1. TECHNOLOGY COMMERCIALISATION WORKSHOP Level 1 Business Modeling & Financing for Technology Start-Ups Rashidan Shah Abdul Rahim

2. DEFINITION The model that provides the understanding of:-  How a business creates value from its activities  The resources requirement to create this value  The market that it serves:-  Eg:-  1. Trading Company  2.Property Develop  3.Tech Company  4.Biotech Drug Company  Discuss on the value creation activities, risk and role of R&D for each 2

3. OBJECTIVES  To understand the financial dynamics of the business  To optimize profitability / Maximisation of shareholder’s wealth  To budget the resources requirements – how much and when 3

4. WHAT A business model can be broken down into four components:- 1. Value proposition 2. Profit formula 3. Key resources 4. Key processes 4

5.  Value Proposition is what is offered to targeted customers to satisfy their particular important needs or solve specific important problems  It is a clear statement of the tangible results a customer gets from using your products or services  The more specific the value proposition, the better. VALUE PROPOSITION 5

6. Price is what you pay. Value is what you get. ~ Warren Buffet ~ A weak Value Proposition normally lacks important differentiation Example: Our antennas are flat VALUE PROPOSITION 6

7. Examples of tangible results that strengthens a value proposal:-  Increased revenues  Decreased costs  Improved efficiency  Improved effectiveness  Increased market share VALUE PROPOSITION 7

8. Profit Formula is the blueprint, i.e the master plan that defines how the product creates value for itself while providing value to customers. Profit is derived as the difference between your pricing and your cost. Simply put, it tells how the money will be made. PROFIT FORMULA 8

9. Sections within the financial statements to focus on:- 1.Revenue 2.Sales & Marketing 3.R&D and Manufacturing 4.COGS 5.Profit 6.Cashflow 9

10. PROFIT FORMULA - Typically high gross margins (revenue less direct cost/revenue) for companies with strong intellectual properties which reflect the efficiency of technology, ability to command high price due to novelty, brand or fulfilling unmet needs. - Compare between trading, plantation, tech companies and pharmaceutical. 10

11. PROFIT FORMULA – Trading Company – AEON Co. Gross Margins 25.37% 11

12. PROFIT FORMULA – Property Company – MK Land Gross Margins 35.62% 12

13. PROFIT FORMULA – Tech Company – Apple Gross Margins 45% 13

14. PROFIT FORMULA – Biotech Company – GILEAD Gross Margins 85% 14

15. Key Resources are assets required to deliver the value proposition to the targeted customers. This includes people, skills, technology, products and facilities. KEY RESOURCES 15

16. Key Processes include operational and managerial processes required to allow value to be delivered in a scalable and sustainable manner. Key Processes leverage on key resources KEY PROCESSES 16

17. The four elements are not only connected, they are interdependent on one another. ELEMENT OF A BUSINESS MODEL 17

18. TZM Sdn Bhd has acquired a technology from a local public university for continuous drying of agricultural products using microwave. The patented process reduces drying time and increases production efficiency, without compromising on nutritional value of the dried food. The process has been carried out on various types of food with successful results. The licensing agreement allows them access to the technology, inventor as well as the prototype unit of the microwave located in the university. CASE STUDY 1 – TZM SDN BHD 18

19. Potential Profit Formula for TZM:- 1)Providing service for drying of agricultural products; or 2)Manufacturer of the microwave system; or 3)Producer of dried agricultural product(s); or 4)All of the above. CASE STUDY 1 – TZM SDN BHD 19

20. Key Resources of TZM:- 1) The patented technology for continuous drying of agricultural products using microwave; 2) Full access to the inventor’s advice and prototype of the dryer; and 3)CEO is an experienced marketer in the food industry. CASE STUDY 1 – TZM SDN BHD 20

21. Discuss:- 1)What is TZM’s value proposition? 2)Which profit formula is most suitable for TZM? 3)Is the key resources adequate? CASE STUDY 1 – TZM SDN BHD 21

22. Green Compo Sdn Bhd has co-developed a technology with a local research institution for the production of composite materials using kenaf fibre. The company proposed to sell kenaf composite materials to furniture producers. Due to technical difficulty encountered in extruding the kenaf-based composites, the raw material was changed to rice husks. The profit formula was revised to selling furniture. The entrepreneur is an engineer by training. The technical partner is an expert in composite materials. CASE STUDY 2 – GREEN COMPO SDN BHD 22

23. Discuss:- 1)Discuss the change in process and the impact it has on the Business Model. 2)Discuss the change in Profit Formula in relation to Business Model. CASE STUDY 2 – GREEN COMPO SDN BHD 23

24.  Sources of Financing:  Equity Entrepreneurs Outside Investors- VC/PE/Other Investors  Loans/Borrowings Banks/Leasing/HP Government Soft Loans  Grants FINANCING 24

25. Seed or Start-up: Market research and product development. Early Stage: Funding full-scale operations and selling products/services. Not yet profitable. Later Stage: Funding expansion and new products. Near break- even. Revenue Time Valley of Death Angels Founders Grants Venture Capital Strategic Investors Public Markets Seed Capital A B C Mezzanine Early Stage Later Stage IPO Secondary Offerings The Chasm The Wall FUNDING SPECTRUM 25

26. CAPTURING VALUE- VALUATION AND EXITS Post Pre Series A $5M $3M $2M 2XSeries B Post $20M Pre $10M Series C $80M Post Pre $40M Pre $160M IPO Trade Sale? 2X Trade Sale? 0 2 4 Time (years) 26 Founder 100% x (2/5)40% x (10/20)20% x (40/80) Ownership40% 20% 10%10% Value$2m$4m $8m$16m