Investing in research, making a difference. Valley of Death: Surviving the journey from idea to product Richard Schifreen, WARF Accelerator Program

Investing in research, making a difference. The “Valley of Death” 2

Investing in research, making a difference. The more realistic view ….. 3

Investing in research, making a difference. It is best to avoid the Valley 4

Investing in research, making a difference. It is best to avoid the Valley 5

Investing in research, making a difference. How do you end up in the Valley? Run out of money –Investors abandon you –Grants are rejected –Collaborators/partners pull out Technology doesn’t work Defeated by competition IP strategy fails Conflict between founders, investors, key employees and/or board Key employee(s) leaves Legal problems Failure to anticipate regulatory requirements –Need to redo expensive and time consuming development 6

Investing in research, making a difference. How do you end up in the Valley? Run out of money –Investors abandon you –Grants are rejected –Collaborators/partners pull out Technology doesn’t work Defeated by competition IP strategy fails Conflict between founders, investors, key employees and/or board Key employee(s) leaves Legal problems Failure to anticipate regulatory requirements –Need to redo expensive and time consuming development 7 Sometimes, good things happen when you least expect it!

Investing in research, making a difference. How can we avoid the Valley? 8 Effective PlanningProactive Execution Financial Management

Investing in research, making a difference. Financial management Plan far ahead to keep your company capitalized. –Raising funds is always harder - and takes longer - than you expect. –SBIR grants are wonderful, but you’ll need more. –Research products may be a route to earlier commercialization If you don’t understand it, get help. –Capitalization tables –Sources and types of funding –Term sheets –Convertible debt Be realistic with respect to valuation. –Investors hate down rounds. Preserve your cash whenever possible. Note, I didn’t include crowd funding. 9

Investing in research, making a difference. 10 “ The only thing we know about financial predictions of start-ups is that 100 percent of them are wrong.”

Investing in research, making a difference. 11 “ The only thing we know about financial predictions of start-ups is that 100 percent of them are wrong.” “You can’t predict your revenue with any level of precision, but you should be able to manage your expenses exactly to plan.”

Investing in research, making a difference. 12 “ The only thing we know about financial predictions of start-ups is that 100 percent of them are wrong.” “You can’t predict your revenue with any level of precision, but you should be able to manage your expenses exactly to plan.” No one will really believe your “hockey stick” revenue forecast.

Investing in research, making a difference. 13 “ The only thing we know about financial predictions of start-ups is that 100 percent of them are wrong.” “You can’t predict your revenue with any level of precision, but you should be able to manage your expenses exactly to plan.” So – make certain that you at least get the expense side correct!

Investing in research, making a difference. Helpful hints Assemble the resources you’ll need to get started. –Friends and family funding –Keep your day job as long as possible. –Apply for contests and grants –Establish a line-of-credit Early investors want to see that you have “skin in the game”. Utilize the free and subsidized resources that are available. –L&E Clinic (legal, business and regulatory) –Merlin Mentors (Mentor teams are tailored to your needs) –Center for Technology Commercialization (grants and business) –D2P is coming soon Consider joining a startup incubator. Consider barter and collaboration to preserve cash. 14

Investing in research, making a difference. Effective planning – focus on regulated products Business planning must include all of the usual considerations What are the regulatory classifications and quality system requirements for your products? –What markets are critical to your success; U.S., EU, Japan, Others? What will be the impact of regulatory and quality system regulations on product development? What advisors and resources will you need? –When will you need them? –How much will they cost? –How will you pay for them? 15

Investing in research, making a difference. 16 If you don’t have a regulatory strategy you will not be able to advance development and will find yourself in a Valley of Death unable to execute your business plan.

Investing in research, making a difference. 17 If you don’t have a regulatory strategy you will not be able to advance development and will find yourself in a Valley of Death unable to execute your business plan. If you try to build full ISO, cGMP and regulatory infrastructure too soon you will run out of resources and land in the Valley of Death unable to execute your business plan.

Investing in research, making a difference. 18 If you don’t have a regulatory strategy you will not be able to advance development and will find yourself in a Valley of Death unable to execute your business plan. If you try to build full ISO, cGMP and regulatory infrastructure too soon you will run out of resources and land in the Valley of Death unable to execute your business plan. You’ll want to have the right resources and identify advisors and collaborators so that you can get the balance just right.

Investing in research, making a difference. Proactive execution What do I need to accomplish today? This week? This month? This year? What has changed? What do I need to do differently? Am I doing the right things at the right time? Do I have the resources I need? Am I ready for tomorrow? How will I allocate my scarce resources? How will I spend my even scarcer cash? –What is my burn rate? When do my funds run out? –Can I partner, collaborate or barter rather than buy? –How long before I find out if I got the grant? –(Remember - Entrepreneurs should never buy others lunch!) This is the essence of project management (it’s not just buying software). 19

Investing in research, making a difference. 20 You won’t get anywhere if you don’t know where you want to go.

Investing in research, making a difference. 21 You won’t get anywhere if you don’t know where you want to go. Grants and contests are a means, not an end.

Investing in research, making a difference. 22 You won’t get anywhere if you don’t know where you want to go. Grants and contests are a means, not an end. You may want to buy lottery tickets, but it’s not a business strategy.

Investing in research, making a difference. 23 You won’t get anywhere if you don’t know where you want to go. Grants and contests are a means, not an end. You may want to buy lottery tickets, but it’s not a business strategy. No matter how well you plan, things never work out the way you expect. Be prepared for change and ready to adapt.