TECHNOLOGY COMMERCIALISATION WORKSHOP Level 1 Business Modeling & Financing for Technology Start-Ups Rashidan Shah Abdul Rahim.

TECHNOLOGY COMMERCIALISATION WORKSHOP Level 1

Business Modeling & Financing for Technology Start-Ups

Rashidan Shah Abdul Rahim

DEFINITION The model that provides the understanding of:- How a business creates value from its activities The resources requirement to create this value The market that it serves:- Eg:-

1. Trading Company 2.Property Develop 3.Tech Company 4.Biotech Drug Company

Discuss on the value creation activities, risk and role of R&D for each

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OBJECTIVES

To understand the financial dynamics of the business To optimize profitability / Maximisation of shareholder’s

wealth To budget the resources requirements – how much and

when

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WHAT

A business model can be broken down into four components:-1. Value proposition2. Profit formula3. Key resources4. Key processes

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Value Proposition is what is offered to targeted customers to satisfy their particular important needs or solve specific important problems

It is a clear statement of the tangible results a customer gets from using your products or services

The more specific the value proposition, the better.

VALUE PROPOSITION

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Price is what you pay. Value is what you get.~ Warren Buffet ~

A weak Value Proposition normally lacks important differentiation

Example: Our antennas are flat

VALUE PROPOSITION

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Examples of tangible results that strengthens a value proposal:- Increased revenues

Decreased costs

Improved efficiency

Improved effectiveness

Increased market share

VALUE PROPOSITION

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Profit Formula is the blueprint, i.e the master plan that defines how the product creates value for itself while providing value to customers.

Profit is derived as the difference between your pricing and your cost.

Simply put, it tells how the money will be made.

PROFIT FORMULA

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PROFIT FORMULA

Sections within the financial statements to focus on:-

1. Revenue2. Sales & Marketing3. R&D and Manufacturing4. COGS5. Profit6. Cashflow

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PROFIT FORMULA

- Typically high gross margins (revenue less direct cost/revenue) for companies with strong intellectual properties which reflect the efficiency of technology, ability to command high price due to novelty, brand or fulfilling unmet needs.

- Compare between trading, plantation, tech companies and pharmaceutical.

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PROFIT FORMULA – Trading Company – AEON Co.

Gross Margins25.37%

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PROFIT FORMULA – Property Company – MK Land

Gross Margins35.62%

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PROFIT FORMULA – Tech Company – Apple

Gross Margins45%

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PROFIT FORMULA – Biotech Company – GILEAD

Gross Margins85%

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Key Resources are assets required to deliver the value proposition to the targeted customers.

This includes people, skills, technology, products and facilities.

KEY RESOURCES

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Key Processes include operational and managerial processes required to allow value to be delivered in a scalable and sustainable manner.

Key Processes leverage on key resources

KEY PROCESSES

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The four elements are not only connected, they are interdependent on one another.

ELEMENT OF A BUSINESS MODEL

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TZM Sdn Bhd has acquired a technology from a local public university for continuous drying of agricultural products using microwave. The patented process reduces drying time and increases production efficiency, without compromising on nutritional value of the dried food. The process has been carried out on various types of food with successful results.The licensing agreement allows them access to the technology, inventor as well as the prototype unit of the microwave located in the university.

CASE STUDY 1 – TZM SDN BHD

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Potential Profit Formula for TZM:- 1) Providing service for drying of agricultural products; or2) Manufacturer of the microwave system; or3) Producer of dried agricultural product(s); or4) All of the above.

CASE STUDY 1 – TZM SDN BHD

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Key Resources of TZM:-1) The patented technology for continuous drying of agricultural

products using microwave;2) Full access to the inventor’s advice and prototype of the

dryer; and3) CEO is an experienced marketer in the food industry.

CASE STUDY 1 – TZM SDN BHD

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Discuss:-

1) What is TZM’s value proposition?2) Which profit formula is most suitable for TZM?3) Is the key resources adequate?

CASE STUDY 1 – TZM SDN BHD

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Green Compo Sdn Bhd has co-developed a technology with a local research institution for the production of composite materials using kenaf fibre. The company proposed to sell kenaf composite materials to furniture producers.Due to technical difficulty encountered in extruding the kenaf-based composites, the raw material was changed to rice husks. The profit formula was revised to selling furniture.The entrepreneur is an engineer by training. The technical partner is an expert in composite materials.

CASE STUDY 2 – GREEN COMPOSDN BHD

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Discuss:- 1) Discuss the change in process and the impact it has on the

Business Model.2) Discuss the change in Profit Formula in relation to Business

Model.

CASE STUDY 2 – GREEN COMPOSDN BHD

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Sources of Financing: Equity Entrepreneurs Outside Investors- VC/PE/Other Investors Loans/Borrowings Banks/Leasing/HP Government Soft Loans Grants

FINANCING

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Seed or Start-up: Market research and product development.

Early Stage: Funding full-scale operations and selling products/services. Not yet profitable.

Later Stage: Funding expansion and new products. Near break-even.

Revenue

TimeValley of Death

AngelsFoundersGrants

Venture CapitalStrategic Investors

Public Markets

Seed Capital

AB

C

Mezzanine

Early Stage Later Stage

IPOSecondaryOfferings

The Chasm The Wall

FUNDING SPECTRUM

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CAPTURING VALUE- VALUATION AND EXITS

PostPre

Series A

$5M

$3M

$2M

2X Series B

Post

$20M

Pre

$10M

$10M

Series C

$80M

PostPre

$40M

$40M

Pre$160M

IPO

Trade Sale?

2X

2X

Trade Sale?

0 2 4

Time (years)

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Founder 100% x (2/5) 40% x (10/20) 20% x (40/80)Ownership 40% 20% 10% 10%Value $2m $4m $8m $16m