Doe14 p1r1 webinar_02

Carol Rabke, Ph.D.

DAWNBREAKER

July 10, 2014

Overview of the DOE Phase II Commercialization Plan

OBJECTIVE

To aid in the development of your 15-page commercialization plan that will accompany your Phase II submission to DOE

To lay a solid foundation for successful commercialization of the DOE-funded technology

Schedule – December 2014 Submission

Program Materials…

• Should have been received at this point – mailed 6/18

• Book contains activities and guidance relative to key issues; serves as a reference

• Outline is based on DOE specifications; serves as a recommendation; provides cross-references to book; template available on eLearning

©Dawnbreaker, 2012 5

Our Recommendations to Proposers

• The Commercialization plan is a business case

– Not just a collection of information

• You have to address implications of information

• Expansion of Phase I proposal – Anticipated Public Benefits Section and Phase I Commercialization Plan

– It is not a business plan as that would contain detailed operational plans, expanded pro formas, and more detailed discussions

– Planning is iterative and this level of preparation sets the stage well for further development

• Make the commercialization plan and the accompanying letters of support a stand alone document


Visit DOE Site

• Information on Phase II Proposal guidelines

and submission dates can be found on the

DOE site: http://science.energy.gov/sbir/

• Commercialization Plan is discussed in Phase

II FOA [page 27+]

– Review the introduction they provide on it being critical

to the proposal; compelling value proposition; etc.

– Scheduled to be released October 20th

http://science.energy.gov/sbir/


Where do I find Commercialization Plan

Specifications?

– http://science.energy.gov/~/media/grants/pdf/foas/2014/SC_FOA_0001019.pdf

http://science.energy.gov/~/media/grants/pdf/foas/2014/SC_FOA_0001019.pdf

Drafting Sections of Plan

• There are 4 sections to the plan

• You initially draft each section and then BAM provides feedback and enhances document

– August 11th: Draft of Sections 1 and 2 due

• Prerequisite to receive market research support

– September 15th: Draft of Section 3 is due with revisions of previous

– October 20th: Draft of Section 4 is due with revision of previous

Phase II Proposal due to DOE Tuesday, December 9th


1.0 Market Opportunity

“Describe succinctly what product or service you are planning to deliver based on your innovation. Identify your target customer providing generally known examples. Describe the critical needs that your product/service will fulfill for your customer [i.e. these can be current or emerging]. How does the target customer(s) currently meet the need that you are addressing and what do they pay to meet the need? What is your customer willing to pay for your product/service? How have you validated this assumption? What features of your product/service will allow you to provide a compelling value proposition? How have you validated the significance of these features? State the value proposition for your product or service.

Address the market opportunity. What is the current size of the broad market you plan to enter? How large is your “niche” market opportunity, in terms of either numbers of customers or revenues? Is the target market domestic, international or both? What are the growth trends for the market and the key market drivers that will affect whether customers will buy your product/service? What barriers to entry exist in this market which will inhibit sales of your product/service? Describe the channels you will employ to reach the targeted customer.

What business model will you adopt to generate revenue from your innovation? Will you make and sell? License? Form a strategic alliance with a company already in the industry? Use a different model? Explain why this model makes sense for the market opportunity described.

If there are potential societal, educational or scientific benefits beyond commercial considerations that will generate goodwill for your company or product/service, they should be included here and explained in sufficient detail to convey the significance of the effort.“


Business Reviewer’s Criteria

Please comment on the clarity and strength of the

commercialization plan, milestones, target dates, analyses

of market size, and estimated market share after first-year

sales. The following optional questions are suggested to

guide your review: Has the company provided a satisfactory

explanation of how it will obtain market share? Has the

company demonstrated a compelling market opportunity?

Is there a substantial market value for the company’s

proposed technology? Are the customers willing to pay for

this technology?


1.0 Market Opportunity

1.1. Market need• What customer need is addressed (who cares?)

• Identify how that need is currently addressed and its shortcomings

• Indicate the degree of “pain” or urgency for a solution

• Include a transition to introduce the SBIR project being proposed

1.2. Product/Technology

• In layman’s terms describe succinctly what product/service you are planning to deliver based on the innovation

– Include a picture or diagram

– Describe what is innovative about your approach

• Describe the features of your Phase II technology and how they translate into a succinct value proposition

• Provide information gathered from customer interviews to verify that the advantages/benefits of your technology fulfill the critical needs (“pain points”) for your customer

• Discuss pricing and the method used to validate the customers’ willingness to pay

• Indicate the basis for purchase decision by customer

– Hurdles to overcome

• Discuss the costs to produce the product/service

– Include any assumptions that underlie the cost model


1.3 Industry Overview

• Provide a brief description of the industry structure and where you fit within it

• Discuss the implications for your business model

• Describe your immediate customers and provide specific examples of potential

or actual customers (name organization)

• Describe the types of channels your company will employ to reach the targeted

customers when you are ready to initiate sales

1.4. Market

• Market definition

– Geographic location (domestic, international, both)

• Market size

– Differentiate between broad and niche market

• Market growth and trends

– Describe any hurdles that will need to be overcome to enter this market


1.5. Commercialization Strategy

• Discuss the strategy to be used to generate revenue from your innovation (i.e. how will you bring the product/service to the market?)

1.6. Impact

• Expand upon the significance by talking about the Societal, Educational, and Scientific benefits, as appropriate.

• Add a concluding statement regarding the innovation and the overall significance of the work

Typically, Section 1 is 6-7 pages in length.


1.2 Features, Advantages and Benefits…

If you were selling the technology, what features would you mention

and why?? Think competition…what features are you selling against?


Typical struggles - Section 1

• All start with technology push

• Slight discussion of innovation

• Too much technical detail

• Making contact with customers/end-users to validate need, customer pain points

[why you are including your features] and pricing

• Articulating validated value proposition

• Struggle with value chain and where fit in

• Description of customer/end-user

• Identification of market size – your NICHE

• Understanding the implications of the strategy selected

• Articulating impact

Value Chain – Who are your Stakeholders?

• Start by thinking about your technology and

your core business functions

– Do you conduct R&D only?

– Do you do LRP? Can you transition to FRP?

– Do you build prototypes for license?

• Think about all the hands your technology will

need to touch to take it from your lab to the

end-users

17

Example Value Chain

18

Example Value Chain

19

Application

DeveloperCellular

customer

Example Value Chain

20

Example Value Chain

Example Value Chain

• Software developer interested in providing a

solution to medical device manufacturers


2.0 The Company/Team

Provide a short description of the origins of the company. What type of corporate

structure is in place? What is the current capitalization and is it sufficient for

implementing your Commercialization Plan? What is the revenue history for the past

three years? Provide a table with percentages or sums of operating capital or

revenue: product sales, consulting/services, license revenues, R&D grants/contracts

and others. What is the current employee count? What is the vision for company

growth [revenue/employee count] through Phase II and beyond? Give a brief

description of the experience and credentials of the personnel responsible for taking

the innovation to market and clarify how the background and experience of the team

enhance the credibility of the Commercialization Plan. What specific experience

does the team lack and how will this be addressed during the Phase II effort and

beyond? From what additional resources do you have commitments to address these

limitations [e.g., Board of Directors, technical advisors, or retained legal counsel]?

Please provide details on names, affiliations and expertise of these resources.



Please comment on the Company/Team’s ability to bring its

respective innovation or technology to the market. The following

optional questions are provided for your consideration: Does the

company’s Phase II team/personnel involved in developing and

bringing the innovation to market have the capable experience,

proper background, and credentials? In your experience, is the

current company capitalization sufficient for implementing its

Commercialization Plan? As appropriate and necessary, are there

additional resources from which the company can call upon to

address team skills or abilities which may be currently lacking, e.g.

Board of Directors, technical advisors, or retained legal counsel?


2. The Company/Team

2.1. Origins of Company

• Be sure to indicate the corporate structure

2.2. Brief Description of Company

• Mission (fundamental – defines business functions)

• Core competencies

• Table showing revenue sources and total revenues for the past 3 years

(See sample table)

– Be sure to indicate sources of operating capital (product sales, consulting/services, license

revenues, R&D grants/contracts and others)

• Describe how the company is structured financially being sure to identify current

sources of investment, as appropriate

• Provide a forward looking statement regarding the company’s vision and how this

technology relates to it


2.3. Management Team and Personnel

• Provide an overview of the organizational structure and the number of employees

• Introduce the company’s management, highlighting the credentials of personnel

responsible for taking this innovation to market

– Indicate if the management team has taken similar products/services to

market

• Introduce other sources of guidance e.g. Board of Directors, Board of Advisors,

Technical Advisors, Legal Counsel and provide details on names, affiliations and

expertise of these sources

• Describe what experience/capabilities the team lacks and how this will be

addressed during the Phase II effort and beyond?

Typically, Section 2 is 3 pages MAX.



Typical Struggles - Section 2

• Omission of historical perspective of financials

• Omission of core competencies

• Difficulty articulating transition from start-up to sustainable

business entity (objectives & vision)

– Corporate objectives

– Staffing – management team responsibilities

– Strategies


3.0 Competition/Intellectual Property (IP)

“Describe currently existing commercial products/services or that are emerging from research or R&D which may be substitutes for your product/service. How does your product or service match up to these substitutes in terms of the needs customers are seeking to meet? How will your team compete and win in the marketplace? Who is developing, making, and selling those products or services and what do you anticipate the competitive landscape to look like when you get to market?

Describe intellectual property (IP) rights you have secured for your technology to date and if any procedures are underway to expand or enhance the protection provided by those rights. Please describe your actions to protect these rights.

Describe the intellectual property landscape. In reviewing patent literature (and if relevant, copyright and trademark literature), describe which IP is closest and which is most threatening to your “freedom to operate” and how you are different enough to be able to secure your freedom to operate. What other IP will you need to secure rights to make, use, or sell in order to address the market opportunity described above?”



Please comment on the proposed technology’s competitive landscape and whether you see it as beneficial to or an impediment to its market entry, growth, and potential for profit. The following optional questions are suggested for your review. Has the company taken steps to secure its IP rights? Does the company’s IP offer it a unique or different enough ability to operate freely within a given market? Has the company demonstrated a plan to achieve sufficient IP protection to realize the commercialization stage and possibly attain at least a temporal competitive advantage?


3. Competition / Intellectual Property (IP)

3.1. Competition

• Describe current competitive landscape

• Discuss strengths and weaknesses of competing technologies/companies and

how your technology/innovation will allow your team to compete and win

relative to the strengths and weaknesses of competing

technologies/companies (response to competition)

– Include both direct and indirect competition

– Include table to contrast your product with competitive approaches on

dimensions of significance to the customer

• Describe changes in landscape anticipated over the next few years [i.e. when

your product/service reaches the market]


3.2. Intellectual Property Landscape

• Describe intellectual property landscape – i.e. other key patents of competitors

• Describe the due diligence taken to confirm that company has “freedom to operate” relative to the

technology/innovation

• Company Strategy (historical and going forward)

– Legal counsel used

– Frequency of interaction with counsel

– Brief discussion of corporate IP history (patents, copyrights, trademarks)

– Description of corporate strategy to protect IP going forward with rationale and timeline provided

– As appropriate, indicate the other IP you may need to acquire in order to address the market

opportunity

– Other SCAs

Typically, Section 3 is 3-4 pages in length.




• Limited discussion of competition [direct & indirect]

• Discuss technologies but never relate discussion back to the

actual companies working in this space

• Articulating implications of competition’s strengths and

weaknesses

• Identification of existing key/blocking patents - too early for

patent searches utilizing legal counsel

• Articulating company IP strategy


4. Finance & Revenue Model

“Describe an appropriate staged finance plan given the market opportunity. Outline the level of funding required for each stage along the path to commercialization. What are your costs to complete research and development, product, and production development/design/engineering, and to produce the product or service? What are the costs required to implement your commercialization strategy? How will you access the appropriate funds?

Provide a table with anticipated costs identifying the anticipated source of each detailing revenues or other operating capital you can devote to these. If there is a shortfall, explain how you will raise or access the appropriate funds. If no additional cash is needed explain why you are confident that is the case. Provide specific contacts, leads, previous relationships, and agreements already in place. Are any other commitments in place which will affect your ability to raise Phase III follow-on funding?

Provide an estimate of the DOE return on investment or net present value for this project. This estimate should incorporate the profit before taxes (positive cash flow) for the first 10 years of commercialization and treat the DOE SBIR or STTR funding as an investment (negative cash flow). Describe the revenue streams (licensing, product sales or other) associated with your Commercialization Plan. When do you anticipate “first revenues” from each stream? When do you expect to reach “break even”?

Provide annual proformas for the next five years (two years of the Phase II effort + 3 years’ post Phase II). Income Statements are required. Cash Flow and Balance Sheets may be included if they are considered critical for your strategy. If not included, Cash Flow and Balance Sheets should be available upon request from DOE.”



Please comment on the applicant’s projections, assumptions, and overall

soundness and quality of the project’s finance and revenue models. The

following questions are provided for your consideration. Are the costs to

complete R&D, product, and production development, design, engineering,

and to produce the product or service reasonable and appropriate? Is

there any revenue stream (licensing, product sales or other) associated

with the Commercialization Plan? If any, are third-party funding

commitments sound, i.e., non contingencies or qualifiers and clear and

documentable?


4. Finance & Revenue Generation

4.1. Estimate of funding needed

– Table of tasks to be funded from present through 3 years following Phase II

• Be sure to include technical, marketing, manufacturing, and intellectual

property milestones as appropriate

– Discussion of table, providing a sound basis for discussion of funding

needed

4.2. Evidence of support

– Discussion of appropriate contacts, leads, relationships and agreements

already in place validating that there is a path to the necessary funds

– Provide letters of support, as appropriate

• Detail the relevance of each letter and provide a description of the

entity that is providing the letter


4.3. Method of Revenue Generation

– Describe the revenue streams to be implemented in bringing your product/technology to market (licensing, product sales or other)

– Discuss dates you anticipate your first revenues from each stream and when you expect to reach “break even”

4.4. Model for Projecting Revenues for 3 years post Phase II

– Include annual pro forma income statements for 3 years post Phase II

– Discuss assumptions made when developing the model and reiterate how you have validated them

– Include a calculation of the DOE investment multiplier for the project. The calculation involves estimating anticipated revenues for 10 years post market entry.

Typically, Section 4 is 4 pages in lengthLetters of Support, pro forma income statement and DOE investment multiplier

worksheet are not included in page length restrictions.



1 Market Phase II (Yr 1) Phase II (Yr 2) Year 1 Year 2 Year 3

Served available Market size $100,000,000 $102,000,000 $104,000,000 $106,000,000 $108,000,000

Rate Market growthNA 2% 2% 2% 2%

2 Production Revenue (Sales - Product)

Units expected to be sold 100 182 330

$ avg selling price of total product $10,000 $10,000 $10,000

New product sales $0 $0 $1,000,000 $1,815,600 $3,296,403

Consulting or aftersale services $0 $0 $5,000 $25,000 $25,000

Total Production sales (Revenue) $0 $0 $1,005,000 $1,840,600 $3,321,403

$ market share - total market NA NA 1.0% 1.7% 3.1%

SBIR/STTR Contract R&D 200,000 200,000 0 0 0

Total revenue 200,000 200,000 1,005,000 1,840,600 3,321,403

3 Cost of Goods Sold (COGS)

Material $200,000 $363,120 $659,281

Labor $190,000 $344,964 $626,317

Licensing & Royalties

Total COGS new product $0 $0 $390,000 $708,084 $1,285,597

COGS (per unit) NA NA 3,900.00$ 3,900.00$ 3,900.00$

COGS consulting or after sale service $2,500 $12,500 $12,500

Direct SBIR/STTR Contract Expenses $190,000 $190,000 $0 $0 $0

Total COGS $190,000 $190,000 $392,500 $720,584 $1,298,097

4 Gross Margin

Total GM$ 10,000 10,000 612,500 1,120,016 2,023,306

Total Gross Margin % 5% 5% 61% 61% 61%

5 Expenses

Sales 150,750$ 276,090$ 498,211$

Marketing 40,200 73,624 132,856

Sales/Marketing $0 $0 $190,950 $349,714 $631,067

Administrative (G&A) $50,250 $92,030 $166,070

Internal R&D $70,350 $128,842 $232,498

Legal $15,000 $15,000 $15,000

Facilities $10,000 $10,000 $10,000

Total Expenses $0 $0 $336,550 $595,586 $1,054,635

6 Operating Earnings (EBIT) $10,000 $10,000 $275,950 $524,430 $968,671

EBIT Margin % #DIV/0! #DIV/0! 27% 28% 29%

XYZ Corporation

For years A to Z

Pro Forma Profit and Loss - Manufacturing


1 Market Phase II (yr1) Phase II (yr2) yr3 yr4 yr5Served available Market size

864,000,000 1,036,800,000 1,244,160,000 1,492,992,000 1,791,590,400

Rate Market growth20% 20% 20% 20% 20%

Sales (Revenue) base for licensing $0 $0 $10,000,000 $20,000,000 $30,000,000

$ market share - total market 0.0% 0.0% 0.8% 1.3% 1.7%

Royalty % 5.0% 5.0% 5.0% 5.0% 5.0%

2 Revenues Royalties 0 0 500,000 1,000,000 1,500,000

Consulting or after sale

services 0 0 10,000 25,000 25,000

SBIR/STTR Contract R&D 500,000 500,000 0 0 0

Total Revenue $500,000 $500,000 $510,000 $1,025,000 $1,525,000

3 ExpensesLicensing & Royalties

Sales0 0 0 0 0

Marketing 0 0 0 0 0

Cost of services 0 0 0 0 0

Administrative (G&A) 0 0 0 0 0

SBIR R&D 500,000 500,000

Internal R&D 0 0 0 0 0

Legal 0 0 0 0 0

Facilities 0 0 0 0 0

Total Expenses $500,000 $500,000 $0 $0 $0

4 IncomeIncome Before Tax 0 0 510,000 1,025,000 1,525,000

Tax rate 35% 35% 35% 35% 35%

Taxes 0 0 0 358,750 533,750

Net Income $0 $0 $331,500 $666,250 $991,250

Net income as %/sales 0.0% 0.0% 65.0% 65.0% 65.0%

Pro Forma Profit and Loss - License

XYZ Corporation

For years A to B

DOE SBIR Funding: Years 0 - 2

PH I PHII - Year 1 PHII - Year 2

0 1 2

($ in1000s) Year 2011 2012 2013

SBIR Funding $150 $500 $500

Discount Rate 15.0% 15.0%

Discount factor 0.93 0.80

Net Present Value (NPV) $150 $464 $400

Market size PHII - Year 1 $66,150

Market growth rate 5.0%

First year of commercial sales: 2017

Ten Year Revenue Projection: Years 6 - 15

6 7 8 9 10 11 12 13 14 15

($ in1000s) Year 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Market Size 84,426$ $88,647 $93,080 $97,734 $102,620 $107,751 $113,139 $118,796 $124,736 $130,972

Market growth rate 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

Market Share 1.0% 2.0% 4.0% 6.0% 8.0% 10.0% 10.0% 10.0% 10.0% 10.0%

Gross Revenues mfg/licensee $844 $1,773 $3,723 $5,864 $8,210 $10,775 $11,314 $11,880 $12,474 $13,097

Royalty rate 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Gross Revenues Licensing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Operating Margin 5% 8% 10% 15% 15% 15% 15% 15% 15% 15%

Operating Profits $42 $142 $372 $880 $1,231 $1,616 $1,697 $1,782 $1,871 $1,965

Discount Rate 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0%

Discount factor 0.44 0.38 0.33 0.28 0.24 0.21 0.18 0.16 0.13 0.12

Net Present Value (NPV) $19 $54 $122 $248 $299 $338 $306 $276 $250 $226

Project NPV and Investment Multiple

Cumulative NPV 10yr Profits: $2,137

Cumulative NPV SBIR funding $1,014

Project NPV 1,123$

DOE Investment Multiple 2.1



• Limited understanding of funding required to take technology from concept development to market

• Limited understanding of the length of time it takes to secure letters of support…use of “form” letters

• Articulating the difference between revenue generation and financing

• Superficial treatment of financials and understanding the length of time it takes to develop income statement

• Limited assumptions provided

• Inadequate discussion of cost of goods

Other Pointers

• Know your DOE Program Manager (let know successes, visit DOE when in DC, ask for POCs, etc.)

• Address Phase I reviewer concerns – make sure you have reviewed your Phase I reviewer summaries.

• DOE is placing an increased emphasis on commercialization – don’t disregard this emphasis – be diligent in putting together the business case and in finding target application

• Be a MASTER of one focus area and then branch into other areas – begin to generate revenue and then pursue other application areas.

• LOS can take a long time to secure, a really long time – so start early. Which ones do you need to strengthen business case being made…make sure you upload with commercialization plan as part of that complete stand alone document

• Proposal is your voice during the review – the commercialization plan is a selling document.

Program Resources

• Dawnbreaker Business Acceleration Manager

• Secure eLearning Site−http//www.dawnbreaker.com/elearning

• DOE Commercialization Plan Outline

• Frost and Sullivan Report or CIP, as applicable

• Business Planning for Scientists and Engineers−Used as reference

• Webinars

E-Learning Dashboard

Webinar Topics

Searching Frost & Sullivan

July 24th 2PM – Kristin Stiner, MBA

Market Build Up

August 7th 2PM - Todd Farrar, MBA

Understanding Financials (Licensing)

August 21st 2PM - Jon Sienkowski, MBA

Understanding Financials (Mfg of Product/Software and/or Services)

August 22nd 2PM - Jon Sienkowski, MBA

Product Cost Analysis 101September 4th 2PM – Jon Sienkowski, MBA

Webinar Topics

Intellectual Property Considerations

September 18th 2PM - Tallam Nguti, J.D.

A Review of Example Pro FormasOctober 2nd 2PM – Jon Sienkowski, MBA

Manny Oliver

DOE SBIR/STTR Program Office, Director

Discussion about increased emphasis that DOE is placing on

commercialization

49

Questions?

Carol E. Rabke, Ph.D.Phase I Program Manager

585.425.3212 (office)585.594.0025 (main Dawnbreaker number)

[email protected]

mailto:[email protected]

Government & Nonprofit

Doe14 p1r1 webinar_02