Financing Innovation Darryl Aberdein Brain Works Management Pty

Financing Innovation Darryl Aberdein Brain. Works Management (Pty) Ltd November 2004 © Brain. Works Management

Red vs. Green I have another idea… I made a small profit I am looking for a client I am selling to visionary clients I am STILL busy with product development I am understanding the market by consulting I am busy with product development I am assessing the market I have a working model There is an opportunity I have an idea © Brain. Works Management 2

Organizational Development Model (acknowledgement to OTCC) Technical Market Business Market Needs Assessment Venture Assessment Investigation Phase Investigation Technology Concept Analysis Development Phase Feasibility Technology Feasibility Market Study Economic Feasibility Planning Engineering Prototype Strategic Marketing Strategic Business Plan Pre-Production Prototype Market Validation Business Start-Up Introduction Commercial Phase Full Scale Production Maturity Production Sales and Distribution Business Growth Production Support Market Diversification Business Maturity © Brain. Works Management 3

Full Scale Production Maturity © Brain. Works Management Government Grants The Pink Route You may end up as an unhappy employee in your “own” company Cash flow Commercial Phase Trade Sale Introduction Business Angels Planning Visionary Clients Feasibility You may end up owning 100% of nothing Banks Development Phase Boot-strapping Investigation The Blue Route Venture Capital Investigation Phase Friends and Family The right finance at the right time Try to postpone outside finance until you can negotiate from a position of strength!! 4

Survival Tactics Be in a “bootstrappable” industry – consulting, outsourcing services for business; anything sold by subscription. Avoid low margin retail businesses (with high working capital) Offer consulting services in order to fund development Consider licensing someone else’s product or technology Locate in offices where landlords are “tenant desperate”, work from home Do it yourself – become multi-skilled Sell “incomplete” products to visionaries Start part time Utilize friends network Get prompt payment from customers and delayed terms from suppliers Give out equity in lieu of salaries, sales persons earn high commission, low salary © Brain. Works Management 5

Sources of Finance Development Financial Institutions Khula – loan guarantee fund, two equity funds – www. khula. org. za IDC – mostly manufacturing assets – www. idc. co. za Grants and subsidies Innovation Fund – major R&D projects – www. innovationfund. ac. za EMIA – export marketing assistance – www. thedti. gov. za SPII – product development – www. spii. co. za Competitiveness Fund - www. thedti. gov. za THRIP – academic/industry R&D – www. nrf. ac. za/thrip SMEDP - www. thedti. gov. za © Brain. Works Management 6

Sources of Finance Commercial Banks Listing on Stock Exchange - www. altx. co. za Private Equity Angels Venture Capital – www. savca. co. za Incubators – www. godisa. net © Brain. Works Management 7

Investors want… somebody who can sell something - and preferably the CEO! a bottoms-up sales projection. an “unfair advantage”. some team skin in the game. some economic sacrifice (and low overhead!). passion - some “fire in the belly” team depth. reality in the financial projections. valuation reasonableness. respect for the competition. a segmented market target. evidence of customer interest. © Brain. Works Management 8