New Venture Lab: Equipping Christian Entrepreneurs

Question

We have created a new technology applicable to consumer electronics and we have presented it with some success to a few large consumer electronics companies.

 

We would like to develop the technology around a "spin-in" format as you suggested in your Creative Models for Raising Capital lecture. 

 

I have the following specific questions:

1. Do you have specific advice for approaching potential buyers?
2. What are the key elements they might be looking for from a business standpoint?
3. What will get them to think "We want the entrepreneurial energy these guys have in developing this technology for us"?
4. What format is expected in a technical development plan? (Right now we have a Word document and a Gantt chart in Excel.)

Answer

In general, spin-ins are similar to outsourced product development, so a lot of the structure of the relationship you end up putting together with a consumer electronics company will have to do with their preferences and terms. 

 

First, I would suggest that you research your target companies to ascertain whether or not they outsource any product development, acquire any small creative companies or have performed any spin-ins.  This will give you a sense for how to prioritize your approach so you can first approach those companies that are most likely to do a deal based upon their past record.  It will also give you some potential leads on other entrepreneurs they have worked with in the past. 

 

For example, several entrepreneurs in the Dallas area that all know each other well (and have advised each other on their respective deals) have performed spin-ins of networking gear for Cisco (or built a company and then sold to Cisco).  Cisco is a very large IT equipment and networking gear company that has done quite a few spin-ins and was very acquisitive during the past 15 years.  You will want to tap into a similar network in the field of consumer electronics if one exists.

 

Your initial approach should be to the head of new product development or the head of product management for the area of the business you are targeting.

 

Be sure to protect yourself through the proper patent filings, non-disclosure agreements, etc. prior to sharing too much information.

 

The key elements a large company would look for in a potential spin-in are the creative talent, entrepreneurial talent and focus that a small spin-in provides.  They also like the fact that they only have to buy your company if you are successful, so it locks them into successful product launches and not failures.  Other key elements would be a pre-negotiated deal structure and pre-determined value milestones based upon your progress, typically stated in revenue and/or earnings.

 

The best way to get them excited about your technology is if your technology provides a real threat to their product portfolio or if they see it as a very strategic fit with your product and their product portfolio.

 

Word, Excel or MS Project are all fine formats for a project plan.  The main thing is a well thought out plan and whether or not you can perform to plan, rather than the format of the plan.