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Tag: investment readiness

Bootcamp heats up debate on British manufacturing

The Qi3 Accelerator HVM Bootcamp is heating up.  Quite a few people are asking us what constitutes ‘manufacturing’ in our context.

I’m not going to give a pat definition here, but suffice it to say that we’re looking for companies outside of the ‘wet biotech’ and ‘pure internet’ spaces, where engineering disciplines bring together core physics, engineering, biology or chemistry into an engineered product based up0n electronics, software, sensing, instrumentation and services.  Pure software is fine if it relates to engineering.

And what’s the ‘High Value’ in High Value Manufacturing?  I see it as:

  • High value added, through a high knowledge content and the deployment of skilled labour
  • Broad in lifecycle, through the recognition that ‘cradle to cradle’ lifecycle creates opportunities in the value chain not just the manufacturing process
  • Comprehensive in scope; considering societal and environmental benefits, not just the tangible product

Try us – to get 3 days of intensive support for your business acceleration, apply by 30th May.

Why we’re passionate about High Value Manufacturing

After this week’s announcement of the Qi3 Accelerator Bootcamp, friends are asking me why we’re doing it.  Are we mad? How will we make money? And, above all, why High Value Manufacturing (HVM)?

The simple answer is that we’re doing it because we see the need!  After reviewing nearly 400 prospects, we see a common set of areas in which businesses need to improve if they wish to attract investment.  Let’s be clear here, I’m not just talking about seed stage ideas.  I’m expecting that the bootcamp will be most attractive to young established businesses looking for early or expansion stage capital.  We’ll be helping on all aspects of engineering businesses, from managing technology and product development, go to market strategy, finances and Intellectual Property.

When I attended the NESTA Startup Factories conference  last summer, it became obvious to me that, whilst Accelerator Programmes were flourishing in the software and Internet space, few people had tried them in ‘harder tech’.  When we set up the partnership with Cambridge’s ideaSpace, it seemed natural to run a bootcamp as a one-off pilot to test our evaluation process and the concept of such a programme.  We aim to support 8 businesses with tough love through an intensive 3-day process, and we’ve attracted a range of top notch coaches and mentors to get the best out of this short, sharp shock.

But above all, it’s about having fun working with ambitious people in the field I love.  I grew up at Oxford Instruments, a mid-sized engineering company where the customer was king and the love of technology and manufacturing was deeply ingrained.  I’ve spent my life selling and marketing other people’s technical inventions around the world.  For me, HVM means making real engineered products, be they destined for environmental sustainability, healthcare, industry or defence.  My pleasure as an investor is seeing engineering and commercial jobs created here in the UK, and products exported across the globe.

We’ve been fortunate to attract partnership from ideaSpace, sponsorship from Harrison Clark, Williams Powell, Synergy Energy and Wren Capital, and support from NESTA and the Technology Strategy Board.  Bootcamp participants will have to contribute a token amount towards their accommodation in Cambridge’s lovely Madingley Hall, and we’ll make up the balance of the costs ourselves.  We are not seeking equity stakes in the companies that participate, although we’ll naturally be keen to see if they are attractive investments at the end of the process.

So are we just do-gooders?  Well perhaps.  I see it as a superb experiment, an opportunity to help some great businesses, committed entrepreneurs, and work with experienced mentors whilst having great fun.

To join the bootcamp apply here.  It’s a one-off; entries close on 4th May and the bootcamp will be held on 23rd – 25th July.

My next posting will be the one about the aubergine…

Advice for Entrepreneurs: Part Eight – Due Diligence Process

I’ve been asked to join the panel at a London Business Angels investor club night this week.  The event will focus on the topic of due diligence.  To get the juices flowing, I’ll focus here on some key aspects:

Staged due diligence is vital

The amount of time and effort put into gathering information needs to be staged to be fair to you and to the prospective investee.  In stage 1 we simply evaluate the business plan, presentation or other initial interaction.  In stage 2 we ask more questions but take the answers at face value.  At stage 3 we seek to reach a detailed conclusion as to whether we would like to invest in the company.  This is the main stage at which we take the technology, product/service and market apart and seek to understand them thoroughly.  Finally at stage 4, we seek to ensure that the legal and financial terms are fully acceptable.  Our experience is that the decision to pass from one stage to the next should be taken seriously and with regard to the time and implied commitment involved.

Decide how much to do before agreeing terms

We’ve varied in our approach to the amount of due diligence we do before agreeing investment terms. On one hand a greater degree of upfront research will indicate areas for further discussion and investigation.  It will also uncover issues that change our views on valuation or our interest in investing.  On the other hand, an early term sheet shows commitment and gains exclusivity.

The company seeking investment should provide the information

When I started investing, I would spend a lot of time undertaking my own research into the market prospects for potential investments.  Whilst we still do this on occasion, it’s far more valuable to understand what the company knows.  Our approach now is to provide the company with a set of headings for the main due diligence, and expect them to populate a dropbox folder with their information.  This has the twin advantages of helping us to understand the depth of the company’s own understanding and providing the basis for the warranty disclosure letter at the end of the process.

Talk to customers

An invaluable part of the diligence process is a series of calls to current and prospective customers.  Are they happy with their interactions with the company?  Does the product perform? Do their projected orders correspond with the company’s sales projections?  A few structured calls undertaken by a market research professional can be illuminating.

Don’t overdo it

It’s possible to overanalyse a prospective investment.  This can result in wasted time and thus deflate the return on investment.  With early stage technology businesses, especially those that are pre-revenue, some questions cannot be rigorously answered and the decision will come down to your personal judgement.  I always ask myself the questions “will this piece of research contribute directly to my investment decision” and “do I think that the management team will find the answers post investment”.

Undertaking a structured due diligence process is a super way of learning about the business and its management team.  Executed properly it leaves me with the confidence to entrust the company with my investment, or to walk away from the deal safe in the knowledge that ‘this one’s not for me’.

Advice for Entrepreneurs: Part Seven – Sustainable Competitive Advantage

In this seventh part of my occasional series ‘Advice for Entrepreneurs’ I discuss how you can show potential investors that you are able to take advantage of the market which you are addressing.

Creating Sustainable Competitive Advantage

The core objective is to create an obvious and sustainable rationale for customers to buy from you rather than your competitors. Achievement of this in investors’ minds looks different for first movers and market followers:

For first movers: you will need to educate the market and build barriers behind you to stop new entrants catching up. Invariably people will have been spending their money on something else, so you will need to change their mind-set.  Is your product truly novel in customers’ minds, and can you lead the race from the front? Investors love technical novelty, but will people really validate your heroism, buy your product and laud you with market dominance?

For market followers: earlier entrants have demonstrated that there is a market, but are you a conquering upstart or a me-too supplicant? Why should potential customers switch allegiance? Can you build barriers behind you to dissuade further entrants and in front of you to undermine existing competitors?

Market Disruption and the Infamous USP

I like to understand how a company will disrupt its target market. For me this requires some key steps:

  • Rigorous definition and justification of the selected target market: Who do you intend to sell to, how many target customers are there and why have you selected this target market?
  • Target market share: What proportion of the target market do you intend to capture and over what time period?
  • Market entry strategy: How will you achieve this goal in practice? Once the product / service works, how will you scale up?

The concept of Unique Selling Proposition (USP) is much bandied about and generally misused. To be effective a USP should contain three things: uniqueness, a sales trigger and a specific proposition.  It is not just a list of nice ideas – and I suggest that 1 to 3 USPs are sufficient. You also must be able to live up to the claim, such as famously that made by FedEx: “When your package absolutely, positively has to get there overnight”.

And finally…

A three legged stool is more comfortable to sit upon than the pointy end of a stick. So I’m all for ensuring that I have three strong arguments against each competitor in the target market. And none of these three should be price. My rationale for this is twofold: established competitors can always reduce their prices to knock you out of the game, and price competition generally undermines technology-based brands.

The result of this strategy should be a set of clearly articulated statements that position your offering unambiguously in the mind of the customer, making the market your own.

 

Is your product really ready for the market?

I’ve been reflecting on the state of product maturity at the time entrepreneurs seek external investment. I tend to use Technology Readiness Level (TRL) as a starting point for discussion with entrepreneurs.

It’s relatively easy to distinguish between ‘concepts’ (TRL2-4) and ‘development projects’ (TRL4-6) which may be suitable for pre-seed, seed or early stage investment, but it’s the stages nearer to market (TRL7-8) that have been exercising me recently. We’ve been presented with several opportunities recently, each having made first sales, and claims that investment will accelerate the company up the ‘J’-curve to substantial sales revenue.

I suggest that four questions should be posed:

  1. Are the installed systems the final production version?  If not, can they be upgraded to this standard to provide a solid customer reference base?
  2. Can the first 2 years of sales post investment be fulfilled with exactly today’s products?  If not, what proportion of sales over this period is contingent on further R&D, and is this provided for in the business plan?
  3. What ‘cost-down’ programme is envisaged to reduce manufacturing cost as volume increases? Is this already specified, or a vague statement?
  4. What proportion of the funds will be applied to sales & marketing versus R&D?

One opportunity seemed less attractive when we realised that the experience of 20 installations had shown that a complete product redesign was required. So the next year would be spent in development before sales could recommence. The company had reached what it saw as the finish post, but to me felt like a new starting line.

Another entrepreneur told us his product was ready for manufacture of a batch of pre-production prototypes. Further discussion revealed that at least two further design iterations were required.

A third company has placed 3 ‘beta’ units, now has 10 ‘v1’ units sold, and has demonstrated that it can sell the next 2 years’ forecast based on the current platform.

So are these companies at TRL 7, 8 or 9?  Do they understand TRL or are they kidding themselves?

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