How to get your nanotech venture off the ground
and fund it
Successful founding and financing of nanotechnology companies
3) How well do I understand the market for my product idea?
Analyze your target market
A thorough understanding of the target market is an absolute must. To produce a financial plan which is realistic, and to convince investors of its viability, you should conduct a meaningful analysis of the industry environment and the target market, including a sound estimate of the potential market size. Particularly in the case of start-up ventures, insufficient market analysis is often the primary reason for business failures.
The analysis should carefully consider the market size, the potentially available market share and future market growth. It should also address barriers to entry and any other market constraints. If you know of any laws or regulations which impact the market, you should be sure to mention them in your market analysis.
It is also essential to demonstrate an understanding of your competition. You should provide an overview of the products and services offered by your competitors, together with an assessment of their strengths and weaknesses.
Practical tip: Commissioning an external market study is no guarantee of success, or even of correct information. There can be some direct and indirect benefits in digging into the market yourself, not to mention saving the considerable expense of an external study. One of the biggest benefits is that you'll get to know your own market much better and maybe even make some useful business contacts. Try to make a good roadmap for yourself!
Why will my nanotechnological product convince the target market?
Experience shows that new products of this kind generally only succeed in the market when they can achieve competitive advantage by differentiating themselves in terms of customer benefits. Investors in start-up ventures usually expect to hear some convincing unique selling propositions (USPs), i.e. what will make your product compelling to the customer.
Practical tip: When describing your product or application in your business plan, you should avoid overly technical explanations which the reader may not have the necessary scientific or technical background to understand. Be sure, however, to mention any patents or other intellectual property protection.
How important are patents and intellectual property rights?
As Benjamin Franklin once said, "An investment in knowledge always pays the best interest." In these times of globalized competition, the word "knowledge" in this famous quote must also be understood to include "knowledge protection". Companies must always balance their need for knowledge against the need to protect that knowledge.
Intellectual property (IP) rights are an enormously important factor for generating value in companies, particularly start-ups. Patents enable companies of all sizes - even very small companies - to protect their technological and scientific breakthroughs against intrusions by large, well-capitalized corporations.
Patents and other IP rights are a proven and effective means to defend against "me too" products, whether from powerful global corporations or copycat products from low-cost producers.
These can be an essential tool to help newcomers enter the market, serving as valuable assets to help small and medium-sized businesses raise capital. As a general rule, patent protection makes it easier for young companies to obtain credit. The inventor must recognize the risk, however, that by publicly disclosing the information in the patent, this knowledge is made available to competitors who may misuse it. Another route is for the inventor to simply publish his technological advances, thus contributing to the "state of the art." Although competitors will be able to use this knowledge, they will be prevented from patenting it themselves.
Practical tip: Keep a regular watch for important patent filings within your field, not only in your own country or region but around the world. This applies even if your company is in an advanced stage. It can save you the time and effort of "reinventing the wheel", not to mention the aggravation of developing something which has already been patented by someone else. By studying the patents of others, you can gain valuable knowledge and creative ideas for your own development efforts.
Commercialization and marketing strategy - probably the most important aspects when making venture capital inquiries
You have a wonderful product idea. That's all well and good, but how will you market it? How will you make your company known to potential customers? In describing your marketing strategy, you should demonstrate the importance which you place on the successful commercialization of your idea.
Here you must think like a capitalist. You must ask yourself, "How will I be able to turn a profit? And how sure am I that I can achieve this?" In talking to venture capital providers, it's extremely important that you can answer these questions. Any potential investor or lender is going to want to know how financially successful your venture will realistically be. But it's quality over quantity that counts: Avoid writing 25 pages of empty prose about why our business will be hugely profitable. The key factors that support your claims can be summarized briefly; you will have chances to explain in more detail later. Just state the three to five most important factors which you think will make your start-up successful and profitable. These three to five factors should be underpinned with facts and figures. Venture capital investors like to see hard facts and figures.
If you're using your business plan as a document to obtain debt or equity financing for company which has already been established, be sure to explain how the additional funds will be used, and how it will lead to greater future profits. Show how the capital will enable you to expand your business or create something new.
Venture capital investors are generally very interested in any feedback you may have gotten from others within your field, such as scientists, customers, or business executives. They may ask about specific experts who you have discussed your idea with, and how they reacted to it. Geography can also be important; investors may ask about your location and whether it fits with your business plan and target market.
If you know something about the approach and business expertise of your potential investor, be sure to consider it carefully. What other assistance do you hope to receive from this investor? What other nanotech companies does the investor have in its investment portfolio, and how could this business experience help your company?
Practical tip: Don't forget to include a realistic timetable for your marketing activities. This should include all the key steps which will be needed not only in the first months or years following initial market introduction but also in the preparation phase.