Figure I.162: The TVA Radar Graph to assess fundability of startups by investors –
”The more (light) GREY you see (RED in the original), the greater the room for im-provement.” (Source: [TVA], courtesy of James W. Casparie).
A similar scorecard-like approach to assessing young firms is presented and illustra-ted for university “spin-out” companies (RBSUs) as compared with a group of compa-nies arising from the community as a whole by De Coster [2004; 2005]. The assess-ment was based on key success criteria (Table I.79) and on information provided by the business plan of the new venture plus an interview with key personnel – plus secondary research. The scoring system focuses on criteria that have been identified in the research literature. The assessment methodology has been developed and operated over a period of four years by Clive Butler, HSBC Chair of Innovation at Brunel University, UK.
The methodology was primarily designed for the use of a major UK bank (HSBC) and now widely employed to assist in deciding whether debt financing is appropriate. Com-pared with VC investments, such funding tends to be early stage and the amounts re-latively small. Such funding cannot bear the cost of in-depth due diligence procedures.
To improve the reproducibility of the assessment method the scoring method is seen to have the benefits that the assessments are more objective and there is less re-liance on the individuals undertaking the assessment. A scorecard-type approach will usually also be used for business plan contests to judge all submitted business plans consistently.
To each key success criterion a verbal description is employed. The best fit deter-mines the scoring number. The scales were developed by identifying the two end-points presenting the extremes of expectations of successful development of an early stage NTBF (most negative and most positive expectation; for instance, scoring between 1 and 10). The mid point of the scale for the scale will represent a median state of an NTBF when seeking funding. The overall maximum achievable score represents the ideal business in their industry/stage of development [De Coster 2004;
2005].
Not all the criteria of this approach are considered to be of equal importance or inde-pendent of one another. Weightings (not shown) were assigned to each of the criteria to reflect the levels of importance.
Table I.79: Criteria for assessing RBSUs according to De Coster [2004; 2005].
No. Criterion Aim
1 Technological and Commercial Risk To assess will it work
2 Level of Product Innovation To assess the Unique Selling Proposi-tion (USP)
3 Market Criteria – How it satisfies a market sector
To assess market demand
4 Market Criteria – Timeliness To assess the market timeliness 5 Product Extensions – Longevity/
Repeat Orders
To assess whether it fits into a family of products to permit company estab-lishment or development
6 Product Extensions – Family of Products
To assess the longevity of product or product line about new firms’ development referring to a configurationally “near” case will require a set of criteria to be matched similar to those discussed in this sub-chapter and si-multaneously a match between comparable dynamically stable states of the two firms.
As indicated in Figure I.128 there will be several criteria to describe an entrepreneurial configuration by “major coordinates,” which house a number of attributes (“specifica-tions”). The last ones could provide values (usually numerals for scores) if a scoring procedure should be built. The gross criteria would be associated with weights. It must
be admitted, however, that a scorecard approach is not in line with GST: It treats the significance of an individual factor as independent from all the other factors. The lack-ing systemuc effects would be partially mitigated by weighlack-ing the “major coordinates.”
As an example of how to proceed with generating ex comparatione statements one can look at two poster child companies offering nano-tools, with well growing markets (“scientific instruments”), proprietary technologies, real products and real customers.
Here, the earlier founded German firm WITec (Figure I.123) is the standard against which Cambridge Nanotech from the US will be matched.
Table I.80 provides the suggested configurational categories following largely the tax-onomies discussed in Figure I.128. This makes the approach explicit and let emerge the close similarities of the two firms’ configurations – simply by inspecting and com-paring textual descriptions of related categories rather than performing a quantified approach based on scoring, such as the TVA Radar (Figure I.162).
Cambridge NanoTech founder and CEO Jill Becker turned her Harvard chemistry the-sis research into a rapidly growing company whose revenue hit $17.6 million in 2010 (B.2). Due to strong roots in Atomic Deposition Layer (ALD) research, Cambridge NanoTech enjoys exceptional access to novel ALD applications and many great op-portunities to nurture these applications to maturity.
The successful transition from serving academic customers to manufacturing cus-tomers has been in response to specific market needs and to developing products working closely with industry partners, research collaborators and key customers.
Gross margins of the business are around 70 percent [Yang and Kiron 2010].
Atomic Deposition Layer originates in chemical nanotechnology and means a method of creating thin film materials by laying down a layer material a single atom’s thickness at a time. ALD is an ideal coating technology because of its perfect, conformal, ultra-thin films that are scalable to large-area substrates. ALD simultaneously offers excel-lent thickness uniformity, film density, step coverage, interface quality, and low tem-perature processing, making ALD beneficial for both roll-to-roll flexible substrates and rigid substrates.
As both firms have very close configurations, apart from being sure about the firm’s survival, Cambridge Nanotech would be assumed to further develop solidly and dy-namically similar to WITec (Figure I.163). Furthermore, one can assume the devel-opment curve in terms of revenue to be described with the formula (Equation I.18) used for WITec’s dynamically stable period (Figure I.156).
Though all this has turned out to be true from the start of the firm (2003) until 2008 and seemingly also until 2011 two unexpected, seriously negative brackets led Cambridge Nanotech to close doors by the end of 2012.
Table I.80: Matching entrepreneurial configurations of US Cambridge Nanotech against WITec GmbH to derive growth expectations for the former one.
Configurational Basic Firm Characteristics (Industry: Both in Nano-Tools, Scientific Instruments) Vision/Mission – Growth
Firm Type RBSU – university spin-out;
direct commercialization of Legal Firm Form Private, GmbH (LLC) Private, Inc.
Special Externalities Suffered early from Dot-Com Recession soon after start
Initial Financing Own resources and debts (bank loans)
Own resources, “boot-strapping” (plus loans?) Further financing Essentially cash flow Essentially cash flow Research (or R&D
Founders Entrepreneurial Triple Entrepreneurial Pair 1);
50:50 equity share in CNT
Motivation/Experience Originally, team wanted to
Table I.80, continued.
IP Protection Own Patents Patents
Regulatory Factors for
Production Own facilities Contract manufacturers
located in Massachusetts
Market and Opportunity
Table I.80, continued.
Marketing/Promotion
Sales and Distribution Subsidiaries: US, Singapore (US sales office 2002;
1) One founder – Douwe Monsma – left CNT in 2008: company experienced serious friction be-tween the co-founders, was resolved when in Oct. 2008, Monsma accepted a $5.4 mio. buy-out offer from Becker financed by a bank loan; Jill Becker further developed the firm – till its end.
Comparisons between CNT and WITec have to be made for equivalent dynamically stable states after the startup thrust phrase. However, immediately after the startup development of WITec was perturbed by the Dot-Com Recession. Therefore the
<2004,2009> period may serve as a guide (Figure I.123, Figure I.156). The actual growth factor of Cambridge Nanotech for good fit is 0.51 (Figure I.163) for
<2005,2008>. The introduction of the Phoenix instrument let a new bracket emerge in 2009 amd immediately after that two additional new instruments were introduced.
According to the bracket theory the data of 2010 comprise the occurrence of two new brackets. Indeed, the bracket is likely to be associated with launches of two new pro-ducts which got a lift-off adding to revenues in 2010 (B.2) – despite the Great Reces-sion. And also 2009 data should be affected by this recesReces-sion. This situation of crowded brackets with negative effects being leveled off is similar to the situation of Microsoft depicted in Figure I.144.
Concerning technology there is plasma and thermal ALD. By mid of 2009 Cambridge Nanotech announced the launch of its first line of plasma ALD systems, the Fiji Series, but with the ability to conduct thermal ALD as well. According to Jill Becker “the Fiji is a breakthrough in ALD system design.” “We built it from the ground up for the specific purpose of plasma ALD, but with the ability to conduct thermal ALD as well.” Further-more, in 2009 Cambridge Nanotech also launched its Tahiti system engineered for large-area manufacturing operations ensuring repeatable, exceptionally uniform, pinhole-free thin films on substrates.
Expectations (of the author) that CNT would follow a secure and successful develop-ment did not materialize due to frictions in the founder team in 2008. By the end of 2012 its auctioned assets and intellectual property were acquired by Ultratech, Inc.
Cambridge Nanotech, Inc.: Founded 2003;
Expected growth relation after startup thrust (Figure I.123, Figure I.156) beginning at 2006;
R(t+1) = (1 + g)⋅R(t); using R(0) = $1.24 mio. at 2005, g = 0.51
End of 2007: Ray Riiter (20 years experience) hired as a full-time COO;
net profits of $3.6 mio; $1.8 mio. net income in 2008 [Yang and Kiron 2010]
Figure I.163: Calculated and observed revenues of US Cambridge Nanotech and innovation persistence by launch of of instrument series.
Currently the broad analytical and life sciences instrumentation market enjoys consid-erable growth rates. It is reported, for instance, that the life sciences (academia and government) segment has a magnitude of $10 billion and annual growth rate of 8 per-cent, pharmaceutical and biotechnology is $9 billion with 5 percent growth rate, indus-trial (computers and semiconductors) has $5 billion and 4 percent growth rate and chemical & energy exhibits $2 billion and 5 percent growth [Thayer 2011].
Another technology startup with a configuration rather close to those discussed is the German firm Attocube Systems AG founded in 2001 (B.2). The then founders of the RBSU Attocube also had a sale of a university laboratory device to recognize the op-portunity and after firm’s foundation they grasped fast real customers.
Though founded during the Dot-Com Recession Attocube already made a profit in its first year of existence. It was financed essentially with own resources, used an ena-bling technology for its offerings to deliver international customers from academia and industry and proceeded with innovation persistence. The major differences to the above cases are that Attocube got early involvement of an angel investor who occu-pied a key role in the leadership team. Attocube is a private stock company.
Attocube’s technology covers those of CNT (“moving atoms”) and WITec (special microscopes). Attocube targets positioning of atoms which requires having them at rest with no fluctuations due to thermal energy – close to the absolute zero tempera-ture 0 deg.K (which is -273.3 deg.C).
It provides the research market and industry with a reliable, compact, nano-precise and micro-precise positioning system that is capable of executing sample movement from the sub-nanometer to a centimeter range even in a large variety of extreme envi-ronments, such as ultra-high vacuum, extremely low temperatures (-273 deg.C) or at high magnetic fields. Simultaneously it provides tools to control and observe the positioning which are special microscopes allowing to operate under such extreme conditions.
In Figure I.164 the expectation to describe the growth of Attocube analytically by the same formula as used for WITec and Cambridge Nanotech with g between 0.35 and 0.51 is corroborated. Observed data for 2008 are incomplete, but, moreover, ac-cording to theory Attocube’s dynamically stable state for the period <2003,2007>
ended in 2008 due to the new front bracket of the “Wittenstein event.”
Attocube Systems AG Founded 2001
Expected growth relation after startup thrust beginning at 2003;
R(t+1) = (1 + g)⋅R(t);
using R(0) = €0.9 mio. at 2003, g = 0.45; data for 2008 reported in September 2008 Productivity <2005,2007> almost constant, ca. €214,000 per employee
Figure I.164: Calculated and observed revenues of German Attocube Systems AG.
By September 2008 the German Hidden Champion Wittenstein AG acquired a 74 percent equity stake in Attocube keeping the two founders as executive managers and the angel investor as a member of the Supervisory Board.
Next we shall consider generating expectations ex comparatione for non-RBSUs, in particular, expectations for survival and growth related to experience of the founder(s) including expectations of execution. The emphasis will be on serial entrepreneurs and those with profound industry experience, relying on technical, commercial and mana-gerial experience from previous jobs (Figure I.64).
Based on the fundamentals of US LED (Table I.81; B.2) one can expect the firm to successfully catch market share in its field of activity. Particularly strong arguments are the founder to be an experienced serial entrepreneur, initial financing being se-cured, detailed market knowledge and a favorable customer interface and distribution system and a focus on a strongly growing segment. Hence, there is little arguments why not expect US LED to grow at least with the market.
Table I.81: Key characteristics of a firm, here US LED Ltd., for generating expecta-tions of firm growth.
Firm Type Other NTBF (Table I.2, Figure I.128) (founded 2001)
Legal Firm Form Private (Ltd., LLC); majority ownership/almost full control (Table I.74)
Initial Financing Financed as a spin-off of US Signs Research Intensity HVT (high value technology; Table I.1)
Founder Single entrepreneur (Ron Farmer)
Motivation/Experience Serial entrepreneur; founded several companies but the most noteworthy are US Signs (founded in 1980) and US LED, both of which he still owns and participates in.
Though relatively small with $22 million revenue, US Signs focused on neon lighting; ranks in the top 100 of the 30,000 sign companies in the US
Leadership//Management As CEO for US LED , Ron Farmer helps manage the company and contributes to product development and sales
Technology and Application Focus
LEDs – light emitting diodes; impact as a generic (and emerging) technology for the lighting area;
US LED focuses primarily on “channel letter lighting” for illuminated signs for advertising and creating attention.
Promoting LED relies on large cost savings as LED uses nearly 80 percent less electricity and lasts up to 16 years with no maintenance.
Neon was and is still a strong illumination provider of chan-nel letter lighting, but LEDs have already overtaken neon in 2008 in general-purpose channel letter signs in North America
Market and Opportunity Economic market with strong components of (“green”) attitudinal and policy-driven markets (Table I.15).
In 2011 it was reported that the “high-brightness” LED market is forecast to grow to $19 billion in 2014 from last year’s $5.3 billion, at an average annual rate of 29 percent.
The fastest-growing segment is in displays and signs, which is predicted to grow 61 percent annually in the five years. It will also be the largest sector, accounting for 51 percent of the market, up from 36 percent this year.
The general illumination segment is the next fastest-growing, at 45 percent a year, to $4.2 billion from $645 million during the period. Automotive applications are also projected to grow rapidly during the forecast period.
LED lighting is one of the last analogue-to-digital transi-tions in the technical area. When so-called smart grids (computerized electricity distribution systems) are com-mercialized in 5 to 10 years’ time, the energy-saving features will be magnified by demand-driven automatic dimming capabilities.
In 2007 the worldwide market for “high-brightness” LEDs used in lighting applications reached $337 million, up from
$205 million in 2006.
Haitz’s Law: the performance of an LED doubles every two years; this may explain the exponential growth of the LED lighting industry;
every decade, the cost per lumen (unit of useful light emit-ted) falls by a factor of 10, the amount of light generated per LED package increases by a factor of 20, for a given wavelength (color) of light
Table I.81, continued.
After its startup thrust phase US LED as a spin-off could rely on customers of US Signs.
Generally, ca. 10-20 percent of customers are about retro-fitting neon with equivalent LED products and, thus, US LED could take advantage from existing customers of US Signs.
LEDs are deployed in two areas of channel letter lighting;
the first is new signs where the preferred lighting source is LEDs. The second area is replacement for previously installed sign projects, where for reasons of cost savings, the sign owners have opted to change out the neon with an LED system.
US LED targets the home (US) market.
Innovation Persistence LED as a platform technology;
US LED started with lighting for signage, but expanded ap-plications; it migrated into lighting for convenience store refrigeration, for parking lights, under canopy lights, indus-trial lighting, warehouse lighting, etc.;
is working on the fluorescent tube lighting replacements for office lighting.
Competitive Advantage US LED does not only provide LED for lighting, it also focuses on making it easy to install and easy to work with.
US LED can rely on the widespread sales and distribution organization of US Signs,
seems to be able to protect competitive advantage Special Externalities Ron Farmer: “…in 2009, we actually dropped back for the
first time since we’ve been in business. We dropped back by about nine percent, but our piece count sales actually were up 50-percent.”
According to the market data in Table I.81 one could expect US LED to grow with the market and have an average annual growth rate between 30 percent and 60 percent after its startup thrust phase, suggesting.to assume g ≈ 0.5 in Equation I.18.
Actually it turned out US LED to grow in line with the maximum value estimated for the related markets (Figure I.165). It should be noted that according to the bracket theory calculated and observed values are restricted to the interval <2004,2008> stopping with the Great Recession. The nice fit for 2010 data is accidental; picking up previous growth occurs in a new firm’s state!
US LED Ltd.: Founded: 2001
R(t+1) = (1 + g)⋅R(t); using R(0) = $1.30 mio. at 2004, g = 0.65 for <2004,2008>
Figure I.165: Calculated and observed revenues of US LED.
US LED can serve as a model for expectable development of US Albeo Technologies Inc., founded 2004. Its firm type is “Academic Startup” (Table I.2) and is active in LED.
The founder and members of the management team have 20+ years industrial experi-ence, specifically also in the LED area (“veterans approach”). Founder and owner of the firm Jeff Bisberg spent more than 25 years developing and marketing innovative solid-state technologies (SST), with 20 years focused on light-emitting technologies, including developing novel organic LED, miniature LED print-heads, and an award winning laser printing system.
Albeo Technologies Inc. is a pure LED lighting company. It designs, manufactures and sells white LED lighting systems (intelligent lighting fixtures) for commercial and in-dustrial indoor general lighting applications. Its products replace traditional fluorescent and high-intensity discharge lighting to decrease energy usage and maintenance.
Albeo targets the home (US) market. Albeo sells its lights for both new construction and retrofit projects, with the latter growing to 85 percent of sales. Albeo has designed a flexible system so that it is very easy to customize. Albeo delivers the “exact
solu-tion” to the clients (“solution provider”). It sees itself as a leader in the white-LED general-illumination fixture market.
Albeo’s products and systems benefit from the “green” momentum as they reduce power consumption and maintenance for commercial and industrial facilities, and ex-hibits simultaneously environmental benefits (reduce carbon dioxide emissions). Its primary goal is to enable businesses to lower their total operating costs (total-cost-of ownership, TCO). The advantages over traditional lighting technologies, significant ef-ficiency, lifetime and environmental advantages, mean also providing a short return on investment.
Expectation of Albeo’s growth includes the applicability of Equation I.18, growth
Expectation of Albeo’s growth includes the applicability of Equation I.18, growth