MtB Italy Tour 2011 - Alberto Onetti

Introduction to Entrepreneurship From Startups to Venture Financing

ALBERTO ONETTI Chairman, Mind the Bridge Foundation

Firenze, May 13th

Pavia, June 17th

Genova, June 22nd

AGENDA

Entrepreneurship in Italy: key issues & opportunities

The Startup world

Business Planning

The Venture Capital Market

The Silicon Valley

Mind the Bridge

2

AGENDA


The Startup world

Business Planning


The Silicon Valley

Mind the Bridge

3

The Problem we have (1)

}  Italy has grown slowly during the past decade – slower than

Germany, France or the UK (0.27%/yr. since 2001)

}  Its competitiveness – its rising unit labor costs – has slipped, as

wages rose but productivity stagnated }  Source: “Italy. Europe’s Investment Opportunity”, White Paper by Vietor, Onetti &

Napolitano, New York, 2011

4 -6,0

-5,0

-4,0

-3,0

-2,0

-1,0

0,0

1,0

2,0

3,0

4,0

5,0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Real GDP growth (Percent)

ITA

EEA

Source: OECD Economic Outlook 88 database

The Problem we have (2)

}  In Italy competitiveness has slipped, as wages rose but

productivity stagnated

}  Unemployment is lower than the German/French experience

BUT

}  Participation rate (58%) is the second lowest in Europe

}  Worst employment problem pertains to youth (28%

unemployment for people between 15-24) }  Source: “Italy. Europe’s Investment Opportunity”, White Paper by Vietor, Onetti &

Napolitano, New York, 2011

5 -1

-0,5

0

0,5

1

1,5

ESP ITA GBR DEU EEA FRA US

Average TFP growth (Percent)

1980-1995

1995-2005

Source: EU KLEMS database

Wood Textile Food

Plastic&Rubber

Metals

Industrial Machinery

Automotive

Biotech Software Pharma

Chemical

Electronics

State of Entrepreneurship in Italy

ITALY: INDUSTRY CONTRIBUTION TO GDP (2009)

Source: CrESIT 2011

}  Lack of large companies

}  In Italy SMEs are 98% of the total

}  Mostly mature business

}  Primarily Services (66% of GDP)

}  Manufacturing is only 17% (it was 21% in 2000)

}  Innovative industries play a minor role (2-6%)

}  Strong family business vocation

6

State of Venture Finance in Italy

US 29,7 Silicon Valley

10,8

Europe 7,41 Italy 0,169

Italy Europe Silicon Valley US Annual VC Investments (B US$) 2008

}  Lack of an established venture capital community }  Of the €3.8B invested yearly (avg. 2005-2009), approximately €70M

went to early-stage investments (AIFI & Pricewaterhouse-Coopers 2005-2009)

}  Only 255 start-ups were able to get funded in the last three years }  In 2009: 79 deals despite the financial crisis (€98M invested)

}  Small size of the stock market }  The stock market capitalization to GDP ratio is lower than 60%,

versus 140% in the US and 170% in the UK (IMF & World Federation of Exchange)

7

State of Italian R&D

8

}  Quality basic research

}  Cumulative R&D investments are €17B (4% of GDP) (ICE, Cotec, Istat)

}  400k scientific publication in the period 1998-2008 ranking 8th in the

global classification (7th for number of citations) (Thomson Reuters,

2008)

}  Biotech: 233 clinical trials in progress during 2009 (Ernst & Young 2010)

}  Issues in turning research into business

}  Lack of efficient technology transfer offices

}  Universities do not offer incentives for lecturers to spin-off business

initiatives

}  Scarcity of skilled executives with strong entrepreneurial skills

}  Italian scientists do not think business

Italy: Key Issues

9

}  A few startups often lacking high-quality business plans (deal “trickle”)

}  Legal barriers to entry and exit (Italy is not a “corporate haven”)

}  Reduce labor market rigidities

}  Obstacles in bridging research into business

}  Lack of managerial skills

}  High mortality (“crisi del primo miglio”) and “Dwarfism”

}  Change the mindset

}  Lack of seed funds

}  Exit on the domestic market

}  High Tech “Leviathans” are not here

}  Small size of the stock market and lack of large corporations doesn’t help

}  Language barriers

AGENDA


The Startup world

Business Planning


The Silicon Valley

Mind the Bridge

10

Ingredients for a Start-up

11

What is an Entrepreneur

12

AGE 41 year old 68.8% between 35-43

SEX 79.7% men 20.3% women

STUDIES 64% University student

MARITAL STATUS 60% married

FAMILY BUSINESS 60.3%

COMPANY ORIGIN 76% Creation 20% Inheritance 4% Purchase

FINANCE Own/Family/VC

EMPLOYMENT IN 5 YEARS

Average Entrepreneur’s Profile

13 5

MtB Entrepreneur’s Profile

14

}  He/She is 35 }  86% is male, only 14% is female }  67% has a scientific/technological background, while

33% has a business/humanistic education }  42% holds a Ph.D. or MBA and the 33% got it abroad }  Only 5% does not hold a university degree }  28% has prior entrepreneurial experience

Source: CrESIT/Mind the Bridge 2011

What makes a successful entrepreneur?

15

Education matters a lot }  2.0 Startups are founded by highly educated people Experience matters as well }  Being a serial entrepreneur is a job }  The right startup is never the first one you found Working/Studying abroad does open your mind }  It means more network, opportunities, ideas, experience A successful startup is a team effort }  One-man bands do not go too far

Manager VS Entrepreneur

16

• What resources do I control?

• What structure determines our organization’s relationship to its market?

• How can I minimize the impact of others on my ability to perform?

• What opportunity is appropriate?

• Where is the opportunity?

• How do I capitalize on it?

• What resources do I need?

• How can I gain control over them?

• What structure is best?

The typical administrator asks . . .

The entrepreneur

asks . . .

AGENDA


The Startup world

Business Planning


The Silicon Valley

Mind the Bridge

17

Business Idea

18

THE BIG IDEA!!!

… THAT MATTERS A LOT, BUT IT’S ALL

ABOUT EXECUTION …

The question every entrepreneur must answer

19

Are my Goals well defined

• personal aspirations

• business sustainability/ size

•  risk profile

Do I have the right strategy

• clear definition • profitability

and growth potential

• durability (sustainability)

•  rate of growth

Can I execute the strategy

•  resources • organizational

infrastructure •  the founder’s

role

The Business Plan

20

THE OPPORTUNITY }  The problem we solve (description

of your product highlighting the benefits to the users/customers)

}  The competitive advantage (why your product is better)

}  Compelling reason to buy

THE MARKET }  The market you are

addressing

}  Market size

}  Potential growth

}  Competition

THE BUSINESS MODEL }  How do you make money?

}  Financials

}  What are you looking for (capital you are raising- use of proceeds)

THE TEAM } The team

}  Your relevant experience in the domain you're addressing

BUSINESS PLAN

Why a Business Plan

21

Good and Bad Business Plans

22

• Concise • Management, management, management • Realist, logical, convincing, clear •  Shows clearly that the opportunity exists in the market •  Description of essential resources • Risk analysis • Clear funding needs and return on capital employed • When funding is required, specify the terms of agreement (deal)

•  Infatuation with the idea •  Insufficient research • Lack of funding • No target group • Over optimistic sales forecasts not based on market analysis • Too long • Badly written: does not get ideas across •  Illogical • Scant explanation of opportunity • Superficial analysis of competitors • No executive summary

Bad

G

oo

d

The Business Plan Outline

23

Business model

Assumptions and risks Financial plan Appendices

Strategy and resource plan

Market, customers and competition

Products and services

Management team/key individuals

Company Description

Executive summary

Scientists vs Entrepreneurs

24

Talking $$$

25

Financials: Statement of Operations

26

P&L 2011 established

2012 anticipatory

2012 forecast

2013 forecast

2014 forecast

Revenue (000)

# of main customers users

Avr rev. per cust.

Gross Margin

Operating Expenses

Operating Margin

Ebit (000)

Headcount

R&D

Mktg & Sales

Production

G&A

Total Expenses Source: Mind the Bridge 2011

Financials: Key Data

27

Bookings Billings

Cash on Hand

Burn (net/gross)

Revenue

AGENDA


The Startup world

Business Planning


The Silicon Valley

Mind the Bridge

28

Investment Types

29

Seed capital • Design of new products

Start-up capital • Launch of a new product (or

company)

Development capital • Expand sales or production

Consolidation capital • Consolidate and/or reinforce

market position

>$ 100K • 1-3 Years

>$ 2M • 3-7 Years

IPO

Founders’ capital/ savings

Family/friends, Angels, Early stage

VC

Venture Debt/Loans, Acconts receivable,

Strategic Partners, Retained earnings

VC firms, Corporate VC, Private placement,

Investment banking, Public markets

The Funding Decision

30

Bootstrapping Equity Financing

Early sources

Later sources

Investment Strategy

31

Medium Risk High Risk Medium Risk Low Risk

M&A

M&A Valuation

Cumulative Investment

IPO

Investment Focus

IDEA DEVELOPMENT BETA

CUSTOMERS EXPANSION MARKET SHARE

12-24 months 3 months 3-6 months 12-18 months 12-24 months

Vision/ Product Focus Customer / Market Share Focus

Management Focus

Early and Late Stage Financing

32

EARLY

• Seed financing ($ 50k – 1m) •  research, assess & develop

initial concept • product development

• Start-up financing ($ 1-3m) • product development,

launch and initial marketing • Often “first round” • For companies that are in the

process of being set up or that are in business for a short time (little revenue, no profits)

• Other early stage financing ($ 2-8m) • To initiate commercial

manufacturing and sales • For companies with

completed product development but without profit

LATE

• Expansion financing ($ 2-50m) • To finance increased

production capacity, market or product development; to provide working capital

• For companies that break even or trade profitably and wish to grow/expand

• Bridge/mezzanine financing ($ 2-50m) • For companies that are in the

period of transition from being privately owned to being publicly quoted

• Other stages ($ 10m-several billions) • Buyout • Replacement capital • Rescue/turnaround

Definition • High net worth individual ($1

million to invest) who provides financing, advice, and networking to early stage companies.

Key investment Criteria • Geography (close to home) • High growth industry • Growth Potential of the venture • Personal attributes of the

entrepreneur and team • Track record of entrepreneur and

team

The Angel Investor

33

Angel Typologies

34

RELEVANT INDUSTRY EXPERIENCE

RELEVANT ENTREPRENEURIAL EXPERIENCE

High

Low

Low

High

The Venture Capitalist

35

DEFINITION • VC Firms are financial intermediaries that

provide the following to privately held enterprises: • Equity (often coupled with debt) financing • Risk sharing • Managerial expense • Contacts • Reputation

• In exchange, VC firms obtain equity

TYPES OF VCs • Private Fund VC

• Legal Structures: Partnership, Limited Liability Corporation, Corporation

• Stakeholders in a Partnership: General Partners (GP), Special Limited Partners (SLP), Limited Partners, Advisory Board

• Corporate VC • Consider impact on earning of parent • How does it further the parent’s objective?

VC: General Investment Process

36

Limited Partners

VC Firm (General Partners)

Startup Companies

IPO/M&A

Fund Fund Fund

Exit

Distributions Fundraising Commitments

Investment Disbursements Proceeds

VC Compensation Structure

37

• get a management fee + carried interest (about 20% to 30%)

• allocation among partners on seniority, effort, or performance

• vesting for new partners based on seniority, performance and special circumstances (e.g., death, sale of firm, ipo)

GP

• pay reduced management fee • receive carried interest SLP

• pay 2-3% annual management fee ("two and 20" arrangement)

•  receive % of the fund’s returns (in the range of 70% - 80%) LP

The Valuation is a two side process

•  Size of market opportunity •  how big is the market segment, what market

share can you gain? revenue / price model •  Comparables

•  multiple of revenue (trailing/forward) or EBITDA •  Financial Projections

•  EBITDA, DCF •  Ultimately

•  Bid vs. Ask negotiation

How much you need and Why (Cap Incr) e.g. € 1,0M

How much equity you want to give up ( Y %) e.g. 25%

Post Money ValuaPon (V) = Cap Incr / Y = 1/0,25 = € 4,0M

Pre Money ValuaPon = V -‐ Cap Incr = € 4,0M -‐ 1,0M= € 3,0M

The Valuation Process: Pre- e Post-Money Valuation

VC Financing Process: Getting through the Funnel

40

Less than 1% of all leads get funded

5 – 10 Financed

1,000 Leads

150 Meetings

Actively Pursued

70

$ $

$

VC Average Investment Portfolio

41

"   DEFAULTS

"   BREAKEVEN

"   “FIRE SALES”

"   ZOMBIES

"   IPO/M&A

"   GOOD IPO/M&A

"   WILD ONES (IPO)

TOTAL

60%

12%

10%

8%

6%

4%

0%

100%

Source: ATV

What does an investor do with a BP?

42

h Looks to see who sent it 15 sec

h Analyzes key aspects sector location investment required 60 sec

h Reads the plan 15 min

h Decides whether or not to request a formal presentation

10min

Total: 26 min 15 sec

Agreement Variables and Control Mechanisms

43

Agreement • Amount and timing of

investment •  Form of investment •  Terms of investment • Rights

• Puts and call • Registration • Preemptive and first

refusal • Vesting/buy-back

provisions • Board representation

Control Mechanisms • Convertible

Preferred securities •  Syndication of

investment •  Staging of capital

infusion

Why Venture Capital?

44

AGENDA


The Startup world

Business Planning


The Silicon Valley

Mind the Bridge

45

The History of the Valley

46

The (REAL) History of the Valley

47

The (REAL) History of the Valley

48

1930 1940 1950 1960 1970 1980 1990 2000

WA

VES

OF

INN

OV

ATI

ON

INTERNET

PERSONAL COMPUTERS

INTEGRATED CIRCUITS

DEFENSE

Today: 25 of Fortune 100 Adobe Systems AMD Agilent Technologies Apple Inc. Applied Materials Business Objects Cisco Systems eBay Electronic Arts Google Hewlett-Packard Intel Intuit LSI Logic Maxtor National Semiconductor Network Appliance Nvidia Oracle Corporation SanDisk Seagate Technology Solectron Symantec Sun Microsystems Yahoo! …

◊  NASA ◊  Lockheed

◊  HP (47)

◊  Intel (68)

◊  Kleiner Perkins (72)

◊  Apple (80)

◊  3Com, Adobe, Cisco

◊  Yahoo, ebay, Google (90s)

?

The Main Pillars

49

FINANCIAL MARKET M&A, IPO dream

ENTREPRENEURS The garage

culture

UNIVERSITIES

highly connected with

biz world

◊ Is that replicable / portable?

◊ Is it sustainable long-term? ◊ What is the impact of the changing

international outlook?

KEY QUESTIONS

Soft Factors

50

◊ The importance of Dynamism, speed: continuous evolving world ◊  Approach to Risk

◊  Value of Failure (not just a

downside but a must-have) ◊  Importance of the Hub: a world of

opportunities ◊ Think Big

KEY TO SUCCESS

Raising money today (@#$!) in Silicon Valley

51

"   are you not local

"   how many exits again?

"   don’t show me the buyer (don’t IPO me…)

"   haven’t jumped yet

DON’T TALK TO ME IF YOU…

52 Source: MoneyTree Report 2011, Data: Thomson Reuters

$14 $19,4

$50,9

$98,6

$37,6

$20,7 $18,8 $21,7 $22,5 $26 $29,9 $28,1 $18,3 $21,8

$4,4 $5,5

$16,8

$31,8

$11,6 $6,8 $6,3 $7,8 $8,1 $9,6 $10,9 $11 $7,3 $8,5

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Investments B US$ (1997-2010) US Silicon Valley

3.201 3.694

5.556

7.973

4.543

3.157 2.990 3.145 3.201 3.754 4.035 4.025

2.927 3.277

875 1.049 1.703

2.169

1.108 808 874 951 994 1.209 1.265 1.252 915 961

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Deals (1997-2010) US Silicon Valley

Why Now

53

"   talent abounds "   from scarcity comes clarity "   innovation comes from hunger "   startup cost ~0

IT’S THE BEST OPPORTUNITY

5 Lessons from Google

54

1.  the team is all (almost)

2. healthy disregard for the impossible

3. big problems are better than small ones

4. users first

5. don’t pay attention to the VC bandwagon

AGENDA


The Startup world

Business Planning


The Silicon Valley

Mind the Bridge

55

Mind the Bridge Foundation

56

Ø  bridging opportunities of the Silicon Valley with Italian

talent

Ø  associating mentors and role models

Ø  professionalizing the business planning skills

Ø  using and building the network

Ø  “give back” to build a bigger pie

Mission: to promote a new Italian entrepreneurial ecosystem that is:

ETHICAL, HIGHLY PROFESSIONAL, INTERNATIONALLY FOCUSED, EXCELLENCE DRIVEN

Model: funded by foundations/companies/private sector/donors

not government partnering with the most relevant actors

INDEPENDENT

CO

NN

ECTI

NG

TA

LEN

T

Building the Bridge: the Pillars

57

Ø  Discovering and Nurturing the Italian Talents MtB Italy Tour 2011

Ø  Selecting the best of breed MtB Business Plan Competition

Ø  Providing training & education to the new generation of entrepreneurs MtB Bootcamp and MtB Coaching

Ø  Showcasing the most promising startups and opening an international debate MtB Venture Camp @ Corriere della Sera

Ø  Hosting & Mentoring the most promising startups in the Silicon Valley MtB Gym

Ø  Pitching US investors / partners MtB Gran Finale events

MtB Italy Tour 2011 Q1 & Q2

MtB Business Plan Competition July 31st 2011

MtB Venture Camp 4-5 November 2011

MtB GYM March 2012

MtB US Roadshows April 2012

Building the Bridge: the Timeline

58

- MtB Affiliates - Online Signups

MtB GYM Every Quarter

Jun 17th

MtB Italy Tour 2011

59

Ø  Education The MtB Startup Business School gives you the “nuts and bolts” regarding entrepreneurship, business planning, venture capital market and Silicon Valley eco-system

Ø  Honest Feedback Thanks to the Gym session the startups selected have the opportunity to present their business idea in front of a panel of investors and entrepreneurs

Ø  Fine tuning the business idea Everybody can largely benefit from the discussion of all the business ideas as well as the education program in the morning.

Goals and channels

Firenze

Genova

Pavia

May 13th

Jun 22th

Business Plan Competition 2011

60

WHO: High knowledge based companies already established or planning to incorporate before the end of the year

WHAT: Executive Summary (in the required format*) & Business Plan/Pitch Presentation

WHEN: Deadline July 31st , 2011

HOW: Competition Rules*

PRIZES: Selected participants to Mind the Bridge Business Plan Competition may be eligible to receive prizes and equity investments. * Download at www.mindthebridge.org

Business Plan Competition 2011: Some Prizes

61

Premio Gaetano Marzotto all’Idea Imprenditoriale Giovane sviluppata nell'area Hi-Tech con possibilità di sviluppo internazionale

RCS Digital Publishing Prize Target: Innovative and Promising Ideas to transform either the user experience of digital readers or the appeal of digital publishing platforms for advertisers

2010 Selected Startups

62

!

2010 Winners

Marco Brini - IID Stanford

Barbara Labate - IID New York

Venture Camp

64

Mind the Bridge Venture Camp is a 2-day event held each year in Milan at Corriere della Sera (the leading Italian newspaper) to promote a healthier Italian entrepreneurial ecosystem. Selected entrepreneurs present their business ideas to a large audience, including potential investors and partners. Selected startups will be invited to participate in the MtB Gym, a tutoring program between Italy and the Silicon Valley.

Entrepreneurs + Investors + Partners

Venture Camp Objectives

65

MEET MtB Business Plan Competition 2011 finalists

showing their business pitches

FIND successful links between Italy and the

Silicon Valley LEARN from examples of

Italian entrepreneurial success

NETWORK with entrepreneurs, potential

investors, partners and mentors

Opportunities for good ideas Event Goals

Fostering a sustainable Italian ecosystem for entrepreneurship

Inspiration + Policy

+ Networking

Boosting ideas with high potential

Providing entrepreneurs with direct exposure to venture capital investors both from Italy and the Silicon Valley

Venture Camp 2011

66

Milano, Italy

November 4-5, 2011

MtB GYM

67

San Francisco @ Pier 38

Affiliates + Individual Subscriptions

The GYM

68

Mind the Bridge Gymnasium is a startup incubator. Positioned in Pier 38 (San Francisco) we share the space with some of the hottest startups (50+) in Silicon Valley (Socialmedia.com, WordPress, Tweetme, etc.) Selected Startups are assigned a Mentor, supported in Business Development activities and given Training Sessions. Training Sessions include: Financing, Immigration Visas, Build a team, Corporate Operations, Presentation Skills, Taxes Mentors + Training+ Office Space

The GYM: Open Now!

69

Accelerate the startup chances of success • Hosting: office space @ Pier38 in San Francisco • Mentoring: assign a dedicated mentor per startup • Coaching: provide regular classes (training modules)

Build critical mass of startups A constant flow of startups hosted(10-15) to maximize the “educational impact”

Become a social hub for Italian entrepreneurship in Silicon Valley Events, Mind-the-Beer, etc (social Gym)

Targets • Early stage startups interested in a getting plugged into the Silicon Valley •  Italian “origin” • Min 3 months, average 6 months. • Starting at beginning of each quarter possibility to stay longer (as an affiliate startup)

Access Affiliates Channel Individual Subscriptions

MtB Startup Summer School

70

The Program: Lessons and Hands On

Theoretic Learning: Lessons (20 hrs)

Ø  Introduction to the Silicon Valley ecosystem Ø  Corporate Operations and Legal Aspects in Silicon Valley Ø  Corporate Finance Ø  Business development Ø  Fund raising with investors Ø  Communication skills Ø  Visa issues Ø  Human resources

Practical Learning: Visits (20 hrs) + Business Planning (50 hrs)

Ø  Google’s headquarter – Mountain View Ø  Funambol’s headquarter -Redwood City Ø  University of California, Berkeley Ø  Stanford University

Be a Silicon Valley Startup for 3 weeks

MtB Startup Summer School

71

WHO CAN PARTICIPATE? Students, PhD Students, Wanna-be-Entrepreneurs

SESSIONS Three sessions are scheduled in 2011 1.  July 5th– 23rd 2.  August 1st – 20th 3.  September 5th – 24th

WHERE? Pier 38, San Francisco

HOW TO APPLY? Send an email to: [email protected]

Be a Silicon Valley Startup for 3 weeks

72

THANK YOU FOR YOUR ATTENTION

Questions & Answers

[email protected]

www.mindthebridge.org USEFUL LINKS:

mindthebridge.blogspot.com siliconvalley.corriere.it

BLOGS: Facebook: Mind the Bridge -‐ ConnecMng Talent Twi\er: MindTheBridge

SOCIAL MEDIA:

EMAILS:

MtB Italy Tour 2011 - Alberto Onetti

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