Engineering 245 The Lean LaunchPad Lecture 8: Resources Steve Blank, Ann Miura-Ko, Jon Feiber

1 images by JAM customer segments key partners cost structure revenue streams channels customer relationships key activities key resources value proposition

KEY RESOURCES which resources underpin your business model? which assets are essential?

Key Resources

Four Critical Resources Physical Financial Human Intellectual

Physical Resources company facilities –office space, company location product/services –supply of silicon wafers or iron ore, or thousands of feet of warehouse space? Many physical goods are capital intensive

Financial Resources Friends and Family Crowdfunding Angels Venture Capital Corporate partners Others: SBA or SBIR grants Lease-lines Factoring Vendor-financing

Human Resources qualified employees mentors, teachers, coaches, advisors

Mentors, Teachers, Coaches Mentors, teachers, coaches advance your personal career –If you want to learn a specific subject find a teacher –If you want to hone specific skills or reach an exact goal hire a coach –If you want to get smarter and better over your career find someone who cares about you enough to be a mentor

Advisors Advisors are people you need to help advance your company’s success –Founders fail when they believe their visions are facts –Listening to experienced advice can help you sort through whether your vision is a hallucination –Getting an advisory board (by expanding your circle of accumulated wisdom past their investors) is so important that it’s an explicit step in the Customer Development process

Qualified Employees/Culture Are the difference between a good idea that never went anywhere and a billion dollar firm

MBA295F Customer Development in the High-Tech Enterprise Spring

Executive Traits by Stage

Intellectual Property

Trademark protects branding & marks Trademark gives you the right to prevent others from using “confusingly similar” marks and logos Trademark protection lasts as long as you use the mark The more you use the mark, the stronger your protection Trademark registration is optional, but has significant advantages if approved Country by country

Copyright protects creative works of authorship Copyright gives right to prevent others from copying, distributing or making derivatives of your work –Protects “expressions” of ideas but does not protect the underlying ideas (Way) more than just technology: –songs, books, movies, photos, etc. Copyright protection lasts practically forever Copyright does not prevent independent development Registration is optional, but is required to sue for infringement

Trade Secrets Information that is kept secret and has economic value to the business Coke recipe, customer lists, product road maps. No registration required Can last for as long as you take reasonable steps to keep confidential

Contract Protection agreed to by contract No registration process You have whatever protection is defined in the contract (e.g., NDA gives you certain rights to protection of your confidential information) The protection lasts for the time period defined in the contract

Patents A government granted monopoly –prevents others from making, using or selling your invention –Even if the other’s infringement was innocent or accidental Invention must be non-obvious Protection lasts typically for years Application and examination is required –Typical cost for application and exam is $10-30k –Typical time for application and exam is 1-4 years Must file in U.S. within one year of sale, offer for sale, public disclosure or public use Provisional application alternative

What Can be Patented? Just about anything... –Circuits, hardware –Software, applied algorithms –Formulas, designs –User interfaces – Applications, systems – Business processes (sometimes) But not these... –Scientific principles –Pure mathematical algorithms And, pending Supreme Court Case raises concerns regarding patentability of “methods” inventions

Venture Financing See: blogs-for-entrepreneurs

What are sources of funding? BanksAngels Super- Angels Micro-cap VC Traditional VC Size of Fund NA $5-20M$20-100M$100M+ Size of Investment NA$10-250k$ k$250k-1M$2M+ Source of Funds NAPersonalInstitutional Expected returns Interest rate2-3x 3-5x Length of commitment Long termASAPDepends10 years Expected ownership NA<10%<15%10-25%25-50%

Know what you’re getting into...

80 winners per year* out of 1,500 VC backed deals exit >$50M 80 1,420 PASS FAIL *IT industry only

...The 80 that “Made It” >$750M $500-$750M $250-$500M $50-$250M Legendary Companies

Venture Economics Fund size $400M $1.5B 20% return in 6 years $ 7.5B Value creation required $5B

Decision Tree

Funding Mechanics

Valuation Still at your old job –You have an idea, You may have a prototype –Valuation range: Don’t bother. Pre-product –You have an idea, did customer discovery, no product –Valuation range $0 – $7M pre-money –Appropriate: $2-3.5M –Average Size of deal: $300K-$700K Prototype Built and in the market –Have a team, customer discovery, MVP –Valuation range : $2.5-6M pre-money –Appropriate: $3-4M –Size: $400K -$1M Source: jordancooper

How to calculate dilution Step 1: Determine post money valuation Money invested Pre-Money Post-Money Value + Step 2: Determine investor ownership Money invested Post-Money Investor Ownership ÷ Step 3: Negotiate employee option pool Investor Ownership Option Pool DILUTION + Source: Founder’s Fund