Investors historically sit through pitches and evaluate early stage startups on three primary metrics: 1) great looking product demos, 2) compelling presentations, and 3) a strong team. Steve Blank, the Godfather of the Lean Startup movement said in his Customer Development Manifesto: “There’s no formal way for an investor to assess project maturity or quantify risks. Other than measuring engineering progress, there’s no standard language to communicate progress.” What has been missing is a common language to communicate objectives and data that investors and entrepreneurs can use to communicate startup readiness. Fortunately, the principles developed in the Lean Startup movement can be utilized to help entrepreneurs assess their Investor Readiness Level in a way that allows them to demonstrate “evidence” of their readiness. In this session, Max Green and Heath Naquin, both of the IC2 Institute, will share this new method for entrepreneurs to gauge their own investor readiness using the principles of Steve Blank's Investment Readiness Level and LeanLaunchpad. Entrepreneurs attending this session will learn a valuable approach helping their start-up team prove their competence and validate their ideas by showing investors “evidence” that there’s a repeatable and scalable business model. Heath Naquin serves as Executive Director for the SW I-Corps Node at The University of Texas at Austin. He also serves as the Managing Director for a multi-university NSF Industry University Cooperative Research Center (I/UCRC) the Center for Next Generation Photovoltaics. Heath was a founding member of three different start-up business initiatives across sectors. He has helped companies raise more than $30 Million in funding from private and government sources. Heath actively works on international commercialization initiatives and efforts focusing on industry collaboration, new project development and deployment along with building linkages between industry, government, academia and the venture capital community. Heath has worked in more than 20 countries on international commercialization and entrepreneurship initiatives in countries such as Colombia, Jordan, Iraq, Korea, Mexico, Portugal, Armenia, and Turkey. Heath has extensive experience with the NSF, EPA and NIH SBIR programs as an active commercial reviewer for many years. Heath also currently serves as Faculty for the Concordia University Executive MBA program. WeWork provides small businesses, startups, and freelancers with beautiful workspace, inspiring community, and meaningful services. With weekly events, personalized support, flexibility, and access to thousands of like-minded entrepreneurs around the world - WeWork is the perfect place to grow your business in 2015. The WeWork Congress location sits in the heart of downtown Austin at 6th St. and Congress Ave. To learn more about joining the community, email joinus@wework.com or call 855.593.9675.

1. “Are You Investor-Ready?”
Presented by Heath Naquin
Executive Director
OVPR UT Austin
April 23, 2015
WeWork Austin

9. SW I-Corps Node
Investment Readiness Level
Heath Naquin
Executive Director
Office of the Vice President For Research

10. Talking Head
• I-Corps Node
• SBIR Program Commercial Reviewer
• Start Up Experience
• International Start Up and Investment
Expertise
• MBA Faculty
• NSF I-Corps Certified Faculty

11. Startup Story

12. The Setting…

13. The Time…

14. The Idea…

15. The Concept…
• Provide Integrated Web Development Services
along with Distributed Hosting Solutions for
Small to Medium Enterprises

16. The Plan…

17. What Happened…
• Demo Sites
• Marketing Materials
• Pitches to Investors
• Strategy Sessions
• Built the Founding Team
• Built Partnerships
• Business Cards…Very Important
• Set up Pricing Structures

18. What Was Missing?

19. A Perfect Case Of..

20. 6 Months Later..

21. And Then?

22. What They Found Out..

23. 2 Years Later…

24. What Does This Tell Us??

25. The Start Up Killer??

26. Examples From the Field

27. Most Spectacular Failure of All Time?

28. The Concept?

29. The Problem

30. What Customers Wanted?

31. In Short

32. Great, but what about Investment

33. A Question
• What is the typical way investment happens?

34. How do Investors Currently Grade
Teams?
• Great Looking Product Demos – The
Frankenstein
• Compelling Power Point Slides
• A World Class Team
• In other words….

35. What’s Real in the Mix?

36. Implications for Start Ups
• Build a Team First
• Get Really Good at Pitching
• Build a Non Functional Demo

37. Getting Start Up Investment is…
• Confusing
• Fluid
• Non- Linear
• Frustrating
• A Secret
• All of the Above

38. How Many Deals a Year do Investors
See?

39. Typical Investment Funnel
30% losers | 40% ok deals | 20% winners | 10% homeruns
25,000 solicitations
5,000 discussions
1,500 meetings
100 partnership meetings
40 partnership proposals
25 investment proposals
Source: adapted from Ray Rothrock (Venrock)
15-20 deals closed

40. Primer on Investing

41. Three Forms of Financing for Your
Enterprise
• Revenue
• Debt
• Equity
• Also Grant

42. Types of Equity Financing
Financing Stage Period of
Fund in
Enterprise
Risk Perception Activity to be Financed
Seed Stage 7-10 Extremely High Support R&D to move concept
to product
Start-Up Capital - A 5-9 Very High Fund initial operations and
prototype development
Early Stage Capital – B 3-7 High Start commercial product and
marketing
Expansion Capital - C 3-5 Moderate to High Expand market and provide
working capital
Late Stage Capital 1-3 Moderate Market expansion, acquisition
and product development for
profit making companies

43. Who, what stage, how much
43
Pre-seed
Stage
Seed/Start-up
Stage
FUNDING
GAP
Early
Stage
Later
Stages
Founders’
Friends &
Family
Angel
Investors
Very few angel
deals done
above $1
million
Very few VC
deals done
below $4
million
Venture
Capitalists
$0 $250K $1.5 million $4 million $10 million
& up
Source: Adapted from Jamie Rhodes, Central Texas Angel Network, 2012
Available other Institutional Funds, ETF (Central Texas), etc.

44. How long it takes?
44
Find angels and
set up
meetings
Meet with
Angels
Negotiate
Terms
Due diligence/
Draft final
Documents
Total Time
1- 4 months 3 - 6 months 1 - 3 months 1 - 3 months 6 - 16
months
Source: Adapted from Jamie Rhodes, Central Texas Angel Network, 2012

45. Investors invest in people
• Investors prefer an “A Team” and “B Opportunity”
rather than “B Team” and “A Opportunity”
• What do they look at?
– Opportunity: Market Size (>$1B) and growth (>GDP%)
– Value proposition (tight to market pain)
– Competitive advantage & positioning
• Why they invest?
– Team: Managerial skills & Domain knowledge
“THE MORE YOU MINIMIZE THE RISK THE BETTER”
45

46. Grant Money
• SBIR/STTR Program in the US
• Focused on High Technology Ventures
• Phase 1: $100-150,000 over 6 months
• Phase 2: $300-$1M over two years
• 1B and 2b Supplements
• Non Dilutive in nature

47. Back to You

48. There Must Be More…

49. What Happens When Evidence Is
Present in a Pitch?
• Great Looking Product Demos – The
Frankenstein
• Compelling Power Point Slides
• A World Class Team
• In other words….

50. Startup Reality

51. We Have Done it All Wrong

52. What we used to believe

53. Startups are
smaller versions
of large companies

55. What we now know

56. Startups are NOT
smaller versions
of large companies

57. Startups = search
Companies = execute

58. SEARCH EXECUTE

59. What we used to believe
Strategy

60. Start with
Operation Plan &
Financial Model

62. Execute the Plan

63. Create Financial Statements

64. Make a 5-Year Forecast
0
20
40
60
80
100
120
Year 1 Year 2 Year 3 Year 4 Year 5
Revenue (Millions)
Revenue (Millions)

65. What We Now Know
Strategy

67. Helmuth von Moltke the Elder

68. NO Plan Survives First Contact..

69. 0
20
40
60
80
100
120
Year 1 Year 2 Year 3 Year 4 Year 5
Revenue (Millions)
Revenue (Millions)

70. 0
20
40
60
80
100
120
Year 1 Year 2 Year 3 Year 4 Year 5
Revenue (Millions)
Revenue (Millions)
…for startups

71. Planning comes
before the plan

72. Business Models

73. 2
Who are your most
important customers?
What are their
archetypes?
What job do they want
you to get done for
them?
4
1
How will you
get, keep,
and grow
customers?
What customer
problems are you
helping to solve ?
What customer needs
are you satisfying?
3
Through which
channels (sales,
distribution, support)
do your customers
want to be reached?
5
How will you make
money?
What is revenue model?
What are pricing tactics?
6
Who are your Key
Partners?
Who are your key
suppliers?
What are you getting
from them…and giving
to them?
What Key Activities do
you require?
Manufacturing?
Software development?
Personal concierge
service? Etc.
7
9
What are most important
costs inherent in your
business model?
What is mix of fixed and
variable costs?
What Key Resources
do you require?
Financial? Physical?
Intellectual property?
Human resources?
8
What are key features
of your product/service
that match customer
problems/needs?
Business Model Canvas

74. Evidence Based Entrepreneurship

75. 2
Who are your most
important customers?
What are their
archetypes?
What job do they want
you to get done for
them?
4
1
How will you
get, keep,
and grow
customers?
What customer
problems are you
helping to solve ?
What customer needs
are you satisfying?
3
Through which
channels (sales,
distribution, support)
do your customers
want to be reached?
5
How will you make
money?
What is revenue model?
What are pricing tactics?
6
Who are your Key
Partners?
Who are your key
suppliers?
What are you getting
from them…and giving
to them?
What Key Activities do
you require?
Manufacturing?
Software development?
Personal concierge
service? Etc.
7
9
What are most important
costs inherent in your
business model?
What is mix of fixed and
variable costs?
What Key Resources
do you require?
Financial? Physical?
Intellectual property?
Human resources?
8
What are key features
of your product/service
that match customer
problems/needs?
Iterate and Pivot

76. What does this mean for you?
• Investors are increasingly investing in models
of business
• The Business Model Canvas is evolving into
the standard tool for screening investment
opportunities in the investment community
• Business Plans are no longer being used as
effectively

77. Great, but What About Investment..

78. Almost There…

79. Who has been great at getting
technology into Use?

80. Enter TRL

81. Great, but What About Investment?

82. Enter the Investment Readiness Level

83. Mapping the Business Model Canvas
to Investment
• IRL tracks teams through their progression in
the Lean Start Up Methodology
• As teams develop insights and data around
their solutions they can be better positioned
for investment

84. Primary Benefit of Approach

85. So Who Cares About This?

86. What Can Start Ups Do to Build This
• Get Educated
– I-Corps Node is a place to Go
– Most major business assistance groups are moving
to the Business Model Canvas and Lean Start Up
Methods
– Read the Following:
• Start Up Owners Manual
• Business Model Generation
• Value Proposition Design

87. And….

88. Questions?

89. Contact Information
Heath Naquin
Executive Director
Office of the Vice President for Research
The University of Texas at Austin
hnaquin@austin.utexas.edu