August AAIA Event Recap
Develop company's technology from idea to market
During this panel discussion, five panelists will focus on three main topics: People, Product and Business. All of these are crucial for building a successful startup company. Please check below for the detailed summary of our event!
1. People
1. How to build a startup team from university research groups?
Ling: Academic professors who launch startups have a wealth of technical experience and knowledge. But some scholars have a difficult time transitioning and applying their innovations to the business world. A full-time professor CEO may experience issues when seeking investment as investors may be concerned with the team’s ability to launch a successful business. Many academic institutions try to fill the gap by providing services that help professors and researchers transfer innovations into the marketplace. The Waterloo Commercialization Office (WatCo), for example, offers commercialization services and expertise to package and convert research innovations into commercially viable products and services.
2. How to build a startup team with external resources?
Morgan: One of the key factors that influence early-stage investors is a team’s capabilities, more specifically, the team’s ability to execute. Regardless of the size of the team, it’s important to consider three key roles when forming a team:
- a business expert who has a deep understanding of the industry and customers,
- a CTO or a CSO who can deliver a successful product using your technology,
- a CEO/COO who can make important business decisions and manage the resources of the company.
A common mistake some founders make is not bringing external advisors early on. Experienced advisors can grow a company by providing strategic solutions and connecting companies with opportunities. Good advisors are often serial entrepreneurs, retired senior executives, incubator mentors with a successful track record of helping startup companies scale.
3. What startups need to know about intellectual property ownership?
Sean: Intellectual property is often the most valuable asset of a technology startup. Protecting intellectual property is a crucial process for technology startup founders, especially if they consider raising funding in the future. I want to discuss two key IP strategies for your startup company to consider. The first is establishing the source(s) of your IP.
For example, if you have some IP from an external source (e.g. a professor or company executive), the best practice is to confirm ownership at the outset. Agreements and contracts will help. You want to avoid others claiming rights to the IP down the road.
The second is understanding the difference between an inventor and a contributor and their unique beneficial interests. A common mistake some startups make is to include everyone who was involved in the development and delivery of the technology on their patent applications, even though some of them are not inventors. My advice is to list only true inventors, and also not miss any true inventor. This will avoid some issues when seeking investment in the future.
4. How to establish a reliable shareholding structure?
Shui: A reliable shareholding structure will glue a team together and keep shareholder relations strong. To use the shareholding structure to advantage, founders must find a balance between stability and flexibility. Once a shareholding structure is established, it is difficult to overthrow in the future without a cost. We’ve heard many stories where a shareholder left a company because he/she is unhappy with their percentage ownership. To avoid such messy breakups, founders should set up a shareholding structure that is stable in the long run.
Besides stability, founders should also consider flexibility when establishing a shareholding structure. Flexibility in a shareholding structure will help the company cope with changes in team dynamics down the road. As companies grow, the value of the shares increases, and a tiny piece of shares now may mean a lot in the future. A cap table only represents a company’s position as of a certain point in time, but new hires and raising additional financing may impact the shareholding structure significantly. Therefore, it’s important to look past your current position and plan for the future.
2. Product
1. What are the characteristics of a good product?
Ling: Generally, patented innovations can be applied to products used in different industries. For example, an innovative sensor may be used in healthcare devices or 3D printing. Conversely, it’s important for technology owners to identify the low hanging fruit sector. Healthcare devices, for example, can be a tricky sector to carry out your core technology due to the long FDA approval process. A 3D printing product, on the other hand, can quickly get your product to the market. Once you’ve identified the sector, the next step is to develop the prototype around your technology. Your prototype should be based on validated learning and should deliver quantifiable results.
2. How to develop your product with limited resources?
Morgan: Startup companies usually start their product development with a Minimum Viable Product (MVP) – an experiment product/process using minimum resources designed to gain feedback to iterate the product development. It’s best practice to build and test your MVP as quickly as possible to win over investor confidence and customer prospects. An MVP allows you to respond to the market more promptly and make pivots without spending too much money.
3. How to deal with the departure of core personnel?
Shui: It is common to see key personnel leave the company during product development. To avoid potential issues when that happens, founders should:
- Impose a vesting schedule on founder shares so that shares can be recalled if any founder departs;
- Adopt a share option plan and issue options instead of shares to management and employees with similar vesting schedule;
- Require certain minority shareholders to enter into a voting trust arrangement to simplify the decision making process and avoid the difficulty to obtain shareholder signatures.
4. How can a startup company protect its early stage ideas and product development?
Sean: Although many things could or should be considered, I’d recommend that founders pay particular attention to two issues. The first issue to consider is to use IP to set up a sign-post or a fence to claim your territory or to keep people away. Discuss with your IP lawyer to form a strategy as to what to protect with what types of IP and how to best protect a market for your products. The second is to understand how your product development may interact with others’ IP, so that you do not develop your product in (IP) “territories” for other people. Consult with your IP lawyer and understand whether you have “freedom to operate” in the areas planned for your product development and how to find out. If strategically, you went into the wrong direction at the outset (e.g., developing product in areas covered by other people’s IP), it could be very costly, and sometimes impossible, to correct.
3. Business
1. How to evaluate product-market-fit?
Ling: When a startup is bringing a new product to the market, it is important to consider whether your product is in a red ocean or blue ocean environment. A red ocean approach refers to entering an industry that has existing strong competitors. This approach requires the company to outperform the existing competition. Blue ocean strategy, on the other hand, focuses on creating demand that is not currently in existence or most of the existing companies are just starting up. This approach requires startups to deliver quickly as getting into the market first will put the company in an advantageous position in the market. Regardless of the approach your product takes, finding the product’s unique differentiator will help you build a sustainable business.
Technology startups should also evaluate the cost of delivering a product considering the infrastructure environment. The success of your product is often affected by surrounding elements such as organizational services and facilities, regulations & politics, and social norms.
2. How to evaluate the product-market-fit for MedTech?
Morgan: Innovate Calgary incubated many life science and MedTech innovations. Their customer is a complex health care system. Unlike other markets where regulatory burden is not as rigorous, this market requires you to have a deep understanding of your customer value chain. If you are thinking about launching a medical device business, you should seek answers to the following questions:
- Who’s the end customer?
- Who’s the paying customer?
- Who has decision making power?
Let’s take a diagnostic device for example, if you are an early-stage diagnostic device company, you might be going after small clinics where FDA approval is not a requirement. On the other hand, if you are a late-stage diagnostic device company that helps doctors provide treatments/prescriptions to patients, FDA approval is a must.
The challenge also varies by country, so it’s important to become familiar with the ins and outs of local healthcare regulations prior to your product development. Building a regulatory strategy and understanding the value chain from the very beginning is crucial as the cost associated with the regulatory process can be significant.
3. How to plan for flexibility in IP portfolio?
Sean: There are many scenarios where technology companies choose to commercialize patented technologies or monetize their patents. I’ve seen companies license their patent to entities in different markets. This approach can be particularly helpful to companies that do not have enough capital or resources to independently manufacture and market their patented technology in an unfamiliar market. Your IP portfolio should allow you to maximize profits and open doors to other revenue streams and monetary opportunities.
4. How to find your startup company’s competitive advantage?
Shui: Many startups succeed even when their technology isn’t innovative enough to get patented. Some companies thrive because their product is more user friendly compared to their competitors, and others succeed by providing value at a lower price. Identifying your key differentiators will help companies deliver more benefits.
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