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