Managing Expectations
• The role of a founder
• Founders versus managers
• Not all founders are good managers
• Roles change over time
• Start-up business plans change a lot!
• Goal Synergy:
• Compensation: cash or equity?
• What are ‘realistic expectations’?
Development of a
Start-up Company
Commercializing Technologies
at the
University of Minnesota
Venture Center
University of Minnesota
Elements of Success
There are 3 major requirements for a
successful start-up company:
 World-class technology
 Experienced management
 Adequate financing from experienced
investors
Technology Ownership
For University intellectual property (IP):
 The Bahy-Dole Act (1980)
 Grants ownership of IP to the University
 Requires the University to use its best efforts to commercialize
 University Regents Policy on cash proceeds from
commercialization
 1/3 share to the researcher or research team
 1/3 share to the research college or department
 1/3 share to the University
Ownership Goals of a Venture
Center Start-up
University
Management
Investors
Phases of a Start-up Company’s
Growth and Development
Phases
Description
0
Pre-company Formation
1
Start-up/Company Formation
2
Development Stage
3
Growth Stage
4
Preparation for Exit
Pre-company Formation
Milestones:
 Technology assessment
Evaluate strength of intellectual property
Proof of concept
Business/commercialization assessment
Determine market need and size
Develop 5 year revenue projections
Does return on capital meet investor requirements
 Draft initial business plan
Start-up/Company Formation
Organizational Structure
Chief Technical
Advisor
(Plus 1-2
Additional)
Vice President
Research &
Development
Engineering Team
Chemistry Team
Chief
Executive
Officer
Chief Financial
Officer
(Part Time)
Accounting
Board
Of Directors
(3 Members)
Vice President
Business
Development
Start-up/Company Formation
Milestones:
 Initial management group formed
 Obtain license from the University
 Raise initial financing (1st round)
 Establish initial company operations
 Develop commercial prototype
Start-up/Company Formation
Ownership structure
following license
agreement and initial
financing
Management
University
Investors
Development-Stage Company
Organizational Structure
Chief Technical
Advisor
(Plus 1-3
Additional)
Vice President
Research &
Development
Director
Engineering
Chief Financial
Officer
(Part Time)
Director
Chemistry
Engineering Team
Board
Of Directors
(4 Members)
Chief
Executive
Officer
Controller
Vice President
Operations
Quality
Manager
Chemistry Team
Accounting
IT Manager
Vice President
Business
Development
Manufacturing
Manager
Vice President
Sales and
Marketing
Development-Stage Company
Milestones:
 Raise 2nd round financing
 Expand and develop operations in
preparation to launch products
Implement manufacturing and sales and
marketing strategies
 Complete development of first product
platform
Development-Stage Company
Ownership structure
following second
financing
Management
University
Investors
Growth-Stage Company
Organizational Structure
Chief Technical
Advisor
(Plus 1-3
Additional)
Vice President
Research &
Development
Director
Engineering
Chief Financial
Officer
(Part Time)
Director
Chemistry
Controller
Board
Of Directors
(5 Members)
Chief
Executive
Officer
Vice President
Business
Development
Quality
Manager
Manufacturing
Manager
Vice President
Operations
Instrument
Service
Vice President
Sales and
Marketing
Technical
Service
Manager
Marketing
Manager
Engineering Team
Chemistry Team
Accounting
Sales
Manager
IT Manager
Growth-Stage Company
Milestones:
 Launch first product
 Raise 3rd round financing
 Drive rapid revenue growth, name and
brand recognition - worldwide
 Continue product development, especially
product improvements
Growth-Stage Company
Ownership structure
following third
financing
Management
University
Investors
Preparation for Exit
Milestones:
 Launch 2nd generation product
 Achieve profitability
 Continue rapid revenue ramp
 Maintain R&D activity
Preparation for Exit
Example of valuation at exit:
 Assume revenues of $50 M and profitability
 Expect multiples in the range of 2.5-6.0 times
revenue
 This produces valuations in the range of $125 M $300 M
 University portion in the example was 24.5% (or
approximately $49 M at a $200 M valuation)
 Of this portion, the University research team would
receive approximately $16 M at the time of exit