1 MOVING FROM IDEA TO PROOF OF CONCEPT Matt Raymond Rush University Medical Center.

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MOVING FROM IDEA TO PROOF OF CONCEPT

Matt Raymond Rush University Medical Center

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Technology Commercialization

• Tech Entrepreneurism entails moving research or unproven concepts to product(s)– Commercialization of technology is a process with

well known steps and many models.

• r R&d r&D D&c C– The process is not always smooth.

• High drop-out rate for new technologies

• Many barriers to success – $, black boxes, expertise…

• Entrepreneurs need to understand barriers and plan/adjust for them.

The Valley of Death

• One of the key barriers is known as the “Valley of Death”– Movement from Idea to Prototype or actual

example– Known widely as Proof of Concept (POC)– Valley of Death is the first point where high

potential concepts drop out.

• The VOD is typically a financial hurdle

Commercial Cycle & Valley of Death

Adapted from: Murphy and Edwards, Bridging the Valley of Death: Transitioning from Public to Private Sector Financing, NREL/MP-720-34036, May 2003

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Commercial Cycle & Personnel

Adapted from: Murphy and Edwards, Bridging the Valley of Death: Transitioning from Public to Private Sector Financing, NREL/MP-720-34036, May 2003

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Variability in Commercial Cycle

Adapted from: Murphy and Edwards, Bridging the Valley of Death: Transitioning from Public to Private Sector Financing, NREL/MP-720-34036, May 2003

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Valleyo f D eath

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Depth and width of C urves will bedependent upon the technology.

Success

Failure

Why Do Technologies Fail in VOD?

• CASH FLOW!!!• Enablement Hurdles (Black Boxes)• Poor Due Diligence

– Unmet value drivers• Lack of/ unclear Commercial Opportunity• Patentability Hurdles

• Failure of Leadership– Lack of Business Champion– Failure to communicate business case

• Bad Advice/ Unskilled Advisors

Planning for the VOD

• Know your technology Cold – Identify your black boxes

• Where are solutions found?• What resources are required to overcome the hurdles?

– Craft a Careful Development Strategy• Proper Staging throughout cycle

– Short, Intermediate and Long Term Planning• Know key Cost Drivers

– Careful Budgeting By Stage

• Know your industry– Competition?– Users?– Why would a user buy this product or technology?

Planning for the VOD

• Know your capital needs– Set priorities for use– Capital needs relate to technology/industry:

staging of capital may be necessary.

• Understand your investors– What are their drivers?– Can you make your project compelling?

• Look for unique sources of capital, equipment, personnel.– E.g. used equipment, leasing, trading services

Moving Through POC/VOD

• Consider ALL Potential Funding Sources– Grants– Private Investment– Collaboration & Partnering– Licensing– Combinations

Funding POC through Grants

• SBIR/ STTR– Small Business Administration Grants– Allow for Academic partners– Based on Program Topics

• iBIO – IL DCEO: Training• Certain States have Matching Funds

• DoD/ ATP/ DARPA/ DoE/ NIST Innovation• Philanthropic Organizations• State and Local Innovation Centers• POC Centers (CA, CO, PA, KS)

Funding through Private Investment

• Friends, Family, Fools (& Founders)– Bootstrapping – self funding

• Draw from personal credit sources• Demonstrates Commitment

• Loans and Leasing• Angel Investors

– Heartland Angels & Hyde Park Angels (IL)– High Net Worth Individuals

• Seed/ Early Stage Venture Capital

What Do Angels/VC’s Want?

• Solid potential for return. – How will your company make money? When it will turn profitable? When

can they expect ROI.

• A good plan for the cash. – Wise use: how will the money be used to design, develop and distribute

your product. Emphasize thrift.

• A winning attitude. – Get fired up. Passion and commitment to concept and company.

• A seasoned team. – Strong management team that’s capable, experienced in their industry and

open to suggestions and opinions. Be coachable.

• A competitive edge. – How will market share be captured and competitors managed through ramp

up? Is the IP position strong and well defined?

• A well-defined exit strategy. – How will money be made? Explain your plan in depth. Use comparables.

Funding through Collaboration

• Industry-Academia; Academia-Industry; Academia-Academia…(common forms)– Beg, Borrow, Barter– Expands grant opportunities– Can keep costs down in early stages– Sponsored Research – Allows Focus on commercial product– Targets necessary Expertise/Equipment without hiring/

purchase

• Consortium Project– Broad collaborative, drawing upon multiple R&D sources

• This is where Staging can be used effectively– Plan for hand-offs to appropriate collaborators through

development pipeline

Staging and Collaboration

• If Concept is combination of multiple elements:– Solar powered security system: Battery + chip set + video cam + algorithm + receiver +...

• Break up the elements into pieces:– Extended Life Solar MicroBattery

• Can that piece be developed independently?– What partner could be involved?– How can a partner use that piece to further their

goals? – Solar Powered crop moisture monitor and irrigation system

Funding the POC through Stages

• Financing Does not always come in a Lump Sum– Stage development through Milestones or Completion of

Elements• Use a Gantt Chart to plan

• Helps Identify Black Boxes and Resource needs

• Helps Identify Break Out technologies for cross licensing/ sublicensing

D E V I C E X

T as k s J anuary F e b ru ary M arc h A pril M ay J u ne J u ly A ug u s t S e pte m be r O c to be r N o v e m be r D e c e m be r

E lem ent A P has e I-a $A1

E lem ent A P has e I-b $A2

E lem ent A P has e I-c $A3

E lem ent B P has e I-a $B1

E lem ent B P has e I-b $B2

E lem ent B P has e 1-c $B3

E lem ent C P has e 1-a $C1

E lem ent B P has e 1-d $B4

E lem ent A P has e II-a $A4

E lem ent A P has e II-b $A5

E leem ent C P has e II-a $C2

E lem ent C P has e II-b $C3

E lem ent C P has e III-a $C4

E lem ent C P has e III-b $C5

K e y

E le m e nt A

E le m e nt B

E le m e nt C

Funding through Licensing

• You can license, cross license, or sublicense elements that can be used by others.

• Particularly useful if 1+ broadly applicable elements won’t compete with entire concept.

• Can license with:– Field Limitations– Territory Limitations– Non-compete clauses

• When combined with staging, this can provide funds for next stages.

Funding through Combinations

• Consider alternatives– What funding combinations work for the

technology?– Can these be done in parallel, sequence, etc.?

• Assign tasks to proper lead(s)– Funding – CEO/CFO (a.k.a. C-level Executive)– Collaboration – Researcher/BusDev/COO– Licensing – CEO/BusDev– Grants – Researcher/BusDev

• Revise, Revisit, Reinvent

NOTE

• All of these strategies take TIME!– Think ahead, plan ahead– After you make the leap to entrepreneurism

may be too late DUE DILIGENCE EARLY

Managing Other Barriers

• Business Development– Highly skilled personnel and advisors

• Solid industry and/or financial connections

– Commit Necessary Effort on Due Diligence– Be careful when sourcing assistance

• Leadership– Commitment– Vision– Focus

• Legal Counsel– Structure of Contracts

TAKE HOME

• Crafting a careful and well thought-out development strategy will help drive good decisions when you face the Valley of Death.– Do your due diligence! Do it early and often.– Learn what a good diligence comprises.

• Business Schools/ Entrepreneurial Support

• Consider all options for funding the gap. Follow through on as many as may be required. – Chances are high that one source will not be

sufficient.

THE FUTURE

• Office of Science & Technology Policy and National Economic Council on Commercialization of University Research: RFI on Proof of Concept Centers

• Fruits of Established POCC beginning to show will other institutions and states form POCC?

• Dept of Energy driving Gap Funding for new energy projects– Depts. of Defense, Education…to follow???