The Entrepreneurship Path The Road Less Traveled Justin

The Entrepreneurship Path: The Road Less Traveled Justin Mansell, Ph. D. VP and CTO of MZA Associates Corporation President of Active Optical Systems, LLC jmansell@mza. com 1

Outline • My Path to Entrepreneurship • Beginning Your Entrepreneurship Journey – Introduction – Creating a Business Plan – Beyond the Plan • Conclusions • Example Pitch jmansell@mza. com 2

My Entrepreneurship Path (so far) jmansell@mza. com 3

Brief Resume • • • 1991 -1996: Computer Consultant 1993 -1996: Internships 1995 -1996: Research Consulting 1996 -1999: Wavefront Sciences 1996 -2001: RA at Stanford University 1999 -2001: Optics Consultant 2000: Stanford e-challenge 2000 -2002: Founder/CTO at Intellite, Inc. (Agil. Optics) 2002 -present: Mansell & Associates, LLC 2002 -2003: Chief Engineer at Qynergy Corporation 2003 -present: VP and CTO at MZA Associates Corp 2005 -present: President of Active Optical Systems, LLC jmansell@mza. com 4

1991 -1996: Computer Consultant • During my undergraduate, I worked parttime as a consultant, mostly on computer database development. – – ATM Accounting Medical Doctor Professional Society Database Security System for Cleveland Museum of Art Probate Court Case Tracking Database • Lessons Learned: – – Project Management Billing & Invoicing Tracking Time Importance of Customer Relationships • New Biz through Customer Recommendations jmansell@mza. com 5

1993 -1996: Internships • NASA Glenn – Developed the control system for the ISS Plasma Contactor • Sandia National Labs – Data reduction from Tri-Axial Compression Experiments – Shack-Hartmann Wavefront Sensing and Micro-Optics • Lessons Learned – – How to solve problems independently Being part of a research team Value of experience Large amount of fertile ground at the intersection between almost any two fields – Value of Intellectual Property (IP) and how to protect it jmansell@mza. com 6

1995 -1996: Independent Researcher • After my SNL internship, I got back to CWRU and found the research path outlined by my research advisor unappealing. • I pitched doing an independent research project for my MS Thesis that involved – Developing software for automation of mask pattern generation. – Demonstrating a technique for improving micro-optics performance. • Pitched this to SNL and got it funded. • Lessons Learned – Think creatively about education (you don’t necessarily have to do things traditionally) – How to write a proposal. – How to develop a credible project plan and budget. jmansell@mza. com 7

1996 -1999: Wavefront Sciences • As I was leaving SNL to go to Stanford for my Ph. D. , my SNL boss was leaving to try a start-up called Wavefront Sciences (WFSI). • I agreed to work part-time on IR&D, software development, and micro-optics development. • Lessons Learned – – – How to start a business (peripherally) How to productize (peripherally) How to manage research (remotely) Really being part of a research team Be creative in working deals: • We traded a wavefront sensor we could not afford for a CRa. DA with WFSI. – Small businesses can be a lot of fun! jmansell@mza. com 8

1996 -2002: RA at Stanford • Worked on numerous projects including – – MEMS Spectrometer MEMS Deformable Mirrors Wavefront Sensors Low-Cost AO for Lasers • Lessons Learned – – – How to Write & Present Engineering Ethics Safety Policies and Procedures Working Collaboratively Managing Expectations (“Upwards”) jmansell@mza. com 9

2000 -2002: Intellite / Agil. Optics • Founded Intellite to commercialize the MEMS deformable mirrors we developed at Stanford. • Pitched Intellite at a Venture Capital Symposium • Lessons Learned – Productization (manuals, packaging, etc. ) – Writing a business plan • What do VCs care about • How to sell to them – How to roll with the unexpected • Intellite had to change its name due to legal pressure jmansell@mza. com 10

2002 -Present: Mansell and Associates • Founded to do engineering and IP consulting • Lessons Learned – You really can do it all yourself – You may not really want to • Having a team really does help! jmansell@mza. com 11

2002 -2003: Qynergy • Business founded to commercialize technology invented at SNL for radioisotope energy generation • Strategy was to “top-load” the team – Lots of Grade A Management, but light on the technical team • Lessons Learned – Research • How to work limited resources • Managing research outside of my expertise • “A 90% solution now is better than a 100% solution later” – Business • The costs and benefits of a high-quality team • IP Development & Protection • Business Plan Development jmansell@mza. com 12

2003 -Present: MZA Associates • Primarily Do. D consulting firm specializing in detailed physicslevel modeling of defense optical systems. • MZA has grown from 1 office of ~15 people to 3 offices of ~35 people in the last 4 years • Lessons Learned (and Learning) – Managing Growth – How to Transition from a Small to a Medium-Sized Company jmansell@mza. com 13

2005 -Present: Active Optical Systems • Spin-off of MZA founded to commercialize a new low-cost AO technology • Lessons Learned (& Learning) – Unusual Funding Sources – Leverage Existing Technology – Luck Matters Polymer Membrane Under 12 k. W CW 1 -μm Light www. aos-llc. com jmansell@mza. com 14

Getting Started as an Entrepreneur jmansell@mza. com 15

Limitations & Caveats • People spend their life studying this topic. – I will only have time to present some of the basics. • I have no formal business school training. • There are many books and much literature on this topic, including: – The Start-up Entrepreneur, J. R. Cook – Entrepreneurship For Dummies, Kathleen Allen – Outline for a Business Plan (http: //www. techventures. org/resources/docs/Outline_ for_a_Business_Plan. pdf) jmansell@mza. com 16

Entrepreneurs… • Identify business opportunities (spark) • Create a plan to capitalize on the opportunity (diligence) • Find the resources (marketing) • And (sometimes) execute the plan (leadership) jmansell@mza. com 17

New Business Idea Quick Test: Should I be an Entrepreneur? • Am I excited about this idea or opportunity? – E-ink ideas • Do others also think it’s a great idea? • Are there people willing to pay for what I’m offering? • Why am I the right person for this? • Why should I go forward with this idea or opportunity now? – Diode Laser vs. He. Ne for Barcode Scanners Entrepreneurship for Dummies, Kathleen Allen jmansell@mza. com 18

The Business Plan jmansell@mza. com 19

Business Plan Basics • A business plan is like a job application to becoming an entrepreneur. • A well-written business plan forces the author to evaluate the idea in sufficient detail to sell it and/or guide the development of the resulting business. • Reasons for Writing a Business Plan: – Organizes and Structures the Business to Capitalize on the Opportunity – Sells the Opportunity to Investors jmansell@mza. com 20

Comments on Investors • Investors should be thought of as members of your team. – What assets (other than financial) do they bring to the table? • Investors are not stupid, … – Would you want them on your team if they were? • …especially about business – How do you think they got that money to invest? • Investors are looking for a substantial increase in the value of your venture (5 -10 x) in a fairly short period (5 years) – Success Stats are Dismal, but ask, “What is success? ” • Investors generally won’t sign NDAs • Investors might be considering other deals in your space. Its generally OK to ask them this question. • Investors often care more about team than opportunity. – Experience more than education jmansell@mza. com 21

Components of a Business Plan • The Opportunity – Product / Service – Industry & Market Analysis – Competitive & SWOT Analysis Flip in the Final Version • The Team – Management – Company Description • The Plans & Projections – Financial (including projections), Marketing, and Operating jmansell@mza. com 22

Product / Service • Coming from a technical background, I like to write this first and then write the industry part second, but switch the order for the investors. • Describe the product or service in detail. • Focus on the distinguishing features. • Compare to the existing solutions. – There always existing solutions. • Give as much detail as you feel comfortable releasing publicly – Investors often won’t sign NDAs • Include a description of existing or applied for IP – Investors generally discount provisional patents jmansell@mza. com 23

Industry & Market Analysis • There can be multiple industries or applications, but often targeting more than one at a time may not be possible given resources, so choose one & prioritize the others. • Find as much data as possible on the industry and market segment including – Size (dollars and units) – Recent and Projected Growth Rate (especially in your segment) – Location (where is the money spent? ) • This data can be hard to come by, but look – – – On the internet In relevant trade journals In the local business school library At Technology Venture Corporation (TVC) Customer Surveys (keep good records) • This part can be the hardest part for technologists, so don’t be afraid to ask for help. – Investors will most likely be better than you at this, so spend the time to get it right. jmansell@mza. com 24

Competitive Analysis • Who else out there is doing something that competes in any way? – Important because it could be a hidden opportunity • Why would their customers become your customers? • A comparison table is often useful here. jmansell@mza. com 25

SWOT Analysis • Strengths, Weaknesses, Opportunities, and Threats • Try to be as realistic and objective as possible • Include global considerations. • You may have done this throughout the other portions, but investors are sometimes looking for this as a summary. jmansell@mza. com 26

The Team • Investors generally weigh this more heavily than the opportunity – “I’d rather have an A team with a B idea than a B team with an A idea” • Experience is key • They will be looking for a core management team with all the key areas covered and ideally with experience. – Address any key weaknesses (What you don’t have you might hire. ) jmansell@mza. com 27

Plans and Projections • Tie these back to the industry data as much as possible. • Investors generally won’t believe ridiculous market share predictions, so be realistic. • Create a budget of how you think money will be spent. – include a detailed budget if you’re asking for investment. jmansell@mza. com 28

Beyond the Business Plan jmansell@mza. com 29

The 5 -Minute (Elevator) Pitch • Once the business plan is complete, it is important to write down and rehearse a 5 minute pitch of your business • Touch on: – Product/Service – Industry & Market – Potential for Growth – Management Team jmansell@mza. com 30

Types of Investors • Government (Grants / SBIRs) – No equity cost – Not just the USA either… • Other Corporations – Small and Large • Angel Investors – Small and early round investors • Venture Capitalists – Typically $1 M+ investment – Significant equity cost jmansell@mza. com 31

Entrepreneur’s Skills • • Management Legal Intellectual Property Marketing Accounting Human Relations Insurance Workman’s Compensation & Unemployment • Tax jmansell@mza. com You don’t have to be an expert in all of these areas, but if you’re going to lead the team, you need to know a bit about all of them. 32

Conclusions • Entrepreneurs capitalize on business opportunities. • Getting started means writing a plan covering the: – Opportunity, Team, & Plan & Projections. • The plan will guide your company and help you hook investors. jmansell@mza. com 33

Example Pitch: Active Optical Systems, LLC jmansell@mza. com 34

Problem: Optical Distortions Application / Market Segment 1. Lasers Effect of Distortions 2. Photolithography Reduced Feature Sizes and Resolution 3. Ophthalmology Missed Diagnoses 4. Free-Space Communications Large Bit Error Rate and Lost Data Human Retinal Image Larger Spot Size Reduced Intensity With Distortions 5. Optical Data Storage Lower Data Density 6. Telecommunications Signal Degradation jmansell@mza. com 35 Distortions Gone

Laser AO Market Opportunity • Laser Market (~$2 B) – Large High-Growth Market • ~$2 B in 2000 with ~10% growth – High Product Cost (~$100 k) – Industry Contacts & Contracts • Laser Adaptive Optics – OEM Segment for AO • $240 Million (2001) • $500 Million in 7 years – End-User Segment for AO • $140 Million (2001) – Estimated $380 M AO System Revenue Potential by 2012 jmansell@mza. com 36 NOTE: Numbers here are not necessarily traceable to research.

Example: Photolithography Masks • Electron Beam Written Masks E-beam Mask Writer – Higher Resolution – Mask Cost: $3, 000 to >$20, 000 • Laser Beam Written Masks – Higher Productivity – Mask Cost: $300 to $1, 500 • Benefits of Laser AO – Mask Maker • Electron Beam quality • Laser beam cost – Laser Manufacturers • New Sales Possibilities jmansell@mza. com Laser Mask Writer 37

AOS’s Adaptive Optics Product Before AOS’s Control Computer Laser After AOS’s Polymer Deformable Mirror Sensor Benefits to OEM and End-User AOS’s Competitive Edge • Reduces Laser Cost • Polymer DM • Increases Intensity • Significantly Reduced Cost • Opens New Application Doors with Higher Volume jmansell@mza. com 38

AOS Component Technologies Drive Electronics Webcam Hartmann Sensor Polymer Deformable Mirror (patents pending) jmansell@mza. com DM Before Packaging 39

Competitive Analysis Competitor Analysis Company A MEMS-based (costly ~$50 k) High Power Laser Capable Slow Growth Strategy (CEO is a Professor) Products Need Engineering (not turn-key) Company B Limited in size Limited Laser Power Handling High Cost (~$100 k for DM + Electronics) Company C Focusing on the Ophthalmology Market High Cost ($75 k for DM + Electronics) Cannot handle high power lasers AOS Low Cost ($6. 5 k DM + Electronics, $7. 5 k Systems) Turn-key Systems jmansell@mza. com 40

Management Team • Justin Mansell-President – Ph. D. from Stanford Univ. in adaptive optics for high power laser wavefront control – 10 years of Technical and Business Start-up Experience • Robert Praus & Steve Coy – VPs – Each has 20 years of experience in developing and modeling high power laser systems for Do. D applications • Defining Marketing and COO Positions jmansell@mza. com 41

Experience (2005) MEMS FT Spectrometer (2000) US Patent 6, 707, 020 (2004) Delay Line M 2 Meter (2001) Gaussian to Top-Hat Beam Shaping (2000) Boeing Relay Mirror AO Testbed (2004) MOPA AO (2000) Knife Edge SHWFS US Patent 6, 376, 819 (1999) Binary Optics Smoothing (1996) US Patent 5, 864, 381 (1999) (1998) Mini-Cass (2001) US Patent 6, 108, 121 (2000) Apodized Microlens Arrays (1999) (1996) (1991) jmansell@mza. com 42

Financial Projections • Seeking $1 M in Start-up Capital • Break-Even in Year 3 • $60 M Revenue by Year 5 jmansell@mza. com 43

Questions? Justin Mansell, Ph. D. jmansell@mza. com (505) 245 -9970 x 122 jmansell@mza. com 44