1. 1 Evidence-Based Approach to Reduce Spinout Risk Errol Arkilic (errol@m34capital.com)errol@m34capital.com Founding and Former Lead I-Corps Program Director The views expressed in this material are those of the author and do not necessarily reflect the views of the National Science Foundation

2. Commercialization* Commercialization is the process or cycle of introducing a new product or production method into the market. 2 *Wikipedia: July 2014

3. Entrepreneurship* Entrepreneurship is the process of starting a business or other organization. The entrepreneur chooses/develops a business model, acquires the human and other required resources and is fully responsible for it success or failure. 3 *Wikipedia: July 2014

4. The design, invention, development and/or implementation of new or altered products, services, processes, systems, organizational structures, or business models for the purpose of creating n nn new value for customers and financial returns for the firm Innovation* *Innovation Measurement A Report to the Secretary of Commerce January 2008

5. Why is this hard? 5 Part I The Unknown

6. The design, invention, development and/or implementation of new or altered products, services, processes, systems, organizational structures, or business models for the purpose of creating n nn new value for customers and financial returns for the firm Innovation* *Innovation Measurement A Report to the Secretary of Commerce January 2008

7. 7 NSF Academia Small Business Investors Industry Valley of Death Resources Available ($) Discovery DevelopmentCommercialization Level of Development From Angus Kingon Technology Innovation Spectrum (The Theory) I-Corps Taxes NSF STTR NSF SBIR

8. 8 NSF STTR NSF SBIR Academia Small Business Investors Industry Valley of Death Resources Available ($) Discovery DevelopmentCommercialization Level of Development From Angus Kingon Technology Innovation Spectrum (The Theory) I-Corps Taxes

9. 9 NSF Academia Small Business Resources Available ($) Discovery DevelopmentCommercialization Level of Development From Angus Kingon Technology Innovation Spectrum (The Reality) I-Corps ?

10. How do we explore the unknown 10 In general we look for a new law by following the following process: Then, we compute the consequences First, we guess it Then, we compare the computation results to nature We compare it directly to observation If it disagrees with experiment, it’s wrong That simple statement is the key to science Or how smart you are, or who made the guess It doesn’t make a difference how beautiful your guess is If it disagrees with experiment, its wrong That’s all there is to it -Richard Feynman

11. Why is this hard? 11 Part II The Confusion

12. Entrepreneurship* Entrepreneurship is the process of starting a business or other organization. The entrepreneur chooses/develops a business model, acquires the human and other required resources and is fully responsible for it success or failure. 12 *Wikipedia: July 2014

13. Startups Fail because they Confuse Search with Execution -Steve Blank

14. Execution: Repeatable Internal Processes Knowns: – Customers, Features, Channels, Pricing Management: – Formal / The Suits – Characterized by “Only the Paranoid Survive” Customer Creation + Company Building Goals are set quarterly

15. Search: What Process? Knowns: – Runway Management: – No management, but founders with leadership/vision – Characterized by “Stark Raving Terror” Collecting and analyzing: Search and Pivot Customer Discovery + Customer Validation Goal: To get to a sustainable business model

16. Where are You in the Life Cycle Search Execution

17. Why is this hard? 17 Part III “Third-party” Risk

18. Business Model Canvas ?

19. Key Resources 19 Access to: Capital Intellectual Property Service Providers Facilities Talent

20. 20 Venture Capital Angels / Friends & Family Private Equity Company Profits Non-profits / Grants The Government Commercial Banks Sources of Funding for Innovation

21. 21 Venture Capital Threshold Angel Capital Threshold Economic Development Funds Threshold NSF SBIR/STTR Threshold Technology Risk Market Risk People Risk Finance Risk Friends, Family (and Fools) Threshold What is your Enterprise Risk Profile? Senior Debt Threshold

22. …and you say to your BOD 22 The market never materialized We ran out of resources before we got traction We couldn’t master the product market fit Our Channel partners were too slow to adopt our innovation Our customers couldn’t understand the value we provided them

23. Why is this harder than it should be? 23 Part IV The Misunderstanding

24. 24 Academia Small Business Investors Industry Valley of Death Resources Available ($) Discovery DevelopmentCommercialization Level of Development From Angus Kingon The World According to Vannevar Bush Basic Research Applied Research

25. The World According to Donald Stokes 25 Search for Fundamental/Deep Understanding Consideration for Use High Low High Low Pasteur’s Quadrant “Anything that won’t sell, I don’t want to invent. Its sale is proof of utility, and utility is success ” -Edison “Everything we call real is made up of things that can’t be regarded as real” -Bohr

26. The World According to Pasteur There is no such thing as applied sciences, only applications of science. -Louis Pasteur, 1871 26

27. Five Takeaways Innovation contains the unknown (by definition) Address unknowns using the Scientific Method Use the Business Model Canvas (lab notebook) Don’t Confuse Search with Execution Do Use-Inspired Research 27

28. Thank You, Questions? 28