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Tag: investment readiness

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?

Leave those NDAs alone!

Some people seem to miss the touchy-feely part of engagement between entrepreneur and investor. They insert the dark menace of a Non-Disclosure Agreement (NDA) in the space between the first handshake and a cup of coffee.  Just when you want to attract an investor, you raise his hackles.

From the entrepreneur’s perspective, it’s important to protect yourself from the risks of disclosing the ‘crown jewels’ of your technology.  This particularly applies where you meet people who are previously unknown to you.  Disclosure to people other than lawyers and patent attorneys unless within the terms of an NDA may also prevent you from later securing a patent.

Some people have an overdeveloped view of what constitutes confidential information and thus come across as overly secretive and even shifty when asked simple questions.  It’s not a healthy start to a relationship. By putting an NDA in front of a potential investor, you are asking for a legal commitment at a very early stage and risk scaring him off.

Now think about it from an investor’s perspective.  We really don’t want a drawer full of NDAs, especially as we are scouting in a pool of technology investment prospects that may overlap. So we (a) follow a written ethical code, (b) follow professional practices and (c) generally only sign NDAs at Stage 3 (technology and market due diligence) in our investment process.  We really don’t want to know anything secret at these early stages. We’re primarily interested in what makes you stand out from the crowd – the commercial impacts of your whizzy technology rather than the essence of your invention.

So what’s the resolution?  Spend a few minutes considering our evaluation process, and considering what public domain information you can release. This may then be included in the marketing information and business plan.  Confidential information available on exchange of an NDA can be listed in the business plan and released for the purposes of due diligence at a later stage.

This all has a practical effect.  In the past year, I have refused to bring four businesses into our evaluation process simply because the founders wouldn’t provide sufficient detail for a Stage 1 evaluation.

Advice for Entrepreneurs: Part Six – Market Size and Growth Rate

In this sixth article in my series ‘advice for entrepreneurs’ I address my favourite subject – the importance of understanding the market for your technology, product or service and representing it to investors.

It’s hardly surprising that three of our five key investment criteria relate to market issues; the others being the credibility of the team and the business model through which value is extracted from the business.  Let’s look at the issues of market size and growth rate as a start:

Global Markets

Think about the investors you are approaching and the markets in which they wish to invest.  In the case of Qi3 Accelerator, we are keen to participate in businesses that utilise technology to underpin advances in global growth sectors such as environmental sustainability / cleantech, healthcare, security, communications and high value manufacture.

Addressable Market not Total Market Size

Don’t mix up ‘market size’ and ‘addressable market’.  The ‘market size’ is the total amount of money spent in your sector (for example, the world demand for electricity).  The ‘addressable market’ is the total sales that your business could gain if you had no competitors (for example the market for wind turbines producing under 25kW peak power).

If you use the total market size as the measure in your business plan, you are generally overstating the opportunity and losing credibility with potential investors. Quoting broad ‘telephone numbers’ as market sizes just makes your business look like a tiny speck on the industrial landscape, rather than an important player within a defined market.

The addressable market is a sensible measure to start with.  It has the further advantages of showing investors that you have carefully considered the needs of your potential customers and the alternatives that they might buy.  It furthermore indicates that you have understood who your competitors are.  Growing your market share to a realistic but high number is also important and this means a realistic sales projection within a meaningful addressable market.

Concentrated and Fragmented Markets

It’s important to understand and represent fairly the nature of the market into which you are selling.  We describe concentrated markets as those dominated by a few players, where the actions of any of the key companies affect the market itself.  Fragmented markets are those in which no single company has sufficient market share to be able to influence the market as a whole.

Your marketing strategy will be very different according to the type of market in which you operate.  In a concentrated market, you will need to displace incumbents and will naturally see them as opportunities for future partnership or exit.  In a fragmented market, you need to demonstrate to your investors how you will become noticed and thus gain substantial sales.  My first suggestion is to subdivide the addressable market further and gain market share in a subdivision (e.g. small wind turbines in Europe or residential installations).

Market Growth

It’s far easier to develop a business in a large and expanding market.  Let’s say you’re in a £500m addressable market that’s growing at 20% for each of the next five years.  You can grow at a high rate without eating into your competitors.  But if the market was growing at only 2%, every step you take will provoke reaction from established players.  Simply put, there is more room for experimentation and mistakes in fast growing markets, especially if you are also generating sufficient gross margin to reinvest in product and market advances.

In the next article, I’ll move on to market disruption and sustainable competitive advantage.

Advice for Entrepreneurs: Part Five – Export Strategy

Or what to do when your market isn’t at home

We all know that the UK has 1% of the world population, about 4% of world GDP and that we still have the world’s sixth largest economy.  Despite our travails, the UK leads Europe in a range of innovation indicators and venture finance.

I grew up in a mid-sized instrumentation company where our sales were 95% export. I spent years in Germany, the USA and Japan devising, developing and delivering sales and marketing programmes to take our products around the world.  The home market simply isn’t big enough to feed the aspirations of a growth-oriented technology business.

But that was in the land of established companies – what does this all mean for UK based entrepreneurs who are trying to get their technology businesses off the ground?

Robin and I were at a Cambridge Network Emerging Markets meeting on Monday evening which focused on the dos and don’ts of addressing emerging markets.  Of course this was far too big a subject for the evening or indeed for this article.  Here is a distillation of ideas focused on the planning process rather than individual territories.


  • Do research the market for your product / service quite thoroughly.  Start with the world as a whole, then focus on regions, countries and regions within those countries.Do select a limited number of ‘A’ list target countries and focus on developing one at a time in your business plan
  • Do research customer preferences within each selected territory.  The world isn’t homogeneous, and you will need to adjust your sales & marketing strategy and perhaps your product / service if you want to gain market share. Be prepared to have failures and make mistakes on the way.  You can learn from them and adapt.
  • Do learn enough about the local language, culture and pleasantries to ensure that you project the right image when you’re there.  Successful export captures the heart of the customer as well as the mind.
  • Do ask for help from people who have experience in developing sales and support channels and negotiating contracts abroad (my plug for Qi3)
  • Do ensure that you have the right financial (currency, tax, cash flow) and legal (contract law, agency, IP) support
  • Do consider where your company should be based, and where manufacturing or services should be delivered.  If half your market is in China, why not relocate there?
  • Do resource your export initiative.  Relationships with customers, staff, agents, distributors and manufacturing partners all need nurturing.
  • Do control costs. Travel the cheapest way possible, but stay in a respectable hotel to impress your clients.


  • Don’t ignore the rest of the world.  Your technology may have originated in your lab, garage or bathroom, but there may well be many more potential customers in the USA, China or Germany.
  • Don’t spend all your time flying round the world to meet people.  I’ve just seen a funding round fail because the CEO was so desperate to prove that he could build US customer relationships that he couldn’t present his business plan to investors.  I’m a firm believer in building relationships face to face but then using telephone, email, Skype and web conferencing to keep them bubbling.
  • Don’t overstretch yourself.  Select your markets carefully and build them one at a time.  And don’t export for the sake of it.  If the home market is a decent size and less expensive to service, start here.
  • Don’t be proud of collecting air miles or sitting in airports. Your family misses you when you’re away.  I often encounter people who travel to China or Cambodia when they could be selling in Cambridge, Cardiff or Copenhagen.

Lastly, people often ask me whether I think UKTI is useful.  In short, it is an excellent source of information and reports which you must access.  Beyond that it depends on the individuals you are dealing with, many of whom are helpful and experienced.  Beware when they’re in sales mode.

There are plenty of people around with the sort of export experience that Qi3 offers, so ask for help and build the world into your business plan.

The Startup Factories

Is Qi3 Accelerator a Startup Factory?

I went to a super conference which was organised by NESTA to launch their draft report on Startup Factories.  The report examines the phenomenon of Accelerator Programmes which first appeared in the USA in 2005 and in Europe in 2007.  The scene is mushrooming, with accelerators springing up all over the place.  Over half of today’s European accelerator programmes have been established in 2010 or 2011.

We don’t fit exactly with the model examined in the report.  Current accelerator programmes are focused on concept-to-demonstration internet and software businesses.  But that doesn’t invalidate the idea, or its more general applicability.

A good article by Mark Littlewood (the other one) summarises the day.

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