1. Engineering 245 The Lean LaunchPad Lecture 6: Partners Professors Steve Blank, Ann Miura-Ko, Jon Feiber http://e245.stanford.edu/

2. 1 images by JAM customer segments key partners cost structure revenue streams channels customer relationships key activities key resources value proposition

3. KEY PARTNERS which partners and suppliers leverage your model? who do you need to rely on?

4. Test Hypotheses: Key Partners 3

5. What defines a “Partner?” 4 Shared economics Mutual success / failure Co-development/invention Common customer But remember - you’re a startup

6. Why have partners? 5 ● Faster time to market ● Broader product offering ● More efficient use of capital ● Unique customer knowledge or expertise ● Access to new markets

7. Partners – Physical Channels 6 Strategic alliances Joint new business development efforts “Coopetition,” (cooperation between competitors) Key supplier relationships

8. Partners – Strategic Alliances 7 Reduce the list of things your startup needs to build or provide to offer a complete product or service. Use partners to build the “whole product” using 3 rd parties to provide a customer with a complete solution complement your core product with other products or services Training, installation, service, etc

9. Partners – Joint Business Development 8 Joint promotion of complementary products Share advertising, marketing, and sales programs One may be the dominant player Intel offered advertising fees to PC Vendors

10. Partners – Coopetition 9 Joint promotion of competitive products Competitors might join together in programs to grow awareness of their industry Tradeshows Industry Associations

11. Partners – Key Suppliers 10 Outsource suppliers Backoffice, supply chain, manufacturing Direct suppliers Components, raw materials, etc.

12. 11 Startup mistake Strategic alliances and joint partnerships Not needed for Earlyvangelists Are needed for Mainstream customers Usually fail

13. Traffic Partners – Virtual Channels 12 Long-term agreements with other companies deliver long-term, predictable levels of customers “Cross referral” or swapping basis Paid on a per-referral basis Partners drive traffic using text-links, with onsite promotions, and with ads on the referring site Partners sometimes exchange email lists

14. Partnership Disaster: Boeing 13 Collaborative Looked great on paper. Worst business decision of the 21 st century (so far!)

15. Mobile Location Based Applications Collaborative Partner 14

16. Managing partners - risks Impendence mismatch Longest of partners schedule becomes your longest item No clear ownership of customer Products lack vision – shared product design Different underlying objectives in relationship Churn in partners strategy or personnel IP issues Difficult to unwind or end

17. Why Will a Large Company Partner? You give them a competitive “leg-up” In sales Or “halo-effect” You are on their technology road-map You’re an economic opportunity for them potential customer of large company can leverage their existing products and sales Change agent for the large company You need to understand their motivation

18. Should I take an investment from a Large Company? They are interested in their bottom line, not yours Their objectives are not to make you a large company Who’s the sponsor? What’s the motivation? Needs to come from the business side Not the venture side Try to get sales deals not investment Or try to offer warrants based on sales success

19. Startup Partner Strategies 18 Don’t confuse partners for Earlyvangelists vs. mainstream Don’t confuse big company partnering with startup strategy Find the one that gives you an unfair advantage –Air Supply strategy Recognize you don’t matter to a large partner

20. Team Deliverable for Next Week What partners will you need? Why do you need them Why will they partner with you? What’s the cost of the partnership? Talk to actual partners Summarized in a 5 Minute PowerPoint Presentation

21. Ground Fluor Pharmaceuticals This is your brain on fluorine Team: Kiel Neumann (EL) Stephen DiMagno (PI) Allan Green (Mentor) I-Corps 11/15/11

22. 21  PET is a non-invasive medical diagnostic technique for cardiac, brain, and tumor imaging  GFP technology makes imaging agents available for clinical use, often for the first time.  Initial target indications: pediatric neuroblastoma, Parkinson’s disease. I-Corps 11/1/11

23. 22 I-Corps 11/15/11 Manufacture GMP precursor manufactures GMP cassette manufacturers Radiopharmacies Clinical Trials St. Jude Children’s Research Hospital Sloan Kettering UCSF

24. General methodology for adding fluorine to lead compounds of interest The Business Model Canvas Accessibility (RCY) Purity Speed PET/SPECT Multiplatform Sensitivity (nca) Specific compounds IP PoP data Regulatory plan Understanding of the regulatory process Contract cGMP precursor manufacture Salary, Rents Clinical trials SOPs for precursors and drugs Recruit clinical sites In vivo animal studies Develop regulatory plan for pre IND meeting ID cGMP CRO Fund-raising Nuclear Medicine and Radiology departments Technical Assistance (Image Atlas) FDA regulatory support Radiopharmacies Equipment producers Prescribing physicians Radiologist who perform studies Sales of intermediates Technology license Product license (royalty) Drug developers Pharmaceutical development companies IP PoP data Radiologists Technical assistance cGMP manufacturers Radiopharmacies Direct sales of precursor Sales of packaged precursor in cassettes Cassette manufacturers I-Corps 11/15/11

25. Food Chain 24 Reagents F-dopa iodonium intermediate F-dopamine iodonium intermediate GMP Cassette or Components ABX Eckert & Ziegler GE MX module for TracerLab Siemens Explora GMP Compliant Synthesizer TracerLab/ GE Eckert & Ziegler Siemens Explora Neoprobe Synthra PET Radiopharmacy distributor Siemens PETNet GE Amersham Cardinal Health AAA Iason We provide accessibility Only want GMP precursor in cassettes without development Could license precursor synthesis for incorporation in cassettes Require GMP precursor (or cassette) to develop our product with their synthesizer I-Corps 11/15/11

26. I-Corps Presentation 11/15 25 GMP Precursor GMP Cassette Finished Imaging Agent $10’s per cassette $300 per cassette Finished Imaging Agent $1700 per dose ~100 doses/cassette One time setup $140,000 Revenue neutral thereafter Licensing fee or nominal royalty ($50) per cassette $500 fee per dose at existing price structure Patients Hospitals

27. I-Corps Presentation 11/15 One time setup $50-140K Contract Manufacture GMP Precursor Albany Molecular Nebraska GMP Facility SRI International Richmond Chemical

28. I-Corps Presentation 11/15 27 GMP Precursor GMP Cassette Finished Imaging Agent $10’s per cassette $300 per cassette Finished Imaging Agent $1700 per dose ~100 doses/cassette One time setup $140,000 Revenue neutral thereafter Licensing fee or nominal royalty ($50) per cassette $500 fee per dose at existing price structure Patients Hospitals

29. I-Corps Presentation 11/15 Precursor use license GMP Cassette Synthra Siemens Explora Eckert& Ziegler ABX

30. I-Corps Presentation 11/15 29 GMP Precursor GMP Cassette Finished Imaging Agent $10’s per cassette $300 per cassette Finished Imaging Agent $1700 per dose ~100 doses/cassette One time setup $140,000 Revenue neutral thereafter Licensing fee or nominal royalty ($50) per cassette $500 fee per dose at existing price structure Patients Hospitals

31. Fee per dose Technology license Finished Drug IasonAAA GE Healthcare Siemens Cardinal Health

32. 31  2.2 million doses per year  %10 of the market is 200,000 doses  $500 per dose = $100 million  Current sales $2 M/year because production is limited and costs are high.  Confidential financial Gannt chart prepared I-Corps 11/15/11

33. I-Corps 10/11/11 32 1)Radiologists and Nuclear Medicine Physicians 2)Radiopharmacy companies (Cardinal Health, Siemens, GE Healthcare, IBA, AAA) 3)Equipment manufacturers (GE, Philips, IBA, Advion) 4)cGMP manufacturers 1)Pharmaceutical companies 2)Radiologists and Nuclear Medicine Physicians

34. -Face to face with attending Radiologist at Stanford University -Face to face with radiopharmacist at UCSF -Conference call with Nuclear Radiologist at Memorial Sloan Kettering -Conference call with president of medium size drug company with PET product at the FDA -Telephone conference with cGMP facility Out of the Building I-Corps 10/12/11 33

35. Out of the Building I-Corps 10/12/11 34 -Immediate need for our product -Currently used SPECT product for neuroblastoma is limited by absence of correlative CT data -Our lead PET agent would provide more information on existing imaging equipment base -Two customers offered to participate in clinical trials -Potential for further development of other tracers identified in interviews -Actual need for the general procedure -Allow access to previously unknown tracers

36. 35 I-Corps 11/15/11 Precursor Sale F-dopa iodonium intermediate Subcontracted manufacture (licensed) Small profit ($10/cassette ) GMP Cassette Sales Current price - $300/cassette. One cassette might provide 50-100 doses of finished drug. License precursor incorporation in the cassette. Drug Production Current sales ~ $1000-$1500/dose. Potential manufacturing cost per dose (FDG) $200/dose.

37.  Key meetings with two radiopharmacy companies, one large, one small. Shift in emphasis of the first product to the potentially more profitable application (Parkinson’s imaging).  Small player has only regulatory license to use the compound for clinical imaging, but is currently production limited. Sales are limited by chemistry and by the number of cyclotron facilities. Potential for ~50 fold improvement in sales.  Our IP is being scrutinized seriously by interested parties.  Large player desires interaction with company only (no academic tie in.)  Preferred deliverable from us is a cassette and technical expertise.  Pricing structure is right for lead compound. Out of the Building 36 I-Corps 11/1/11

38.  Face to Face meeting with president of small radiopharmaceutical company  Face to face with a clinician at Memorial Sloan-Kettering  Face to face with Global Production Manager of Molecular imaging for one of world’s largest radiopharmaceutical companies  OncoKinib collaboration between Geurbet, OncoDesign, and Ariana pharmaceuticals  Face to face meeting with head of R & D and International Production Manager from Linz, Austria  Eckert and Zeigler – German PET modular synthesis provider  Face to face meeting with Executive Director and CEO of Scott Tech Center in Omaha, NE  Introductory teleconference to CEO of Innovation Accelerator Out of the Building 37

39.  Scott Tech Center and Innovation Accelerator  Willing to offer free advice on startup strategy  Aid in developing two pronged strategy (bottom up – Product Portfolio Manager, and top down - Director of Venture Technology) with one of world’s leading radiopharmaceutical companies  Potential tie in to State economic development resources Additional Meetings 38 I-Corps 11/1/11

40. Market Issues I-Corps 11/1/11 39  Proprietary compounds for mass distribution  Cassette manufacturers’ pricing strategies for intermediates are appropriate for generics only.  Cassette-based system is mandatory for this market  Lead compound market is potentially large  Current provider is manufacturing limited (~100 doses/day). Our process would increase output dramatically with existing cyclotron infrastructure  European manufacturer/distributor with regulatory approval could incorporate our technology into their production system relatively rapidly  European data could be used by Company to support US FDA regulatory submission for product approval

41. General methodology for adding fluorine to lead compounds of interest The Business Model Canvas Accessibility (RCY) Purity Speed PET/SPECT Multiplatform Sensitivity (nca) Specific compounds IP PoP data Regulatory plan Understanding of the regulatory process Contract cGMP precursor manufacture Salary, Rents Clinical trials SOPs for precursors and drugs Recruit clinical sites In vivo animal studies Develop regulatory plan for pre IND meeting ID cGMP CRO Fund-raising cGMP manufacturer Radiopharmacies Nuclear Medicine and Radiology departments Technical Assistance (Image Atlas) FDA regulatory support Radiopharmacies Equipment producers Prescribing physicians Radiologist who perform studies Sales of intermediates Technology license Product license (royalty) Drug developers Pharmaceutical development companies IP PoP data Radiologists Technical assistance Direct sales of precursor R&D and clinical studies presented in journals and meetings Sales of precursor through global finished pharmaceutical distributor

42.  Conference call with top 40 Fortune 500 chemical distribution company  Open to cGMP production of our potentially proprietary precursors  Interested in developing a general “plug-and-play” cassette  Would allow implementation of our methodology and precursors for any radiochemistry module  Important for FDA compliant production of any drug used in patient diagnostics  Face to face meeting with Director of Business Development of a leading drug discovery outsourcing company  Discussed preclinical studies and contract manufacturing of proprietary intermediates -Face to face with former Director of Chemistry of major pharmaceutical company -Significant interest in general methodology application to proprietary compound syntheses Out of the Building I-Corps 10/18/11 41

43. -Initially seeking to market method technology -too diffuse, but many opportunities (i.e. product-driven opportunities more than general technology-driven) -Need to identify specific imaging product opportunities -Validated hypothesis for immediate need of tracers -Raised question on identity of lead compound pipeline for Parkinson’s disease -Recruited two potential partners for clinical trials Impact on the Value Proposition Hypothesis 42

44. I-Corps 10/11/11 43 Approximately 2.2 million procedures in the US. Drug costs range from $700 (on-patent) to ~$150 (generic FDG) US sales of radiopharmaceuticals for PET and SPECT $1.2 billion US sales expected to grow to $6 billion by 2018 Global numbers approximately 2x Source: Bio-Tech Systems Report #330; data for 2010.

45. I-Corps 10/11/11 44 2500 installed PET scanners PET radiopharmacies cover the entire US market Radiopharmacies have an interest in proprietary agents as a basis of competition in their market.

46. I-Corps 10/11/11 45 Neuroblastoma Prevalence: about 6000 US cases about 1000 new cases per year Subjects receive 3-6 images/year to follow response to therapeutic protocols World market at U.S. x 2 gives potential of 40,000-70,000 scans/year Drug costs $500/per gives ~$20 - $35 M Parkinson’s Disease DatSCAN sales in Europe ~$100 M The world's highest recorded prevalence of Parkinson's Disease of any region is in Nebraska, with 329.3 people per 100,000 population US – 600,000 patients 1 scan per year @ $500 = $300 M

47. ARKA Thermal Solution High Performance Heat Pipe Technology  Ideation/Consulting Firm that offers design and prototyping solutions in Thermal Management  Scan and respond to market needs and provide innovative product solutions.  Offer solutions to industries and organizations proactively by seeking new avenues to utilize heat pipe technology 46

48. Week 6 Canvas

49. Communication of Design and Prototypes Money Flow Physical Product Flows Business Model (For First Product Idea – LED thermal management module) Arka Thermal Manufacturer (Extension) Joint Venture Market Design Sources Other Potential Markets

50. What Partners will we need? Our partner in the new model is a Thermal Solutions manufacturer who is looking to extend into the heat pipe market. We require partners with production and distribution expertise The distribution of this product also requires access to a dedicated sales force.

51. Why will they partner with us? Arka Thermal offers design expertise in heat pipe design Based on its talent, Arka Thermal proposes to offer novel and high-efficiency heat pipe solutions proactively to the market.

52. 1 st Product Idea  LED Thermal Dissipation Module  Offers higher lumen intensity with a longer life enabled by novel thermal dissipation technology.  Replacement of current high lumen incandescent bulbs with LED equivalents without light quality/output compromises.  Offer a novel thermal dissipation technology module that can be used in different LED product families

53. Cost and Risks Arka Thermal  The cost of the partnership lies is the design and prototype creation (for pitching purposes) –Research and Development costs: we need to provide contemporary design that OEMS can incorporate easily in their systems. –Effectiveness: the products needs to be efficient, meet standards and form specifications. The cost in this case is testing, certification and design upgrades to reflect OEM needs. –Recruiting and maintaining high level talent in ideation and design  The highest risk comes from not responding proactively to market change, or being first mover. Loss of design exclusivity. It is essential that design be protected.  The Manufacturer may choose to work outside of Arka Thermal’s contracts with in-house or other design agencies that offer more benefits

54. Cost and Risks Manufacturer  The initial cost of setup and maintaining a product extension.  Risk lies in moving into a crowded established market. The market might not require our services.

55. Manufacturer Incentives Potential increased sales through joint venture creation with Arka Extended product line with access to Arka Designs, increased product extension development possibilities Outsourcing R&D for product extension to Arka (greater efficiency due to specialization) Customized solutions for each customer of the Manufacturer Impediments Investments in joint venture is substantial ROI cannot be established at this point Presence of in-house R&D Solutions from other providers might be more lucrative Standards preclude use of heat pipes/ diminished interest in heat pipes

56. Benefits of Exclusive Partnership Arka Thermal gains a partner with production and distribution expertise in thermal solutions manufacturing Manufacturer can extend product line through joint venture and explore new markets

57. Interviews ActionMotion Customer Interaction Meetings: 1.Regional Senior C/A Client Manager 2.Dr. Peter Foller, Former Director of R&D chemical and Optical, PPG 3.Eilis Rosenbaum and Jonathan Levine, Hydrate Researchers 4.Pine Liu, Entrepreneur in Smart Sensor Monitoring 5.Jim Miller, CMU Researcher 6.Frank Stienke, Schlumberger Affiliate Planned Customer Interaction Meetings: 1.Two C/A plant visits 2.Eilis Jill Rosenbaum and Jonathan Levine, Hydrate Researchers 3.Morty, CMU Facilities Hypothesis Testing: 1.Custom semiconductor grower 2.Funding organization Planned Hypothesis Testing: 1.Wayne Meier, Matric Engineering Services 2.Diane L. Magin, BlackBox 3.Daedalus Designs

59. C/A Market Technology Supplier [Product Form] 1.Bundled into larger product 2.Standalone 3.SenSevere can make bundle 4.Monitoring Technology Supplier [Product Form] 1.Bundled into larger product 2.Standalone 3.SenSevere can make bundle 4.Monitoring Industrial Plants Plant #1 Plant #2 Plant #3 Internal Pilot Test APPROVED Pilot Commercial Customer Test CONDITIONAL APPROVAL

60. Pricing Cell Technologies Drying Towers Liquifaction Detection limit of the sensor required is different for each step of the process. Discussions are in cell technologies Each step process has different risk premium associated Price the same product differently based on what we protect as opposed to an agglomerate value add. Tunable sensor sensitivity #GOAL

61. US Sensors Industry: $9.8B Projected Growth: 6.1%/year C/A Market # of Units Operating Specifications Cost / cell Time betw/Incidents Downtime / incident Average cost / year from incidents Price Market Size: [/year] $73,250,000 Partner Margin: 25% Prototyping COG Sales Profit: [/year] $50,662,996 YearType% Revenue [/year] 1Innovators2.5$271,500 Operating costs for 1 st year projected to be $200,000 2Early Adopters16$8,785,000 3Early Majority50$27,463,500 4Late Majority84$46,141,500

62. Other Markets! Laboratory Industrial 1.Hydrate research 2.Micro-temperature measurement and heating 3.Wireless smart building control 1.C/A 2.Transformer gas monitoring 3.Wireless smart building control Achieve sales in both ends of the spectrum and all other applications fall within possible demonstrated capability #GOAL #KILLER APP Chlorine production