Question? Leave a message!




The Start-up Handbook

The Start-up Handbook 30
The Startup HandbookThe Startup Handbook ©2014  •  THE BOARD OF TRUSTEES OF THE UNIVERSITY OF ILLINOIS   ALL RIGHTS RESERVED  •  1ST PRINTING, SPRING 2014 TABLE OF   Contents Marketing   ...........................................................................................................  14 INTRODUCTION   ..........................................  4   Marketing Analysis (The Five C’s)   ..........................................................  14 Segmentation, the Target Market, and Positioning (STP)   ................... 15 FORMING YOUR BUSINESS ..........................  5 Marketing Mix (The Four P’s)   ...................................................................  16 Making the Decision to Form a Business     ...................................................  5 Feasibility considerations   ............................................................................  5 UNIVERSITY RESOURCES FOR STARTUPS.   . 18 Validating Your Idea   ........................................................................................... 6 University Resources for Startups   ............................................................  18 Intellectual Property and Your Business  ........................................................  7 Proof of Concept funding    ..........................................................................  18 Inventions and Patents   .................................................................................  7 The Offices of Technology Management   ...............................................  19 Copyright   .........................................................................................................  7 University of Illinois Research Park   .........................................................  19 Licensing Intellectual Property from the University   ................................... 8 EnterpriseWorks   ..........................................................................................  19 The University’s System for Technology Transfer   .................................. 8 EnterpriseWorks programs    ......................................................................  19 Licensing   .......................................................................................................... 9 EnterpriseWorks Chicago   ........................................................................... 21 License Negotiations   .................................................................................... 9 IllinoisVENTURES   ........................................................................................  22 Developing a Business Plan   ............................................................................  10 Resources for Student Entrepreneurs   ..................................................... 23 Points to Remember when Preparing the Business Plan   .....................  11 Entities and Legal Formation of a Business   ................................................. 12 Business Entities at a Glance   ..................................................................... 13FUNDING YOUR BUSINESS   ........................  25 HUMAN RESOURCES   ..................................  31 Types of Funding   ............................................................................................... 25 Standard Labor and Employment Laws   ........................................................ 31 Funding Sources    ............................................................................................... 25 Fair Labor Standards Act (FLSA)   .............................................................. 31 SelfFinancing   ............................................................................................... 25 Workers’ Compensation   ............................................................................. 31 Bootstrapping   ............................................................................................... 25 Unemployment Insurance   .......................................................................... 31 Federal Grants   .............................................................................................. 25 Equal Employment Opportunity   ............................................................... 31 Loans   ..............................................................................................................  26 Tax Withholding   ............................................................................................ 31 Business Plan Competitions   ......................................................................  26 Employment Eligibility and New Hire Requirements   ............................... 32 Joint Ventures   ...............................................................................................  27 NonDisclosure and NonCompete Agreements,     Conflict Acknowledgements   .......................................................................... 32 Angels   ............................................................................................................ 28   Venture Capital   ............................................................................................ 28 Securing Funds   .................................................................................................. 28 ONLINE RESOURCES   ..................................  33 The Business Plan   ........................................................................................ 29   The Business Team   ...................................................................................... 29 The Investor   .................................................................................................  30 CONTACTS  .................................................  34Introduction Innovations generated by University of Illinois research have a profound impact on human issues and the creation of businesses, jobs, and economic wellbeing. There are many ways to translate University technology and innovation into societal benefit; starting a company is one of them. The University has put in place a unique and comprehensive system supporting entrepreneurship and economic development. For a new entrepreneur, the question is where to start. The Office of Technology Management is proud to present this handbook as an introduction to both the University’s resources and to basic business concepts and considerations. We hope you find it useful. 4  •  THE STARTUP HANDBOOKForming Your Business Making the Decision Identifying the market need can be a challenge if   Internal considerations concern your   your expertise is in technological development and   commitment and willingness to start a business.   innovation rather than marketing and technology   to Form a Business commercialization. You should note that, no   Factors include: Starting a company is one way to further develop   matter how innovative a technology is, if it does   •  Available time and commercialize technologies created at the   not address an actual need at a price which   •  Personal resources University of Illinois. Several factors should   customers are willing to pay,  the technology has   •  Risk tolerance be weighed when deciding whether to form   no market. If your startup’s technology does not   •  Resilient and flexible attitude a business. These considerations comprise a   solve an actual problem at a competitive price,   •  Managerial support feasibility checklist and can be divided between   then the startup is more likely to fail. external and internal factors. Startinga   busines   sr   equiresa   lar   getime     Itis    importantt   ounder   stand the marketin   which     commitment,and   it   is   not   unc   ommonf   orne   w   yourt   echnologies willc   ompete.Kno   wledge of  entrepreneurst   ounder   estimatethe   time   needed.     FEASIBILITY CONSIDERATIONS a marketcan   be   ac   quiredthr   oughpr   ofessional  Additionally,y   oushould   considery   ourper   sonal   External considerations concern the marketplace   marketr   esearch,g   overnmentdata,   tr   ade  resourcesand   whether   y   ouar   ec   omfortable   for the startup’s product as well as the potential   publications, andnet   working withpr   ospective  committingthose   r   esourcest   othe   endea   vor,   performance of the product in that market.   customers. The decisiont   of   orma    startup  althoughit   is   not   alw   aysnec   essaryt   odo   so   .   shouldbe   made    only after acquiring a strong  Factors include: understandingof   the    marketand    howy   ourpr   oduct  Furthermore,while   star   tinga   busines   scan   lead     •  Whatpr   oductor   servic   ethe   star   tupwill   off   er orservic   ew   ould fitint   o thatmark   et. totr   emendousw   ealth,it   c   omesat   significant   risk.     •  Whether the product or service satisfies a need   Ther   ealityis   that   man   ystar   tupsf   ail.Y   oushould      that people value bewilling   t   oac   ceptthis   risk.   F   inally,unf   oreseen   •  The price a customer would pay for the product   challengeswill   alw   aysarise   when   star   tinga   busines   s.   or service Consequently,it   helps   if   y   oucan   adapt   quickly   t   o   •  The market’s size and effect on startup   changingc   onditionsand   r   emainc   ommittedt   othe     profitability   endeavor,or   r   ecognizewhen   t   ost   op. •  The regulatory landscape   FORMING A BUSINESS • 5   Validating Your Idea When you are contemplating starting a company, one of your first steps   should be to assure that you are creating a product or service that customers   will buy. The Customer Development Model, created by Steve Blank, can   help you do this.   The model consists of four steps — customer discovery, customer validation,   customer creation, and company building. Because each step is recursive,   you may remain in each for any duration of time, refining and repeating the   processes involved. 1. Customer Discovery Target potential customers and determine if the problem your product solves   is important to potential buyers.   2. Customer Validation Develop a sales process that successfully sells your product.   3. Customer Creation  Starting a Company While Remaining at the University Build on the sales accrued during customer   validation and begin to put money into marketing   When a startup includes one or more University faculty members or other University employees,   your product.   conflict of interest should be addressed. Depending on the circumstances, a conflict of interest   management plan may be needed.   4. Company Building   Transition the company from an informal   This plan outlines the relationship between your activities with the company and your research   development team into a formal entity.   and teaching responsibilities (see box on page 7). The plan identifies and mitigates possible   areas of conflict, such as those related to conflict of commitment and/or conflict of interest,   On the Urbana campus, companies can pursue   as well as prepares for disclosure and management of these conflicts. To initiate a conflict of   this validation process through the NSF ICorps interest management plan, contact the Office of the Vice Chancellor for Research (OVCR) on   program which is designed to help University   your campus. entrepreneurs recognize product opportunities   arising from academic research. See page 20 for   more information. 6  •  THE STARTUP HANDBOOKFor additional information on the Customer   inventionso   that   other   s canr   eproduce and learn  Development Model, consider reading The Lean fromit.    Inthat    way, thepat   ent monopoly provides  Conflict of Interest Startup by Eric Ries and The Four Steps to the the incentive to share advances with the public and  Responsibilities Epiphany by Steve Blank.   therebyc   ontributet   ogr   owthin   the   field.   •  Obtain prior written approval to     Inventorship engage in nonUniversity income     Intellectual Property Inventorship is defined by U.S. patent law.   generating activities. Broadly, an inventor is one who alone, or together   with others, conceived of the ultimate working   •  Disclose such activities annually,   and Your Business invention. A patent application must be filed in the   whenever a substantial change occurs,     For many faculty startups, intellectual property   names of the true inventors. The legal criterion for   or when required by granting agencies. is the business’ key asset and gives the startup a   inventorship is not the same as that for academic   competitive advantage. The following subsections   authorship. Inventorship is not a reward for   •  Refrain from spending so much time on   briefly discuss intellectual property in the form of   hard work to someone who only worked under   external activities that they interfere with   inventions and patents, as well as copyright. For a   direction. Inventorship is tied to the claims in     your University responsibilities. more  indepth  review,  please  refer  to  the  Handbook a patent application and is determined at the time   for Inventor’s and Innovators or talk to your Office of   the patent application is filed. As the claims in     •  Refrain  from  advancing  your  own  interest  Technology Management (OTM). a patent application change, so may inventorship.   or the interest of family members to the   detriment of the University’s interest. Ownership INVENTIONS AND PATENTS Inventorship does not equal ownership.   •  Disclose involvement of University   An invention can be anything manmade that   Organizations usually own the inventions students or employees in your     is new, useful, and nonobvious. Inventions   developed by their employees.  The Board   external activities. may include, but are not limited to, processes,   of Trustees of the University of Illinois owns   methods, machines, articles of manufacture,   University of Illinois patents, as established by   •  Work with the department head to   devices, chemicals, and compositions of matter.   Article III of the University’s General Rules. identify and evaluate potential conflicts,   Inventions can be protected by patents. and manage or eliminate them. U.S. lawr   ecognizesthe   v   alueof    innovation tothe     COPYRIGHT economy andpr   ovidesthe   o   wnerof   a   pat   entwith     Copyright is the form of intellectual property that   atimelimit   ed monopoly (20 years)t   o prevent  protects the expression of a creative idea that is   othersfr   ome   xploitingthe    inventionwithout     fixed in a tangible form. It is an acknowledgement   permission. Ine   xchange for thise   xclusiveright,   the     of who created the work. published patent document must fully describe the    FORMING A BUSINESS • 7For example, in The Wizard of Oz, copyright   the work without permission. Works owned by   THE UNIVERSITY’S SYSTEM FOR   protects the order of the words in the story, as   the University should bear the following copyright   TECHNOLOGY TRANSFER well as the layout of the pictures, color, and words   notice: © 20XX The Board of Trustees of the The University has resources designed to   on the page. The ideas, plot, and characters are   University of Illinois. All rights reserved. facilitate all stages of the technology transfer   not protected. Each adaptation of this classic   process. Overseen by the Office of the tale (book, screenplay, movie, music) generates   There is also a formal registration process to   Vice President for Research (OVPR), the   independently copyrighted works.   document copyright in the Library of Congress. University’s technology commercialization   infrastructure is comprised of several entities   Forscientific   writing,   c   opyrightdoes   not   pr   otectthe     Author owned copyrights last for the life of the   and many programs. procedures,s   ystems,pr   ocesses,c   oncepts,f   ormulas,   author(s) plus 70 years after the last surviving   discoveries,or   de   vicesdescribed   in   the   w   ork.   author’s death. Employer owned copyrights last   Entities Similarly,f   orsof   tware,c   opyrightdoes   not   pr   otect   for 120 years from the work’s creation or 95 years   •  The  Offices of Technology Management    theunderlying   c   oncepts,pr   ocesses,s   ystems,   from the first publication of the work, whichever   on the Urbana and Chicago campuses  evaluate,  alogrithms,pr   ogramlogic,   or   la   youts. is shorter.   patent, and license the University’s intellectual   property. Copyright constitutes a bundle of legal rights,   which include the right to copy, display, perform,   Licensing Intellectual •  IllinoisVENTURES LLC provides consultative   distribute, and make changes to the original   services, funding, and business development   copyrighted work. These altered versions of   support for early stage, researchdriven   Property from the original works are known as derivative works.  companies, particularly those deriving from   Copyright provides the owner with the right to   the University of Illinois, other Midwestern   University determine how the work is copied and distributed   universities, and Federal laboratories. to others, such as through traditional or online   Usually, the cornerstone asset of a faculty   publication, open access, sale, lease, or lending. It   •  The University’s Research Parks startup is the intellectual property  owned  also gives the copyright holder the right to charge   and incubators  in Urbana and Chicago   by the University. The following sections   royalties for a work’s use. facilitate  the growth of early stage companies,   briefly discuss the University’s system for   encourage  RD collaboration between the   transferring intellectual property into a start Automatic Application of Copyright University and private industry and public   up via a license. For more detailed information   Unlike patentable inventions, copyrighted   agencies, and attract established companies   concerning intellectual property and the   works are automatically protected under U.S.   that benefit from close working relationships   University’s process to evaluate and protect   copyright laws without having to undergo a   with University faculty and students. intellectual property, see A Handbook for formal registration process. However, it is still   Inventors Innovators. important to affix an appropriate copyright notice   Eachof   these   entities,   along   with   man   yother   units,     to notify others that they are not free to utilize   offersman   ysuppor   tingpr   ogramsf   orentr   epreneurs.     8  •  THE STARTUP HANDBOOKFormor   einf   ormation,see   the   Univ   ersityR   esources   LICENSE NEGOTIATIONS the significance of the invention to the product   forStar   tupssection   on   pag   e18.   Thelic   ensingpr   ocessbegins   b   ydiscus   singa   t   erm   or service, and the base upon which the royalty   sheetsummarizing   the   es   sentialbusines   st   erms   is applied (e.g., unit, component, subsystem).   ofthe   agr   eement.Belo   war   ethe   t   ypesof   busines   s   Royalty payments may be structured in different   LICENSING termsg   enerallyaddr   essed. ways, such as onetime or recurring fees. A license is a written agreement granting some   or all of the University’s rights as owner of an   Scope of License Rights Sublicense Sharing  intellectual property (licensor) to a company   License rights — such as exclusive, nonexclusive,   Exclusivelic   ensesusually   allo   wthe   right   t   o   (licensee). The licensee undertakes certain   fieldofuse limitations, and territory limitations   sublicense,or   authoriz   eother   st   omak   e,use,   and/   obligations and responsibilities to commercialize   — are established to be commensurate with   orsell   the   Univ   ersity’st   echnologyt   of   acilitate   the intellectual property. the licensee’s product development plans   widespreaduse.   R   evenuesy   our   eceivefr   om   and the market.  The University’s licensing sublicensesar   ealso   shar   edwith   the   Univ   ersity. TheUniv   ersitylic   ensesits   v   aried technologies  objective is to obtain widespread use of its (patents,sof   tware, databases,cr   eative works) to  technologies through a well thought out companiesor   individuals   that   demonstr   atethe     commercialization plan. capabilityand    commitment tode   velopearly   stag   e  innovationsint   o commercialpr   oducts or services. License Fee An initial fee based on the   If you would like to license University technologies   scope of license rights and   for use in your startup, you will be asked to   the University’s investment   demonstrate such commitment by providing a   in the intellectual property. written technology and business development . This plan should include but is not limited to   Royalties plan a description of the technologies to be licensed,   Your company will be   the resulting product, market analysis, a product   expected to pay royalties   development timeline, and the company resources   when products or services   committed to development. that require the use of   the technology are sold   The terms of the license are negotiated based   or transferred. Royalties   on factors such as the type of technology, the   can be expressed as a   industry area, the level of development, the time   percentage of sale or     to market, and the licensee’s commercialization   a fee per selling unit.   plan. The terms should anticipate potential pivots   Royalty rates vary   in the company’s strategy to accommodate the   according to the industry,   market or the product.   FORMING A BUSINESS • 9Minimum Royalties  Developing a investor. Consequently, itis   the   most    important  Minimum royalty payments are established to   part ofthe    plan. It should answer these questions:  encourage diligence in developing and selling Business Plan products or services  based on the technology. •  What is the company’s mission   A business plan is a strategic description of how   •  Why is it important   Patent Reimbursement  your startup will advance its technology and   •  How will the company make money pursuing     Recovery of the costs incurred by the University   achieve profitability and success. It is a living   its mission   for protecting the technology in the U.S. and other   document and will need to be revised to reflect   •  How will the company develop its technology   countries  is  part  of  the license. Typically, patent   the changing conditions of the business and the   into products costs  that  accrue  prior  to  licensing  are  repaid  via  a  market in which it operates.   •  What experience do the founder and   payment plan, while patent costs during the term   management team have   of the license are paid as they are incurred.   The true value of developing an initial business   •  How much money is necessary   plan is not the finished product itself, but the   •  What level of return can an investor expect   Performance (Diligence) Milestones  research and thought behind the plan. Creating a   •  Why that level of return   University technologies often require  significant   business plan helps you systematically consider all   additional development before they are ready for   aspects of the business. Additionally, a business Business Description the market. You will be asked to provide periodic     plan is critical for a startup that is trying to Thebusines   sdescription   pr   ovidesmor   ee   xtensive   reports and meet specific milestones in order to   secure external funding. The business plan   informationc   oncerningy   ourc   ompany’smis   sion   retain the license, especially an exclusive license.   demonstrates to outside investors that you have   thanw   aspr   ovidedin   the   e   xecutivesummary   .If   the     Milestones are usually industry specific. thoroughly  explored  both  the  market  and  how  your  executivesummary   is   an   ele   vatorpit   ch,then   the     product or service fits in that market. The level   businessdescription   is   similar   t   oan   e   xtended,mor   e   License Compliance of detail in the plan will depend on the types of   descriptiveele   vatorpit   ch,helping   in   vestorsquickly     After you license University technology, your   investors or funding you are seeking. understandthe   busines   s’g   oalsand   its   unique     Office of Technology Management will manage   position.T   hebusines   sdescription   should   include:   the license to ensure all terms and conditions are   Ther   emainderof   this   section   will   look   at   some   of   the     adhered to and the technology reaches its fullest   mostimpor   tantpar   tsof   a   busines   splan.   Ho   wever,it     •  The nature of the business and the marketplace   potential.  isnot   a   c   omprehensiveguide,   but   an   intr   oductiont   o   needs the business will satisfy thev   ariouselements   y   oushould   c   onsider. •  An explanation of how the startup’s products,   If the terms and conditions are not met, the   technologies, or services address those needs license may be terminated or revised, in which   Executive Summary •  The specific companies or customers the start case the invention may become available for   Thee   xecutive summary is a snapshot of the up will serve licensing to another company. business.It   acts   as    an elevatorpit   chand    isusually     •  Thec   ompetitiveadv   antagesthe   star   tup has,  thefir   st opportunity tocat   ch the interest ofan     suchas    personnel, technology,or    valuecr   eation 10  •  THE STARTUP HANDBOOKMarket Analysis Marketing Plan The market analysis presents market research   Therear   e manyf   actors that go into the marketing  showing the current state of your startup’s   process, whichwill   be    highlightedin    greater detail  industry segment, as well as  the target market in the Marketing sectionof   this   handbook   (pag   e  for your product or service. At a minimum, the   14). Forthe   busines   splan,    it is importantt   osho   w  market analysis should contain: how yourpr   oduct orservic   ewill   be    positionedin     the mindsof    customersv   ersusthe   c   ompetition.  •  A specific description of the target market Elementsdeserving    considerationar   e:  •  The revenues and growth rates of the market,   including a fiveyear projection •  Key factors in the customer selection process •  A demonstration of a strong market need for   •  Customer perception of competitor   your product or service performance in the key factors •  A competitive analysis •  How your startup’s offering will perform in the   •  The results of marketplace interviews or other   key factors primary market research •  Marketshar   eg   oalsand   ho   wthe   ywill   be   achie   ved Investors want to know that you have carefully   Management Team considered and fully understand the market   The management team section defines the roles   your startup will target. Further, the market   of the management team and presents their   POINTS TO REMEMBER WHEN   analysis must honestly address the competitive   biographies. Investors prefer to see that the team   PREPARING THE BUSINESS PLAN environment. Unfortunately, there is no market   has relevant business and technical experience.   To reiterate some of the most important concepts   that is void of competition, and investors are   you should be mindful of when preparing the   keenly aware of this. Even new products in   Financials business plan: socalled “uncontested markets” face indirect   Thefinancials    should provide thecurr   ent status  competition from substitute offerings. The   of thebusines   s and a realistic expectation of its •  Focus on the customer and the market need, analysis should acknowledge this reality.   position after five years. The goalis    to determine  NOT on the technology the cashneeded   f   or the startupt   o succeed,as     •  Acknowledge your competition honestly Additionally,most   in   vestorsw   antt   osee     well asthe    reasonable revenuesand   pr   ofits that  •  Include elements of the strategic plan independente   videnceof   mark   etv   alidation.   can bee   xpected from thein   vestment. A five •  Ask for ongoing feedback from an experienced   Examplesof   this   include   the   r   esultsof   y   ourmark   et   yearpr   ojection willnec   essitatemaking    some  entrepreneur research,cust   omersurv   eys,and   int   erviews.   assumptions.T   heseas   sumptions should benot   ed.  •  Discuss current capital structure Youshould   also   be   pr   eparedt   o justify on what  •  Make sure the plan flows narratively from   basisthe   as   sumptions weremade.   A   dditionally,  section to section this sectionshould    detail howan   y cashin   vestedin     •  Keep the business plan as succinct as possible thebusines   swill    be used.   FORMING A BUSINESS  •  11Entities and Legal Generally, venture capital investors prefer to   S Corporations invest in C corporations because of a C corp’s   S corporations, similar to LLCs, are generally   ability to issue preferred stock to investors. The   flowthrough entities for tax purposes, with   Formation of a Business structural accountability of a C corp is well the S corp’s taxable income distributed to   Business entities are ways to classify the   defined, with management reporting to the board   its shareholders in equal proportion to their   organization of your business as recognized   of directors. C corporations can issue incentive   ownership share. S corporations may have no   by law. While you have many entity options   stock options to employees, giving employees an   more than 100 shareholders. Additionally, the   available to legally form the business, there are   equity stake in the success of the corporation. shareholders must be individuals, with some   three that merit particular attention because   limited exceptions.   they are common entities for technologydriven   LLCs startups: C corporations, Limited Liability   For tax purposes, LLCs are flowthrough entities.   Like C corporations, S corporation ownership   Corporations (LLCs), and S corporations. These   Corporate revenue is not taxed at the corporate   transference is flexible. However, S corporations   entities differ significantly regarding taxation,   level but passes through to the LLC’s owners,   do not have the ability to issue multiple classes   ownership, fundraising, governance, and   where it is taxed at the individual level. Like C   of stock. Most venture capital investors want   employee compensation. corporations, LLCs may have an unlimited number   preferred (rather than common) stock as a   of owners. However, transference of ownership   condition of the investment. Consequently,   Selection of the business entity that best suits   is more difficult, usually requiring the approval of   S corporations are generally unattractive to   a particular startup should be done with the   the other owners. For this reason (among others   professional investors.   consultation of an attorney and/or accountant   not touched on here), venture capital investors   who has experience advising startup companies.   generally do not favor investing in LLCs.   S corporations closely mirror the accountability   Consequently, the following sections are meant as   standards of C corporations. S corporations   an introduction to common business entities and   Additionally, the passthrough tax treatment of   may issue incentive stock options to employees.   should not be construed as professional advice. LLCs can cause undesirable taxable income to   However, unlike C corporations, Federal law   investors. LLCs generally operate without the   restricts S corporations from issuing stock   C Corporations formalities of a C corp, with the owners managing   to certain individuals, most notably nonU.S.   C corporations are separate taxable entities from   the daytoday operations. An LLC may offer   citizens and nonU.S. residents. their shareholders. Consequently, the earnings   membership interests to employees, but cannot   of a C corp are generally taxed twice: first at the   offer incentive stock options. corporate level based on the taxable earnings of   the corporation, and then at the shareholder level   based on distributed dividends. C corporations   may have an unlimited number of shareholders   who are not required to manage the corporation’s   daytoday operations.   12  •  THE STARTUP HANDBOOKPlace of Incorporation BUSINESS ENTITIES AT A GLANCE In addition to deciding which type of entity   is best for the startup, an entrepreneur   must also determine in which jurisdiction   C Corp LLC S Corp to incorporate the business. Often   Liability •  Shareholders are not typically   •  Members are not typically   •  Shareholders are not typically   entrepreneurs will incorporate the startup   responsible for the debts of     responsible for the debts of     responsible for the debts of     in their home state, however, many venture   the corporation. the LLC. the corporation. capital firms prefer — or even insist upon   Tax •  Taxed at the entity level. If   •  If properly structured there is no   •  No tax at the entity level.   — incorporation in Delaware because   Implications dividends are distributed to   tax at the entity level. Income or   •  Income or loss is passed through. of Delaware’s predictable and business   shareholders, dividends are also   loss  is  passed  through  to  members. •  No double taxation. friendly laws. Before making any decision,   taxed at the individual level. •  No double taxation. •  No pass through of income or loss. it is best to consult with an attorney to   •  Double taxation if income is   help weigh the pros and cons concerning   distributed to shareholders as   different places of incorporation.   dividends. Complexity of •  State filing required. •  State filing required. •  State filing required. Formation and •  Board of directors, annual   •  Some formal requirements,   •  Board of directors, annual   Commercial Liability Management meetings, and annual reporting but less formal than S and C   meetings, and annual reporting corporations Insurance •  Managed by board of directors   •  Managed by board of directors   who are elected by shareholders. •  Members have an operating   who are elected by shareholders. agreement that outlines   Liability insurance is mandatory for all   management responsibilities. companies and is explicitly required   before a company can lease space in   Effect on Ability •  Shares of stock are sold to     •  Possible to sell interests, though   •  Shares of stock are sold to     EnterpriseWorks. Insurance for businesses   to Raise Capital raise capital. subject to operating agreement   raise capital. restrictions. •  No limitation on the number of   •  Limited to 100 shareholders. Only   is usually packaged as “general business   shareholders, different stock   •  No limitation on the number of   one stock class allowed. Only     insurance” and can cover everything from   classes allowed (which is preferred   members, and different classes of   U.S. citizens and residents may   personal injury and product liability to   by investors). ownership are allowed. hold shares. •  Easier to convert to a C corp than   company vehicles.   an LLC if venture capital is sought. Courtesy of Singleton Law Firm, P.C.   FORMING A BUSINESS  •  13Marketing involvedin   the   pur   chasingpr   ocess.T   heser   oles   Competitors include not only those currently in   includethe   initiat   or,the   decider   ,the   influenc   er,   the market, but future competitors either in the   The essence of marketing is the process by which   thepur   chaser,and   the   user   .While   an   individual     form of new entrants to the market or substitute   firms identify, create, provide, capture, and sustain   mayoc   cupyse   veralor   all   r   oles,this   is   not   alw   ays   offerings. You should assess the strengths and   value for their customers. Value is the benefit   thecase.   F   ore   xample,the   e   ventualdecision   t   o   weaknesses of these competitors to better   provided to the customer. purchasedesk   topsf   oran   offic   ema   ybe   made   b   y   determine how to differentiate your startup in the   thec   ompany’sCF   O,but   the   user   swill   actually   be     minds of consumers. Additionally, the marketing   There are many good resources to assist you in the   thec   ompanyemplo   yees.F   urther,the   c   ompany’sIT     analysis should address the motivations and   marketing process. This section is an introduction   departmentwill   lik   elyinfluenc   ethe   decision.   strategies of your competitors so that you can   to some of the major principles of marketing and   anticipate the likely reaction of rivals to new   is meant as a starting point in understanding the   In addition to the purchasing process, you should   competition.  marketing process. understand your customers’ decision making process. Considerations include, but are not   Collaborators – Who should your company enlist   limited to, whether your customers search for   to assist and how do you motivate them MARKETING ANALYSIS     information before making a purchase, and if   so, in what manner What are the criteria your   Collaborators include upstream suppliers and   (THE FIVE C’S) A preliminary market analysis focuses on five   customers use in evaluating alternatives You   downstream distributors. Developing a strategy   main areas of consideration: customers, company,   should understand all aspects of your customers’   to gain the support of industry collaborators   competitors, collaborators, and context. processes  for  evaluating  and  purchasing,  as  well  as  entails a thorough knowledge of the collaborators   how your product or service fits into that process. cost structures, margin expectations, and   Customer Needs – What needs does the business   relationships with competing firms.   seek to satisfy Company Skills – What special competence does   your company have to meet customer needs Context – Are there cultural, technical, and/or   Youshould   kno   wthe   specific   mark   etneed   y   our   legal factors that limit your firm’s options offeringsatisfies.   T   his,ho   wever,is   not   enough.     The marketing analysis should include an honest   Asidefr   omthor   oughlyunder   standingy   our   assessment of your business’ strengths and   You shouldunder   stand theen   vironment in which  customer’s  needs,  an indepth analysis of customer weaknesses. Considerations should include the   yourbusines   s will operate.T   his context (or  usage patterns and buying decisions is also company’s financial footing, production capability,   climate)includes    macroeconomic factors such  necessary for effective marketing.K   eepin   mind     and other assets (such as IP). as the political andr   egulatoryen   vironment, the  thatpur   chasingdecisions   ar   eof   tena   c   ollaborative   economic environment,the   social   and   cultur   al  processand   not   solely   at   the   discr   etionof   the     Competition – Who competes with your company   environment,and   the    technological environment.  user.R   esearchersha   veidentified   definitiv   er   oles   in meeting those needs 14  •  THE STARTUP HANDBOOKSEGMENTATION, THE TARGET   MARKET, AND POSITIONING (STP) Once the situational analysis is completed through   The Marketing Process the five C’s, the next steps are to define how to   identify customer segments within the market,   determine which of those segments to target, and   Marketing Analysis (The Five C’s) position your company in the minds of customers. CUSTOMERS COMPANY COMPETITORS COLLABORATORS CONTEXT Segmentation Market segments are groups of potential   customers who share certain traits. Commonly   TARGET PRODUCT MARKET used bases for segmentation include demographic   MARKET AND SERVICE SEGMENTATION SELECTION POSITIONING (e.g., age, income, gender, occupation), geographic   (e.g., nation, region, urban vs. rural), and lifestyle   CREATING (e.g., single vs. family oriented). However, these   VALUE broad categories are only starting points to   Marketing Mix (The Four P’s) determine how the market is best segmented.   Additional segmentation can take the form: PRODUCTS PLACE PROMOTION AND SERVICES (CHANNELS) •  User status: nonuser vs. user •  Usage rate: light, medium, heavy user CAPTURING PRICING •  Benefits sought: performanceoriented vs.   VALUE priceoriented •  Loyalty status: none, moderate, strong,     SUSTAINING CUSTOMER CUSTOMER totally loyal VALUE ACQUISITION RETENTION •  Attitude toward product: unsatisfied,     satisfied, delighted PROFITS Target Market You should consider the following factors when   determining which segments to target: •  The comparative strengths and weaknesses of   your offering compared to the competition   FORMING A BUSINESS  •  15MARKETING MIX (THE FOUR P’S) The marketing mix comprises the activities of   a marketing program. The discrete activities   Positioning Statement Formula: are the tactics a business uses to accomplish   its marketing strategy. The marketing mix is   commonly broken into four different areas of   OUR PRODUCT/BRAND SINGLE MOST IMPORTANT CLAIM among activity: product, place (channels), promotion, and   is pricing. The following subsections introduce these   concepts briefly. COMPETITIVE FRAME SINGLE MOST IMPORTANT SUPPORT all because Product  The product is not simply a tangible object   that a business sells, but the entire bundle of   benefits offered to the consumer, including any   •  Your overall goals and how the segments align   The positioning statement is a succinct   services. This is the total product concept or the   with those goals description of how your firm wishes to be viewed   integrated product.  From a marketing standpoint,   •  The resources necessary to properly serve     by customers. Essentially, it is how you want   the total product concept must be seen through   the segments customers to think of your offering in relation to   customers’ eyes as the total value delivered to   •  The need andpot   entiala   vailability of  the competition. customers from purchasing the product.     collaborators toas   sistin    reachingthe   segments   •  The likely financial returns from serving     the segments Positioning In conjunction with determining the market   segmentation and target market, you should also   make a conscious choice about how your company   will position itself in the marketplace. Often the   determination of the positioning will itself indicate   the proper target market.   16  •  THE STARTUP HANDBOOKFor example, when purchasing an Apple iPod, a   promotional strategies combine personal and   customer is not merely getting the device itself,   nonpersonal selling to educate customers by   Board of Directors but also its integration with iTunes, iCloud, and   informing them of the key features and benefits of   the psychological connection to the Apple brand.   the product and close the sale. A board of directors’ main function is the   This is the bundled value to customers. Viewing   overall management of a business. While   the product in such a large framework creates   Pricing  executives are tasked with the daytoday   opportunities to differentiate your offering from   The combination of the product, place, and   supervision of the business, the board   your competitors. channel will largely determine the customers’   of directors is responsible for highlevel   perception of your offering’s value. The perceived   decisions. These can include, but are not   Place: Marketing Channels value is the maximum price that customers are   limited to, decisions to raise capital and/or   The channels are the ways in which your firm   willing to pay for your product. The difference   sell the company. The board of directors is   actually delivers its product to the customer.   between the maximum price customers will pay   elected by a company’s shareholders and is   Essentially they are the distribution of the benefits   and the actual cost of producing the product is   accountable to the shareholders.   to the market. The places in which your firm will   the value that your firm produces. The amount of   make its product available will be influenced by   captured value you seek should be determined by   such considerations as the actual product itself,   your overall marketing strategy. Board of Advisors the target market, and positioning. Unlike a board of directors, a board of   For example, if your offering is a consumer product   advisors is an informal board. The members   positioned as a commodity, it will need as large   of a board of advisors are generally   a distribution as possible. Conversely, a premium   experienced professionals who can assist   offering will require a limited distribution in select   a startup with pertinent expertise in the   stores to enhance the perception of the product’s   company’s market or industry. Additionally,   exclusivity. Additionally, if your customers are   a board of advisors may be able to connect   businesses, then the channel will need to reach   the startup to sources of funding. The   business customers and not retail outlets. board of advisors may also help to fill in   gaps during the startup’s early stages,   Promotion  when resources are not available to hire   Promotion is how your company communicates   fulltime professionals to fill needed   to customers about the benefits of its offering.   functional roles. It incorporates both personal selling efforts as   well as nonpersonal ones, such as advertising,   sales promotion, and public relations. The best     FORMING A BUSINESS  •  17University Resources for potential investors and partners. Proof of concept   StartUps funding supports activities such as: •  building prototypes •  conducting commercial feasibility tests •  demonstrating the mitigation of risk •  addressing issues identified by industry that   EnterpriseWorks on the Urbana campus     improve the ability to license or attract capital   from investors Incubators University Resources Both the Urbana and Chicago campuses have   An incubator is a facility designed to   proof of concept funding programs. To be eligible   accelerate the development of young   for Startups for funding, projects must be based on an   companies. Incubators are ideal for early The University of Illinois has many resources for   invention that has been disclosed to the Office of   stage businesses because they provide an   startups and entrepreneurs. The University’s   Technology Management. Those interested must   array of resources including peer support   Research Park and the EnterpriseWorks incubators   submit preproposal applications to their OTM.   and professional services specifically   in Chicago and Urbana are key resources that   geared for startups. provide physical space, services, and programs   UrbanaChampaign: The Illinois Proof of specifically designed to help new businesses   Concept Fund (IPOC) Advantages common to many incubators: succeed. Additionally, IllinoisVENTURES is   The IPOC Fund, managed by the Office of   an earlystage venture capital firm and offers   Technology Management, is made possible   •  A variety of functionspecific spaces from   guidance, resources, and funding to startups.   by contributions from the Office of the Vice   offices to lab suites fully outfitted with   For students, many entrepreneurial workshops,   Chancellor for Research and colleges and units   lab equipment programs, and competitions exist.   across campus. IPOC awards range from 10,000    50,000.    •  Reduced overhead costs through the   pooling of equipment and resources PROOF OF CONCEPT FUNDING   Chicago: Proof of Concept Awards Program   Proof of concept funding helps bridge the gap   The POC Awards Program is part of the UIC   •  Shared common areas, which encourage   between University research labs and the   Chancellor’s Innovation Fund. It is conducted   knowledge transfer between tenants marketplace by funding development that will   twice yearly with grants up to 75,000 for   demonstrate an innovation’s market viability to   awarded projects.   •  Onsite consulting, training, and     support resources to help guide     startups to success 18  •  THE STARTUP HANDBOOKTHE OFFICES OF TECHNOLOGY   ENTERPRISEWORKS The EIRs keep weekly office hours and are   EnterpriseWorks is a 43,000 squarefoot   available to any Research Park client or MANAGEMENT The Offices of Technology Management are   Universityowned startup incubator located   University of Illinois faculty, staff, or responsible for managing the intellectual property   in the Research Park. EnterpriseWorks offers   student entrepreneur. generated by research and educational activities   shortterm leases for laboratory and office suites.   at the University of Illinois. Additionally, it offers programs specifically   They can advise on issues including:   designed to help startups succeed, such as   •  business consulting Their shared mission is to encourage innovation,   the EntrepreneurinResidence (EIR) program   •  strategy assistance enhance research, and facilitate economic   and other business support services. Since the   •  marketing and communication assistance development through the transfer of intellectual   incubator opened in 2003, it has become the   •  investor preparedness property. They provide responsive professional   launching pad for more than 145     services to ensure that the results of University   startup companies. research are successfully transferred outside the   University, driving economic growth in Illinois and   benefiting the general public.   ENTERPRISEWORKS  University of Illinois PROGRAMS  Licenses to use University intellectual property EntrepreneurinResidence Research Park in a startup company are negotiated with your Program (EIR) ««« campus Office of Technology Management. The EIR program hires   2011 Outstanding Research Park by the Association   experienced technology   of University Research Parks entrepreneurs to provide   UNIVERSITY OF ILLINOIS   monthly counseling to   ««« new startup ventures and   RESEARCH PARK More than 575 million raised in venture capital and   The University’s Research Park, located on the   prospective technology   angel funding by incubated companies Urbana campus, provides an environment where   entrepreneurs. The program   technologybased businesses can collaborate   selects peers who have   ««« with the University’s faculty and students, as   faced similar challenges in   More than 43.5 million in SBIR and STTR grants   well as have access to University services. It is   commercializing research or   awarded to companies in the Park between   currently home to the EnterpriseWorks incubator   earlystage technology and are   20042012 and more than 90 companies, including many   able to provide advice derived from   Fortune 500 companies. their own experiences in successfully   attracting investors and industrial clients.   FORMING A BUSINESS  •  19NSF ICORPS AT THE UNIVERSITY OF ILLINOIS Theg   oalsof   the   pr   ogramar   et   ohelp   y   ou: Additionally, the EIR program hosts monthly   NSF ICorpsis    apar   tnershippr   ogram designedt   o  •  validated your market size, value proposition,   training events featuring topics such as   teachUniv   ersity entrepreneursho   wt   odet   ermine  and customer segment intellectual property basics, business   productoppor   tunitiesfr   om academicr   esearch.  •  be in a position to apply to the National NSF   development and sales, SBIR/STTR grant writing,   ICorps program and investor options and negotiations. TheUrbana   campus   is   an   IC   orpsSit   e,which   is     •  pitch to investors if needed gearedf   orde   velopingpot   entialIC   orpsT   eam   •  Apply for SBIR funding To receive consultationfr   om oneof    theEIRs,     projectsand   pr   ovidingan   entr   epreneurialpr   ogram   applicantsshould    submit anonline    requestf   orm  forpot   entialf   acultyand   gr   aduatestudent   t   eams   More than 30 teams participated in the program through  http://go.illinois.edu/eirhelp.  Entrepreneurs  toc   ompletet   ogethert   oac   cesstheir   busines   s   in the first year alone. mayselect   an   EIR    orha   veone    assignedt   othem     potential.IC   orpsSit   espr   ovideinfr   astructure,   bythe    EnterpriseWorks staffbased   on    thesubject     advice,r   esources,net   workingoppor   tunities,   IStart matter anda   vailability ofthe    team. training,and   modest   funding   t   oenable   gr   oupst   o   EnterpriseWorksalso   off   ers theI   Start transitiontheir   w   orkint   othe   mark   etplaceor   int   o   Entrepreneur Assistance Program.I   Startis     becomingIC   orpsT   eamapplicants.   amat   ching awardpr   ogramoff   eringa   suit   eof     firstyear professional services.I   Startcan    help  withbusines   s development,busines   sf   ormation,  SBIR application, marketing,and   bookk   eeping.  Participants also receiver   eferralst   o service  IStart Entrepreneur Scope of Services providersoff   eringr   ates thatmat   chthe    funding  level. TheEIRs   help    toe   valuateI   Start clientsand     Financial and Payroll Student Shared Services Legal Services Business Planning SBIR Assistance monitortheir    progress. Services Center •  Initial company   •  Write business plan   •  Finding solicitation   •  Payroll  •  Market research Affiliate Program  formation, bylaws,   with inventor input and agency fit administration •  Presentation  application for FEIN   The Affiliate Program is an affordable pre •  Market research •  SBIR process   •  Quarterly financial   assistance (filling fees paid by   guidance statements incubation program helping early stage startup •  Financial projections •  Initial template   entrepreneur) •  Draft budget •  Assistance with   website companies access  services.  The  program  includes: •  Recommendation on   •  Stockholder  Quickbooks setup sources of capital •  Writing assistance •  Logo assistance agreements and   certificates •  Assistance  •  Help with letters of   •  Social media,   •  Mailing  address  and  mailbox  at  EnterpriseWorks with hiring and   support adwords •  Stock option plan •  Access to shared conference rooms incorporation  •  Project management •  IT/Computer    •  Employment  decisions •  Access to “hoteling” space for shared office use   system setup (up to   agreement •  Registrations and   100 hours of student   with a computer, printer, Internet, and MS     submission •  Nondisclosure  work) Office programs agreements •  Access to EIR services 20  •  THE STARTUP HANDBOOK•  Invitations to weekly Research Park   ENTERPRISEWORKS CHICAGO •  Talent  programming and events EnterpriseWorks Chicago creates a vibrant   EnterpriseWorks Chicago educates inventors   •  Research Park website tenant listing entrepreneurial ecosystem that engages the entire   on the business of commercialization and   •  Allied Agency Status with Illinois University of Illinois at Chicago campus, leverages   creates entrepreneurial experiences for   University of Illinois systemwide assets, connects   students to develop broader skills. Providing   Business Support Services: resources within and beyond the University to   access to entrepreneursinresidence,   •  DesignerinResidence program available to   support emerging technology companies, and   mentors, industry experts, and functional   help with product design shares economic benefit with the greater Chicago   specialists cultivates new talent and creates an   •  Onsite staff providing assistance with   community and the state of Illinois. environment that attracts serial entrepreneurs   operations, information technology, and   and fills the talent pipeline for emerging   administrative needs EnterpriseWorks Chicago executes this function technology companies. •  Assistance with hiring student employees around five pillars of an entrepreneurial ecosystem. •  Referrals to funding services and professional   service providers •  Hazardous waste disposal and lab safety   Health Technology Innovation (HTI) consultation through the University’s Division   of Research Safety EWC’s flagship initiative is HTI, convening   At HTI scientists, engineers, investors and   •  Procurement assistance with the University’s   at the intersection of Health, Technology   industry experts are working to validate   stores and facilities at University rates and Innovation. Anchored in the Chicago   technology, create new products and   •  Mail and package handling Technology Park, HTI is a national best practice   accelerate new ventures. •  Onsite lab supply stock room in shared wet and dry laboratory facilities.   Events for Entrepreneurs: Centered on collaboration space, a fully   •  Speakers from the local business and   equipped meeting and classroom with HD   technology communities video conferencing systems, smart board   •  Monthly social events technology and more, all aimed at nurturing   •  TechCocktail and TechMix technology   the unique commercialization path of the life   demonstrations sciences and complex research technologies.   •  CU Software User Group •  CU Women in Tech bimonthly lunch •  Annual career fair •  Summer concert series   FORMING A BUSINESS  •  21•  Innovation •  Networks within the capital community to improve   EnterpriseWorksChicag   oserv   esas   a   v   ehiclef   or   EnterpriseWorks Chicago creates   opportunities and access to capital along the   innovation,  finding  commercial  potential  through  opportunities for entrepreneurs, students,   commercialization continuum. companyf   ormation and startup ventures. and inventors to formally and informally   connect to a broader community through   •  Infrastructure  events, exchange engagements and news   ILLINOISVENTURES EnterpriseWorks Chicago provides incubation   of entrepreneurial interest at the city, state,   The Board of Trustees of the University of Illinois   offices and laboratory facilities, implements   national and global level. launched IllinoisVENTURES in 2002. training and support programming, and offers   an operational infrastructure to serve as a hub   •  Capital Under the guidance of a worldclass board   for a robust entrepreneurial ecosystem. EnterpriseWorks Chicago cultivates   comprised of leaders from all phases of the   funding sources and builds relationships   investment community as well as academia,   Chicago Innovation Mentors (CIM) Incubator Leasing Process Chicago Innovation Mentors helps   connect University and Chicagoarea   Prospective tenants at EnterpriseWorks submit an application and their business plan for technologybased startups with   review (typically takes one week). Acceptance is contingent upon the following: mentorship teams. Those in partnership   ü  The applicant must be an incorporated forprofit company with a valid tax ID with Chicago Innovation Mentors receive   ü  Must have a research and/or technology orientation commercialization guidance and learn   ü  Must be an earlystage company valuable entrepreneurial skills. CIM offers   ü  Preference for startups with a relationship with the University of Illinois resources in the following areas:   ü  The applicant must have a real need for incubation facilities and services ü  Focus on getting a product to market and generating revenue •  Intellectual property ü  Personal commitment to building a business, not a hobby •  Financing ü  A highquality business plan •  Networking in Chicago ü  The principals involved should be wellqualified in their field of technology and have (or plan to have) experienced management on   •  Commercializing technology the team •  Team management ü  The company must be financially solvent with a plan to raise sufficient capital to achieve its business plan Both the Urbana and Chicago campuses are   All leases at EnterpriseWorks are one year in length and use a standard University template. Leases are cancellable by the tenant   with 30 days notice. Rates include utilities, furniture, internet service, and access to shared facilities. Tenant is responsible for having   members of CIM. commercial liability insurance and optional phone servce. 22  •  THE STARTUP HANDBOOKIllinoisVENTURES has created a stateoftheart RESOURCES FOR STUDENT   •  Invention to Venture (I2V) is a program   environment for new company formation via a of the National Collegiate Inventors and   ENTREPRENEURS unique public/private partnership that is The Technology Entrepreneur Center (TEC) is   Innovators Alliance that teaches students   a valuable resource for those interested in an interdisciplinary center on the Urbana campus   technology entrepreneurship basics and   starting up a company.  that engages faculty, students, and alumni in the   network building skills. Several workshops are   practice of entrepreneurship. Since TEC’s creation   offered each year.   In 2004 IllinoisVENTURES raised their first   in 2000, the center has provided skills, resources,   venture fund, the Illinois Emerging Technologies   and experiences that are essential for successful   •  Discarded to Precious (D2P) is a competition   Fund, in recognition of the limited presence   innovators and entrepreneurs.   hosted by TEC and the School of Art + Design   of seed and earlystage technology investors   that challenges students to transform discarded   actively committing capital in Illinois.    TEC offers:   material into something more useful. To date, IllinoisVENTURES has formed and   •  Innovation LLC, created as a partnership   supported an array of companies in multiple   between University Housing and TEC, is an   business domains throughout the region,   entrepreneurial livinglearning dorm in the   About IllinoisVENTURES which have attracted substantial thirdparty   Illinois  StreetR   esidenceHall   wher   estudents     coinvestment from leading investment firms   are  actively  involvedwith   and    exposed to TEC  •  Total assets under management: across the nation.   opportunities.  With offices in Champaign and Chicago,   •  Charm School provides students with     65 MILLION IllinoisVENTURES professionals provide   an opportunity to spend a day learning the   guidance to faculty in early market assessment,   skills necessary to succeed in a professional   competitive  analysis,  business  strategy,  and  other  environment. Students spend the day   activities necessary to create high potential,   perfecting their networking and interviewing   • ATTRACTED ventureready businesses. The firm also provides   skills, as well as learning to dress professionally   funding through all stages of business creation   and build standout resumes.   and development. 600 •  SocialFuse is a recurring event for students,   faculty, and community members who wish   MILLION to pitch ideas and network with others from   3rdparty coinvestment in     various majors and backgrounds. The event   holdings — over 13:1 leverage features startup pitching followed by informal   networking.   FORMING A BUSINESS  •  23EXTERNAL RESOURCES MARKET IMPACT/REVENUE RESEARCH •  The Patent Clinic is a joint effort   between TEC and the College of   Law in which selected participants   from the Cozad New Venture   The StartUp Resource Matrix Competition and the Illinois   FUNDING Seed and Innovation Prize can compete   Every innovation follows a unique   Angel to have their patent application   path to market impact, and so the   Funding drafted free of cost.   University has developed this system   of resources to support innovators   SBIR Phases The Academy for Entrepreneurial with different needs at different stages   I and II IllinoisVENTURES Leadership (AEL) has offered   of the commercialization process.   entrepreneurship programs, services,   The specific programs an innovator   and resources to faculty, students,   chooses to access will vary depending   and community members since its   on the needs of the technology and the   creation in 2004. AEL also helps to   intention of the innovator. IStart encourage  entrepreneurial  awareness  Business and initiatives across all disciplines     POC Plan on the Urbana campus. Funding Competitions The Student Startup Initiative by EnterpriseWorks provides student   ICORPS entrepreneurs with free space each   semester. This space is assigned   based on competitive proposals   submitted by students.   UI ICORPS site Awards and Competitions:   IP Management, Marketing, and Licensing (OTM) •  Cozad New Venture Competition Chicago Innovation •  Illinois Innovation Prize Mentors StartUp Incubation and •  NCIIA Grants Entrepreneurs Mentorship (EnterpriseWorks and external resources) inResidence OSPRA EarlyStage Funding (IllinoisVENTURES and external resources) MENTORSHIP 24  •  THE STARTUP HANDBOOK INTERNAL RESOURCESFunding Your Business and disadvantages. This section will briefly   University’s incubators offert   echnical assistance  discuss different types of funding sources. and counseling to faculty entrepreneurs whoar   e  interested insecuring    SBIRor   S   TTRgr   ants. SELFFINANCING SBIR  Selffinancing is exactly as it sounds: a business   SBIR is a highly competitive program that   funded by the personal savings of the founders.   encourages domestic small businesses to engage   Types of Funding This allows the entrepreneurs to maintain   in  research  and  development  that  has  the  potential  complete control of the business. Additionally,   for commercialization. The stated mission of the   Funding can be divided into three categories, each   when external funding is sought, investors look   SBIR program is to support scientific excellence   of which has different implications for the investor,   for entrepreneurs who have “skin in the game.”   and technological innovation through investment   investee, and business: An entrepreneur who has selffinanced a business   of Federal research funds in critical American   has already signaled to investors that he or she is   priorities to build a strong national economy. The   Grants serious about moving the business forward. program’s goals are to: No obligation to repay provided that the terms of   the grant are met. •  Stimulate technological innovation BOOTSTRAPPING •  Meet Federal research and development needs Debt  Bootstrapping is the reinvestment of early product   •  Foster and encourage participation in   Borrowed funds, repayable on a fixed schedule   sales into a company. It requires a customer innovation and entrepreneurship by socially and   with interest. centric process of development that permits the   economically disadvantaged persons company to bill for early sales. Bootstrapping   •  Increase privatesector commercialization of   Equity allows entrepreneurs to maintain control of a   innovations derived from Federal research and   Ownership through either stock or membership;   business without having to acquiesce to outside   development funding Equity funding can have profound effects on   influence, while also preventing the entrepreneurs   bylaws, voting rights, operational control, and   from risking their own personal savings. STTR future rights. STTR is another program that expands funding   opportunities in the Federal innovation and   FEDERAL GRANTS development arena. Central to the program   Funding Sources TheSmall   Busines   s Innovation Research  is the expansion of the public and private   (SBIR)and   Small   Busines   sT   echnology Transfer  sector partnership to include the joint venture   Many startups fail due to a lack of resources.   (STTR)pr   ograms offergr   ants to qualifiedsmall     opportunities for small businesses and nonprofit   Obviously, one of the keys to a startup’s success   businesses. Thepurpose    ofthese   pr   ogramsis    to  research institutions. STTR’s most important   is securing funding. Small business funding comes   help fund earlystageRD   at   small   t   echnology  role is to bridge the gap between performance of   from several places, each one having advantages   companies, including faculty startups.T   he    FUNDING A BUSINESS  •  25basic science and commercialization of resulting   are a few examples of competitions, participation   Eligibility for SBIR innovations. The stated mission of the program is   in which could provide resources and assist in   to support scientific excellence and technological   refining your business plan and pitch. STTR Grants innovation through the investment of Federal   •  U.S. business organized for profit research funds in critical American priorities to   Cozad New Venture Competition build a strong national economy. The program’s   This competition awards an estimated 150,000   •  All research and development must be   goals are to: in cash and inkind prizes and is open to all   performed in the U.S. full and parttime undergraduate and graduate   •  Independently operated and at least 51   •  Stimulate technological innovation students on the Urbana campus.   U.S. owned by individuals •  Foster technology transfer through   cooperative RD between small businesses   Illinois Innovation Prize •  500 employees or fewer,     and research institutions The Illinois Innovation Prize is awarded annually   including affiliates •  Increase private sector commercialization of   to the most innovative student on the Urbana   •  For the SBIR program , the principal   innovations derived from Federal RD campus. Winners are chosen by the Technology   investigator’s primary employment   Entrepreneur Center and receive prize money.    (more than 50 commitment) must be   with the small business concern at the   LOANS PROPEL Business Plan Competition time of the award and for the duration of   The two primary options for startups to secure   Sponsored by the iBIO IndEx, this competition   the project period debt financing are through either banks or the   offers a 10,000 cash award. To be eligible   Small Business Administration (SBA). Banks often   companies must have their main company   •  Forthe   S   TTR program,the    principal  want to see two to three years of financials before   offices and staff located in Illinois, Indiana,   investigatorcan   be    employed with  they consider making a business loan. Obviously,   Iowa, Kansas, Michigan, Minnesota, Missouri,   thesmall   busines   s orthe    participating  this can pose significant challenges for new   Ohio, or Wisconsin. Competitors should be life   nonprofit researchinstitution    but  startups. Additionally, if a bank considers lending   sciences companies or current or past PROPEL   must havea    formal (minimum 10)  to a startup operation, the loan would be heavily   companies. Additionally, companies should be in   commitmentwith    the small business  collateralized with the entrepreneur’s personal   the prerevenue stage or have revenue less than   concern.A   dditionally,the    small business  assets. Alternatively, the SBA participates in loans   2 million. concernwill   c   onductnot    lessthan    40  programs that are designed to help startups.   of the work and the partnering research  National Collegiate Inventors and Innovators institutionwill    not perform lessthan    30  Alliance (NCIIA) Grants of    thew   ork. BUSINESS PLAN COMPETITIONS With support from The Lemelson Foundation, the   Numerous business plan competitions exist that   NCIIA awards approximately 2 million in grants   can help you secure some initial funding. Following   annually to U.S. colleges and universities. There   26  •  THE STARTUP HANDBOOKare several different NCIIA grant programs, but   their common goal is to support technological   Key Terms innovation and entrepreneurship with a positive   societal impact. Some terms are common to venture capital,   Preferred stock  and you will inevitably encounter them in the   Capitalst   ockpr   ovidesa   specific   dividend   that   is     Licensing Executives Society Graduate course of securing funding. A few of the most   paidbef   orean   ydividends   ar   epaid   t   oc   ommon   Student Business Plan Competition important concepts include: stockholdersand   tak   espr   ecedenceo   ver   This annual competition with a 10,000 grand   commonst   ockin   the   e   ventof   liquidation.   prize focuses on business plans that hinge on   Risk  groundbreaking technologies and services and   The quantifiable likelihood of loss or lessthan Convertible stock  also emphasize intellectual property strategies   expected returns. Preferred stock that can be converted into   that support business goals. a specified amount of common stock at the   Return  holder’s option. JOINT VENTURES The annual return on an investment, expressed   Yourstar   tupma   ybenefit   fr   omstr   ategicallianc   es   as a percentage of the total amount invested. Liquidation preference  withlar   gerc   ompanies.T   headv   antagesof   ent   ering   In venture capital, the right to receive a specific   intojoint   de   velopmentagr   eementsinclude     Common stock  value for the stock if the business is liquidated;   financialsuppor   tfr   oma   c   orporatepar   tnerand/   Securitiesr   epresentingequit   yo   wnershipin     more generally, the order in which credits   orin   vestorwith   a   longt   ermper   spective,ac   cess   ac   orporation,pr   ovidingv   otingrights,   and     are satisfied in the event of the business   toindustry   kno   wledgeand   k   eymark   ets,and     entitlingthe   holder   t   oa   shar   eof   the   c   ompany’s   liquidating. potentialac   celerationof   a   pr   oduct’stimet   o successthr   oughdividends   and/   orcapital     market.Ho   wever,these   pot   entialadv   antagesof   ten   appreciation.In   the   e   ventof   liquidation,     Exit strategy  comewith   some   risk   sthat   should   be   car   efully   commonshar   eholdersha   verights   t   othe     The way in which an investor plans to close   considered.T   heserisk   sinclude:   a   pot   entialclaim     company’sas   setsonly   af   terdebtholder   s,   out an investment; venture capitalists and   tothe   IP   rights   of   the   star   tup;the   lar   gerpar   tner   bondholders,and   pr   eferredst   ockholdersha   ve   angels typically have an IPO or acquisition exit   demandinge   xclusiverights   t   osome   mark   etsf   or   beensatisfied.     strategy to relinquish their holdings and realize   aperiod   of   time;   the   star   tupsdependency   on       a return on their investment. thelar   gerpar   tner’sc   ontinuedsuppor   t,leading       toadditional   pr   essuret   oachie   vepr   edetermined     milestones;the   los   sof   the   star   tup’sabilit   yt   o   controlits   destin   y;and   risk   of   diluting   the   financial     benefitt   othe   star   tup.      FUNDING A BUSINESS • 27ANGELS development and growth of the company, typically   Angel investors are typically wealthy individuals   taking a board seat. This handson approach limits   who meet the IRS and SEC definitions of an   the number of companies in which a venture   accredited investor. Increasingly, however, angel   capital firm will invest. investors are working in association with other   angel investors, often in an organized angel   Although many venture capital firms invest in   group. Angels look for companies that have great   startups founded by entrepreneurs with close   people and great teams. Additionally, companies   ties to the University, it is important to note that   that have a potential competitive advantage   the majority of startups do not receive venture   in rapidly growing markets are an attractive   capital. Of the 100 business plans that a venture   Dilution investment to angels. Angels typically are   capital firm will receive, typically only 10 get a   involved in the seed stage of funding and often   close look and extensive due diligence. Of those   When a startup issues new shares of stock,   have expertise in the startup’s industry, putting   10, generally only one will receive funding. an entrepreneur must keep the effects   them in a position to offer mentoring assistance. of dilution in mind. Dilution is when the   When considering whether to invest in a   issuance of new shares of stock decreases   company, a venture capital firm will consider the   the proportional ownership of existing   VENTURE CAPITAL management team, the concept, the marketplace   stockholders.  Venture capital firms are professional, institutional   and market growth potential, the fit with the   managers of risk capital used to fund ideas that   venture capital fund’s objectives, the value Every round of equity funding results     could not be financed with traditional bank   added potential for the firm, the necessary   in dilution. financing. Additionally, the funded ideas generally   capital to grow the business, and, perhaps most   threaten established products or services and   importantly, a clear exit strategy. For example, if a company initially   require five to eight years to launch. Venture   issues ten shares of stock equally to ten   capital firms make an equity investment in   individuals, then each shareholder will hold   the startup’s illiquid stock. Consequently, any   Securing Funds 10 of the company. If the company then   return on the investment occurs from the stock’s   issues an additional ten shares to a single   appreciation and eventual liquidity, either in the   When approaching investors, you should   investor, the total shares outstanding is 20,   form of a public offering or private sale. consider not only the types of funding to seek,   and the original ten shareholders will each   but also how your startup’s business plan   own 5 of the company. The single investor   Venture capital firms provide more than money   and management team will affect investors’   holding the newly issued shares will own   to startups. Once an investment is made, the   determination of whether to invest in the   50 of the company.   venture partner will play an active role in the   company or not. 28  •  THE STARTUP HANDBOOKTHE BUSINESS PLAN •  A failure to recognize that a product itself does   team as well. For this reason, when you are   Although the creation of a business plan is   not constitute a business pitching to investors, remember that you are   discussed more extensively in a previous section,   •  Claims that a product will sell itself selling yourself and the management team, not   it is important to note and reiterate aspects of   •  Unrealistic belief that the product will have     only the innovation. If an investor doesn’t believe   the business plan to which investors will give   no competition that your team can execute, then the strength   particular consideration. of the startup’s technology or offering simply   THE BUSINESS TEAM will not matter. When seeking funding, you must   The pitch and executive summary are the most Investors will carefully evaluate not only your   demonstrate  that  your  management  team  has  the  important tools you have to gain the initial business plan and offering, but the business   knowledge, ability, and drive to succeed. interest of an investor. The focus should be on   the problem and the solution that the startup   will provide. Specifically, the “job” that a potential   customer needs to accomplish and how your   company’s offering will do that “job” better,   more efficiently, and/or cheaper than existing   The Different Stages of Funding alternatives. The pitch and executive summary   should focus on the practical benefits of the   offering and not the technical features. Because   Early Stage Later Stage IPO Secondary the focus is on the practical benefits, the pitch and   Offerings executive summary should avoid technical jargon.   VCs, Acquisitions/Mergers The pitch needs to be straightforward and honest.   Strategic Alliances Additionally, weaknesses should be acknowledged   and addressed in detail. The pitch and the   Angels, FFF, Public Market executive summary should be concise. Seed Capital Further, the business plan should demonstrate   Break even a clear vision and strategic outlook. Investors   will want to see that the business plan reflects   your comprehensive understanding of the   market. Additionally, investors are alert to   certain red flags indicating that an entrepreneur   TIME has unrealistically or not adequately evaluated   the market and the strength of the startup’s   proposed offering. These include:   FUNDING A BUSINESS  •  29 REVENUEYour management team should demonstrate that   it has management experience and a product   prototype. Additionally, investors want to know   that the business model has been validated,   specifically that the product not only will work but   that the price, sales channels, and marketing will   actually lead to, or has led to, profitability. Again,   the management teams clear understanding of   the market opportunity and of the competitive   environment are critical to investors. THE INVESTOR Whenappr   oachingin   vestors,be   mindful   that   the   y   arec   oncernedwith   the   r   eturnon   their   in   vestment   aboveall   else.   All   in   vestorsw   antfiv   ek   eyquestions     answered: •  How much will it cost me   •  What do I get   •  How will you spend my money   •  What is my expected return •  When will I get my return   The ideal investor will offer a startup more     than just funding. The right investor will also     lend his or her experience to the business,     mentoring and partnering with the management   team. Additionally, the right investor will be   able to support the business in future rounds of   funding through a strong network of contacts,   both in the startup’s industry and within the   investment community.   30  •  THE STARTUP HANDBOOKHuman Resources WORKERS’ COMPENSATION EQUAL EMPLOYMENT OPPORTUNITY Businesses  are  required  by  law  to  provide  workers’  The Equal Employment Opportunity (EEO) Act   compensation for all employees.  Workers’   protects employees from discrimination by   compensation provides coverage to employees   employers on the basis of race, gender, age, and   in the event of accidental death or serious injury   disability. A business is subject to the EEO if it   during the course of employment. This coverage   has 15 or more employees that have worked for at   There are many regulationsthat    mustbe    followed  is normally purchased through private insurers.   least 20 weeks. Additionally, the EEO Act requires   whendeciding   t   ohir   e anemplo   yee, and at first,  The Illinois Worker’s Compensation Commission   that posters be displayed in the workplace to   it canseem    overwhelming.F   ortunately, therear   e  (IWCC) provides many resources to employers   inform employees of their rights under the law. manyr   esources availablet   o assistsmall   busines   s  seeking to purchase a worker’s compensation   ownerswith   c   ompliance. This sectionpr   ovides   policy. Contact information for the IWCC can     a basico   verviewof    legal requirements youshould     be found in the Resources section. TAX WITHHOLDING be familiarwith   bef   ore hiringemplo   yees. It begins  Taxesmust   be   withheld   fr   omemplo   yeew   ages   withstandar   d laborand    employmentla   wsand     atboth   the   F   ederalle   vel(F   ederalInsur   ance   endswith    nondisclosureand   nonc   ompete  UNEMPLOYMENT INSURANCE ContributionsA   ctFICAand   FUT   A)and   the     agreements.  Moredetailed    information canbe     Unemployment insurance contributions are   statele   vel.In   or   dert   oc   ompletethe   nec   essary   foundon    eachof    these topics through the Small  collected both at the Federal level through the   forms,busines   seswill   need   a   F   ederalEmplo   yer   BusinessAs   sociation andthe   Depar   tmentof   Labor   . Federal Unemployment Tax Act (FUTA) (IRS   IdentificationNumber   (FEIN).   T   hef   ollowing   Form 940) and at the state level. Businesses are   providesa   basic   br   eakdownof   the   primary   f   orms   required to contribute if they have employed one   neededf   orstat   e,as   w   ellas   F   ederaltax   withholdings.   Standard Labor and or more workers in each of twenty weeks in a   calendar year or have paid at least 1,500 in total   State wages during a calendar quarter. The Illinois Department of Revenue stipulates   Employment Laws that businesses are required to withhold taxes. To   New employers should register online with Illinois   calculate withholding rates, the Department of   FAIR LABOR STANDARDS ACT (FLSA) TaxNet to receive the appropriate information   Revenue provides a guide with tax tables, IL 700T,   TheFLS   Ais   designed   t   oenf   orcef   airlabor   pr   actices   about filing for unemployment insurance. Illinois   which can be found on the Illinois Department   andincludes   r   egulationsc   oncerningminimum     TaxNet provides new employers with a packet   of Revenue website.  Employees are required to   wage,o   vertimeeligibilit   y,and   pr   operr   ecordkeeping   that contains information on applicable tax rates   complete an ILW4 declaring their number of   practicesf   ore   xemptand   none   xemptemplo   yees.   for small businesses as well as resources to guide   allowances. Additionally, all Illinois businesses   Twot   ypesof   c   overagee   xist:ent   erpriseand     small businesses through the filing process. paying wages or salaries that are subject to   individual.Ent   erpriseswith   at   least   t   woemplo   yees   withholding are required to file an IL941 on either   orthat   c   onductat   least   500   ,000a   y   earin     a quarterly or annual basis.   businessar   ec   overedb   ythe   FLS   A.   HUMAN RESOURCES  •  31Federal The Internal Revenue Service stipulates that   businesses are required to withhold taxes for all   employees. Employers and employees are required   Form Filer Filed with Content to file several forms to comply with this regulation.   W2 Employer IRS Details wages of employee; submitted yearly Several of the standard forms are outlined in the   W4 Employee Employer Number of allowances employee wants withheld    table below.    IRS Form 940 Employer IRS Annual tax return that covers Federal unemployment taxes At the end of the year the employer is required     IRS Form 941 Employer IRS Quarterly Income Tax Return to provide the employee with a copy of the W2   in addition to a 1099. The IRS provides copies     of all of these forms as well as numerous   resources about filing information and due dates   for small businesses. Employment Eligibility NonDisclosure Payroll, Taxes, and and New Hire and NonCompete Direct Deposit Consider hiring a CPA or using professional   Requirements Agreements, Conflict accounting software to set up a payroll system   All new employees are required to file an I9   before hiring. This will ensure that employee tax   Acknowledgements verifying work authorization. Additionally, all   withholdings are properly accounted for and will   businesses are required to register new hires with   Whilether   eis    noleg   al requirementthat      also allow easy documentation of issues related to   the Illinois Department of Employment Security   employeessign    a nondisclosureagr   eement  direct deposit. (IDES) within the first 20 days of employment.   ornonc   ompeteagr   eement, it isstr   ongly  Furthermore, the Federal government requires   recommendedthat    all businessesr   equire newhir   es  that posters be displayed in the workplace   tosign   such    agreementst   o protectpr   oprietary  informing employees of safety procedures,   information.Lik   ewise, conflictackno   wledgement  work rights, discrimination policies, etc. In   agreementsar   eimpor   tant,especially   in    a  EnterpriseWorks, these posters are displayed in   universitysetting.   T   hese agreementsshould    be  shared areas, so as to cover all of the businesses   draftedb   ya    legal professional.  housed in the facility. 32  •  THE STARTUP HANDBOOK Online Resources Technology Entrepreneur Center (includes Illinois Workers’ Compensation Commission the Cozad Competition and Illinois Innovation iwcc.il.gov Prize) tec.illinois.edu Mentors, Angels Venture Capital Networks UrbanaChampaign Angel Network Chicago Innovation Mentors  champaigncountyedc.org/businessservices/ chicagoinnovationmentors.org CHICAGO smallbusinessservices/angelinvesting iBio PROPEL  ibiopropel.org   Chancellor’s Innovation Fund cif.uic.edu GENERAL Illinois Venture Capital Association illinoisvc.org Competitions Forums InnovateUIC innovate.uic.edu MidAmerica Healthcare Investors Network Biz Plan Competitions    mhinonline.com bizplancompetitions.com Office of the Vice Chancellor for Research The Midwestern Research University Network  tigger.uic.edu/depts/ovcr/research Clean Energy Challenge cleanenergytrust.org  mrun.us URBANACHAMPAIGN Invest Midwest investmidwestforum.com SBIR and STTR grants Licensing Executives Society Graduate Academy for Entrepreneurial Leadership SBIR STTR: sbir.gov Student Business Plan Competition  business.illinois.edu/ael  lesfoundation.org/competition/index.html SBIR: zyn.com/sbir Entrepreneurship at Illinois National Collegiate Inventors and Innovators entrepreneurship.illinois.edu Alliance Grants (NCIIA)  nciia.org/grants U.S. Small Business Administration sba.gov/ Illinois Proof of Concept Fund (IPOC) Equal Employment Opportunity eeoc.gov U.S. Securities Exchange Commission sec.gov otm.illinois.edu/IPOC Fair Labor Standards Act  dol.gov/whd/flsa Withholding Information Office of the Vice Chancellor for Research State (Illinois TaxNet) taxnet.ides.state.il.us  research.illinois.edu I9 uscis.gov/files/form/i9.pdf   State (Illinois Revenue) revenue.state.il.us Research Park Resources for Entrepreneurs Illinois Department of Employment Security Federal irs.gov researchpark.illinois.edu/resources (including new hire reporting) ides.state.il.us       HUMAN RESOURCES  •  33Contacts CHICAGO  URBANACHAMPAIGN  UNIVERSITY ADMINISTRATION Office of Technology Management Office of Technology Management Office of the Vice President for Research University of Illinois at Chicago   University of Illinois at UrbanaChampaign   University of Illinois   1853 West Polk St. Suite, 446 Chicago, IL 60612   Ceramics Building Suite 319     346 Henry Administration Building     312.996.7018  •  otmuic.edu   105 S. Goodwin Ave., Urbana, IL 61801   506 S. Wright St. Urbana, IL 61801   otm.uic.edu  217.333.7862  •  otmillinois.edu   217.265.5440  •  vpruillinois.edu   otm.illinois.edu research.uillinois.edu  IllinoisVentures IllinoisVentures University of Illinois at Chicago   University of Illinois at UrbanaChampaign   2242 W. Harrison St, Ste 201, Chicago, IL 60612   60 Hazelwood Drive,St   e212,    Champaign, IL6   1820  312.251.0700  217.239.1950  illinoisventures.com illinoisventures.com EnterpriseWorks Chicago Research Park and EnterpriseWorks University of Illinois at Chicago   University of Illinois at UrbanaChampaign   2201 West Campbell Drive, Chicago, IL 60612   60 Hazelwood Drive Champaign, IL 61820     ewchicagouillinois.edu  217.333.8324  •  researchparkillinois.edu     enterpriseworkschicago.com researchpark.illinois.edu ©2014  •  THE BOARD OF TRUSTEES OF THE UNIVERSITY OF ILLINOIS   ALL RIGHTS RESERVED  •  1ST PRINTING, SPRING 2014
Website URL
Comment
sharer
Presentations
Free
Document Information
Category:
Presentations
User Name:
AustinMcmahon
User Type:
Researcher
Country:
United Kingdom
Uploaded Date:
16-07-2017