From Lab Dreams to Business Reality:
An Entrepreneurship Tutorial for Scientists
VENTURE CAPITAL AND THE CHEMICAL INDUSTRY ENTREPRENEUR
AMERICAN CHEMICAL SOCIETY NATIONAL MEETING Washington, DC August 29, 2005
Irvin Barash, President, Vencon Management, Inc.,
New York, NY 10019
Vencon Management, Inc.
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Setting the Stage for Chemical Ventures: Commercialization Milestones
INVENTION OR DISCOVERY
MINOR MARKET NEEDS
Technology Milestones
A B C D
MAJOR TECHNOLOGY CHANGES
MAJOR MARKET NEEDS
Vencon Management, Inc.
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Photovoltaics Growth
ECONOMIC INTENSITY
120 100 80 60 40 20 0
1900 1925 1950 1975
YEARS
D
A
B
1985
C
1995 2000
Vencon Management, Inc.
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Nano-Technology Growth
80
ECONOMIC INTENSITY
70 60 50 40 30 20 10 0
1985 1995 2000 2005
YEARS
D
A
B
C
2010
Vencon Management, Inc.
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TECHNOLOGY TYPES
E INKS CONDUCTIVE POLYMERS BIO DEFENSE
BIOENERGY
ELECTRONIC PHOTOVOLTAICS CHEMICALS
ADVANCED MATERIALS
ENVIRONMENTAL
Vencon Management, Inc.
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TYPES OF INVESTMENTS
NEW VENTURES SPIN-OFFS INVESTMENT IN AN EXISTING BUSINESS JOINT VENTURES PURCHASE OF AN EXISTING COMPANY
Vencon Management, Inc.
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STAGES OF VENTURE GROWTH
TECHNOLOGY VENTURES GROWTH STAGES
2005 2006 2 2007 3 2008 4 2009 5 2010 6 2011 7
VENTURE STAGE DESCRIPTION
STAGE 0:IDEA/CONCEPT
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STAGE 1:R&D
Patents
Bench Scale
STAGE 2: INITIAL MARKETING PLAN
PRE-SEED STAGE
STAGE 3: FORMATION OF COMPANY
SEEDSTAGE
STAGE 4:BUSINESS TEAM AND PLAN STAGE 5:MARKETING DEVELOPMENT /PARTNERING STAGE 6:COMMERCIALIZATION
Business Plan
DEVELOPENT STAGE: PRE-COMMERCIAL
Begin
Partial Stage Complete
End
Complete
Vencon Management, Inc.
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Vencon Management, Inc.
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STAGES OF VENTURE GROWTH
0: IDEA/CONCEPT STAGE 1: R&D THIS STAGE IS ALSO REFERRED TO AS PRE-SEED STAGE STAGE 2: INITIAL MARKETING PLAN STAGE 3: FORMATION OF COMPANY STAGE 4: BUSINESS TEAM AND PLAN THIS STAGE IS ALSO REFERRED TO AS THE SEED STAGE STAGE 5: MARKETING DEVELOPMENT/PARTNERING THIS STAGE IS ALSO REFERRED TO AS THE DEVELOPMENT STAGE. STAGE 6: COMMERCIALIZATION AFTER COMMERCIALIZATION, THERE IS SALES AND THE STAGE IS REFERRED TO AS EXPANSION Vencon Management, Inc.
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STAGE
VENTURE CAPITAL INVESTMENTS
U.S. VENTURE CAPITAL INVESTMENTS
$160 $140 $120
BILLIONS
$100 $80 $60 $40 $20 $0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
YEAR
Vencon Management, Inc.
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KEY INVESTMENT FACTORS
EXTERNALITY #1: INVESTMENT FUNGIBILITY
Capital is invested to generate an attractive return commensurate with risk. Many opportunities abound. Particularly today, there are numerous different investment categories as:
1) Public Markets 2) Private Equity -- Institutional Venture Capital and Individuals 3) Mergers & Acquisitions (Buy outs) 4) Real Estate 5) Distresses Securities 6) Oil & Gas 7) Emerging Markets 8) Commodities
Vencon Management, Inc.
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KEY INVESTMENT FACTORS
EXTERNALITY #2: RISK FACTORS
Each type of investment has a different type of associated risk. Investors strive to diversify their risk amongst the investment categories. Risk also relates to the liquidity of the investment.
Risk regards many factors as:
Stage of the investment Proprietary nature of the product/technology History of the company Industry growth Total capital needs Management
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KEY INVESTMENT FACTORS
EXTERNALITY #3
– CAPITAL APPRECIATION
The general range of appreciation of capital for the different categories relates to between 15% to 50% per year. Of course, such levels need to be contrasted with risk.
EXTERNALITY #4
– ACTIVE vs. PASSIVE INVESTMENT
In the active mode, investors sit on the Board of Companies or even take a role in management. In venture capital, investors are generally active.
EXTERNALITY #5
– ECONOMIC ENVIRONMENT
Vencon Management, Inc.
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FINANCING EVALUATION PROCEDURES
Review of Initial Information Detailed Information Letter of Intent Contracts
Vencon Management, Inc.
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The Successful Venture
•. •Focus on 1-2 end use products to account for commercial sales. •Research for out years commercialization. •Team with strategic partners. •Active Board Management
Vencon Management, Inc.
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