# Presentation: 264472

## ALLIANCES & PARTNERSHIPS“YOU CAN’T DO IT ALONE”PRESENTATION FOR NIH SBIR/STTR CONFERENCEBethesda, MD

**KEY ELEMENTS OF A PARTNERSHIP**

**Partnerships are voluntary by nature.**
**Partnerships develop a mutual dependency ** that arises from sharing risks, responsibilities, resources, competencies and benefits
**Partnerships develop synergies** - the concept of value added or the total being greater than the sum of its individual parts

**KEY ELEMENTS OF A PARTNERSHIP**

**4.   ****Working together** - in the most strategic partnerships, the partners work together at all levels and stages, from the design and governance of the initiative to implementation and evaluation.
**5.   Shared competencies and resources** - partnerships are a mechanism to leverage different types of resources and competencies, including, but not only, money.

## WHY ENTER INTO PARTNERSHIP ?

- Strategic alliances enable business to gain competitive advantage through access to a partner's resources, including markets, technologies, capital and people.
- Fast growing companies rely heavily on alliances to extend their technical and operational resources. In the process, they save time and boost productivity by not having to develop their own, from scratch.

## TYPES OF PARTNERSHIPS...

- _[Commercializing Products](slide1.xml)__ _
- _[Establishing Intellectual Property Relationships](slide2.xml)__ _
- _[Providing Practical Solutions](slide3.xml)__ _
- _[Creating Strategic Alliances](slide4.xml)__ _
- _[Reducing Time To Market](slide5.xml)__ _
- _[Forging Public-Private R&D/Technology Alliances](slide6.xml)__ _

## WHO ARE THE PARTNERS ?

- NATIONAL LABORATORIES
- UNIVERSITY TECHNOLOGY TRANSFER
- SBTDC’s or SBDC’s
- NATIONAL TECHNOLOGY TRANSFER CENTER (http://www.nttc.edu)
- PRIVATE SECTOR
- ANGEL INVESTORS

## What should be considered ?

**Discuss goals and aspirations**. The partners' goals must be fully compatible. They do not have to be the same, but it is critical that they are harmonious. It is important for each partner's achievements to create success for the other.

## What should be considered ?

**2.   Explore potential conflicts of interest**. Only begin a strategic partnership where the interests are common. Beware of an alliance where one partner may not view success in the same terms the other does.

## More to consider....

**3. Examine values**. If one partner conducts ethical business practices, and the other does not, then the partnership is likely to fail. Common values between partners will create an environment for success.

## Still more to consider....

**4. Assure that mutual trust exists**. Be certain that both sides operate with high integrity. Two rules of partnership are pertinent here:
*Never enter into a partnership where you need a contract. *
*Never enter a partnership without a contract. *

## Some final considerations....

**5. Show commitment**. Without full commitment on both sides, a partnership is likely to fail. To be fully committed, each partner must show an innovative attitude and become reasonably flexible. Additionally, _clear and frequent communication must occur. _

## Last but not least to consider....

**6. Enter with a win-win attitude**. Both partners should see real value in the collaboration and be enthusiastic about the venture. _Success should be expected_ and it should have a significant positive impact on all parties involved. At a minimum, there should be internal champions in both partnering firms.

## Who will help ?

- Networking is absolutely essential in this area of partnering.
- Funding is also essential.
- Why not enlist angels ?

## AN ACCREDITED INVESTOR IS A PERSON WHO HAS A NET WORTH OF $1M AND OR AN ANNUAL INCOME IN EXCESS OF $200K FOR THE PREVIOUS 2 YEARS AND THE EXPECTATION OF THE SAME FOR THE NEXT YEAR. 

**Who are these ANGELS ?**

**Notes:**
During the next 20 minutes, I hope to dispel a few myths in the popular press about early stage investors, describe and compare angel and VC investors and then provide you with a bit of the flavor of the current investing environment in the emerging sector.

## Why are ANGELS good partners?.

- Wealthy individuals – “accredited investors”
- “Been there and done that” entrepreneurs
-  Have made several angel investments
-  $25K to $250K per investment per angel
-  More than  400,000 active angels
- _ __Potential 5 million angels_

**Notes:**
(This is about the half-way point in this presentation.)

Angels:
Are “been there, done that” entrepreneurs investing their “mad money” (<10% of net worth – their “go to Vegas” money).  
Generally have 8-12 investments of $25-250K, 95% between $25 and $100K, average $40K (for TCA).
Play a variety of roles in these companies (can’t be chairman of each), from chairman to passive.

## - Friends and family ( maybe fools) then- Angel investors, then- Venture capitalists, then.......?   

**FUNDING CAN BE THE BASIS**
** ****FOR A PARTNERSHIP**

**Notes:**
The popular press would lead you to believe that entrepreneurs start companies with money from friends and family, and then:
  get more money from angels
  secure a VC round of investment
  and, then go public

I would like to provide you with enough facts so we can all dispel this misleading myth.

## HERE ARE SOMEQUICK FACTS:

- <1 in 10 Start-ups obtain angel financing
- <1 in 1000 Start-ups are VC financed
- <1 in 10,000 new companies go public
- <1 in 100 angel-funded companies
-                  go public via IPOs

**Notes:**
Lead Instructor:  Pick a couple that interest you and let the audience read the rest.  My favorites are:

Less than 1 in 10 companies obtain angel funds
Less than 1 in 10 companies angel deals are funded by VCs
Less than 1 in 100 angel-funded companies go public via IPOs

##  Annual Sources of Startup Funding

**VCs  ****(NASVF data)**
**Angel investors**
**     ****(Center for Venture Research)**

**< $3 billion**
-   **(<500 companies)**
** ****~$30 billion**

**Notes:**
  VCs  invest in a tiny number of startup companies.  VCs are really later stage investors.

  State Funds are small in comparison and are also really focused on later stage companies.

## Conclusion:Angel investors provide about 90% of the seed and early stage outside equity capital for start up entrepreneurs.  This is a combination of “lone wolves”, forums and committed funds.

**Notes:**
Angel investors represent over 90% of the equity investments in early stage ventures and bring equal value in advisory and mentoring roles.

## Why do angel investors make such risky investments?Here is one reason

**Notes:**
(self explanatory)

## Seed vs Alternative Investments

**Notes:**
Because seed investments are inherently very risky, over time, the ROI of seed investments exceeds all other equity investments.

## Motivation for Angel Partners...

**Angels**
**Staying involved into “codgerhood” (sense of usefulness)**
**Give-back**
**Affection for Entrepreneurs**
**Return on Investment **

**Notes:**
Important:
VCs invest in companies.  ROI is their only concern.

Angels invest in entrepreneurs and have many motivations.  ROI is an important metric.

## PICK YOUR ANGELS WISELY

- Its almost like getting married....
- Know the Angel’s strengths and weaknesses.
- Its more than just money.....
- Where is the sweet spot ?

## THE KEY IS TO DO YOUR HOMEWORK !

**Notes:**
The average investment made by 
VCs increased dramatically, creating a huge 
gap between the average VC investment size and 
the average angel investment size.

## WHERE YOUR ANGEL PARTNERS ARE NOT

**$1M TO $5M  GAP**
**Scarce capital – very few deals**
**Wealthy, solo, private investors**
**Boutique VCs - many new, small VCs**
**Unique alliances between angels and VCs**

**Notes:**
There are a few players in the “gap,” funding deals  between $2 and $5 million rounds.  These are:  
  wealthy solo investors
  strategic partners
  boutique VCs (often wise, senior VCs who saw this opportunity early) and have founded smaller seed funds.
  new alliances between angels and VCs

VCs, for years, ignored angel investors.  But, these new smaller boutique seed VCs are partnering with angels.  Angels provide these angels leverage, by serving on Boards or in mentoring roles before these companies are large enough to benefit from the VCs attention.  These VCs usually have great connections to deeper pockets, for later rounds.

## Go Where the Investing Partners Are!

- Investment (one round)

- Number of Investors

**$5 million**

**$10 million**

**Angels**

**VCs**

- GAP

**Notes:**
When entrepreneurs show me with plans calling for $3 million in seed funding, I explain that $3 million is the wrong number....and they need to go back to the drawing board.  Why?  Because the number of investors currently doing $3 million rounds is tiny.  But the number of investors doing $500,000 rounds or even $7 million rounds is much, much larger.   I suggest they redesign their funding schemes to raise less than $1 million in their first round.  If they can meet the milestones attached to the first round of funding, perhaps they will be able to raise additional money.

The funding gap described in the slide is of serious concern to angel investors.  With VCs on the sidelines for early stage investors, we angels must do substantial due diligence to assure deeper pockets are available to fund larger deals, which need several rounds of funding.

## YOU HAVE AN IDEA.....NOW WHAT DO YOU DO?

**INITIAL CONSIDERATIONS.....**

## MORE IMPORTANTLY....HOW ARE YOU GOING TO ASK FOR IT ?

**PARTNERS NEED TO KNOW **
**WHAT YOU WANT !**

**Notes:**
The average investment made by 
VCs increased dramatically, creating a huge 
gap between the average VC investment size and 
the average angel investment size.

## THE BASIS WILL BE YOUR BUSINESS PLAN.....MOST IMPORTANTLY- THE SUMMARY AND PITCH !

**COMMUNICATING TO THE WORLD.....**
**AND YOUR **
**STRATEGIC PARTNERS **

**Notes:**
The average investment made by 
VCs increased dramatically, creating a huge 
gap between the average VC investment size and 
the average angel investment size.

## 	What constitutes good communication?  a.	Is the Executive Summary clear and concise ? b.	If a partner read the summary, would they 		understand exactly what your business is all about ?c.	Does the summary create a high level of interest ?d.	Think about being at a cocktail party and having 	someone ask you “what does your business do?”  	Could 	you  answer concisely in 2 minutes or less?

## Summarize the plan: like the jacket cover on a novel, tell the reader in a CLEAR, CONCISE and COMPELLING way, enough about the contents to convince them to read on.Show the need: Explain the problem in search of a solution, the extent of the problem, and the desire in the marketplace for the solution. Draw the partner into the need.Describe your solution: Provide a description of your offering, explaining how it meets the market need in a better manner than any of the possible alternatives. Show how your partner can contribute and benefit.

**All your partners need to know...**

## Establish credibility: describe your enterprise, key personnel, history of success and measurable objectives.Explain your delivery methods: keep in mind that a better mousetrap doesn't guarantee success.  Be prepared to describe planned promotions, sales techniques, channels of distribution and post sales support.  Where does the partner fit in?Acknowledge barriers to success: Explain the how you will deal with expected or potential market resistance, difficulties of access to the market and competitive reactions to your offering. How can the partner help ?

## State requirements for long term success: assuming initial market acceptance of your offering, describe your need to handle growth, improving the initial offering and developing new offerings.  The value added from the partner.

## SUMMARY AND CONCLUSION

- We have reviewed the basis and value for strategic partnerships.
- We have outlined some examples.
- We have determined that funding is a common thread through out.
- We can use Angel investors as strategic partners.
- We have described the critical communications piece....Executive Summary and Pitch....what partners and/or investors need to hear.

##  QUESTIONS ?

**Notes:**
The average investment made by 
VCs increased dramatically, creating a huge 
gap between the average VC investment size and 
the average angel investment size.

## SOME RESOUCES:1. THE ANGEL INVESTOR’S HANDBOOK 	BY GERALD A. BENJAMIN & JOEL MARGULIS2. NATIONAL TECHNOLOGY TRANSFER CENTER (http://www.nttc.edu)3.  WWW.ASPATORE.COM4.  WWW. ANGELCAPITAL ASSOCIATION.COM5.  WWW.INCEPTIONMICROANGELFUND.COM

**Notes:**
The average investment made by 
VCs increased dramatically, creating a huge 
gap between the average VC investment size and 
the average angel investment size.

## APPENDIX OF CHARTS AND GRAPHS

**Notes:**
During the next 20 minutes, I hope to dispel a few myths in the popular press about early stage investors, describe and compare angel and VC investors and then provide you with a bit of the flavor of the current investing environment in the emerging sector.

## Median Pre-Money by Stage-FACTOID

**$101**

**$29**

**$30**

**$44**

**$15**

**$21**

**$7**

**$8**

** **

**$14**

** **

** **

** **

** **

** **

**$2**

**$2**

**$6**

**$0**

**$20**

**$40**

**$60**

**$80**

**$100**

**3Q98**

**1Q99**

**3Q99**

**1Q00**

**3Q00**

**1Q01**

**3Q01**

**Later**

**Rounds**

**Second**

**Round**

**First **
**Round**

**Seed **
**Round**

**Source: PWC MoneyTree**

**Notes:**
This is the good news.  Valuations are down...back to pre-bubble ranges.  It seems to me that valuations in 2003 have dropped even further and a little below those of 2001.  This is good news for angel investors.