Wednesday, October 18, 2006

What it takes to attract an investment






This was the summary of a pitch I gave to some of the scottish executive last year, I wish they got it and really thought through there game plan for new buisness creation in Scotland, there are some good guys involved in the business gateways, but there needs to be some education of the Scottish Executive ,Jack Mconnell and the Scottish Parliment. I was trying to get over that the Academi in Scotland and the Scottish executive need to devlop focused teams that can help build new buisness in Scotland and cut away a lot off the cover there ass attitudes that prevale which in turn creates a lot of red tape. There also needs to be better use of the incubator sites of which there are to few, and they need to kick out companies like MED ( Micro Emissive displays) at SMC (the scottish microelectronics center) and the like who hog the facilites and abuse the intent of these facilites, anyone can run a company if you have subsidized rent and free access to facilites. I would like to hear your opinions on this subject guys and gals and I will see you on Friday, meanwhile have a read through the summary below...nothing new I hope.

This is what it takes to attract an investment (and a management team) to some science. It won’t be easy, but it can be done

  • The right attitude: Something is better than nothing. It might gall organizations to learn that their science is the basis for a multi-billion dollar exit, but that’s a high-quality problem. More or less, their research is a sunk cost—if not, indeed, something that taxpayers underwrote—so anything they get is upside.

    This means expectations for ownership in the new entity should be in the 10-20 percent range. Royalty, if there is any, is also in that range. Upfront payments should be zero—or less. Finally, very few investors are interested in backing a non-exclusive, short-term deal (where “short term” is defined as anything less than “forever”).

  • A product or a tactical path to a product. Customers buy “products” not “technology,” “science,” or “research findings.” Technology, science, and research findings are a long way from a product. The closer the technology is to an actual product the better.

  • Warm bodies. Technology is the first 90% of what is necessary to create a successful company. Unfortunately, the second, and more important, 90% is the employees who invented or discovered the technology. Simply giving a startup CD-ROMs or white papers doesn’t cut it. The company needs the brains behind the science because it’s one thing to discover something in a lab, and it’s quite another to ship a product on a large-scale basis.

    These employees will have to reboot their brains, and they may choose to stay in their current jobs. (Or the startup may choose not to take them.) Here’s why:

    • They have to chose revenue over peer acclaim in scientific journals. The choice boils down to being famous or rich--although if you make enough money, you can be both. :-)

    • They have to pick “good enough” over Nobel-Prize-winning state-of-the-art. Most customers don’t care about being at the bleeding edge of technology and are happy if something simply worked dependably. Computer operating systems, for example, fit in this category.

    • They have to listen to, if not love, customer feedback. At the end of the day, either customers buy the product or doesn’t. This isn’t the same as “submitting research findings to a journal.”

    • They have to understand that investors don’t invest on a cost-plus basis. The size of the bank account is limited, and the clock is ticking. And there's no politician who is trying to protect jobs by influencing budgets and cost-over runs.

    To put this in a positive light, startups should find the gems who are frustrated that their work isn’t seeing the light of day much less changing people’s lives. For them, a startup dedicated to commercialization is great news.

  • A hands-off attitude. The final ingredient is that organizations/ universites can either actively help but at least get out of the way of the company. It’s tough enough dealing with customers, competition, investors, and the government. To add another stakeholder might be the straw that breaks the camel’s back. It might look like it’s fun to start a company, but it’s very hard work. Harder, in fact, than “doing research.”


Slainte

Gordon

1 comment:

Anonymous said...

Gordon:

You have one of the best blogs on the topic that I have read!!!!
Your insight clearly comes from experience and you're able to put your message forth with stark clarity.
I am starting a fan club :)
On a more serious note: you should think of publishing a lot of the material that you have here.

Cheers,

Adelino de Almeida
adelino.typepad.com