market traction
• Beachhead should be large enough to matter and small enough to dominate
• Make list of buyers in pain that my product will solve
• Cardinal rule for startups: Think big. Start small. Move Fast.

• Your target market segments are not those that could buy and use your product. Rather, those that require your key differentiation.

Building an Investor-worthy Financial Model

Speaker: John Pimentel, Whiate Hat Renewables (with input from Steve Vassallo of Foundation Capital)

• Key elements
  • Build store from bottom up -> why is it a good idea and how will it make money
  • 5 year projections
  • Monthly perspective to Cash Flow Break Even
  • Shows expected additional capital raises
  • Calls out key assumptions and risks
• Specifics to include
  • Sales forecasts
  • Growth rate
  • Gross Margins
  • Free Cash Flow
  • Headcount staffing plan
  • Balance sheets
• Context of Business? Traditional margins? Why are we better?
• CFBE = Cash Flow Break Even
• Call out important issues on financial spreadsheet
• Sensitivity analysis: Prices, unit volumne, COGS, financing
• Sanity Check?
  • Is market large? 
    • Are multiples attractive?
    • Is market share assumption reasonable?
  • Reasonable growth rates for revenues?
  • Thoughtful and complete breakdown of costs?
  • Benchmark margins to comparables?
  • Identify risks and how to mitigate?
• Layout assumptions and summaries up front

Term Sheets

Speakers: Armando Castro, Matt Oshinsky

• Raise enough to hit milestones so next valuation is 3x previous one.
• #1 term is "liquidation preference" meaning they get paid before anyone else. Most deals it is 1x, where they get paid what they put in. In distressed situations, could be more.
• "Participating" means after liquidation, then continue to get paid
• Cumulative dividends rare on west coast, more common on east coast
• Adjustments
  • Anti-dilution
• Who controls?
  • The faction that controls the board controls the company.
  • Investors will always be open to strong, independent directors
  • Sometimes can negotiate a board observer in non-voting capacity
• Blocking Rights: Stockholder
  • Future financines
  • merger
  • redemptions/dividends
  • modifying the board
• Other stock terms (refer to your attorney)
  • Optional and mandatory conversions
  • Redemption rights
  • Pay to Play
  • Registration Rights
  • Financial Reporting and Inspection Rights
  • Pro Rata Participation Rights
• For small rounds ($500k) investors mght ask for super pro-rata rights
• Should I take this personally?
  • Vesting
  • Rights of first refusal & co-sale
  • Drag Along
  • Lock-ups
  • Employment agreements, Non-Competes and Non-Solicits
• Closing the deal
  • Expiration
  • No Shop (Usually required, means shopping the term sheet)
  • Syndication (Ride along financing, usually agreeable)
  • Due Diligence
  • Definitive Documentation (takes 2-4 weeks from term sheets to deal)

 

Investor Pitch - The Essence of Telling Your Company's Story

Speaker: Andrew Chung, Principal, Lightspeed Venture Partners

• What to present to a VC?
  
  • Mission statement
  • Management team
  • Market
  • Technology
    
    • Overview/value prop
    • Competitive differentiation
    • Economics
    • Timeline
  • Operations
    
    • Sales pipeline
    • Distribution
    • Policy/regulation issues
  • Financials
    
    • Projections
    • Fundraising needs
• Can be in different order
• Mission
  
  • Introduction to who you are
  • Why should they care
• Management team
  • Can be up front of in back
  • Should show balanced skillset (at least over time): deep technology, industry execution, entrepreneural
  • Problem if not diverse, like 4 MBAs
  • Don't go too simple or too complex: Include relevant, but complete, info: academic, positions, accomplishments
  • List key hires needed
• Market
  
  • Lightspeed looks for a market that supports a $500M company with a $1B+ market
  • High growth
  • Potential to dominate
  • Ability for startups to compete
  • Don't spend too much time explaining a familiar market
  • Have clarity on targetted segments and true addressable market
• Technology
  • What is the product you are offering?
  • Concise, but sufficient background
  • Technology that is IP-rich and defensible
  • Clear value prop to customer
  • Make sure product is described clearly, early
  • Be sure to tailor the technical depth to audience
• Tech differentiation
  • Approach, performance, cost, stage
  • Thoughtful understanding of the competition
  • Make sure not a me too technology
  • Don't assume our approach is unique
• Economics
  • Does product make economic sense? Production cost, capex
  • For incremental tech, ability to compete with existing
  • For displacment tech, ability to achieve significant cost improvement
  • Be aware the industry costs are moving targets
  • Be sure to understand sensitivities with feedstock price, subsidies, etc.
• Timeline
  • Development roadmap
  • Technical progress made to date
  • Key future milestones and risk assessment
  • Key capital requirements needed
  • IP portfolio development plan
  • Many investors don't like time-to-market greater than 3 eyars
  • Don't like lengthy design-in time requirements
  • Don't like dependence on other emerging technologies
• Ops: Sales and Distribution
  
  • What is go to market strategy.
  • Review of sales pipeline, MOUs, etc
  • Potential engagement with channel partners
  • Don't like long sales cycles
  • Don't like long payback/ limited ROI for end-customers
  • Fragmented customer base
• Ops: Policy/regulations
  • Which drive our business?
  • How will they evolve?
  • Associate risks and sensitivities
• Financials
  • Recent results
  • 3-5 projections
  • Debt
  • Problem if too aggresive or too conservative
  • Know sensitive to externals
• Fundraising needs
  • How much and why?
  • Funding history
  • Total target raise
  • Amount available to new VCs
  • Use of proceeds and milestones
  • Board seat?
  • Valuation?