out of the lab and into the real world j carl allen director and venture capital leader forrester...

Out of the lab and into the real WorldJ Carl Allen

Director and Venture Capital Leader

Forrester Research, Inc.

Forrester Research, Inc.

• The leading analysts of technology’s impact on business

• Founded in 1983 by George F. Colony

• Headquarters in Cambridge, Mass.; additional research centers in Amsterdam, Frankfurt, London, Norwalk, Conn., Paris, San Francisco, and Santa Clara, Calif.

• 598 employees globally

• 209 research professionals

• 1991 clients

Theme

Taking technology out of the lab and into the

real World

Agenda

• Who is investing in tech start-ups?

• Industry concerns for tech start-ups

• The structural changes in the IT marketplace

» How start-ups can benefit

• The role of tech transfer - - where does it fit?

• Making the funding journey

» Identify your equity customer and plan your funding roadmap

• Q&A

Who is Investing in Technology Start-Ups?

• The 164 BVCA members - - but mostly in the South

• 2003 private equity investment:

» 1274 companies: +7% from 2002

» £4074 million: -9% from 2002

• 185 start-ups were funded by BVCA members in 2003

» £73 million: 2% of total funds invested, 15% of company total, average of £395,000 per deal

• The North West represented only 7% of start-ups

» £5.1 million and 13 deals

• There is a lack of VC focus outside of the South

» Strong London/M4 corridor/Cambridge focus

• Corporates have slashed supply lists by upto 95%: to the detriment of smaller/unquoted vendors*

• 90% of large corporates will not buy solutions >£50k from vendors with <£10M in revenues*

• EXITS: Established vendors are being very selective in acquiring feature/function to boost their offerings: VC’s need to market their assets for sale

» 900 IT M&A deals globally in H2, 2003 and H1, 2004

» Only 70 acquisitions by top 38 vendors, only 12 were European companies

• Liquidity: IPO routes still difficult in the short term, especially in Europe

• The global IT market has structurally changed and there are new rules of engagement

Industry Concerns

*Source: Forrester Research

Background: The Changing Deep Structure of the IT Industry

The New Ecosystem - Follow the Money

CIO/CTO/ IT Dept.CIO/CTO/ IT Dept.

Hardware and Network

Equip.Vendor

Hardware and Network

Equip.Vendor

SoftwareVendor

Transaction

C 1985

Background: The Changing Deep Structure of the IT Industry

The New Ecosystem - Follow the Money

Emerging Tech.

Vendor

Emerging Tech.

Vendor

InvestorInvestor

NetworkService

Provider

CIO/CTO/ IT Dept.CIO/CTO/ IT Dept.

Hardware and Network

Equip.Vendor

Hardware and Network

Equip.Vendor

SoftwareVendor

Transaction

C 1990

Background: The Changing Deep Structure of the IT Industry

The New Ecosystem - Follow the Money

Emerging Tech.

Vendor

Emerging Tech.

Vendor

InvestorInvestor

IT Service Provider

IT Service Provider

NetworkService

Provider

CIO/CTO/ IT Dept.CIO/CTO/ IT Dept.

Hardware and Network

Equip.Vendor

Hardware and Network

Equip.Vendor

SoftwareVendor

Transaction

C 1995

Background: The Changing Deep Structure of the IT Industry

The New Ecosystem - Follow the Money

Emerging Tech.

Vendor

Emerging Tech.

Vendor

InvestorInvestor

Enterprise Lines ofBusiness

Enterprise Lines ofBusiness

IT Service Provider

IT Service Provider

NetworkService

Provider

CIO/CTO/ IT Dept.CIO/CTO/ IT Dept.

Hardware and Network

Equip.Vendor

Hardware and Network

Equip.Vendor

SoftwareVendor

Transaction

C 2000

Where does technology transfer and brokering fit?

The New Ecosystem - Follow the Money

Emerging Tech.

Vendor

Emerging Tech.

Vendor

InvestorInvestor

Enterprise Lines ofBusiness

Enterprise Lines ofBusiness

IT Service Provider

IT Service Provider

NetworkService

Provider

CIO/CTO/ IT Dept.CIO/CTO/ IT Dept.

Hardware and Network

Equip.Vendor

Hardware and Network

Equip.Vendor

SoftwareVendor

Transaction

C 2000

AcademiaAcademia

A Win - - Win Model

Technology Transfer and Brokering

Emerging Tech.

Vendor

Emerging Tech.

Vendor

Hardware and Network

Equip.Vendor

Hardware and Network

Equip.Vendor

SoftwareVendor

AcademiaAcademiaAcademiaAcademia

Cash

Technology

Stock

Tech

nolo

gy

Broker, e.g. PAX

TT

Broker, e.g. PAX

TT

Stock

Cas

h

Royalties

Research

Making the Funding Journey

1. Understand the equity marketing paradox

2. Know your equity customer

3. Plan your equity funding roadmap

1. Understand the equity marketing paradox

• The Entrepreneur/CEO has TWO marketing problems

CEO Product 1Product 2

CapitalCustomers

Angel/seed funding

Venture Capital

Bank Debt

Corporates

Aerospace

Biotech

Semiconductors

E-Commerce

PeopleContext

The Business

Opportunity

The Deal

2. Know Your Equity Customer

Stakeholders Entrepreneur

The Team

EconomyTechnology

Competition

Timing

Customer

Business Model

Opportunity Size

Price

Deal Structure

2. Know Your Equity Customer (Cont.)

3. Plan your equity funding roadmapVersion 1.0 Company

Version 1.5 Company

Version 2.0 Company

Source: VenlogicLLC

Theme

Taking technology out of the lab and into the

real World

Recommendations

• Understand exactly where you fit into the new IT market ecosystem – either directly or using the channels

• Prepare for your two sales pitches

» Your product and your equity

• Identify your equity customer and determine what they need to fully analyse your business

» You only have one chance to pitch

• Do not ‘shop’ the deal

» Be very selective in your approach and focus your energy and budget on the ‘best’ investors for your business

• Cash is king !

» Plan your equity roadmap like a military assault

J Carl Allen

+44 207 323 7685

jcallen@forrester.co.uk

www.forrester.com

Thank you

Entire contents © 2004 Forrester Research, Inc. All rights reserved.