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Phyl Speser, J.D., Ph.D.Foresight Science & Technology Incorporated
www.ForesightST. [email protected]
~ 401.273.4844, ext.35
LES Strategic Alliance Committee 2009 Seminar Series
1 Foresight Science & Technology www.ForesightST.com
Foresight Science & Technology www.ForesightST.com
The substantive process drives the cost calculationThe cost calculation, together with the revenue projections, drives the net value
2
Net Operating Income/Loss and Cummulated Cashflows with Breakeven
-50000000
0
50000000
100000000
150000000
200000000
250000000
300000000
350000000
400000000
3652
5
3725
6
3798
6
3871
7
3944
7
4017
8
4090
8
4163
9
4236
9
4310
0
4383
0
4456
1
Net Operating Income/(Losses)
Net Difference of Cummulated Cashflows
Process Contribution to Total Project Cost(excl. Investments)
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
Res
earc
h
Fina
ncin
g
Des
ign
Impl
& E
ng
Test
Mgt
Mfg
Pl &
Ctrl
Prc
& Eq
uip
Log
& Di
sp
Man
agem
ent
Dist
& S
rvc
Cos
t in
% o
f Tot
al
2
Deals Have to PencilDeals Have to Pencil
3Foresight Science & Technology www.ForesightST.com
Technical and firm specific risk are the basis for the discount rate.
Market risk is a probability distribution for outcomes.
Cost vs. Delays for all Risks along Value Chain
0%
5%
10%
15%
20%
25%
30%
0% 5% 10% 15% 20%
Resulting DelaysR
esul
ting
Cos
t Inc
reas
es
3
Risk Reduces the Value of a DealRisk Reduces the Value of a Deal
4
Risk Level Approximate DR(%) DescriptionRisk Free 10-18 Existing product, high demand,
building more of the same
Very Low Risk 15-20 New well understood technology for an existing product
Low Risk 20-30 New features, well understood technology into an existing market
Moderate Risk 25-35 New product, well understood technology into market with competition
High Risk 30-40 New product, not well understood technology into an existing market.
Very High Risk 35-45 New product, new technology, new market
Extremely High Risk 50-70 New company, unproven technology, new market
Source: Richard Razgaitis, Early Stage Technology
Foresight Science & Technology www.ForesightST.com
4
Discount RatesDiscount Rates
Foresight Science & Technology www.ForesightST.com
Focus on the Significant Risks
55
Identify Risks that Defer Income Identify Risks that Defer Income or Raise Costsor Raise Costs
Foresight Science & Technology www.ForesightST.com
Targets and Means MatrixObjectives Action Plan
Obj
ectiv
e 1
(Red
uce/
Incr
ease
)
Obj
ectiv
e 2
Obj
ectiv
e 3
Obj
ectiv
e 4
Obj
ectiv
e 5
Resources Required Who? M
easu
re
J F M A M J J A S O N D Task 1
Task 2
Task 3
Task 4
Task 5
Progress
Time Line
66
Mitigating or Avoiding the Risks Mitigating or Avoiding the Risks Increases ValueIncreases Value
Foresight Science & Technology www.ForesightST.com
Any numbers in green found in the following fields can be changed and will be reflected in the tables below
Factor Rate Weight ImpactIndustry Norm 0.0% 0.0 0%
Significance (Breakthrough add 5-10%, Major add 0-5%%, Minor subtract 0-3% 0.0% 3.0 0%Refinement/Maturity of Technology (High add, Low subtract) 0.0% 2.0 0%Breadth and Strength of IP Protection (Yes add, No subtract) 0.0% 2.0 0%Portfolio, Not Single Patent Being Licensed (Yes add, No subtract) 0.0% 2.0 0%Exclusive Market Position in Field of Use Gained (Yes add, No subtract) 0.0% 3.0 0%Immediate Utility in Market (Yes add, No subtract) 0.0% 2.0 0%Commercially Successful (Already Successful in Market add, Not Yet Proven in Market subtract) 0.0% 3.0 0%Competition Exists which Will Inhibit Ability to Exploit (Yes subtract, No add) 0.0% 1.0 0%Foreign Rights (Yes add, No subtract) 0.0% 3.0 0%Sales Conveyed or Highly Likely (Yes add, No subtract) 0.0% 2.0 0%Duration (Over Ten Years add, Under Three Years subtract) 0.0% 1.0 0%Upfront Payment Required (Yes subtract, No or Conditional add, Standard neutral) 0.0% 2.0 0%Minimum Royalties (Yes subtract, no add, Standard neutral) 0.0% 2.0 0%Know-How Included in Deal (Yes add, No subtract, Standard neutral) 0.0% 3.0 0%Support/Training Provided After Initial Transfer (Yes add, No subtract, Standard neutral) 0.0% 2.0 0%Maintenance and Enforcement Burden (Licensee subtract, Licensor add, Standard neutral) 0.0% 2.0 0%Exposure to Liability (Yes subtract, No add, Standard neutral) 0.0% 2.0 0%Total 0%Add to Industry Norm 0.00%RATE 0.000%
7
Value ContributionValue Contribution Royalty RatesRoyalty Rates
Foresight Science & Technology www.ForesightST.com
Social Networking –
Monitoring and Collaboration
8
Licensing/SpinLicensing/SpinOut & TRLOut & TRL
HEV Batteries
Foresight Science & Technology www.ForesightST.com
9
Energy Storage for Electric & Energy Storage for Electric & Hybrid VehiclesHybrid Vehicles
Foresight Science & Technology www.ForesightST.com
10
Li-ion Battery Functional Decomposition
(B) Product Risks
B-1.0 Lithium Ion Battery
B-001 Available Energy
B-002 Calendar Life
B-003 Cold Cranking Power
B-004 Cost
B-005 Cycle Life
B-006 Efficiency
B-007 Equivalent Electric Range
B-008 Max. System Weight
B-009 Operating Temperature Range
B-010 Peak Pulse Discharge Power
B-011 Production Price
B-012 Regenerative Pulse Power
B-013 Self Discharge
B-175 Safety
B-014 System Recharge Rate
B-015 System Volume
B-016 Thermal Runaway
B-1.1 Cathode
B-017 Cost
B-018 Electrochemical Capacity
B-019 Ionic Conductivity
Red indicates a risk or common design hurdle without a quantified goal
Green indicates a goal with specific numerical values
Yellow indicates a goal or a characteristic without a specific value
Foresight Science & Technology www.ForesightST.com
11
Product Innovation Stage
Bundle of FeaturesStandard User Interface
Process Innovation Stage
Eliminate StepsImprove ReliabilityImprove Efficiency of Resource Use
Economic Paradigms and Economic Paradigms and Dominant DesignsDominant Designs
Revolutionary War: Local Markets, Water/Wind Power, Mail, Batch/Power Tool Assisted Production, Yankee (Knowhow) InnovationCivil War: Regional Markets, Steam Power, Mail, Mass/Semi-Mechanized Production, Tinkerer Innovation (Systematic Trial andError) World War I: National Markets, Fossil Fuel Power, Phone, Automated/Mechanized Production, Engineered Innovation (Structured Trial and Error)World War II: Global Markets, Fossil Fuel Power, Radio Communications, Continuous Production, Seed Corn Innovation (R&D Driven)Vietnam: Global Segmented Markets, Fossil Fuel Power, Digital Communications, Distributed Production, Managed Innovation (OpenInnovation)Climate Change: Electric Power, Digital Communications, Asynchronous Production, Network-Centric Innovation (“Floating Networks”™) Foresight Science & Technology
www.ForesightST.com12
Paradigms for the EconomyParadigms for the Economy Control Control
Over Power & CommunicationOver Power & Communication
Foresight Science & Technology www.ForesightST.com
13
Source: Wayne JohnsonVice President, HP University Relations, “Globalization: Implications for ERCs,”
Worldwide, November 17, 2005
Open Innovation Presumes a Open Innovation Presumes a Stable ParadigmStable Paradigm
Extension
Extension
Extension
CoreEnabling
EnablingCompeting
Time
Strategic
Bohn Knowledge LevelSkills/Know-how
Utility ≈ Value
Foresight Science & Technology www.ForesightST.com
14 14
A ProductA Product’’s Utility is Constrained s Utility is Constrained by the Dominant Designby the Dominant Design
Idea BasicResearch
AppliedResearch
ProductDevelopment
MarketIntroduction
ProcessEngineering
0$
CUM
ULA
TIV
E RE
VEN
UES
TIME
Foresight Science & Technology www.ForesightST.com
15
Climate Change: Electric Power
Impact of an Economic CrisisImpact of an Economic Crisis
16 Foresight Science & Technology www.ForesightST.com
Recessions Reduce the Ability to Recessions Reduce the Ability to Cross the Valley of DeathCross the Valley of Death
Foresight Science & Technology www.ForesightST.com
17
Embryonic/Emerging
Pioneering productsHigh productinnovation
Growing demandLow volumeProprietary focusMany new entrantsStandards wars
Decline/Disruption
New functionalitiesHigh product innovation
New demandMarket convergenceNew marketsNew competitionBarriers to entry dropNew business models
Growth
Dominant designMore processinnovationStabilizing demandHigher volumeStandards focusMany failuresAcquisitionsScale wars
Maturity
Generic productsHigh process innovation
Stable demandVery high volumeCost focusStable playersConsolidation and divestitures
Supplier wars
Low
High
Labor Skill
SalesElectric Power, Digital Communications, Asynchronous Production
Obama is Embracing Disruptions Obama is Embracing Disruptions of Dominant Designsof Dominant Designs
Foresight Science & Technology www.ForesightST.com
18
Based on Sanderson and Uzumeri, Managing Product Families, (Iwin, 1997)
Variety\Rate of \ Change
Slow or “One Time”
Rapid or “Faster- Paced “
Many Segment Driven Needs (Screwdrivers)Renewable Clean Energy Generators
Dynamic Needs(Fishing Tackle)Batteries
Few Infrastructure Driven Needs (Hoes)Smart Grid
Social Network Driven Needs(Cell Phones)Hybrid and Electric Vehicles
Obama Agenda is Accelerating the Obama Agenda is Accelerating the Rate of Change in Dominant DesignsRate of Change in Dominant Designs
Foresight Science & Technology www.ForesightST.com
19
Ease of Use
Paradigm Shifts Affect Freedom to Paradigm Shifts Affect Freedom to OperateOperate
Time
Yield
Requirement
S1a
Trajectory
Technology 1 S1c
Requirement
S1b
S2c
S2b
S2a
Trajectory
Technology 2
Foresight Science & Technology www.ForesightST.com
20
Disruption Creates Windows of Disruption Creates Windows of OpportunityOpportunity
Foresight Science & Technology www.ForesightST.com
21
ButtonManufacturer
ClothingManufacturer
ButtonManufacturer
ClothingManufacturer
MarketForce
Historical Example: The ZipperHistorical Example: The Zipper
Foresight Science & Technology www.ForesightST.com
22
Foresight Advanced Energy Storage Portal
http://batteries.foresightst.com
Energy StorageEnergy Storage
23
Extension
Extension
Extension
Li-IonEnabling
Lead Acid
Time
Li-Air
Foresight Science & Technology www.ForesightST.com
Enabling
Enabling
Extension
Network-Centric Innovation
Strategic Alliances are a Way to Strategic Alliances are a Way to Hedge Your IP PortfolioHedge Your IP Portfolio
Foresight Science & Technology www.ForesightST.com
24
CORE
Technology Familiarity
Mar
ket F
amili
arity
Control
Partner
Divest orMonitor
STRATEGY
Control:InternalDevelopment
AcquisitionsIn-License
Partner:Joint VenturesAlliancesInternal VenturesOut-License
Divest:AssignmentsSales
Monitor:Venture CapitalEducationalAcquisitions
Market Development
TechnologyDevelopment
Adapted from Roberts and Berry, SMR 1988.
Paradigm ShiftReduces Familiarity
Dominant Design Shift Reduces Familiarity
Network-Centric
Innovation
Sweet Spot for Alliances Expands Sweet Spot for Alliances Expands in Periods of Disruptionin Periods of Disruption
Provides management investment optionsInvestWaitAbandon
Useful where a progression (stage gate®) based on risk elimination can resolve return on investment
Market or technical uncertainties affect value of IPNPV is difficult to estimate or near zero
Foresight Science & Technology www.ForesightST.com
25
Real OptionsReal Options
Abi
lity
to r
espo
nd
Low
High
Likelihood of receiving new informationLow High
U n c e r t a i n t y
Roo
m fo
r M
anag
eria
l Fle
xibi
lity
Moderate Flexibility Value
Moderate Flexibility Value
Low Flexibility Value
High Flexibility Value
Marco Antonio Guimarães Dias, Petrobras and PUC-Rio, Brazil, 2003,www.puc-rio.br/marco.ind/
Foresight Science & Technology www.ForesightST.com
26
In Periods of Uncertainty the In Periods of Uncertainty the Value of Hedging IncreasesValue of Hedging Increases
Foresight Science & Technology www.ForesightST.com
Six Sigma –
Licensing
Joint Venture, or Equitypossibly
leading to acquisitionFarm Teaming –
Cooperative R&DContracts with Right of First Refusal
Or Equity Investment
27
Traditional Relationship ModelsTraditional Relationship Models
Foresight Science & Technology www.ForesightST.com
\\PartnrPartnr\\
SME SME \\
Partner Partner Wants DealWants Deal
Partner Partner WalksWalks
SME Wants SME Wants DealDeal
$10m, $10m, $0.5m$0.5m
$0.0m,$0.0m,--$0.05m$0.05m
SME WalksSME Walks $0.1m, $0.1m, --$0.05m$0.05m
--$0m, $0m, --$0m$0m
28
Deals Make Sense When They Deals Make Sense When They Increase PayoffIncrease Payoff
\\PartnrPartnr\\
SME SME \\
Partner Partner Moves Moves ForwardForward
Partner Partner StepsSteps
PartnerPartner AbandonsAbandons
TTO Moves TTO Moves ForwardForward
>$15m, >$15m, >$10m>$10m
$5m,$5m,$0.05m,$0.05m,
$0,$0,++--$0.03m$0.03m
TTO StepsTTO Steps $5m, $5m, $0.05m$0.05m
++--$0.03m, $0.03m, ++--$0.03m$0.03m
$0,$0, ++--$0.1m$0.1m
TTO TTO AbandonsAbandons
++--$0.03,$0.03,$0$0
++--$0.01m$0.01m$0$0
$0,$0,$0$0
Foresight Science & Technology www.ForesightST.com
29
NetworkNetworkCentric Innovations Make Centric Innovations Make Sense Where They Increase PayoffsSense Where They Increase Payoffs
−
C
P (forecastedprice of the portfolio,P = Σ
1…n
IP x
x p)
NP
V (
mill
ion
$)
Linear Equation for the NPV (“Business Model”):
NPV = q
(P)-C
NPV as a function of P
• The quality of IP (q) affects the NPV line slope.• q measures the value of:portfolio average technology value at current TRL/
forecasted fair market value of current products•
q is a measure of potential utility that in the inverse of the discount rate
spreadsheet value
NPV = PV of Total Revenues –
Costs
Foresight Science & Technology www.ForesightST.com
30
Rate of NPV Capture is Related to Rate of NPV Capture is Related to the Quality of the IP Portfoliothe Quality of the IP Portfolio
If NPV = q (IP xp) − C = (0.2 x 500 x $18) – $1750 = + $50 million, do you develop the portfolio now if the Discount Rate is 10%?
E[P] = $18 / technologyNPV(t=0) = −
50 million $
E[P+] = $19 ⇒ NPV+
= + $150 million
E[P−] = $17 ⇒ NPV −
= −
$150 million
Rational manager will not exercise this option ⇒ Max (NPV−, 0) = zero
50%
50%
t = 1
t = 0
At t = 1, the portfolio NPV is: (50% x 150) + (50% x 0) = + $75 millionThe present value is: NPVwait
(t=0) = 75/1.1 = 68.2 > 50 so wait
Wait
Abandon
Foresight Science & Technology www.ForesightST.com
31
Suppose the same case but with a higher NPV. NPV = q (IP x p) − C = (0.22 x 500 x $18) – $1750 = + $230 million
E[P] = $18 / technologyNPV(t=0) = $230 million
E[P+] = $19 ⇒ NPV+
= $340 million
E[P−] = $17 ⇒ NPV −
= $120 million
At t = 1, the portfolio NPV is: (50% x 340) + (50% x 120) = $230
millionThe present value is: NPVwait
(t=0) = 230/1.1 = $209.1 < $230. Deep-in-the-money
(high NPV) means exercise the option
50%
50%
t = 1
t = 0Wait
Move Forward
Foresight Science & Technology www.ForesightST.com
32
University/Industry CentersRLDPs/LLCHedge Funds
Foresight Science & Technology www.ForesightST.com
33
Foresight Science & Technology www.ForesightST.com
34
Govt. orFoundationSubsidy
BUYER SELLER
Foresight Science & Technology www.ForesightST.com
35
Past Present Future
Strength of Intellectual Asset Portfolio
of
©
Foresight Science and Technology
High
LowRevenue From Entry Market Application
Long-Term Sustainable Competitive Advantage
Short and Mid-Term Competitive Advantage
Foresight Science & Technology www.ForesightST.com
36
Aggregate Technologiesfrom TTOs, Mature with SMES with:• R&D Awards• Other Subsidies•
Sales or Other Commercialization
Success
Take:
• Call Options for non-exclusive
or exclusive licenses
•Option fee fundsmaturing the technology
• If technology takes off, option isexercised.
•
Can sell option prior exercise date with approval to improve vale of option
Foresight Science & Technology www.ForesightST.com
37
Horizontal Alliances
RDLP or RDLLC
Vertical AlliancesJoint R&D Venture
1.
Spin-Out Joint Venture, License to LLC Member,
2.
License to Small Business3.
Sell Option4.
Abandon and Write Off
Early Stage Exit
Foresight Science & Technology www.ForesightST.com
38
Foresight Science & Technology www.ForesightST.com
•
Nothing happens without a sale.
David Speser
•
If opportunity doesn’t knock, build a door.
Milton Berle
•
A well-defined imagination is the source of great deeds. Chinese Fortune Cookie
Thanks. Phyl SpeserChair, Strategic Alliance Committee and CEO, Foresight Science &
Technology
39