VC funding for Product IP companies

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VC funding for Product / IP companies
Samir Kumar Head - Acer Technology Ventures,
India (samir_kumar_at_acervc.co.in)
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Outline

• Acer Technology Ventures
• Whats happening in the VC World?
• What do VCs look for while funding companies?
• Challenges for Product / IP Companies
• Our Investments in the Product / IP space

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Acer Technology Ventures

• The professional VC arm of the Acer Group,
  managing a US 260mn fund
• Investors include Acer leading financial
  institutions
• Offices in Santa Clara (US), Taipei, Shanghai,
  Beijing Bangalore
• Over 65 portfolio companies to date
• Focus on Semiconductor, Communications, Software
  and BPO

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Acer Technology Ventures, India

• Operating in India since September 2001
• Current Investments
• July Systems Inc. A communication software
  Product company
• Hellosoft Inc. A semiconductor software IP
  company
• RelQ Ltd.- A Software Verification Validation
  Services company
• Indecomm (TRRS Imaging) Imaging-based BPO
  company

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VC Investments have not dried up!

• US Scenario

2002 was the 4th best year in VC history!!
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VC Investments have not dried up!

• Indian Scenario
• US 600 mn was invested in India in 2002 (Source
  IVCA)
• 26 new VC deals in India in Q1Q2 FY04
• 63 US hi-tech companies with Indian founders
  raised US 618mn. in Q1Q2 FY04
• BPO, Animation, Wireless Technology and
  Engineering Outsourcing were the major funded
  areas in Q1Q2 FY04
• Source TSJ Media

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Early Stage Funding is actually up !!
Source PricewaterhouseCoopers/Thomson Venture
Economics/National Venture Capital Association
MoneyTree Survey
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What is a VC looking for ?

• Big
• Financial
• Returns

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What makes a VC think he will get there ?
A great entrepreneurial Team
Operating in a large Market Opportunity
With a unique Value Proposition
With visible Exit opportunities!
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A great entrepreneurial team

• 101 Integrity
• Distinguished track record / academic background
• Relevant experience / depth of knowledge
• Cohesiveness of the founding team members
• Complimentary skills technology, marketing,
  management, finance, etc.
• Passion commitment to the venture
• Quality of board (Directors, Advisors, Technical)
• Willingness to share!

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Large Market Opportunity

• Size of market is it too niche?
• Does the venture address a Global market?
• Number of existing players is it a very crowded
  space?
• Strength of existing players will new-comers
  get trampled?

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Unique Value Proposition

• Significant technological superiority - not a
  me-too product / service
• Tangible Articulatable differentiators
• Customers willing to pay a premium

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Visible Exit Opportunities

• VCs need to exit their investments
• Exit routes are
• IPO
• Merger Acquisitions
• Company / Promoter buy-backs
• Secondary Sale
• Liquidation

Exits necessitate either scale or sharply
differentiated technology value proposition
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Challenges for Product / IP Companies (as seen
from a VCs viewpoint)
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Mindset
Challenges for Product / IP Companies

• The rhythm of an IP business is totally different
  from a services business
• Most Indian entrepreneurs come from a services
  background
• This, however, could be changing with the Return
  of the Native!

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Location
Challenges for Product / IP Companies

• Is India your main market?
• If not, do critical team members sit in your
  largest market?
• If not, how will you capture the pulse of your
  customer?

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Marketing
Challenges for Product / IP Companies

• Marketing (as distinct from selling) is not a
  well developed skill
• Product Management is not well understood
  customer requirements, product specs, technology
  directions, interaction with RD.
• Pricing another big challenge!
• Promotion a different set of issues need to be
  highlighted - interoperability, portability,
  performance, compatibility, etc.
• Marketing savvy needs to be created Techno
  marketing capability, internationalisation of our
  skills

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Architecture
Challenges for Product / IP Companies

• Science of making the right trade-offs with
  clearly stated assumptions.
• Address issues of Extensibility, Quality of
  Service, Availability, Integration, Performance,
  Scalability, Reusability, Testability, Quality
  Engineering and Growth of the product.
• Choice of Technology platform Tools.

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Differentiation
Challenges for Product / IP Companies

• Me-too products vs. unique ones
• Address customer pain-points?
• Any technology break-through that creates
  barriers to entry?

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Adequate Capital
Challenges for Product / IP Companies

• Revenues may not kick in early on are you
  raising enough capital?
• Are you ready to dilute for this capital?
• Do you have the patience to sweat it out for some
  time?
• And the ability to risk it all?

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Our investments in the Product /IP space

• Communication Software Semiconductor Software
  IP (WLAN, VoIP, GPRS)
• Strong US presence CEO and Board located there.
• Entrepreneurs with strong track record, past
  start-up experience.
• Excellent relationships
• Reasonable valuation!

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These are the best of times?!

• Great technology companies have originated in
  such environments
• Microsoft (1975) - Unemployment 8
• Sun (1982), Intuit (1983), Cisco Dell (1984) -
  Unemployment 7-10, Interest rate 11-17
• Palm (1992) another tough year!

.Tough times bring forth great entrepreneurs!!
?????
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Wish you well !!