Transcript www.asbdc

ASBDC Technology Counselors
Certification – Prep Session #1
June 9, 2010
Fall 2010
Andrew J. Sherman, Esq.
Jones Day
51 Louisiana Avenue, N.W.
Washington, D.C. 20001
202-879-3686
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Andrew J. Sherman –
Today’s Moderator
Mr. Sherman is a partner in the Washington, D.C. office of Jones Day with over 2,400 lawyers
worldwide.
He is the author of 17 books on business growth, capital formation and the leveraging of
intellectual property. His eighteenth (18th) book, Road Rules Be the Truck. Not the Squirrel.
(http://www.bethetruck.com) is an inspirational book which was published in the Fall of 2008.
He has appeared as a guest and a commentator on all of the major television networks as well
as CNBC’s “Power Lunch,” CNN’s “Day Watch,” CNNfn’s “For Entrepreneurs Only,” USA
Network’s “First Business,” and Bloomberg’s “Small Business Weekly.” He has appeared on
numerous regional and local television broadcasts as well as national and local radio
interviews for National Public Radio (NPR), Business News Network (BNN), Bloomberg Radio,
AP Radio Network, Voice of America, Talk America Radio Network and the USA Radio
Network, as a resource on capital formation, entrepreneurship and technology development.
He has served as a top-rated Adjunct Professor in the Masters of Business Administration
(MBA) programs at the University of Maryland for 22 years and at Georgetown University for
14 years where he teaches courses on business growth strategy.
He has served as General Counsel to the Young Entrepreneurs’ Organization (YEO) since
1987. In 2003, Fortune magazine named him one of the Top Ten Minds in Entrepreneurship
and in February of 2006, Inc. magazine named him one of the all-time champions and
supporters of entrepreneurship.
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Topics for Today’s Call
• Goals of Certification Program
• Exam Overview / Process
• Evaluation of Business Plans
• Sources of Growth Capital
• Protecting Intellectual Capital
• Technology Licensing Strategies Overview
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Goals of the Certification Program
• ASBDC believes that a certification program should exist for
ASBDC Counselors offering advisory services to its
technology-driven and rapid-growth clients.
• To facilitate knowledge transfer, demonstration of a
counselor’s competency shall be measured through
submission of previous course work attributable to this field as
well as successful accomplishment and study of related
ASBDC certified courses.
• ASBDC wants to facilitate an examination and certification
process that recognizes existing candidates possessing a wide
range of pre-test knowledge derived from a variety of sources
and methods.
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The Exam Structure
Below is the structure for the 2008 Examination for Cohort #1 in
Chicago.
• Multiple Choice – 32 Questions worth ½ point each – 16% of
exam total
• Short Essay – 3 Questions worth 8 points each – 24% of exam
total
• Case Studies – 2 Questions worth 30 points each – 60% of
exam total
• We will utilize a very similar approach for this examination.
• The examination style reflects real world situations and a “from
the trenches” approach.
• The case studies and short essays especially focus on the
“what would you suggest as their advisor” approach.
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The Exam Structure (cont’d)
The goal of the exam is to learn if your counseling ability and
application of core knowledge is primed for client application.
That is why the vast majority of the test is based on what you
write, and how convincingly you write it.
Supporting your positions is key. Even if we disagree with the
approach, your interpretation and ability to support it is what
matters.
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The Exam Process
In 2008 the exam was all handwritten over a four hour period.
In 2010, the exam will be given at a test center and will be
electronic.
The testing software will be ExamView and will be comprised of
two sections.
• The multiple choice section will be its own independent section
• The short essay and case study areas will be typed in to a
computer and submitted at the end of the test.
More detailed information will come out by August to best prepare
you for the process.
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The Exam Process (cont’d)
The goal of the exam is to learn if your counseling ability and
application of core knowledge is primed for client application.
That is why the vast majority of the test is based on what you
write, and how convincingly you write it.
Supporting your positions is key. Even if we disagree with the
approach, your interpretation and ability to support it is what
matters.
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Business Planning Evaluation
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How Are Technology Company Business
Plans Different?
• Competitive Go to Market Analysis
• Capability
• Distribution Channels
• Strategic Partnering
• Intellectual Property
• Branding
• Duration of the Invention (Short to long term)
• Competitive R&D Landscape Assessment
• Global Interaction – Potential Int’l Alliances
• Experienced Management Leadership is rare
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Technology Start-Up’s – Viability
Decisional Funnels
Seed
Capital
Early Stage
Financing
Inflection
Point
Growth Strategies
Staffing and
Recruitment
Partnering and Alliances
Launch
or
Not?
Contemplation
Customer Acquisition
and Retention
Implementation
Time and Evolution of the Company
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Sources of Growth Capital For
Technology Companies
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Sources of Growth Capital
$
Equity
• Angels/
Bands of Angels
• Private Placements
• Venture Capital Funds
• Strategic Investors
Hybrids
• Bootstrapping
• Alliances & Joint
Ventures
• Employee Financing
• Customer Financing
• Consortiums
Risk of Default and
Obligation to Repay
Dilution and Control
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Debt
• Commercial Banks
• Governmental Lending
and guaranty programs
• Commercial Leasing &
Equipment Finance
• Factoring & Specialty
Lenders
• Vendor Financing &
Trade Credit
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Types of Capital To Be Raised (Allocation of
Proceeds)
Fudge Factor
(because
Murphy’s Law
is a law)
Opportunity Capital
(take advantage of
unforeseen
opportunities)
Debt
Repayment
(as approved)
Capital Raised
Day-to-Day
Operating
Capital
R&D Capital
Project-Specific
Capital
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Balancing Competing Interests Is Key
THE DEAL
(meeting of the
minds/compromise)
INVESTOR WANTS/ NEEDS
ENTREPRENUER WANTS/NEEDS
•
Maximum return
• Maximum capital/valuation
•
Mitigate risk/downside protection
• Avoid dilution/control
•
Input on future and growth of the
business/control
• Affordable cost of capital
COMMON OBJECTIVES
• Growth in the value of the business
• Additional rounds of $ at more
favorable valuations
• Mutually beneficial exit strategy
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What Are Equity Sources of Capital (all types) Really, Really
Looking For In An Early Stage Technology Company and Its
Team?
•
Is your mindset/governance truly open to investors (and their desired
covenants)?
•
Clear understanding as to who is the customer and what are they
buying and why are they buying it at this price
•
Ability to cross-sell and up-sell a base of strong and loyal customers
•
Ability to extend product lives and build brand
•
Ability to increase prices and widen margins
•
Strong and effective sales and marketing team (beyond the founder)
•
Ability to check your ego at the door
•
Will the “dog eat the dog food?” (Do customers truly value your
proposed solution?)
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How Will The Early-Stage Technology Company Be
Perceived By The Source Of Capital?
Great Concept,
Wrong Team
Wave of the Future
(But Not Yet Ripe)
Keep Us Posted
Right Place,
Right Time
(Here & Now)
Fill In Gaps
Yesterday’s
News
vs.
___________
Market
Passed You
By
(Dead in the Water)
(Term Sheet Imminent)
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Interesting
But Not Our Niche
vs.
Ask for Referral
Interesting
But No $
To Be Made
(Business Model
Flaws)
(Ask for Another
Look In A Few Months)
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Developing An Overall Capital Formation
Strategy For Technology Companies
• Debt vs. Equity vs. Hybrid
• Market Conditions
• Proposed Allocation of Proceeds and Sensitivity Analysis
• Analysis of Current Balance Sheet
• Development and Analysis of Forecast and Growth Projects
• Needs Analysis/Timetable (Openness to Staging and
Milestones)
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Types of Angels
• Angels come in different shapes and sizes and often invest for
very different reasons. Some are motivated by something
much larger than financial return—a good thing, since it is hard
to convince someone with a net worth of $125 million that your
deal will make them rich.
• The three primary categories include: “checkbook angels,”
usually friends, neighbors and others who typically invest
$5,000 to $25,000 on a passive basis hoping to get in early on
the next Google!
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Types of Angels (Cont’d)
• Then there are “capital-A” angels who typically invest $50,000
to $250,000 on a more active basis and who may insist on
some advisory or mentoring role as a condition to their
commitment.
• Finally, there are the “Superangels,” the cashed-out
multimillionaires and even billionaires who have the capacity
and the guts to invest $500,000 to $2 million in an early-stage
enterprise in a deal that may look more like a venture-capital
transaction (from a legal paperwork and control perspective)
than like a deal made in heaven!
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The World of Angel Investing
Understand the motivation of an angel:
• Part mentoring
• Part venture capital
• Part psychic reward
• Part adventure
Note:
You are filling a need in their life and it may not necessarily
be financially-driven
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Debt Capital
• Commercial Banks
• Trade Credit/Vendor Financing
• Non-Bank Sources of Debt Financing/
Specialty Lenders
• Factoring
• Equipment Leasing
• Credit Unions
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Important Questions to Ask When Seeking Debt
Capital
•
How much capital do you need?
•
How will you use the money?
•
Why will this type of capital
benefit your business?
•
When can you pay it back?
•
How will you pay it back?
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•
Why are you and your
company (or this proposed
transaction) a good credit
risk?
•
What if the business (or
company you acquire) fails or
you can’t repay the loan?
•
Is your company growing too
fast or in a manner that will
jeopardize your ability to
repay?
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Key Elements of the Loan Proposal (Cont’d)
•
The loan proposal should include the following categories of
information, many of which you can borrow or modify from your
business:
•
SUMMARY OF THE REQUEST. An overview of the history of the
company, the amount of capital needed, the proposed repayment
terms, the intended use of the capital, and the collateral available to
secure the loan.
•
BORROWER’S HISTORY. A brief background of your company; its
capital structure; its founders; its stage of development and plans for
growth; a list of your customers, suppliers and service providers;
management structure and philosophy; your main products and
services; and an overview of any intellectual property you own or
have developed.
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Key Elements of the Loan Proposal (Cont’d)
•
MARKET DATA. An overview of trends in your industry; the size of the
market; your market share; an assessment of the competition; your
sustainable competitive advantages; marketing, public relations and
advertising strategies; market research studies; and relevant future trends in
your industry.
•
FINANCIAL INFORMATION. Multi-scenario financial statements (best
case/expected case/worst case), federal and state tax returns, company
valuations or appraisals of key assets, current balance sheet, credit
references, and a two-year income statement. The role of the capital
requested in your plans for growth, an allocation of the loan proceeds, and
your ability to repay must be carefully explained, and a discussion of your
ability to make your loan repayments on a timely basis must be supported by a
three-year projected cash-flow statement broken out in a monthly format.
•
SCHEDULES AND EXHIBITS. As part of the loan proposal, you should also
assemble certain key documents such as agreements with strategic vendors
or customers, insurance policies, leases, and employment agreements to be
attached as exhibits. Résumés of your company’s principals, recent news
articles about the company, a picture of your products or site, and an
organizational chart should also be appended as exhibits to the loan proposal.
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The Most Common Reasons Loan Proposals
Are Rejected
•
•
•
Unrealistically low expense
forecasts
•
Lack of adequate collateral
•
Poor communication skills
Lack of a completed loan proposal •
Inability to take constructive
criticism
•
Underestimated capital
requirements
•
Little or no experience in the
business field
•
Overstated revenue projections
•
Attempts to play one lender
against another
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Cash-flow projections that do not
demonstrate an ability to repay
the loan
•
Cash-flow projections without
adequate supporting
documentation
•
Lack of understanding of the loan
proposal and approval process
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Protecting
Intellectual Property
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Branches of Intellectual Property Law
IP
Patents
Trademarks &
Brands
Copyrights
Trade
Secrets
Trade
Dress
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Overview of Technology Licensing
Strategies
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Intellectual Assets Drive Growth Strategies and
Generate Revenues
Protectable
Intellectual Property












 Spin-off new companies
 Joint ventures, strategic
partnerships & alliances
 Technology & software licensing
 Outright sale of new technology
 Co-branding
 Franchising
 Enter new markets
 Develop new products
 Brand-extension licensing
 Technology transfer
 Cooperatives, consortiums,
federations
 Training & consulting services
 International expansion
 Government contracts
Patents
Trademarks
Copyrights
Trade dress & trade secrets
Distribution channels
Show-how & know-how
Databases & customer info.
Software & proprietary
algorithms
Customer & partnerships
Proprietary processes & systems
Knowledge & technical workers
Exclusive licenses/access to
technology
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Possible Market Opportunities
and Revenue Sources
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