How to do Technology

Business Start-Ups
Wednesday 23 October 2013
Hosted by The Warwick Entrepreneurship
Professional Network

This event will start at 18:00 BST

Ola Henfridsson

Information Systems & Management

WBS
Warwick Business School

Warwick Business School

1. Many potential entrepreneurs

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FACTORY

CAPITAL

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design AND production AND distribution

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Design+production:
software tools
Distribution:
software platforms

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MANY POTENTIAL
ENTREPRENEURS

Many potential entrepreneurs

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THE PHILADELPHIA EXPERIENCE

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2. Massive recombination

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Standalone service, yet

Rightmove, hotels, navigation, tourist, social
media services
Bundled with laptops, cellphones, televisions,
cars, navigation systems, cameras,

Components in layered architectures are

product-agnostic
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Massively increases the space of possible ideas

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3. Redefines scale and scaling

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PRODUCTION NEEDS TO BE NEARLY ALGORITHMIC FOR

ACHIEVING SCALE ADVANTAGES

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REPRODUCED WITHOUT VIRTUALLY ANY PRODUCTION

COST

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PLATFORMS

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Platforms as Multi-Sided Markets

Platforms must cater to

both application
developers and end-users
The value of joining a
platform depends on
expectations of the
opposite market

PLATFORM

APPLICATION
DEVELOPERS:
-What is the installed base?
-Who are the customers?

END-USERS:
-How many applications are
available?
--Are they useful?

Readings:
Evans, D.S., Hagiu, A., and Schmalensee, R. 2006. Invisible Engines: How Software Platforms Drive Innovation and Transform
Industries. Cambridge, MA: MIT Press.
Messerschmidt, D.G., and Szyperski, C. 2003. Software Ecosystem: Understanding an Indispensible Technology and Industry.
Cambridge, MA: MIT Press.

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4. New Motors of Change

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THE ENTREPRENEUR ALWAYS ADDS TO AN (INCREASINGLY

DIGITAL) INFRASTRUCTURE

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ADOPTION, INNOVATION, SCALING

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Technical
malleability

New
services

Recombination

Figure 4. The Innovation Mechanism

Digital Infrastructure

More services
offered

More resources
invested

More users adopt

Figure 5. The Adoption Mechanism

Digital Infrastructure

Partners
attracted

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Reach
expanded Ref: Henfridsson and Bygstad (2013)

Partner solutions

Henfridsson & Bygstad/Digital Infrastructure Evolution

Digital Infrastructure

Technical
malleability

New
services

Recombination

Figure 4. The Innovation Mechanism

Digital Infrastructure

More services
offered
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More resources Ref: Henfridsson and Bygstad (2013)

invested

More services
offered

More resources
invested

More users adopt

Figure 5. The Adoption Mechanism

Digital Infrastructure

Partners
attracted

Reach
expanded

Partner solutions
added

Figure 6. The Scaling Mechanism

Table 4. Mechanisms
Mechanism
Innovation
Adoption
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Scaling

Definition
A self-reinforcing process by which new products and services are created as infrastructure
Ref: Henfridsson and Bygstad (2013)
malleability spawns recombination of resources
A self-reinforcing process by which more users adopt the infrastructure as more resources
invested increase the usefulness of the infrastructure
A self-reinforcing process by which an infrastructure expands its reach as it attracts new

5. New Perception of Business Value

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REPROGRAMMABILITY:
separates the semiotic functional logic of the device from the
physical embodiment that executes it
Makes the physical embodiment less important

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HOMOGENIZATION OF DATA:
any digital contents can be stored, transmitted, processed, and
displayed using the same device and networks
Makes the network, or distribution, less important

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GENERATIVITY

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The five things

1.
2.

3.
4.

5.

Many potential entrepreneurs

Massive recombination
Redefines scale and scaling
New motors of change
New perception of business value

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Many thanks for your attention!

Ola Henfridsson
Warwick Business School
The University of Warwick
Coventry
CV4 7AL, UK
Ola.Henfridsson@wbs.ac.uk

Warwick Business School

References

Evans, D.S., Hagiu, A., and Schmalensee, R. 2006. Invisible Engines: How
Software Platforms Drive Innovation and Transform Industries. Cambridge,
MA: MIT Press.

Henfridsson, O., and Bygstad, B. 2013. "The Generative Mechanisms of

Digital Infrastructure Evolution," MIS Quarterly (37:3), pp 907-931.

Messerschmidt, D.G., and Szyperski, C. 2003. Software Ecosystem:

Understanding an Indispensible Technology and Industry. Cambridge, MA:
MIT Press.

Yoo, Y., Henfridsson, O., and Lyytinen, K. 2010. "The New Organizing Logic
of Digital Innovation: An Agenda for Information Systems Research,"
Information Systems Research (21:4), pp 724-735.

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Professor John Lyon

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Corporate life

Support structures

Corporate identity

Well defined organisational structure

Politics

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Corporate life

Support structures

Corporate identity

Well defined organisational structure

Politics

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Entrepreneurial life

Every day a new challenge

When to use in-house skill base and when to

outsource
finance
patents
science

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Entrepreneurial life

Forever raising capital

Always looking for an exit

Requires entrepreneurial capabilities

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The transition

Opportunistic (too good to miss)

Planned (strategic)

Forced (redundancy)

My story

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The transition

Meeting your partner (the courting ritual)

Business vision and mission

Living off the corporate package

Exit from the corporate

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The transition

Raising seed capital

Availability

Ease
Financing package
Due diligence

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The Early Days

Greatest difference between corporate and

entrepreneurial life

So I have the money, what do i do next as CEO?

Making friends and influencing people

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The Early Days

Cash is king

Seeking legitimacy

Building the team

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The Early Days

Spreading the word

Managing your time

Can the peaks and troughs be managed and can

the team cope when the chips are down and the
impossible has to be made possible?

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The Early Days

Spreading the word

Managing your time

Can the peaks and troughs be managed and can

the team cope when the chips are down and the
impossible has to be made possible?

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Understand yourself

Do I want to be an entrepreneur?
Why am I doing this?
What do I want to achieve?
What will I do if I achieve my goals?
What will I do if I do not achieve my goals?

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People (the team)

Complementary skills
Complementary knowledge sets
Human chemistry
Up For the challenge
Shared vision, mission and goals?

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People

Making sense
Ability to act as bricoleurs
Execs versus non execs
Board dynamics
Entrepreneurial versus corporate
How/when (is?) due diligence performed on
the people?

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Gaining legitimacy

Importance of securing good connections with:

Key academics
Key opinion leaders
Required outsource providers
Key commercial players

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Gaining legitimacy

A major reason for striving to achieve legitimacy

is to ease the ability to raise fresh investment in
terms of:

Raising credibility in the city

Speed and complexity of due diligence

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Business model
Has to be robust yet flexible
Meet investors expectations whilst operationally
achievable

i.e. have a story of growth . but one you can deliver

Possess adequate change management

Built in contingency
Planned for exit from day 1

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Support network

Mentors
Peer group
Consultants
Industry groups
Potential to waste time with networks that do
not bring any added value or distract

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Understand cycles

Be aware of where the company is on the

growth cycle:
Think about the different requirements at

different stages of the ventures development

Pre-empt issues that arise through successful
and/or unsuccessful growth
Need to organize for resources to flow into the
venture: money, people etc..

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Understand cycles

Be aware of where company is on the funding

cycle:
Is money available?
Exits and markets are some options not present?
Raise investment when it is not needed (if it is it may

be too late)
Normally a cash run of 2 years is minimum

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Understand cycles

Be aware of where company is on the Human

Resource Cycle
Are good people available to hire?
Can the company attract good people?
What is the HR dynamics between large Pharma

and small Biotechs?

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Understand cycles

Be aware of where the company is on the

Pharmaceutical product pipeline cycle
Pharma products coming off patent
Life of biotech patents left
Competition within therapeutic area
Resistance

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Some general comments

Do not always go for the deal that looks best on

the deal sheet
Investors can bring intangibles as well as cash
Specialist industry knowledge may be key (and bring

with it contacts)

Goal, values and exit congruence between

investors and executives
Both amongst executives as well as with investors

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General comments
Fund raising mode is different to building a
business mode
Invest time in keeping investors on message
Look for cues to address small failures
Learn from failure

fail fast, fail cheap, move on

Try to enjoy the experience !!!!!

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Key lessons

As an ex venture capitalist and current business

angel:
Never invest in a company with a fountain
Spend time with the people down the pub
Roll up your sleeves

Encourage healthy debate and decision making

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Key lessons

As an ex venture capitalist and current business

angel:
Always keep an eye on the exit
Continually evaluate value added of each board

member
Observe cues towards small failures
Act early otherwise may be too late

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Q&A

What do you want to ask an entrepreneur, who

has also been an investor, but never had the
opportunity to ask?

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Introduction to Warwick Ventures

23 October 2013

Commercialisation of Technology from

Quentin Compton-Bishop
CEO, Warwick Ventures Ltd

About Warwick Ventures

A commercially-focused team
Universitys subsidiary and sole agent to
commercialise Warwick IP
Key drivers
Economic and social impact
Reputation for research excellence
Financial return

A service for academics and other University

innovators
2013 Warwick Ventures Ltd

What do we do?

Identify research with commercial potential

Protect the Universitys IP
Support proof-of-concept development
Market the opportunities
Negotiate licences
Set up and grow spin-out companies
From innovation to impact

2013 Warwick Ventures Ltd

Spinouts
27 spinouts in
portfolio
4m value of
University shares
55m investment
in 79 companies
created since 1999

2013 Warwick Ventures Ltd

Value of University shares

by spinout sector

Anvil
Semiconductors

VirionHealth

Future opportunities
Warwick Ventures Software Incubator
Warwick Enterprise Fund
Investing in spin-outs and Warwick affiliated tech
enterprises
Involving the Warwick network
Building world-class technology businesses

2013 Warwick Ventures Ltd

Duncan Billson

Assoc. Prof., School of Engineering

Director and founder, Warwick Audio
technologies Limited

Talk Overview:
Spin-out companies introduction
Warwick Audio Technologies Limited
Lessons to be learnt and questions to be asked
from spinning-out research

DRB / School of Engineering Spin-out

companies:
Digeprint / Lumejet
Warwick Audio Technologies
http://www.warwickaudiotech.com/
http://zonarsound.co.uk/

Warwick Sensor Technologies

Warwick 3-D technologies

The usual spin-out route

Idea / research discovery

Check viability of idea / Sanity check
Identify your team
Business plan
Funding
Set up business
Run business
Either fail / succeed
Disposal

UOW Spin out company DRB / DAH

UOW and the department are shareholders
Thin, flexible loudspeaker technology
Radically new - disruptive
Raised ~ several m
12 FTE
Based in Wales / the Venture Centre
Currently making first products - priority is now to get
sales traction

Features & Benefits

Ultra thin less than 1mm thick

Ultra light a panel 210mm x 297mm weighs less than 120 grams
Low power the loudspeaker panels utilise less than 10% of the
power required by traditional loudspeakers

Directional puts sound where its needed..not where it isnt

Green no rare-earth magnets, electrically efficient, minimal
material use and lightweight so saves fuel when used in automotive
/ aerospace

Features & Benefits

Flexible Sound the field of sound can be determined by

flexing the laminate:

A convex shape will broaden the sound field

A concave shape will narrow it

Water resistant panels can be treated for applications

in damp or humid environments

The Management team

Derek Mottershead, Chairman

Derek recently joined Warwick Audio after 14 years as Managing Director of Bang & Olufsen UK, Ireland
and Benelux countries. Marketing Director of Pretty Polly, Lee Cooper and Vanity Fair Corporation of
America and Managing Director of Prontaprint plc.
Ranjit Roy-Choudhuri, F.D.
commercial accountant who began his career in Coopers & Lybrand (UK and Hong Kong) and more
recently has held roles such as Group Finance Director for Intellego Holdings plc.
Andrew Samalionis, Sales
15 years' sales and marketing experience gained with companies such as Meridian Audio, Arcam and Kef.
Chris Rhodes, Operations
Chris Rhodes is Warwick Audios Operations Director. He joins the company with over 25 years
experience of improving operational efficiency and profitability at major international companies
including Centurion Electronics plc and automotive suppliers Johnson Controls and Valeo.

Consumer electronics

Applications
Laptops & hand-held gadgets

Automotive

Communication & conferencing

Public address

Commercial Manufacturing

2 strands: OEM and our own brand, Zonarsound

Make all our loudspeaker elements
Strategy is to use 3rd party manufacturers
Production facilities identified in SE Asia, continental
Europe and UK
Most cost-effective production sources based in Telford
and Milton Keynes
Fully automated process designed including 100%
testing
Capacity for 400,000 units pcm from one machine

Zonarsound: Directional Speakers

Our own product range is being marketed under
the ZonarSound brand name
Complete system, including housings, amps etc
UK and European distribution partners established
Full product testing (inc. fire testing) completed
Product launch January 2013 at Integrated
systems Europe (EIS) Distributor network increasing
In production and selling now!

Directional Ceiling Speakers

First question why exploit University

research?
To make money?
To keep your boss/ department/ University
happy?
To see your invention in the marketplace?
To help the UK plc.?
To benefit mankind?

Second question how can you exploit

the Universitys technical ideas?
Can you exploit the technology?
who owns it?

What is the Universitys attitude to exploitation?

What University exploitation infrastructure exists?
Warwick Ventures / tech transfer office

Patent protection
License (One-off payments or Royalties)
Spin-out company

Always do a reality check to see whether its a

good idea make your own pro and con lists
and share with interested parties!

Pro

Con

Could make money

Could lose money

Glitteringly successful business

Crash and burn

Career benefits

Hard work

University benefits

Cant publish.

Ask what do you want in 5, 10, 20

years?

What is the best plan for the business?

What is the best plan for you?
What is your role now? In the future?
Do you have, or want an exit route?
What do your shareholders want / expect?
Do you have the skills to be the boss as the
business expands - would you employ you?

Equity
Started with 100%
Investment brings dilution
If you need external funding, this will decrease to
a small fraction (~1%?)
Better to own a large % of a small company or a
small % of a big company?
Equity is usually the biggest single point of
contention

Funding

Self funding / family / friends

Business Angels
Good Venture Capital (Mercia / Porton)
Vulture Capital
How much will you need?
How will you manage it?
What happens when disaster strikes?

If you decide to go ahead with a spin-out

then Good Luck!
(but keep taking the tablets!...)

How to do technology startups

from an investors perspective

Introduction to Mercia
Who we are

Established reputation for sourcing, investing in and scaling businesses capable of rapid revenue growth

Invest in university and non-university businesses from seed to expansion/development capital

~19m under management, syndicated to date circa 70m into our portfolio

Incubator unit in Henley-in-Arden (Warwickshire)

Our team
Investment Team
7 investment execs in the team
Investment Panel

Advisory Committee

Peter Gardner (Investment Panel Chairman)

Michael Cumming (co-founder of Barclays private

Equity)

Simon Cartmell (Venture Partner for Imperial Innovations)

Peter Dicks (co-founder of Abingworth)

Ray Chamberlain (entrepreneur and investor)

Sir John Egan

Administration

Norman Price, OBE

Dr James Wilkie

Prof. Stuart Palmer

Martyn Booth, BSc, FCMA, MIED (Chief Executive

Ian Scott (Finance Director& Investor liaison)

Talon Golding (Manager, Sales & Investor Relations)
Alan Possart (Admin & Finance support)

Why invest in an Early Stage

Business?
70%
60%

50%
40%
30%
20%

10%
0%

FTSE All Share

FTSE 100

IPD UK Annual Angel investing

Property Index
- UK

Mercia EISqualifying
investments

Mercia EISqualifying
investments
plus income tax
relief (30%)

1998 - 2008
2007 - 2012

Fundamentals

For
success,
a business
needs:

The right team

Cash & cash management
Proven, scalable business model
Proven route to market (access to
markets, suppliers, channel strategies)
Proven technology/service
Business planning, financial discipline,
product / service monetisation

Risk management
Finance (total capital needs, finance availability)

Management (gaps, acknowledgment of gaps)

Technology; products/platform/pipeline
IPR / barriers to entry
Business model validation
Analysis of route to market
Competitor analysis
Scalability

Capital sources
Match your
need/stage of
development
with an
appropriate
provider:

Are you at concept stage:

Own capital, friends & family

Grants Technology Strategy Board, university services
and grants

Pre-revenue, early stage:

Grants
Business angel capital / SEIS
Crowd funding?

Early revenue:

Grants
Business angels / EIS
Other early stage investors (very few)

Established trading, with assets for security:

Grants
EIS
VC
Banks, trade finance etc

Fund suitability example

Mercia Fund 1

~9.5m (evergreen, partnership with 8 universities)

Mercia Fund 2
Mercia Growth Fund 1 & 2

~5m (private fund; finished primary investments)

Seed EIS
(~2.5m)

EIS (~1.5m)

Business plan & Finance sources

Key areas sought
by most
providers:

Markets
Regional, national, global
What is the addressable market

Introduction to the VC/finance

provider by a trusted intermediary

Competition
There is always competition!

Details on management team, their

experience and why they are the
best to deliver the plan

Revenue / trading achievement to date

The core product or service

Provide precedents for this (trading / exit)

Is it scalable?
Proprietary?
What is the consumer pain it
addresses?

If a loan or investment, how will it be

repaid and when, ROI, IRR / multiples

Finances
Summary for 3 years

Business model

Detail for 1 year

Route to market

Cash flow is essential

Sector preferences

Examples of companies backed

Cash generative /
Profitable businesses

Within 18 months
of profitability

Seed & Early stage

University Partners:

University of Warwick, University of Birmingham,

Coventry University, Aston University, Staffordshire
University, University of Wolverhampton,
Birmingham City University & Keele University

Mark Payton
Mercia Fund Management
E: markp@merciafund.co.uk
W: www.merciafund.co.uk

Q&A