Patents and PizzaPresentation

Applied Physics LabJHU

Oct 3, 2002

Rami HabalMohr Davidow Ventures

Scope of talk

MDV Intro and Venture Capital Qualities of great entrepreneurs Practical Advice What it means to build a viable

company Q&A

About MDV

Founded in 1983 Focused on Early Stage IT investments

– Enterprise Software, Networking and Communications, and Semiconductors

Six General Partners, Six Venture Partners, Three Associates

Offices: Menlo Park; Seattle; Reston, Va. Total capital under management: $1.3B Companies: Agile Software; Brocade; Echelon;

PMC-Sierra; ONI Systems; Rambus; MIPs

Our role after investing

Business and marketing strategy reviews: – regular team meetings with our partners to develop

effective business and market strategies for entering a market and maintaining a leadership position

Management team recruiting: – assisting you to build the best team at the executive

level

Strategic partner and customer development: – connecting you with key industry players and

assisting you in securing strategic partners and, ultimately, helping to land early adopter customers

How Venture Capital Works

LimitedPartners

GeneralPartners

Entrepreneurs

Pension FundsUniversity EndowmentsRich people and trusts

VC Firms (e.g. Mohr Davidow) Someone in this room!

CommittedCapital

Invested$$

WHO:

Allocate a portion of funds to Venture Capital asset class (~5%)

Pick great companies, smart entrepreneurs

Build great companiesFUNCTION:

Money in + about 70-80% of Gains Yearly Management fees to keep VC firm operating + 20-30% of Gains

Portion of IPO or Sale of business (Gains)PAYBACK:

Liquidity Event (IPO, Sale) = Gains for all parties

The role we would play with APL

Spin-off Company

$, active

ideas, inventors, technology

The question that must be answered before we make an investment:

Who is the entrepreneur?

Common denominators: qualities of great entrepreneurs Magnet for other great people Tenacious Articulate Self assured & driven, but not arrogant Affinity for customers Smart Giant consumers of what other people

know Willing to take risks but afraid to fail

“Those entrepreneurs who start out thinking they’ll make it big – and in a hurry – can be

guaranteed failure.” – Peter Drucker

Not all entrepreneurs…

…have all of those qualities on day one …make good long-term CEOs …want to stay in a company after it

reaches steady state

© 2002 The New Yorker Collection from cartoonbank.com. All Rights Reserved

Practical advice to people in this room…

Customers: #1 Most Important Technology is not enough

– Customer validation is essential for funding

Compressed time-to-market development cycles– Early customers are development partners

– Get something out and get feedback

Customer references accelerate growth– Market share matters

2) Just Do It… All

DevelopProduct

GetCustomers

RaiseMoney

3) It’s about the Business AND the Technology

What problem will you solve? Why did you build this technology?

Who currently has the problem? How will you solve it? How big is the market potential? What is your distinct advantage? How does the competitive landscape look? What are the financial implications? How much capital will you need to develop the solution (and

the company supporting it)? What kinds of volumes and margins are reasonable to expect? What are your team's qualifications? Are you committed? Which partners? Which customers?

4) Think Through your Intellectual Property Strategy Be careful of your IP trails

– Get a good attorney from the start!

The IP is your entrée, but don’t be over protective about it– You can disclose enough info without giving up the goods

– But in some cases you may have to give up the good to get that customer, partner, or investor.

In structuring relationships between company and tech transfer office, “Simpler is Better”– Best to keep everyone’s incentives aligned to build

successful company

– Equity model is best model; TLO is viewed as another equity “investor”

5) Startup Marketing is About…

1. Getting the right first customers2. Developing the right 1.0 product

3. Creating a repeatable sales process

Must be done in parallel with initial product development and before building

a sales organization or risk major setbacks

a) Understand tech adoption

Conservatives:Hold on!

Visionaries:Get ahead!

Innovators EarlyAdopters

Early Majority

Late Majority

Laggards

Pragmatists:Stick with the herd!

Skeptics:No way!

Techies:Try it!

b) Translate the Grand Vision to Narrow Go-To-Market Strategy Pick your market entry point

– Highest pain

– Tangible, hard $ benefits

– Access to budget

– Solvable problem short term

– Competitive differentiation

Build the 18 month road map– Prioritize 1.0 features

Learn how to sell your solution

c) Pinpoint Market Entry Point with Customers

Meet with 30 prospective customers in 3 months

What are their priorities

Where is greatest pain

What do they do now to address it

Listen Learn Refine

How are they organized

Who has the budget

Who makes decisions

d) Engineering Marries 2-4 Customers

Customer must– Have consistent

requirements with each other

– Be referenceable

– Pay for product

Engineering must– Work very closely

with them through development and deployment

– Do whatever it takes to make them happy

– Deliver a GA productResult: A GA product and

reference customers at the same time

e) Marketing Develops Sales Tools Must have learned firsthand what it takes to

get paying customers Leverage with sales tools

– Messages that light up customers’ eyes

– Demos that say “a-hah!”

– Payback model showing quick return of incremental $ invested

– Clear competitive differences

Complete business strategy– Pricing and packaging

– Distribution model after direct sales entry

Result: A sales force who can sell

Elements of a viable startup Customer focused Selling into a large market Keenly aware of the competition and

marketplace dynamics Adaptable to change Execution machines

The important thing in life is to have a great aim and to possess the aptitude

and perseverance to attain it." – Goethe

Q&A

Contact Information:

Rami Habalwww.mdv.com

Rhabal@mdv.com(703) 547-3480

Mohr, Davidow Ventures12010 Sunset Hills Road, Suite 730

Reston, VA 20190