The Entrepreneurship Path: The Road Less Traveled

1. The Entrepreneurship Path:The Road Less Traveled Justin Mansell, Ph.D. VP and CTO of MZA Associates Corporation President of Active Optical Systems, LLC

2. Outline • My Path to Entrepreneurship • Beginning Your Entrepreneurship Journey • Introduction • Creating a Business Plan • Beyond the Plan • Conclusions • Example Pitch

3. My Entrepreneurship Path(so far)

4. Brief Resume • 1991-1996: Computer Consultant • 1993-1996: Internships • 1995-1996: Research Consulting • 1996-1999: Wavefront Sciences • 1996-2001: RA at Stanford University • 1999-2001: Optics Consultant • 2000: Stanford e-challenge • 2000-2002: Founder/CTO at Intellite, Inc. (AgilOptics) • 2002-present: Mansell & Associates, LLC • 2002-2003: Chief Engineer at Qynergy Corporation • 2003-present: VP and CTO at MZA Associates Corp • 2005-present: President of Active Optical Systems, LLC

5. 1991-1996: Computer Consultant • During my undergraduate, I worked part-time as a consultant, mostly on computer database development. • ATM Accounting • Medical Doctor Professional Society Database • Security System for Cleveland Museum of Art • Probate Court Case Tracking Database • Lessons Learned: • Project Management • Billing & Invoicing • Tracking Time • Importance of Customer Relationships • New Biz through Customer Recommendations

6. 1993-1996: Internships • NASA Glenn • Developed the control system for the ISS Plasma Contactor • Sandia National Labs • Data reduction from Tri-Axial Compression Experiments • Shack-Hartmann Wavefront Sensing and Micro-Optics • Lessons Learned • How to solve problems independently • Being part of a research team • Value of experience • Large amount of fertile ground at the intersection between almost any two fields • Value of Intellectual Property (IP) and how to protect it

7. 1995-1996: Independent Researcher • After my SNL internship, I got back to CWRU and found the research path outlined by my research advisor unappealing. • I pitched doing an independent research project for my MS Thesis that involved • Developing software for automation of mask pattern generation. • Demonstrating a technique for improving micro-optics performance. • Pitched this to SNL and got it funded. • Lessons Learned • Think creatively about education (you don’t necessarily have to do things traditionally) • How to write a proposal. • How to develop a credible project plan and budget.

8. 1996-1999: Wavefront Sciences • As I was leaving SNL to go to Stanford for my Ph.D., my SNL boss was leaving to try a start-up called Wavefront Sciences (WFSI). • I agreed to work part-time on IR&D, software development, and micro-optics development. • Lessons Learned • How to start a business (peripherally) • How to productize (peripherally) • How to manage research (remotely) • Really being part of a research team • Be creative in working deals: • We traded a wavefront sensor we could not afford for a CRaDA with WFSI. • Small businesses can be a lot of fun!

9. 1996-2002: RA at Stanford • Worked on numerous projects including • MEMS Spectrometer • MEMS Deformable Mirrors • Wavefront Sensors • Low-Cost AO for Lasers • Lessons Learned • How to Write & Present • Engineering Ethics • Safety Policies and Procedures • Working Collaboratively • Managing Expectations (“Upwards”)

10. 2000-2002: Intellite / AgilOptics • Founded Intellite to commercialize the MEMS deformable mirrors we developed at Stanford. • Pitched Intellite at a Venture Capital Symposium • Lessons Learned • Productization (manuals, packaging, etc.) • Writing a business plan • What do VCs care about • How to sell to them • How to roll with the unexpected • Intellite had to change its name due to legal pressure

11. 2002-Present: Mansell and Associates • Founded to do engineering and IP consulting • Lessons Learned • You really can do it all yourself • You may not really want to • Having a team really does help!

12. 2002-2003: Qynergy • Business founded to commercialize technology invented at SNL for radioisotope energy generation • Strategy was to “top-load” the team • Lots of Grade A Management, but light on the technical team • Lessons Learned • Research • How to work limited resources • Managing research outside of my expertise • “A 90% solution now is better than a 100% solution later” • Business • The costs and benefits of a high-quality team • IP Development & Protection • Business Plan Development

13. 2003-Present: MZA Associates • Primarily DoD consulting firm specializing in detailed physics-level modeling of defense optical systems. • MZA has grown from 1 office of ~15 people to 3 offices of ~35 people in the last 4 years • Lessons Learned (and Learning) • Managing Growth • How to Transition from a Small to a Medium-Sized Company

14. 2005-Present: Active Optical Systems • Spin-off of MZA founded to commercialize a new low-cost AO technology • Lessons Learned (& Learning) • Unusual Funding Sources • Leverage Existing Technology • Luck Matters Polymer Membrane Under 12 kW CW 1-μm Light www.aos-llc.com

15. Getting Started as an Entrepreneur

16. Limitations & Caveats • People spend their life studying this topic. • I will only have time to present some of the basics. • I have no formal business school training. • There are many books and much literature on this topic, including: • The Start-up Entrepreneur, J.R. Cook • Entrepreneurship For Dummies, Kathleen Allen • Outline for a Business Plan (http://www.techventures.org/resources/docs/Outline_for_a_Business_Plan.pdf)

17. Entrepreneurs… • Identify business opportunities (spark) • Create a plan to capitalize on the opportunity (diligence) • Find the resources (marketing) • And (sometimes) execute the plan (leadership)

18. New Business Idea Quick Test:Should I be an Entrepreneur? • Am I excited about this idea or opportunity? • E-ink ideas • Do others also think it’s a great idea? • Are there people willing to pay for what I’m offering? • Why am I the right person for this? • Why should I go forward with this idea or opportunity now? • Diode Laser vs. HeNe for Barcode Scanners Entrepreneurship for Dummies, Kathleen Allen

19. The Business Plan

20. Business Plan Basics • A business plan is like a job application to becoming an entrepreneur. • A well-written business plan forces the author to evaluate the idea in sufficient detail to sell it and/or guide the development of the resulting business. • Reasons for Writing a Business Plan: • Organizes and Structures the Business to Capitalize on the Opportunity • Sells the Opportunity to Investors

21. Comments on Investors • Investors should be thought of as members of your team. • What assets (other than financial) do they bring to the table? • Investors are not stupid, … • Would you want them on your team if they were? • …especially about business • How do you think they got that money to invest? • Investors are looking for a substantial increase in the value of your venture (5-10x) in a fairly short period (5 years) • Success Stats are Dismal, but ask, “What is success?” • Investors generally won’t sign NDAs • Investors might be considering other deals in your space. Its generally OK to ask them this question. • Investors often care more about team than opportunity. • Experience more than education

22. Components of a Business Plan • The Opportunity • Product / Service • Industry & Market Analysis • Competitive & SWOT Analysis • The Team • Management • Company Description • The Plans & Projections • Financial (including projections), Marketing, and Operating Flip in the Final Version

23. Product / Service • Coming from a technical background, I like to write this first and then write the industry part second, but switch the order for the investors. • Describe the product or service in detail. • Focus on the distinguishing features. • Compare to the existing solutions. • There are always existing solutions. • Give as much detail as you feel comfortable releasing publicly • Investors often won’t sign NDAs • Include a description of existing or applied for IP • Investors generally discount provisional patents

24. Industry & Market Analysis • There can be multiple industries or applications, but often targeting more than one at a time may not be possible given resources, so choose one & prioritize the others. • Find as much data as possible on the industry and market segment including • Size (dollars and units) • Recent and Projected Growth Rate (especially in your segment) • Location (where is the money spent?) • This data can be hard to come by, but look • On the internet • In relevant trade journals • In the local business school library • At Technology Venture Corporation (TVC) • Customer Surveys (keep good records) • This part can be the hardest part for technologists, so don’t be afraid to ask for help. • Investors will most likely be better than you at this, so spend the time to get it right.

25. Competitive Analysis • Who else out there is doing something that competes in any way? • Important because it could be a hidden opportunity • Why would their customers become your customers? • A comparison table is often useful here.

26. SWOT Analysis • Strengths, Weaknesses, Opportunities, and Threats • Try to be as realistic and objective as possible • Include global considerations. • You may have done this throughout the other portions, but investors are sometimes looking for this as a summary.

27. The Team • Investors generally weigh this more heavily than the opportunity • “I’d rather have an A team with a B idea than a B team with an A idea” • Experience is key • They will be looking for a core management team with all the key areas covered and ideally with experience. • Address any key weaknesses (What you don’t have you might hire.)

28. Plans and Projections • Tie these back to the industry data as much as possible. • Investors generally won’t believe ridiculous market share predictions, so be realistic. • Create a budget of how you think money will be spent. • include a detailed budget if you’re asking for investment.

29. Beyond the Business Plan

30. The 5-Minute (Elevator) Pitch • Once the business plan is complete, it is important to write down and rehearse a 5-minute pitch of your business • Touch on: • Product/Service • Industry & Market • Potential for Growth • Management Team

31. Types of Investors • Government (Grants / SBIRs) • No equity cost • Not just the USA either… • Other Corporations • Small and Large • Angel Investors • Small and early round investors • Venture Capitalists • Typically $1M+ investment • Significant equity cost

32. Entrepreneur’s Skills • Management • Legal • Intellectual Property • Marketing • Accounting • Human Relations • Insurance • Workman’s Compensation & Unemployment • Tax You don’t have to be an expert in all of these areas, but if you’re going to lead the team, you need to know a bit about all of them.

33. Conclusions • Entrepreneurs capitalize on business opportunities. • Getting started means writing a plan covering the: • Opportunity, Team, & Plan & Projections. • The plan will guide your company and help you hook investors.

34. Example Pitch: Active Optical Systems, LLC

35. Human Retinal Image With Distortions Distortions Gone Problem: Optical Distortions

36. Laser AO Market Opportunity • Laser Market (~$2B) • Large High-Growth Market • ~$2B in 2000 with ~10% growth • High Product Cost (~$100k) • Industry Contacts & Contracts • Laser Adaptive Optics • OEM Segment for AO • $240 Million (2001) • $500 Million in 7 years • End-User Segment for AO • $140 Million (2001) • Estimated $380M AO System Revenue Potential by 2012 NOTE: Numbers here are not necessarily traceable to research.

37. Example: Photolithography Masks E-beam Mask Writer • Electron Beam Written Masks • Higher Resolution • Mask Cost: $3,000 to >$20,000 • Laser Beam Written Masks • Higher Productivity • Mask Cost: $300 to $1,500 • Benefits of Laser AO • Mask Maker • Electron Beam quality • Laser beam cost • Laser Manufacturers • New Sales Possibilities Laser Mask Writer

38. AOS’s Adaptive Optics Product Before AOS’s Control Computer Laser After AOS’s Polymer Deformable Mirror Sensor • Benefits to OEM and End-User • Reduces Laser Cost • Increases Intensity • Opens New Application Doors • AOS’s Competitive Edge • Polymer DM • Significantly Reduced Cost with Higher Volume

39. AOS Component Technologies Drive Electronics Webcam Hartmann Sensor Polymer Deformable Mirror (patents pending) DM Before Packaging

40. Competitive Analysis

41. Management Team • Justin Mansell-President • Ph. D. from Stanford Univ. in adaptive optics for high power laser wavefront control • 10 years of Technical and Business Start-up Experience • Robert Praus & Steve Coy – VPs • Each has 20 years of experience in developing and modeling high power laser systems for DoD applications • Defining Marketing and COO Positions

42. Knife Edge SHWFS US Patent 6,376,819 (1999) Apodized Microlens Arrays (1999) US Patent 6,707,020 (2004) (2005) Delay Line M2 Meter (2001) Binary Optics Smoothing (1996) (1998) Gaussian to Top-Hat Beam Shaping (2000) (1996) Boeing Relay Mirror AO Testbed (2004) MOPA AO (2000) Mini-Cass (2001) MEMS FT Spectrometer (2000) US Patent 6,108,121 (2000) US Patent 5,864,381 (1999) (1991) Experience

43. Financial Projections • Seeking $1M in Start-up Capital • Break-Even in Year 3 • $60 M Revenue by Year 5

44. Questions? Justin Mansell, Ph.D. jmansell@mza.com (505) 245-9970 x122