University:
Boston University
Course:
ENG ME 305 | Mechanics of Materials
Academic year:

2020
Views:

374

Pages:

18
Author:

Tara Guerrero

TECHNOLOGY DEVELOPMENT # • • • • • • • • Types of Financing (that you may or may not have heard of) Non-Recurring Engineering Licensing Angel & FFF SBIR and STTR Revolving Line of Credit Leasing Factoring Bootstrapping Non-Recurring Engineering (NRE) NRE is when your customer pays you to research, design, develop, and test a product and then buys it from you! NRE Example You’re building something: widget, machine, software, etc. to address a NEED you’ve identified in the market but... ...you need financing to build it NRE Example You approach your customer and tell them what NEED of theirs your product will address (Can be improvement on existing product or wholly new) NRE Example They jump up and down because you’ve done your homework (interviewed customers, competitors, users, etc.) to identify their NEED NRE Example You propose terms of funding and total payment upon completion of product (Customer can pay upfront or incrementally) Pros and Cons of NRE Pros ● Although non-recurring, good way to build relationship with a potential customer/business opportunity ● Allows you to work within your industry and get paid for it ● Good for short-term income Cons ● Not meant to be long-term form of financing ● Customer may have constantly shifting expectations, some of which may be beyond scope of your original intended product ● Difficult to waive ● Customer has rights to product they are purchasing from you • • • • • • • • Types of Financing (that you may or may not have heard of) Non-Recurring Engineering Licensing Angel & FFF SBIR and STTR Revolving Line of Credit Leasing Factoring Bootstrapping Licensing Let’s say you have created something (a new product, methodology, software) and have copyrighted/patented it. You know this product has value and you want to explore an avenue to exploit the value of that asset. However, you want the cash sooner rather than later, which may involve forgoing the process of producing, marketing, and distributing your product You can license your product to another company who will use their existing networks and manufacturing capabilities to sell your product with you receiving some cash for it. In short, you are exploiting your own asset for a faster stream of revenue Licensing The length of a license as well as the frequency with which you receive cash are based on your negotiated contract 3 main ways to get paid royalties: Licensee (company) pays Licensor (YOU) • • An upfront payment at time of licensing Milestone payments of agreed upon amounts at agreed upon events – • For example: pay after first prototype, after first million in sales, etc Consistent payments of periodic percentage of negotiated revenue Almost all contracts specify a minimum guarantee, a certain amount of money that must be paid regardless of the outcome of licensing Why License? In short, two reasons: 1) Cash. You will be paid the minimum guarantee and potentially more based on the outcomes of your product. While your product is licensed, you can continue work on unrelated projects and ideas that will accelerate your business while passively receiving revenue and publicity 1) Outreach. When you license to another company, you receive the benefits of their existing connections and reach. Regardless of the fundamental value of your product, you as an individual may not be able to show others its value. By licensing your product to an established group, you essentially get your foot in the door Why License? Pros Cons ● You don’t need to jump through all the hoops to actually SELL your product, the licensee will take care of that ● Your product’s success relies on the capabilities of your licensee. If they fail to sell, you fail to profit ● Allows you to work on new projects while your licensed products are making you money ● Potentially damage your personal or brand image based on the actions of the licensee ● You retain ownership of your intellectual property ● ● Make connections with other industries based on the marketing and relations of the licensee Theft: even a licensing contract will not protect you unless you have the resources to pursue your licensee legally • • • • • • • • Types of Financing (that you may or may not have heard of) Non-Recurring Engineering Licensing Angel & FFF (Friends, Family, and Fools) SBIR and STTR Revolving Line of Credit Leasing Factoring Bootstrapping Family, Friends, and Fools (FFF) • Family, friends, and whoever else is willing to invest early without detailed proof of concept or prototype • 35-40% of startups receive funding from FFF • Typically $10K - $150K (average is close to $10K) • Usually one of the first (if not the first) round of funding received by a startup • Receive Common Stock/Equity or convertible notes Angel Investor • Typically invest $100k - $2 million • Usually takes place after FFF funding but not exclusively • Requires proof of concept/evidence of work • Open to investing in multiple rounds • Require certain rights and privileges on their investment - e.g. Director position in company • Receive Preferred Stock • “Angels fly together” Timing of Investment Idea Pre-seed Family, Friends, and Fools (FFF) Angel Seed Start-up Comparing Angel and FFF Financing Pros FFF - No lengthy application process - Pay back not always required - Surrender of company control not required -No formal review process or diligence required to obtain (although it helps) - Commitment to project is proven to later stage investors Angel - Angel may have expertise in the industry - Middle ground between FFF and VC financing - Easier to align goals due to varying investor preferences Cons - Transparency with investors (being asked about business at family events) - Emotional attachment to investments/investors - Risking family/friends assets creates personals pressures - If poorly structured, can prohibit later stage funding - Largely based on connections - Harder to find - Take partial ownership of your business

Technology Development

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