Entrepreneurship And Startup Ecosystem Class Notes PDF

Entrepreneurship and the Startup Ecosystem Noga Kap [email protected] final exam (Moed A) on 24/1/25: ​ A newspaper excerpt about a company, followed by related multiple-choice questions ​ Concept-based questions o...

Entrepreneurship and the Startup Ecosystem Noga Kap [email protected] final exam (Moed A) on 24/1/25: ​ A newspaper excerpt about a company, followed by related multiple-choice questions ​ Concept-based questions on key terms and phrases you have learned during the course ​ Open-ended questions Monday, January 1 ​ Why business plan ○​ Focus ​ Know what you are going to do within a certain timeline ○​ Checklist ​ Validation of all parameters that were already decided on ○​ Base to work plan ○​ Convince investors ​ Both about start-up quality and professionalism ○​ Financial verification ​ Profit & loss ○​ Control and feedback ​ A constant feedback loop is very important to continue aligning with the plan ○​ Coordination among entrepreneurs ​ Key that all entrepreneurs have the same view and everyone is aligned ​ Who is involved in the business plan preparation ○​ Risk-takers ​ Founders ​ Investors ​ Spouse/partner (people close to you) ○​ Mentors ○​ Advisory board ​ People that help in the specific domain the company is in ○​ Level of involvement = level of commitment ​ *Not all are involved at the same level ​ What is the plan? ○​ Ideation- the idea description ○​ Description of the team ○​ Milestones: marketing, technology, financial, KPIs ○​ Marketing plan: market size, competition, business model ○​ Financial information ○​ Development plan-road map ○​ Strategic analysis ​ The business plan materials ○​ Name of the company- may be changed after 1 or 2 years ​ The name is unexplainable, and can only be understood once the company is known ○​ Introductory sentence- 6 words ○​ “Elevator pitch” ​ 30 second description of what the startup is about ○​ Executive summary ○​ Presentation ​ Pitch presentation: 5-6 minutes (1st meeting) ​ Full presentation: 20-25 slides (40-minute meeting) ○​ The business plan booklet ○​ FInancial plan (Excel) ○​ Video/demo/mockup/illustration ​ Something that explains the product well ○​ Validation/references/proofs/pilot ​ Validation= positive customer feedback ​ References= positive feedback from experts in the field ​ When to update the business plan ○​ All the time… nearly ○​ Before a meeting with investors ○​ When there are major changes in the market ○​ After getting new validation data ○​ Major changes in competitors ○​ Technological changes ○​ Getting feedback ○​ Going through control process ​ Make sure what you planned is what you did/achieved 1  ​ What do we do after we launch the product? ○​ Open a bottle of wine… especially if it’s after funding ○​ Performing, criticizing, KPIs and getting into the update circle again The Capitalization Table ​ The way we look at the structure of the company ​ What is it for? ○​ Provides an analysis fo the founders’ and investors’ percentage of ownership ○​ Equity dilution ​ If a share of the company was diluted along the years ○​ Value of equity ○​ Company’s value ​ According to this, we know if the company progressed or not ○​ In general, it demonstrates the snapshot of an ownership structure ​ Who uses the cap table? ○​ Entrepreneurs ○​ Venture capitalists ○​ Investment bankers ○​ Legal and financial entities ​ Who is impacted by the cap table ○​ Entrepreneurs ○​ Shareholders ○​ Employees ​ Have options to buy shares of the company ​ Every year, an employee gets a quarter of the share ​ Incentivizes employees to stay in the company ​ Waterfall analysis ○​ The shareholders percentage doesn’t always refect their proceeds at liquidity of the company ○​ Waterfall analysis details the exact payouts to every shareholder on a company’s cap table based on a specific amount of proceeds (exit) available to equity in a liquidity scenario ​ Valuation ○​ Pre-money valuation ​ Valuation of the company just before a new investment came in 2  ○​ Post-money valuation ​ After a new investment comes in, there is a new valuation of the company Cap Table Example ​ This company has 1,000,000 shares, and each founder has 50% of the shares ○​ The more a company progresses, the more stakeholders there will be. So we need a larger number of shares so that each stakeholder does not have a fraction ​ *If this is on the test, continue watching the recording Monday, December 25- Raising early-stage capital ​ Startup companies: stats ○​ A typical Israeli VC firm: 3  ​ 800-1000 business plans a year ​ 150-200 first meetings (pitches); 3-4 companies a week ​ 15-25 active due diligence (one active process a month) ​ In-depth research about the company and team members ​ 0-5 investments a year ​ Only 20% of all VC-backed companies return over 1x of the money invested ​ Even less (about 1%) are “home runs,” which means they have a return of over 100x in the US and 20x in Israel ​ 3-5 out of 10 startups will bring 3-5x the money invested ​ 5 will bring 5x the money invested ​ 4 will bring 0-1x the money invested ​ Key criteria for a home run: a huge market ○​ *There are no penalties in venture capitals- everybody shares the risk ​ If you are not able to return the money to the investors, you won’t owe it back to them ○​ Entrepreneurship is “the best fun you can have, legally” ​ However, it is a tough game to win! Know what you are getting yourself into ○​ Most (90%) companies do not fit the VC model ​ Not risky enough ​ Weak hypergrowth potential (0 to $1M vs to $1B) ​ Looking for a product that is a must have ○​ A real solution to a real problem in the market ​ What investors want ○​ Great team/the human factor (2-3 is ideal): ​ Committed ​ History of working together ​ Domain experts (technology and market) ​ Stubborn/visionary AND listens/coachable ○​ Market ​ Potential for $1 billion of revenue - looking for something new in the market ​ Emerging and growing fast ​ Be brutally honest in assessing the market = your sales ​ Small markets make small companies 4 ​ What early stage investors want ○​ Business model ​ Scalable way to make money ​ Can you grow efficiently? ​ If no IP, then creative business model ○​ Technology ​ Long-term barriers ​ Defensible technology or IP ​ Funding options (investment type) ○​ Bootstrapping - using your own money until the point where you are confident in your business and then seek external investment ​ Advantage: Gain control, appreciated by investors ​ Disadvantage: Lack of capital (unless you are rich) ○​ Love money - friends and family’s money (+ fools: FFF) ​ Advantage: Faster (no prior due diligence), easier, friendly environment ​ Disadvantage: Won’t get you that far (usually small amount of money) ○​ Accelerator programs (usually 3-12 months) ​ Advantage: Elegant way to get going with the right tool box, networking, mentoring, knowledge, proximity to VCs, etc ​ At the end there is usually demo day, which gives you an opportunity to pitch your idea to investors ​ Disadvantage: equity price ○​ Incubators and microfunds - Governmental and private small funds (about 35 entities in Israel) ​ Advantage: Friendly environment, added value by domain expertise (each incubator deals with a specific domain), mentorship, space to work on your startup ​ Disadvantage: Capital is limited, relatively slow pace of money injection → mostly allows you to achieve proof of concept (which shows that your technology is viable and people are interested in it) ○​ Strategic angels - own money, veteran of the high-tech industry, have domain expertise 5  ​ Advantage: they understand your situation and they can be contacted for good advice ​ Disadvantage: Have limited capital, less repuation to protect ○​ Non-strategic angels- wealthy individuals that would like to diversify their investment portfolio ​ Advantage: “spray and pray,” silent money ​ Disadvantage: limited capital, no repuation to protect ○​ Angel groups - angel investors join together in syndicates ​ Advantage: deeper pockets, easy and short process ​ Disadvantage: great supporters but not always very knowledgeable ○​ Crowd funding - organization that gathers money from individuals, and startup only receives the money if investment amount goal is reached. Divided into 2: organized under 1 entity or syndicated funding led by guru ​ Advantage: deeper pockets, easy and short process ​ Disadvantage: Great supporters but not always very knowledgeable ○​ Venture capital - managed by professionals that use money that comes from banks, benching funds, endowments, family offices, etc. If your investment comes from a venture capital, this means you have reached a certain level of seniority ​ Advantage: deeper pockets (especially if you reach a milestone, you can try to get additional funds) considered to be more professional, well connected ​ Disadvantage: lengthy diligence process, too much money (which may cause you to not reach optimal results), take big piece of the cake, tend to control ​ *There are several types of VCs and VC tiers. The lower tier VC will be hungrier for deals and will give better terms to founders ​ When you should seek angel vs. VC money 1. Funding Source 6  ​ Angel Investors:​ Use their own money to invest in startups. They are often high-net-worth individuals or entrepreneurs themselves. ​ Venture Capitalists (VCs):​ Manage pooled funds (Pooled funds is a term used to collectively refer to a set of money from individual investors combined) from institutional investors (e.g., banks, pension funds, family offices) and invest on behalf of a firm. 2. Investment Stage ​ Angel Investors:​ Invest in early-stage startups or even pre-revenue businesses. Their focus is on helping startups get off the ground. ​ VCs:​ Prefer businesses that have already demonstrated some success, such as revenue generation or market traction. They invest in later stages of growth, though some specialize in earlier rounds. 3. Investment Size ​ Angel Investors:​ Typically invest smaller amounts, ranging from $10,000 to $1 million. ​ VCs:​ Invest significantly larger sums, starting from $1 million to hundreds of millions, depending on the stage and industry. 4. Involvement ​ Angel Investors:​ May be more hands-on, providing mentorship, advice, and industry 7  connections. Many angels have expertise in specific domains and enjoy working closely with founders. ​ VCs:​ Involve professional teams, providing strategic guidance, access to networks, and operational expertise. Their involvement may be more structured and formal. 5. Risk Tolerance ​ Angel Investors:​ Have higher risk tolerance because they often invest in very early stages where failure rates are high. They may invest based on intuition or personal connections. ​ VCs:​ Are more risk-averse and rely heavily on due diligence, financial forecasts, and business scalability before investing. 6. Ownership and Control ​ Angel Investors:​ Typically take a smaller equity stake and have less interest in controlling the company. ​ VCs:​ Often demand larger equity stakes and may request board seats or voting rights, giving them more control over the company’s direction. 7. Exit Strategy ​ Angel Investors:​ Often seek exits when the company grows to a point where VC or larger investors come in, or during an acquisition. 8 ​ VCs:​ Typically aim for larger exits, such as an IPO or significant acquisition, to deliver substantial returns to their investors. ○​ Remember: chemistry between founder and investor is key ​ Social business ○​ “We prepare our students for jobs and careers, but we don’t teach them to think as individuals about what kind of world they would create.” ○​ Mouhamad Yunus ​ “In my experience, poor people are the world’s greatest entrepreneurs. Every day, they must innovate in order to survive. They remain poor because they do not have the opportunities to turn their creativity into sustainable income.” ​ Created the Grameen Bank- banks for the poor ​ Suggested game plan ○​ Be committed ○​ Figure out which sector and stage you are in ○​ Identify the firms/investors that focus on your stage/sector ○​ Identify the angels that you think are most relevant ○​ Prepare a 1-2 page executive summary and a 15 slide pitch ○​ Prepare a demo ○​ Get an introduction to the angel (or firm) by intermediary ○​ Be ready to pitch within 1 hour of the intro (realistically a few days-week) 9  ○​ Follow up within 24 hours ​ Suggested pitch slide ○​ Who are we? ○​ Market ○​ Pain we are trying to solve ○​ The technology ○​ Demo ○​ Addressable market size or potential market size ○​ Competitive landscape ○​ What sets us apart? ○​ Financials ​ Financial so far ​ How much we raise, at what valuation ​ Our current investors ○​ KPIs and use of proceeds ​ First meetings: your goals and takeaways ○​ What’s the decision-making process? ○​ Where are we on your priorities? ○​ Main concerns/issues 10  ○​ What did you like and didn’t like? ○​ Biggest goal is to get a second meeting ​ Raise interest ​ Lead the process ○​ Who would you recommend that we talk to? ○​ Ask for introductions if appropriate ​ Why? ​ Gauges interest ​ Ability to add value ​ What if the investor says no? ○​ 99% of the time it is a NO ○​ If “it’s not interesting,” arguing will not make it so ○​ Listen for feedback ○​ Team feedback is golden but rarely given.. Listen hard for it ○​ Sometimes the “no” is for internal reasons ​ Ex: Already used up their fund for investment and they need more time ○​ ASK the reason for the no ​ A “no” is always “not now” ○​ Investors realize you can change direction 100 times before you get it right ○​ Sometimes (many times) the company changes direction AFTER the investment ○​ Persistence is good (making progress and updating) ○​ Being a pest is bad (repeating the same pitch 25 times) ​ What if the investor says “yes”? ○​ What to expect: ​ Expect fast track process- due diligence on product and people, legal terms, etc ​ Pre-seed investment - 2 founders, ppt and “no address”- up to 250K ​ Seed investment-product is developed, initial launch, named employees- 250K to 1M ​ Investor appetite- is there allocation for follow-up investments? What is the level of involvement (how often do they want to see/talk to you?) 11  ​ How can you best utilize your investor? ​ Is there a board seat for angel investors? ​ Board establishment - participants, frequency, etc ​ Official and non-official CEO reporting ​ 5 things investors love to see ○​ A passion to win ​ Hungry first timers or a successful 2nd timer ○​ Strong domain expertise ​ Defendable technology ○​ Intense customer focus ○​ Big market ​ Or potentially growing market ○​ Strong mentors/advisors ​ That chose you and your company ​ 5 things that turn investors off ○​ People who know it all ○​ Too many founders with equal holdings ○​ Boring presenters ○​ Outrageous valuation ​ Asking for too much 12  ​ If you can, select who funds you (multiple termsheets) ○​ Key decision-making questions: ​ What will happen if you hit a bump in the road? ​ Time horizon ​ Yours vs. VCs - be long-term greedy ○​ Which means: ​ The firm matters A LOT, but the board member is crucial ​ Optimize on governance (and not valuation) ​ Very few investors really fit you. FIND THEM Monday, December 11- Presentations pt. 1 13  ​ Presentation feedback notes: ○​ Don’t read from the screen ​ Use bullet points ○​ Don’t focus too much on financial aspects- have equal focus on the product and technology. Explain how the product itself works. Be very clear about what the problem that the company wants to solve is. Who is the market segment the company is targeting and how well have they done it so far? ○​ Clarify how long they’ve existed and which achievements they’ve accomplished ○​ Has the company registered a patent? ○​ What is the “secret sauce?” What makes the product unique? What are they doing better than their competitors? ○​ Software or hardware? ○​ Don’t share slides- one person per slide ○​ Include slide numbers ○​ Show, don’t tell → Give details as to why the company is innovative why it is unique ​ Executive summary ○​ Ben ​ Helps understand what the company is and why it is relevant ​ Overview ​ The need ​ Why is the company needed? ​ The solution ​ Go-to market ​ Outlines the business model ​ Competitive landscape ​ What the market is ○​ Noga ​ Includes all the info from the slides ​ Subtitle and bullet-point format Monday, December 4 14 Business model generation ​ Built from 9 building blocks ○​ Opportunity - added to the model by Noga ​ How big is the opportunity (market size)? ​ Is timing right? ​ A startup always begins with an opportunity- an issue that we can solve ○​ Customers ​ Who will be the customers that need our product? ​ Can be many different kinds (individuals, organizations, corporates, etc) ○​ Value proposition ​ As soon we know who the customers are, we can segment them based on the value proposition they are interested in purchasing ○​ Revenue structure ​ Need to make sure that the money needed to be put in to make the product is less than the money customers agree to pay for it ○​ Channels ​ Where do we want to channel the product to the customer? ​ Digitally, door-to-door, etc ○​ Customer relationship ​ We want to engage the customer and make sure that we can continue the relationship in the future ​ How am I going to treat the customer? ○​ Resources ​ What do we need? ​ People, machines, offices, etc ○​ Actions ​ What are actions needed? ​ Go abroad to sell the product, hire more salespeople ○​ Partners ​ A small startup needs someone that can help them introduce the product to the market 15  ​ Can be non-official (Ex law firm that supports me at the time of the first engagement with customers) or one of the big 4 financial companies such as PWC ○​ Cost structure ​ Make sure that we can still maintain the firm with the revenues we are receiving ​ The business model canvas ​ Alexander Osterwalder ○​ Author of Business Model Generation ○​ Business model canvas ​ Used to describe, challenge, design, and invent business models more systematically ○​ Customer segments ​ Which customers are you serving? ○​ Value proposition ​ For each customer segment, you have a different value proposition 16  ​ A set of products and services that will help the customer get the job done ○​ Channels ​ Through which channels do customers want to: ​ Communicate ​ Receive their goods ○​ Customer relationships ​ Is it more personal (know their customers very well on a personal level) or personalized? (know their customers through automated relationships based on data) ​ How you get, keep, and grow customers ​ Once you have customers, you need to figure out how to keep them ○​ Revenue streams ​ How much are people willing to pay? Through which pricing mechanisms? How do they want to pay? ○​ Key resources ​ What do I need? Factories? Intellectual property? ​ Key things needed to create the value promised ○​ Key activties ​ Which activities do we need to excel at? Marketing and sales, Research and development, etc ○​ Key partners ​ Who can leverage my business model? ○​ Cost structure ​ The case of Nespresso ○​ Sell the Nespresso machines through all the retail channels possible to households and businesses ○​ For pods, didn’t use retail- they only sell these through their own channels ​ Once they get people to buy the machine, the customer is locked in- can only use Nespresso pods ​ Decreases costs for the company and increases revenue ​ Example: Local grocery store ○​ Product: commodities, daily products 17  ○​ Customers: local people that love in the neighborhood, walking or bike ride distance ○​ Value proposition: accessibility to consumer goods ○​ Business model: types of products and hours of the day is what gives customers the reason to come into the store ​ Small margin between what business pays for the product and what it sells it customers for ​ Business has few expenses ​ Example: Google ○​ Product: Advertisement ○​ Customers: the people that search and the advertisers ○​ Value proposition: Looking to have quick and accurate results and looking for a targeted audience, targeted advertisement ○​ Business model: Customers pay by losing privacy (Google knows everything about its customers) pay for advertising Monday, November 27 Guest Speaker: Daniel Altman from Start-up Nation central ​ Israel is consistently ranked as a global leader in innovation ​ Israel leads the world in several key innovation parameters 18  ○​ #1 in unicorns ○​ #1 in venture capital investments per capita ○​ #1 in R&D investments as percentage of GDP ​ Private sector is the main engine of this investment ○​ #3 in public companies listed on NASDAQ (NASDAQ is a stock maket index) ​ Half of Israel’s exports are non-physical goods ○​ Talent, funding, research, and access to global markets ​ Definitions ○​ Accelerators ​ Private or national program that takes a company/idea from a certain stage and mature it into the next stage ○​ Incubators ​ Publically funded and focuses on nurturing of the company in the long-term ○​ TTOs (tech transfer offices) ​ Within public institutions driven by research, TTOs are business units that can help academics to translate their knowledge into business ​ Israel’s challenges ○​ Inefficient education system ​ Population is growing faster than expansion in education ○​ Low productivity of non-tech economy ​ Companies outside of high-tech are inefficient 19  ​ “Two kinds of economies” within Israel ○​ Demographics ​ Religious people that don’t participate actively in the economy ○​ Diversification in sources and sectors of innovation ○​ Human capital shortage ​ The Israeli ecosystem ○​ Entrepreneurial culture ​ Straight to the point ​ Chutzpa ​ Risk-taking, improvisation, quick decision-making ​ Lack of hierarchy ​ Informality ○​ Access to talent ​ IDF ​ Tech education ​ Immigration ○​ #1 in innovation linkages ​ People are very interconnected and it’s easy to reach people ○​ Global funding and markets ​ 90% of investments come from foreign investors ​ But this also contributes to not solving domestic problems, as technologies are outsourced and applied elsewhere ​ When you present a technology to a VC, they tell you you must test it out in Europe or the USA ○​ B2B focus and expertise ○​ Diversity and density of innovation ​ Fintech, climate tech, agrifoodtech, health tech, cybersecurity, mobile and telecom ○​ Government support ​ Israel Innovation Authority ​ YOZMA ​ Start-up Nation Central ○​ The prime connector of Israeli innovation solving global challenges ○​ Non-profit, non-governmental, non-revenue ○​ Backed by philanthropy 20  ○​ Sectors of focus ​ Health tech ​ Cimate tech ​ Agrifoodtech ○​ Four pillars of activity ​ Global partnerships ​ Israel ecosystem development ​ Innovation diplomacy ​ Innovation for Israel Business Models ​ Why do businesses need a business model? ○​ We need to understand how we want to make money from our initiative ​ Examples ○​ Store model ​ The business buys the product in wholesale price and sells to customers at retail price ​ Last entity in the supply chain ​ Have very small margins; rely on large quantities of customers ​ Ex: Supermarkets ○​ Manufacturer model ​ Company that sources material and make something out of the material. The product is manufactured and its marketing costs are higher than the cost of goods ​ Ex: Apple ​ Sources chips and manufacturer macbooks and iphones ○​ Broker model ​ Brokerage fees between buyers and sellers (broker is an entity that connects between a buyer and seller without owning any goods and gets a percentage of the sale) ​ Ex: Real estate company ○​ “Gillette” model ​ Selling the product in cost value (razor blade) together with additional perishable products (the blades) ​ Ex: Nespresso 21  ​ Sells the machines for cheap, but sells the pods at high prices ​ Ex: Printers ​ Makes more profit from ink rather than the actual machine ○​ Freemium model ​ Offers a basic service while charging for a premium service with advanced features to paying members ​ Ex: Zoom ○​ Affiliate model ​ Driving traffic, leads, or sales to another company’s website. Businesses that sell products rely on affiliated sites to send them the traffic or leads ​ Ex: Social media influencers ○​ Subscription model ​ Creating value through products or services based on annual and consistent subscription ○​ Big data model ​ Analysis of large sets of data on specific domains and needs ​ The more data, the more insights ○​ Virtual goods model ​ Users pay for virtual goods, such as game add-ons, upgrades, points, or gifts, on a website or app ○​ Advertising model ​ Sites that rely on advertising ​ The more traffic they have, the more they can charge for ads ○​ Publishers model ​ Creating quality content over the internet to gain traffic ​ Profit comes from targeted advertising ○​ Shared X model ​ Demand-driven shared arrangement Monday, November 20- Entrepreneurs- the human factor continued + Media company stage development 22 ​ What do investors want? ○​ Only few companies make it ○​ Not every company fits the venture capital model ​ Some will be invested by private investors, themselves, etc ​ Human factor ○​ VC-entrepreneur relations-model of contrasts ​ Constant evaluation is always happening, even after investment is made ○​ Drive/motivation ​ Both want the company to succeed ​ The entrepreneur ○​ Must bring about a “change” ​ Can be in technology, business model, management, etc ○​ Born or made? ​ UC Berkeley research by Vivek Wadhwa show that average entrepreneur succeeds at 35-40 years old after having 15-20 years of experience ​ Studies show you need both ​ Personality traits + lifetime experience ​ Eventually successful entrepreneurs combine the two: In-born and hard work ​ The entrepreneur personality traits ○​ Not every entrepreneur has a specific type of personality! What VCs look for is a combination of personalities in the team (diversity) that match! ​ The “earth” vs “sky” type ​ Engineering (precise, accurate, disciplined) vs. dreamer/visionary ​ Practical vs. dreamer ​ Creative, out-of-the-box vs. organized, disciplined ​ Individualistic vs. team player ​ Risk-taker vs. responsible ○​ Most important ingredients are leadership, willing to take risks, and passion 23 ​ Entrepreneur characteristics ​ Feature company vs. platform company ○​ Feature company: Created a nice feature that customers are willing to use. After they did, they will look for another vendor to complete the full suite. If you’re not coming up with new ideas, your company will end quickly. ○​ Platform company: are able to constantly invent new ideas that fit the full needs of the consumer ​ Exceptional entrepreneurial drive ○​ Risk-taking is endemic ○​ Pioneering spirit ○​ Naive ​ Not have a “full picture” of the world ○​ High capital efficiency ​ Knowing how to wisely manage money ○​ Creativity and improvisation are way of life ○​ Lucky ​ How to gain experience ○​ Keep your options open ○​ Hire the best talent you can find 24  ​ Look for people with similar skill sets as you (build a strong team) ○​ Work with great investors (be open to options and choose wisely) ○​ Play bigger than you are ​ Show confidence ○​ Find and leverage mentors ○​ Be honest and transparent ○​ Enjoy the ride ​ The entrepreneur-VC relationship ○​ VC may fall in love with the company- in particular in the early stage ○​ Strong emotional identification between VC and company can be disastrous. VC has to be critical ○​ Don’t become too friendly. This could impair the VC’s clarity of judgement ​ Failure ○​ Almost all failures (or successes) of a startup are due to human aspects- not technology or market ○​ The biggest issues and most challenging is to evaluate people ○​ People in a startup team are not replacable ○​ We ask for 30 personal references (not 3) and still make mistakes sometimes Media company stage development ​ Media company: Kickstarter ○​ Crowdfunding platform ○​ A new way to fund creative projects ○​ Each project is independently created ○​ Creators and backers create the project together ○​ Creators set funding goal and deadline ○​ People can pledge money to make it happen ○​ “All or nothing approach” → I need to earn all the money that I need. If I don’t, the money will be returned to the backers ○​ People with a new idea (that want to invent something new) ask individuals to fund you ○​ Creators keep 100% ownership of their work ○​ People-to-people 25 ○​ In March 2014: ​ More than hald was pledged in 12 months alone ​ Growth caused by two additional geographies: UK and Canada 26  ​ Note the small number of employees, even as the company grew exponentially ​ Kickstarter shows the progression of development that we expect from a media company ○​ Will either grow exponentially or die ○​ If there is no fit in the market, the company will not survive ○​ The company has to find something that is missing Monday, November 13- Israeli Entrepreneurship continued + Entrepreneurs- the human factor ​ Hype cycle ○​ Shows how a technology or application will evolve over time ○​ Represents the maturity, adoption, and social application of a specific technology ○​ Branded by Gartner (#1 IT research firm) 27 28 29 ​ Every company will face the same cycles, therefore these 2 models can be cross-referenced to understand these cycles 30 ​ Different products will have different business life cycles 31 ​ Conditions to technological companies establishment ○​ Research institutes ○​ Academia and technological institutes ○​ Global institutes accessibility ○​ Funding institutes or corporate funding ○​ Government grants/aid ○​ Intellectual property mechanism ○​ Entrepreneurial spirit ​ Technology industry influence ○​ Economy: ​ Export ​ Gross profit ​ Tax income ○​ Domain-specific specialization ​ Image processing, security, face recognition, voice recognition ○​ Multi-national corporates ​ IBM, Intel, Motorola, Google, etc ○​ Cultural influence ​ Technological Companies Exports- Israel 2010 32 *Mixed = high-tech + pre-existing technologies ​ Intellectual property ○​ Patents/trade marks/copyrights ​ Gives 7-10 years to penetrate the market without any interference by competition → None of them are allowed to copy you ○​ Contract between the innovator and the company ○​ “Asset” ○​ Offense or defense instrument ​ Offense = can be used against a company that is copying ​ Ex: “Teva wins US high court ruling to delay Copaxone rivals” -Bloomberg Business ​ Ex: Judge deals blow to Boston Scientific in Medinol’s patent, trade-secret suit” ​ Technology transfer and IP (intellectual property) companies ○​ Sources: ​ Hospitals, universities, governmental companies (ex defense, Israel Aerospace Industries, Israel Military Industries ○​ Commercialization via licensing ○​ Internal dividends split agreements Entrepreneurs- the human factor ​ A VC-backed entrepreneur’s state of mind ○​ You are going for the gold ○​ You are focused and 110% committed ○​ Which means ​ You are willing to go through a very tough period ​ You are recruiting coaches/partners to help you win ​ A typical Israeli VC firm: ○​ 800-1000 business plans a year ○​ 150-200 first meetings (pitches); 3-4 companies a week ○​ 15-25 active due diligence (one active process a month) ​ Do in-depth research about the company and team members ○​ 0-5 investments a year 33  ​ What do investors want? ○​ Great team (2-3 is the ideal number) ​ Committed, history of working together, domain experts (technlogy and market; have some experience in the domain), stubborn/visionary AND a listener/coachable ○​ Market ​ Potential for $1 billion of revenue - looking for something new in the market ​ Emerging and growing fast ​ Be brutally honest in assessing the market = your sales ​ Small markets make small companies ○​ Business model ​ How are you going to sell your product to the market? ​ Scalable way to make money ​ Can you grow efficiently? ​ Ex: Selling software ​ Two options ○​ License the product (give right to the user to use the software) ○​ Subscription (customer subscribes to use the product) ○​ Which is better? → Subscription; infrastucture allows companies to make new changes/fixes more efficiently. Software needs to be supported at all times ○​ Technology ​ Long-term barriers (competition, entrance to market) ​ Defensible technology or IP ​ Most startups will use already known technology (which is why this is the last criteria). The bigger question is how the startup will implement this technology in the market Monday, November 6- Israeli Entrepreneurship Continued 34 ​ 2. Entrepreneurship in Israel today continued ○​ A supportive ecosystem ​ Small, steady, close-knit country with a highly interconnected ecosystem that helps businesses thrive ​ Funding ○​ Government incubators ○​ Incubators ○​ Accelerators ○​ Government research support programs ○​ Venture capital funds ○​ Corporate venture capital ○​ Angel investors ​ Private investors; people that have experience in the industry ○​ Angel clubs ​ Private investors that form groups and raise larger amounts of money ○​ Super angels ​ Large organizations that fund startups ​ Community ○​ Mega events and competitions ​ Journey, DLD, Bootcamps, Startup Weekend 35  ○​ Meetup groups ○​ Mostly in English ○​ Professionals ​ Marketing, IP, taxation, “corporate story telling” ○​ Networks ​ Universities, corporates, army, Silicon Valley (about 150k Israelis) ​ 3. How did it happen? ○​ Ideas ≠ Innovation ○​ Innovation = Idea + drive + risk ○​ Israel itself is a startup ​ How the country was established in 1948: ​ 3 things: Knowledge + Resources + Character/ EO (equal opportunity) ○​ Educated people (people with University degrees) arrived in Israel ○​ People had equal opportunity in the army (men and women) ​ = Intra-preneurship ○​ The ability to invent something inside an organization ​ 1991: ​ Larger waves of immigration to Israel ​ Immigrants + incubators ​ Additional 1 million people (20% of population) ○​ What do with them? → Allocate educated people to fields of expertise → Government incubators were established; people could create new inventions financed by the government ​ 1992: ​ Government opened first venture capital: OCS (Yozma) ​ Funding program in which people could apply and get money ○​ After this, additional venture capitals opened in Israel ​ Community: Ecosystem was starting, people were helping people 36  ​ Started showing signs of Entrepreneurship → People opening their own companies ​ 1997: ​ Private venture capitals → Angels Foreign Investors ​ Post-military networking → Increase community ​ 2000-2002 ​ Additional angels, foreign investors ​ Starting to see entrepreneurship success ​ Entrepreneurial Resonance → turning feedback into action ​ Class 3: Foundations of Technological Entrepreneurship and In-depth Intellectual Property-Based Startups ○​ Innovation vs. invention ​ Invention: creation of a product or introduction of a process/product for the first time ​ Ex: light bulbs, flying machines (airplanes), microprocessors ​ Innovation: Occurs if someone improves on or makes a significant contribution to an existing product, process, or service ​ Ex: Waze, iPod, PC ○​ Examples of technological-rich startups ​ Technological entrepreneurship involves a change (Ask: What am I going to change? What was there before and what will there be in the future if you are successful?) ​ VCs invest in change ​ Technology change: Mellanox- created the Infiniband ​ Management change: Louis Gerstner - IBM → decided that instead of continuing to do the same (delivering unique hardware), go to clients and ask them what they need → resulted in new unit called professional services that took over sales and became consultancy that helped customers operate their new technologies ​ Market change: Buying books → Amazon started as an online bookstore ○​ Example of Intellectual Property Based-Startup 37  ​ Given Imaging → Pillcam ​ Check Point Software Technologies ​ Solel ○​ Technological companies’ characteristics ​ In-depth technological aspects ​ IP-based ​ Solve big problems ​ Muti-discipline integration ​ ​ People that bring knowkkedge from distinct disciplines ​ Large financial backing ​ Long development cycle, long timeline for ROI ​ Challenging go-to market strategy ​ Can be difficult to convince people to use this new technology ​ Ex: Pillcam → How to sell an ingestible camera and prove that this won’t cause more harm than good? ​ Edge of technological front ○​ Technological companies’ segments ​ Medical devices ​ ICT (information and communication technologies) ​ Biotechnology ​ Pharmaceutical ​ Water treatment ​ Energy ​ Semiconductors ​ Defense/homeland security ​ Life Cycle of Technological Companies Examples - Class 3 recording ​ Crossing the Chasm (Geoffrey A. Moore) ○​ The challenge that technology companies face when trying to transition from serving early adopters of their products to reaching a broader market of mainstream consumers ○​ Moore argues that there are 5 types of consumers: Innovators, early adopters, early mejority, late majority, and laggards 38  ​ The first two groups are typically receptive to to new technologies and willing to take risks ​ The chasm between early adopters and early majority is where many technology companies fail to make the transition to reach a wider market ○​ To cross the chasm you need to: ​ Choose the target market ​ Position the product ​ Build the marketing strategy ​ Choose the distribution channels ​ Build the pricing model 39 Monday, October 30 - Introduction continued + Entrepreneurship in Israel- Origins and Ecosystem ​ What is entrepreneurship? ○​ The role of the entrepreneur: prime cause of economic development. The innovating entrepreneur challenges incumbent firms by introducing new inventions that make current technologies and products obsolete (Joseph Scumpeter in The Theory of Economic Development) ​ Saras Sarasvathy- The entrepreneur in us all ○​ Entrepreneurship is a way of looking at the world and solving its problems ○​ Everyone can become more entrepreneurial in their way of being ○​ Characteristics of entrepreneurs ​ Someone who is willing to take action ​ Being willing to fail and start again ​ Different kinds of entrepreneurship ○​ Social entrepreneurship ​ Applies the principles and guidance used by start-up founders and entrepreneurs to a business that directly generates social change or impacts a social cause ​ Bottom line: correct something in society while being profitable ○​ Business entrepreneurship ​ Bottom line: profit ○​ New business vs. startup ​ New business ​ Repeatable; not new ​ Ex: Shoe store ​ Startup ​ Innovative; based on a new technology ○​ Kinds of entrepreneurship ​ Classical: Stef Wertheimer; created a cupboard in which tools could fit perfectly. He would sell the cupboard for free, but people would order tools from him over and over again 40  ​ Similar to Nespresso; machine is bought once— what’s important are the capsules that customers keep purchasing ​ Intra-preneurship: Google ​ Innovating inside a pre-existing company ​ Technological: Medical devices, cybertechnology, agriculture technology ​ Impact/social ​ Lifestyle ​ Ethnic and survival: For those who don’t have much resources, education, etc, but create something with their creativity ​ Ethnic: Making indigenous carpets ​ Survival: Selling fruit on the street ​ Entrepreneurs: Highest uncertainty + highest freedom ​ When is a company considered a startup? ​ Israel: Fast Facts 41  ○​ Established in 1948 (After WW2) ○​ Population: 9 million; 6.8 million Jewish, 1.8 million Arab, 0.4 other ○​ GDP: $58K per capita; 13th highest worldwide ○​ 7.5% of workforce in high-tech ○​ Member of the OECD- Organization for Economic Cooperation and Development ​ Israel Defense Forces ○​ Defense budget: 50 billion NIS (14% of government budget) ○​ Conventional + ultra high-tech ○​ “Low-budget atmosphere” → Have to do the best with what you have ○​ Kinds of technology being developed: ​ Aerospace ​ Satellite ​ Defense (Iron dome) ​ Electronics ​ Communication ​ Intelligence ​ Homeland security ​ All of the expertise developed in the army is then transferred into the “civil world” ​ Culture ○​ Diverse ○​ Direct and informal ○​ Over-personal ○​ Opinionated ○​ Chutzpa ○​ “Warm and hot” ​ Loud, with hand gestures → may seem like people are fighting, but they are only discussing passionately ○​ Hate to be a “fraier,” i.e stupid person ​ We don’t like to lose ○​ Survival mentality ​ We will never give up ○​ Improvisation - ‘Yhye Beseder’ ​ Entrepreneurship in Israel today ○​ More startups than anywhere else outside of Silicon Valley 42 ○​ 2.5 times more venture capital organizations than in the United States and 30 times more than in Europe ○​ Israel has the highest densiety of start-ups in the world ​ 1 startup for every 1,600 people ○​ #3 in global innovation ranking ○​ Diversity of innovation 43 ​ Growth and maturity ○​ Israel has more companies listed on the NASDAQ (stock exchange) than any country besides the USA and China ​ 83 NASDAQ-listed Israeli companies have an aggregate $57 billion market cap, and 70 of them are unicorns ​ Recent mergers and acquisitions 44 ​ About 450 multinational R&D centers ​ Israel’s start-up ecosystem ○​ More than 6,000 start-ups and tech companies ○​ More than 150 venture capital funds ○​ 21 incubators; for research that takes a long time to get returns ​ Ex: Drug discovery ○​ About 80 accelerators ○​ 9 public universities ○​ 16 TTOs (Technology transfer office) ​ Facilitate intellectual property rights management and technology transfer by bridging the gap between research and practice ​ Israel Hi-tech industry ○​ Medical devices ICT (information and communication technologies) ○​ Biotechnology ○​ Pharmaceutical ○​ Water treatment ○​ Energy ○​ Semiconductors ○​ Defense/homeland security ​ Israel powers the lives of billions worldwide ○​ 50% of world’s low-pressure irrigation systems are Israeli ○​ Over 1 billion computer processors were developed and manufactured in Israel 45  ○​ Millions of hearts are powered by Israeli cardiovascular stents ○​ USB ○​ Waze navigation system ○​ Kinect Gesture recognition Monday, October 23- Introduction ​ Course structure ○​ 13 lectures of 1.5 hours ○​ 1-2 assignments ○​ Reading is not required ​ Grading ○​ Team assignment and presentation- 35% ○​ Exam- 65% ​ Assignments ○​ Course mid-term assignment ​ Choose a startup and approach ​ Get approval by professor ​ Interview the CEO or co-founder ​ Goal: Get your hands dirty, understand the mission and dilemmas of a startup ​ Groups of 3-4 students max ​ Email the groups to: [email protected] with the names and IDs of group members ​ Assignment: ​ Presentation of 10-15 slides that teaches what the startup is about, what is the inspiration and orientation, how it got started, who the founding team is, what is the product, how big the market is, etc ​ Written executive summary, document of max 4 pages that summarizes what the startup is all about ​ 5-7 mins ​ Presentations on December 11 & 18 ​ ​ ​ ​ 46 47 Summary slide: Describe the way you see the startup. Analyze what they’re doing well, what they need to work on, etc ​ Characteristics of lucky people, according to Prof. Richard Wiseman ○​ Notice opportunities ○​ Intuition ○​ Positive expectations ○​ Resilient attitude ​ A macro view of technology - how pace of growth is accelerating ○​ Although technology is rapidly changing, we are still the same human beings. Can we adapt as quickly as technology advances? 48