Business Plan formulation in Science based Start-ups and
using Venture Cup Competition to teach Calculative Equipment
Accounting Devices role in transforming Science Innovators into
Start-up Entrepreneurs
Master Thesis
83 pages 179.400 characters including spaces October 2011
\\ Copenhagen Business School, Denmark
\ Department of Accounting and Auditing \ Cand.merc. Accounting, Strategy & Control
by:
Louise Pierrel Mikkelsen CBS ID: lomi05ab CPR:
Counselor
Professor Peter Skærbæk
Acknowledgements:
Monika Luniewska for inspiration for this thesis subject - I hope you can use its in- sights‘ and conclusion!
Christian Kruse, Christiane Bjerglund Andersen and Nicki Broechner for academic sparring and coaching.
Nono Harhoff, Stefan K. Madsen and Jan Pierrel Mikkelsen for motivational and structuring support.
The whole ex-Avicore team; Anne Sophie Winther Hansen, Theis Brock Nannestad and Bjørn Øst; my interview subjects, Tine Thygesen former Venture Cup MD, Rune Midjord and my parents Maryse Pierrel Mikkelsen & Niels Mikkelsen.
Thank you - without you this thesis would not have been made.
Abstract
Entrepreneurship is fundamentally important to firms and government agencies worldwide. Innovation is the core dynamics of modern capitalism, and the entrepre- neur is ―the driving force of the whole market system‖ (Mises, 1998). The following thesis describes how the practice of formulating a Business Plan transforms Science innovators into Entrepreneurship Organizers.
The provided answer is framed in Actor Network Theory by Michel Callon and uses Entrepreneurial economics by Joseph A. Schumpeter, Business Strategy & Organiza- tion by Peter Drucker and Technological Entry-Barriers by Daniel J. Teece to inves- tigate the accounting, a successful Business plan must encompass.
In order to prove the usefulness of the theory, 3 empirical cases of science based start-up attempts are narrated by involved science students, who have participated in the Venture Cup Competition Final.
This thesis argues that 1) the act of Entrepreneurship is rational and can be ex- plained as such and 2) that natural science students can gain important real world Calculative Equipment by participating in the Venture Cup Competition Petri Dish.
But 3) Traditional Valuation Analysis is lacking when dealing with start-up compa- nies, 4) The Venture Cup competition is biased toward low-cost start-up in Services and Software, and 5) Technological innovations in Lifescience and Cleantech will never grow as independent companies due to the incubative structures and capital organization through Banks and Venture Funds in Denmark.
Hypothesis: Going through the Venture Cup Competition process, there must be a learning that is not tacit. If we see the Business Plan (henceforth BP) as an Actor Network Theory device, we can trace the framing of an economic rationale that su- persedes the accounting problem of creating a realistic budget and cash-flow without historic sales information and benchmarking risk/ratios of an investment.
In the cases studied by this thesis, the following is sought answered:
What is the correct accounting method for a science based start-up business?
What is the value of the BP to the start-up‘s network?
Who are potential investors in a science based start-up?
How do they use the BP translation?
By presenting a start-up‘s network and the different problematizations of the BP Accounting we can identify the advantages accounting gives the Science-student Entrepreneurial Calculative Equipment.
Conclusion: The start-up‘s network needs the objectification of the Business Plan to negotiate in the same language of accounting and act as Homo Economicus. The crucial problematization in each industry or business model differs, but can be iden- tified by mapping what obstacle-problems the Accounting Device translates between actors to be enrolled in the start-up.
1 Table of contents
Abstract ... 3
1 Table of contents ... 4
2 Introduction ... 6
2.1 Problem Background ... 8
2.1.1 Case setting ... 8
2.1.2 Valuating Start-ups ... 9
2.1.3 Business Plans of start-ups and the role of Accounting ... 10
2.1.4 Start-ups as actors in an economically rational network. ... 10
2.2 Problem statement ...12
2.3 Delimitations ...12
3 Method ... 14
3.1 Project design ...14
3.1.1 Structure & disposition of the thesis ... 15
3.2 Data collection ... 18
3.2.1 Interview type ...19
3.3 Research Design ... 20
3.4 Scientific Position ...21
4 ANT theory ... 22
4.1.1 Four moments of translation ... 22
4.1.2 Accounting in an ANT Perspective ... 23
4.1.3 Objectifying the Business Plan ... 24
4.1.4 Calculative Equipment in the Start-up Company ... 25
5 Three Science based Start-ups Narratives ... 27
5.1 The Start-up and Business Plan in Venture Cup 2010 ... 27
5.2 Kkloud: ―T‖, a computer science student ... 28
5.3 Blue Power (―K‖, an engineering student) ... 30
5.4 Avicore (―B‖, a Microbiologist) ... 32
5.5 Analysis: Tracing the problematizations of start-ups in a Petri Dish ... 36
5.5.1 Findings: Interdefinition of economic rationales ... 39
6 Venture Cup’s use of Accounting Devices ... 43
6.1 Introduction to Entrepreneurial Network ... 43
6.1.1 Venture Cup as a Model Business Plan writing process. ... 44
6.1.1.1 Investor types ... 44
6.2 Valuation of a Start-up ... 46
6.2.1 Accounting problems of valuating Start-ups and enrolling of investors .... 46
6.2.1.1 Budgeting and Cash-flow analysis pre-sales ... 47
6.2.1.2 Assets and Valuation of Start-ups ... 48
6.2.2 Economic assessment of new Markets ... 50
6.2.2.1 Strategic planning: Analyzing the start-up through market barriers... 51
6.2.3 Strategic Due Diligence on Entrepreneurial success ... 54
6.2.3.1 Three outlines on how to structure a Business Plan. ... 56
6.2.3.2 Covering different types of risk in the Business Plan ... 58
6.2.3.3 The Business Plan as a strategic document ... 60
6.3 Discussion: The Business Plan as a translation device ... 62
7 Conclusion ... 66
7.1 Teaching science student to become entrepreneurs ... 66
7.2 Industries have different OPP for start-ups ... 67
7.2.1 The importance of partnering ... 67
7.3 Framing of the Venture Cup Process ... 68
7.3.1 Critique of BP Competition as a proxy for real enrollment of Investors .... 69
8 Recommendations ... 71
9 Perspectives ... 73
9.1.1 Uses of the thesis ... 73
10 Literature list ... 74
11 Appendix ... 81
11.1.1 Interview guide ... 81
11.1.2 CD-ROM ... 83
CD-ROM contains: Audio MP3 w science students ―T‖, ―K‖ and ―B‖, Business Plan Kkloud, Business Plan BluePower, and Business Plan Avicore.
2 Introduction
In 2010 I participated in the final round of the Danish Venture Cup competition as a member of a start-up group working on an innovative way of producing bio jet fuel.
At the intermediate networking break, I discussed virtues of business plans when assessing investment potential with Stephan Christgau of Novo Seeds. Having expe- rienced difficulty when creating a realistic budget with an attractive ROI1 for the bio- tech start-up, I asked him as the partner of the most bio-tech involved Danish ven- ture fund, what his main criteria were when reviewing prospective investment can- didates?
He answered along the lines of‖ Well, when I get presented with the right scientist, I will, if necessary, build the start-up and business plan around her‖.
This made me think that the present valuation tools, and our groups‘ six months process of business development, team building and refining of a business plan, might have been in vain. Novo Seeds was, however, one of the main sponsors of the Venture Cup competition, and the other participants with natural science back- grounds were clearly benefiting from participating in the exercise.
In our sub-categories of Lifesciences and Cleantech, substantial time and effort had been directed from the university incubators and potential partners towards the students‘ start-up ideas. Clearly the stakeholders saw some value in this young po- tential going through this process and in teaching science-students business skills While integrated into a team of highly skilled natural science-students2 I was differ- ent with my business education background. One of the areas, where our points of view clearly differed, was in the formulation of budget numbers. For my team mates, the wrangling of value through marketing research, structuring of equity, exit plans and especially ratios time span, were a new and unfamiliar skill.
The problem of creating a believable cash-flow for a currently non-existing compa- ny, and converting a rapid burn-rate into a value proposition, made it clear that the accounting practices necessary for creating a business plan differed from the usual analytical method used in evaluating financial statements.
On the other hand, knowledge of accounting and cost control models were necessary in mapping out the future cash challenges of the proposed company. So accounting became a way of evaluating and structuring the strategic choices that we needed to
1 Return On Investment
2 Henceforth all reference to “science students” refers exclusively to students of Natural or Technical sciences, omitting Humanities or Commercial students. (Venture Cup 2011)
address in the fluffier sections of the business plan. At the same time my stated rea- son getting involved in this specific project was to create a realistic and informed economic scenario on which the natural science members of the team could decide their future involvement in the start-up. The other team members must be made aware of the risk they would be subjecting themselves to, if they continued to work part or full time on this project. To advice the team successfully it was necessary to conduct due diligence of the investment for everyone involved.
The economic rationality of the start-up‘s network is driven by the decision to invest or disinvest. And the difference between science based start-ups and other compa- nies or alternative investment Net Present Value (henceforth NPV) should also be made clear in order to understand on what the valuation was based. The accounting skills displayed in the Business Plan (henceforth ―BP‖) must make the team and their project appear as a good investment, e.g. with the lowest possible risk and highest possible return.
If the Venture Capitalists and Angel Investors really feel that it is the personality of the inventors that is the truest propagator of a successful start-up investment, why then should entrepreneurs go through the making of a BP at-all? The Venture Cup Competition must be a process that develop competences needed for entrepreneur- ship
Hypothesis: going through the Venture Cup process, there must be a learning that is not tacit. If we see the BP as an Actor Network Theory 3(henceforth ANT) device, we can trace the framing of an economic rational, that supersedes the accounting problem of creating a realistic budget and cash-flow without historic sales infor- mation and benchmarking risk/ratios of an investment.
This thesis aims to investigate how the BP equips the entrepreneur to mobilize4 al- lies, and what role the accounting devices have in transforming science innovations into start-up business. This leads to narratives of transformation where the intangi- ble scientific idea becomes a product, with a Value Delivery system that enrolls5 oth- er actors6 such as investors and their capital.
By identifying a knowledge gap between the science community and the investor community we can attempt to bridge these two professional spheres of knowledge by
3 by Callon, see section: “Deliminations”2.4 and “ANT as framework” 4.2
4Tern used by Callon(1986 )to describe interaction between ”actors” see section 4.2
5 Callon uses the spelling “enrolment” to describe the induction of ”actors” to a Network “St Brieuc”
article (1986), however in this thesis the American English spelling “enrollment” and its derivatives are used
6 The term ”actor”is used in the semioticians way. Callon(1986) sites Greimas and Courtes (1979);
Latour (1984). The term encompasses groups of people as well as inert devices.
a) suggesting tools for investors to manage risk when valuating a science based start- up, and b) provide science students entrepreneurs with tools to identify and present the commercial potential of their start-up
2.1 Problem Background
In this project I will have my empirical focus on the narrative of science students‘
experience with writing a BP for Venture Cup Competition, the different aspects of a Business Plan, and how science based start-ups subsequently seek funding.
Changes in BP's are decided as a reaction to externalities of the start-up, specialized investors‘ motivation and requirements for the different science based industries with regard to the start-up‘s Value Delivery System and Path-to-profit.
The BP, however, also acts as an accounting device7 and formulating it may give cal- culative equipment to science students that help them in ―selling‖ their innovation to investors.
2.1.1 Case setting
The Venture Cup Denmark is a Danish competition where university students enter the BPs for bringing their innovations to the market. The students can enter the competition at two different phases: The Idea Competition and The Business Plan Competition.
Entering The Idea Competition students take part in a two-day workshop and after- wards pitch their ideas through a brief personal presentation to a small jury.
Entering The Business Plan Competition, colloquially called ―the Venture Cup‖, students submit their written BPs to a jury evaluation. From around 300 start-up teams that submit their start-up, 15 are invited to pitch their BPs in person to a jury with a following Q&A session. Category and overall winners are selected and an- nounced over a two-day final.
Within this competition there is a paradox, when sponsors of the Venture Cup, un- der a veil of simulating real life, force science students to prepare BPs and the Ven- ture Cup essentially becomes a Business Plan competition. If Stephan Christgau is to be believed, however, then the BPs are not essential in valuating real life start-ups, and what purpose does the Venture Cup then serve? I identified three purposes for investors to participate: Employer-branding, early discovery of investment opportu- nities and teaching science students business skills. Essentially the Venture Cup is a
7 Skærbæk &Tryggestad (2010), Callon (2007)
match-making service where sponsors compare entrepreneurial talent, ideas and students.
2.1.2 Valuating Start-ups
Valuating a start-up is difficult. There are no historical accounting data to establish a profile of company costs. Determining risk beta8 requires an existing benchmarking group, which unproven innovations often do not have. Establishing market size for a disruptive innovation is bereft with pitfalls such as speed of adoption, critical mass, and co-dependencies.
In valuating the start-up as a whole, a number of diverse elements have to be con- sidered: (a) the people involved their drive and ideas, (b) the resources available to them, (c) the innovation itself and (d) its place in a potential market.
The BPs produced for the Venture Cup must include information similar to the BPs presented to investors outside the Venture Cup ―Petri dish‖ – if not, the Venture Cup will be reduced to a simple academic exercise.
There are differences and similarities between developing BPs for the Venture Cup and for the real world. The Venture Cup has a predetermined deadline, it only has a single winner, the amount of due diligence is reduced, and there is a predominance of jurors from the software industry.
As for the similarities between the two settings; Venture Cup and the real world, they both require a translation and structuring of intangibles into cash-flow fore- casts, they both have iterative processes involving feedback from investors, they both require displaying an understanding of the start-up‘s place in the market, and they both require estimates of the cost of capital.
For a successful start-up, the BP communicates the start-up‘s properties and its rela- tion to its surroundings to potential investors. The BP can be understood as a form of accounting, in which budgets and cash-flow projections utilize intangible and strategic information to a greater extent than in other investment objects. The analy- sis provides a model NPV to the investors, and contributes to the success of the start-up.
8 Risk beta is used in both opportunity costs of a scenario and calculation Net Present Value (NPV)
2.1.3 Business Plans of start-ups and the role of Accounting
Given the specific challenges rooted in the intangible conditions of science-based start-up companies, how can we formulate business plans for the science based start-up that realistically capture their economic potential?
We start by presuming that all economic activity starts with investment and the de- cision to defer consumption. The decision to invest is based on an economic ra- tionale, and that valuation of a start-up is traceable in the preferred formulation process of the BP. I believe that the strategic mapping necessary in the formulation of this accounting formulation has elements of a Strategic Due Diligence9.
To validate this I must describe how investors normally assess a quantifiable in- vestment through Discounted Cash Flow (Henceforth DCF) and NPV scenarios, and what the underlying assumptions and information sources for constructing these models are.
We must then find out how accounting in a BP translates11 the financial health of a company that does not yet have neither sales nor operating cost. And investigate if the use of quantitative methods such as building benchmarks for Price/Earnings, DCF and NPV are adequate, and if not; determine what we should look for beyond Internal Rate of Returns.
If we change the focus of BP evolution from Ratio to strategic contextual issues and their proposed solution by the entrepreneur, the accounting work would be focused on illustrating the ‖correct‖ structure of the budget, so that key bottlenecks in capa- city or cash available can be identified.
We then have to find out how strategic and financial accounting justify and influence each other in BP formulation. A business plan must translate strategy and or- ganizational skills, which equals the potential of the innovative idea as well as that of the entrepreneurs. Parts of the accounting that do this are: believable cash- flow, burn-rate, cash challenges, and strategic choices.
2.1.4 Start-ups as actors in an economically rational network.
On the one hand, a start-up can be considered as a network, composed of different persons, a BP, and an organizing of resources and information. On the other hand, the start-up can also be considered as an actor, nested in a network of other start-
9 Definition of Strategic Due Diligence from Bain (2010)
11 Word used by Callon(1986) to describe interaction between ”actors” further explained in chapter 4
ups, investors, incubators, legislation etc. Through actor network theory (hence- forth ANT) accounting can be seen as a Purification Point with the benefit of objec- tifying the intangible ideas of a business plan, and I can then investigate the net- works politics by asking ―What is the key problematization12 that the Obligatory Passage Point must answer in order to enroll investors?‖
The black boxing that I am hoping to illuminate is whether the Venture Cup Compe- tition process can truly simulate the complexity of high-tech start-ups and directly enable growth in innovative technologies, and what connection there is between participation in the Venture Cup Process and acquiring second and third tier fun- ding through the widely established and accepted model for Business Plan writing.
To become investors in the economical network, potential actors must make a value assessment of the start-up which is positive. The way investors assess Value is
through Accounting. By listing what are the problems of potential actors, we can find out what are the particulars that different investors look for in a business case.
I therefore need to define the following concepts in an ANT methodology.
Valuation – accounting as a way to assess future value
Strategic due diligence - to manage risk
Entrepreneurship as an economic activity.
The BP acts a standardized format that allows objectification of an idea, which can be criticized, evaluated and communicated to other actors in the network. In formu- lating this device one must use accounting to translate an intangible idea into a prof- itable Business Model, and for scientific innovators to turn into business entrepre- neurs, their start-up team must demonstrate the ability to:
Assess the desirability of the investment option
Map milestones to achieve success
Translate radical innovation into accounting, since ―Accounting language‖ is necessary to access resources beyond 3F's13
To enroll investors, science-students need to have acquired Calculative equipment, so that they can present an attractive investment option despite the lack of tradi- tionally constructed Ratios. By listing elements of the Business Plan formulation and
12 Callon(1986) uses both the spelling “problematization” and “problematisation” to describe what the translation must try to answer. This thesis uses the spelling “problematization” and its derivatives.
13 “3 F's” is funding slang for “Friends, Family and Fools”, the typical way start-ups get their initial funding.
their connection to a priori definitions of entrepreneurial economic theory, I aim to prove that the Venture Cup and BP writing enables students to acquire and train calculative equipment, which science students later use on problems encountered while enrolling investors.
The investors most assume that there is a benefit to the students or the projects from creating the BP. Either the BP plans itself has a value, or it teaches the students something.
2.2 Problem statement
This Thesis will answer the following questions:
How does Calculative Equipment gained through a Business Plan competition process help science-students to enroll investors?
What is the translation role of Business Plans formulation when developing sci- ence based start-ups and securing success?
How are science based start-up companies valuated?
▪ How are start-up organizations valuated?
▪ What is special about science based companies?
How can Venture Cup be improved for science based start-up companies?
2.3 Delimitations
I define Entrepreneurship as the act of taking advantage of a hole in the market de- mand discovered by asymmetrical information. (Gartner 1989)
I choose to use Callon as theoretical basis of my ANT, instead of Latour since I want to be able to investigate not only the relations between actors in transforming the identity of a ―science student‖ to the one of ―entrepreneur‖ but also the practical ef- fects of the ―start-up‖ network, and the device ‖Business Plan‖ that translates this change. Instead of searching for a cognitive explanation to the formulation of these devices there is an economical rational one, ruled by the unifying motivation of all actors in being enrolled in a successful organization. Success can however be meas- ured in a number of ways and must allow for both a long term and short term view, but it should be mutually beneficiary, if it follows the rules of specialization (Ricardo 1821).
In connection with entrepreneurship research, sociology or organizational framing has been popular when investigating the intangible difference between success and failure. These theories do, however, not explain how entrepreneurs can decide to invest or divest, nor how to attain and train the skill of ―seizing the gap in the mar- ket‖ (Gartner 1992, Hjorth 2005)14.
Two analytical approaches, which I have chosen not to use, are Mintzberg ―structur- al‖ configured understanding of organizations (1979) and DiMaggio & Powell's theo- ry of Isomorphic institutions (1983). They could have shed light on enrollment and setting up of organizations to further the politics of a start-up, but would then be working toward a discourse analysis, where the relations would be defined by deci- sion and formulation power.
I do not want to make a project comparing economic theoretical schools, or dis- course analysis. Accordingly, I only criticize the a priori definitions within their school of thought, e.g. the Austrian view that innovation is the most important cause of growth of wealth (Mises 1998), and that innovation is the cause of creative de- struction of an existing market. (Schumpeter 1911)
14The etymological origins of the word entrepreneur are in the French words entre ( between) and prendre (to grasp), and its direct translation is “to undertake and/or organize a task” (le Quid 2001)
3 Method
3.1 Project design
This thesis wishes to clarify what entrepreneurial science-students are getting out of participating in a Venture Cup, and how the calculative equipment, gained in this
‖artificial game‖ set-up, will be useful outside the competition in enrolling investors, when developing their current or future start-ups into successful businesses.
Underlying this thinking is the core belief that science-students hold the greatest potential for radical invention and business revenue generation, but to materialize this potential into successful businesses they must acquire accounting skills to pre- sent and evaluate their ideas as investment objects.
Through my own participation in a Venture Cup team I also realized that many of the traditional tenants of valuation and good accounting practices were not adequate for financial structuring of start-ups.
There was a discrepancy between valuating the investment in a start-up on the basis of ratios and the uncertain verifiability of a radical inventions market. I came to see the Business Plan as a holistic strategic mapping of entrepreneurs‘ capabilities, and the financial parts as an accounting translation of the intangible.
I will explore a field, entrepreneurship, in a positivist framework, and apply econo- mic normative theory to explain the difficulties of acquiring venture capitalist fun- ding for start-ups. I will frame the process surrounding the BP as an accounting de- vice and analyze its networks.
By analyzing the Business Plan as a part of a strategic due diligence, I will identify which accounting capabilities are the most relevant for science-students to master when enrolling investors, and to map what capital structuring strategy will be the best to pursue when building a start-up into a successful company.
Entrepreneurship requires translation of ―opportunity information‖ in an abduc- tive15 as well as deductive and inductive manner, to achieve an asymmetrical infor- mation advantage. This is why only a rough outline of what elements are needed in a Business Plan can be provided before the formulation process.
By viewing Venture Cup both as a standardized enrollment process, and a way to give science students the calculative capacity to review and evaluate their business
15 Following C.S. Peirce’s third method of justification after Deductive and Inductive.
idea, Mr. Christgau‘s statement can be explained. This thesis assumes that the enrol- ling of Investors require a different type of knowledge than the one science students possess prior to going through a Venture Cup business plan writing process.
When an investor says he is basing start-up funding decisions on personality, he is saying he cannot quantify the potential value of the science student as an entrepre- neur. The science student who wants his invention to succeed as a start-up must translate her intangible potential as an entrepreneur into some quantifiable econo- mical a priori, and the BP then acts as a standardized formulation device for Risk management through strategic due diligence.
The business plan uses a well-known standard format, but when successful it must be infused with novel connections between justified and believable (mega) trends, and a team of entrepreneurs (or an entrepreneurial individual), that can build a de- livery system to bring the innovation to market and turn the innovation into a pro- fitable business. This is nevertheless only if the process of preparing and presenting the BP in Venture Cup Competition simulates ―Real World‖ challenges faced by sci- ence based start-ups.
The empirical Interviews are the science students own narratives of what they got out of the Venture Cup Business Plan writing process, and how it helped them to gain Calculative equipment.
It is not a failure if the start-up doesn't continue, and it could actually be the knowledge gained through this that will enable a science-student to grasp a much more lucrative entrepreneurial opportunity in the future. The point of entrepreneur- ship and BP writing courses in university settings is not to come out with a start-up but rather to have the calculative equipment to valuate it correctly.
Ideally my findings will be applicable in teaching future science students about start- ups, formulating BP, pitching and improve the public institutional stakeholder incu- bation attempts and counseling.
3.1.1 Structure & disposition of the thesis
3. Method in which I present the Project Design (3.1.) where I preview the unfol- ding of the argument through the chapters of the paper, (3.2) Data Collection (3.2) Research Design, (3.3) and Scientific Position (3.4)
4. ANT theory. Here the fundamentals of the ANT theory are introduced: Transla- tion, Enrollment, Interessement and Objectification. Accounting in an ANT Perspec- tive (3.2.2) deals with implementation of ANT logics into business practices, and in
Objectifying the Business Plan (4.2.3.) is demonstrated how calculative equipment can detangle the business plan and become an OPP16. The section, discussion of Cal- culative Equipment in the Start-up Company (4.2.4), goes into further detail on how accounting practices are put to use in the start-up company and summarized and the features most pertinent to the analysis of the start-up‘s network.
Having thus developed a comprehensive analytical framework for understanding the context and dynamics of the start-up, we will now explore the case of three science based start-ups in the Venture Cup 2010.
5 In Three Science based Start-ups Narratives we enter into the case-oriented part of the analysis. The main case is Venture Cup 2010 with three sub-cases con- sisting of three start-ups in different industries.
5.1 The Start-up and its Business Plan in Venture Cup
The subjects and themes that will be elaborated by the narrative of a science based start-up are presented. Here we are told the story of how a science student gained Calculative Equipment by participating in Venture Cup 2010, and what the student and start-up could use from the process after the finals.
5.2. Sub-case: KKloud. Presents ―T‖, a computer science student and the prob- lems of funding Kkloud, a software start-up, and analyzes how their business plan formulation helped transform him into an entrepreneur.
5.3. Sub-case: Bluewave. Presents ―K‖ a student of engineering and the prob- lems of funding Bluewave, a hydro energy start-up, and analyze how their business plan formulation helped the case and transform him into an entrepreneur
5.4. Sub-case: Avicore. Presents ―B‖, a master student of biological technology and the problems of funding Avicore, a biojet fuel start-up, and analyzes how their business plan formulation helped the case and to transform him into an entrepre- neur.
5.5 Analysis: Tracing the problematization of start-ups in a Petri Dish We then review Venture Cup 2010 as Case Study object through ANT analysis by comparing the findings in chapters 4 and 5 to the empirical narrations of how sci- ence based start-ups have translated a rationale for new market size and IP strategy.
(5.5.1)
I then turn to the next part of the analysis in which I will explore what accounting a start-up BP must incorporate.
16 Obligatory Passage Point
6. Venture Cup as an Actor Network
6.1. Introduction to Entrepreneurial Network in which I introduce and define the key actors in the narrative: The Accounting Device, e.g. the Business Plan, and the Investors, and argue the further investigation of what the device is expected to trans- late.
6.2 Valuation Process introduces the three elements in the BP we will be investi- gating and ultimately discussing, accounting problems of valuating start-up, Eco- nomic assessment of new markets and Strategic Due Diligence when writing a BP for a start-up.
6.2.1. Accounting problems of valuating a start-up and enrolling inves- tors. Here is presented the accounting problems of valuating a start-up using ―tradi- tional‖ valuation models and budgeting. First the classic budgeting and cash-flow analysis (6.3.1.1). Then discussing how the nature of assets of start-ups deviates from those of the classic company (6.3.1.2).
6.2.2. Here is presented Economic Assessment of a New Market and business organization according to Schumpeter‘s theory of creative market destruction
(6.3.2.1) and what strategic planning can be carried out according to Drucker and Teece‘s notions of entry barriers.
6.2.3. In Strategic Due Diligence we analyze how to write a business plan for start-ups in order to reflect future profitability. First which elements investors re- quire in the business plan. Then three proposals on how to structure a business plan according to Cardis, Venture Cup, and Beckord (6.2.3.1). And in the end reflections on the dual purpose of the business plan: The BP as strategic map to the NPV inter- nally for the company, including the identification of potential risk, (6.2.3.2) and the BP as presentation of the NPV externally for potential investors (6.2.3.3).
6.3 Discussion of the Business Plan as a translation device. Here we dis- cuss how a business plan can address the specific issues related to start-up‘s transla- tion, raised in the previous sections, and then summarize the lessons learned:
Section 6.2.1 suggested how we might best think about accounting practices for start-ups. Section 6.2.2 illustrated certain aspects pertinent to new markets with regards to science based start-ups. Finally, section 6.2.3 dealt with the practical structuring of accounting information in the business plan to best capture the value of start-ups.
With this established, we now conclude the business plan worked as an actor in the initial stages of the start-ups.
7. Conclusion with a Summary of the analysis. The lessons of the analytical frameworks and the take-aways of the three case studies 5.2., 5.3, and 5.4 are used answer the research question
• How does Calculative Equipment gained through a Business Plan competition process help science-students to enroll investors?
7.1 In “Teaching science students to become entrepreneurs” I argue that the Venture Cup constitutes a key learning experience for young science profession- als, by training participants in the application of Calculative Equipment. From the sciences students narrative and chapter 6 we deduct that Industries have different OPP for start-ups (7.2) and the importance of Partnering. We then can then discuss the Framing of Venture Cup Process (7.3)and Critique of BP Competition as a proxy for real enrollment of Investors.
8. Recommendations, where I provide recommendations for incubators on teaching Calculative Equipment to science students by writing a BP in which I quali- fy the study (reflections on the validity of the fin-dings, e.g. the effects of the funding climate of the Venture Cup in 2010,
9. Perspectives and I indicate possible further applications of the findings, as well as fields for further research.
10. Literature list, 11. Appendix: including 11.1. Interview Gudie 11.2 CD-ROM with: Audio MP3 w science students ―T‖, ―K‖ and ―B‖, Business Plan Kkloud, Busi- ness Plan BluePower, and Business Plan Avicore.
3.2 Data collection
I will in a narrative format present 3 science students and would-be entrepreneurs who have gone through the Venture Cup process - and analyze their narratives and experience with writing Business Plans and enrolling investors. I will study a priori assumptions of science based start-up accounting, and how accounting used to translate strategic options can help the entrepreneurs acquire funding.
The interview-guide I constructed was based on Novo Seed‘s slides and other BP- models presented in entrepreneurial courses I have attended, e.g. Organizational Entrepreneurship by Prof. Daniel Hjorth (CBS), Entrepreneurship and New Venture Planning with Prof. Sunil Subashi, participation in Venture Cup start-up seminars and boot camps, blogs by influential Venture Capitalists (albeit all in the IT indus- try) and the book‖ Venture Capital‖ by Cardis et all.
I then read the science based start-ups‘ Business Plan admitted to the Venture Cup Jury and the jurors comments, to identify potential obstacles questioned by inves- tors.
3.2.1 Interview type
All interviews were qualitative and aimed at establishing narratives of typical obsta- cles faced by entrepreneurs in science based industries when presenting their inno- vations in a Business Plan.
The first round was informal networking discussions with well-known start-up in- vestors specializing in the first stage (no capital or equity) - and following presenta- tions by successful knowledge entrepreneurs that had attempted to obtain seed ca- pital, first or second stage. These were based on the observations from the entrepre- neurial presentation, compiling and comparing the syllabuses of three different En- trepreneur courses (IIMA, LIFE, and CBS) and the Venture Cup process
In the second round, I interviewed and recorded the narratives of science students turned entrepreneurs, representing different categories, which had been successful in the Venture Cup process, about their perceived relevance of different Budgeting models and accounting practices required in their respective industries in acquiring funding and getting contacts with potential investors.
The interviews were not of a testing nature, but open ended to establish narratives (Kvale 1997). I found my interviewees by my own extended network of knowledge industries entrepreneurs as well as through Venture Cup and Vækstfonden. No-one was paid any money to participate. All interviewees were asked to approve the fin- dings relating to them.
The analysis did not test the validity of the interviewed person‘s story, but only rec- orded their experiences as they appeared to them as economic agents, rational with- in their own objectives. The start-ups are a representative scope of cases in relation to different science based industries (Software, hydraulic engineering, and biotech), and they could then verify my hypothesis:
That Calculative Equipment is the main benefit from the Venture Cup competition process for science students and that the enrollment of investors hinged on the Business Plans ability to convey an economic rationale.
Interviews from the second round are included as audio files in the Appendix 11.2 and Transcribed where relavant in Chapter 5.
The interviewed had gone through the maximum of the Venture Cup competition process, and could now view the Business Plan, they submitted to the competition Jury, as one distinct stage of a continuing and dynamic process of translating their
―idea‖ to a ―business‖. All were currently pursuing entrepreneurial careers, but not necessarily based on the same innovation as presented in the Venture Cup, and all with very different business models than the ones submitted to the Competition Jurors.
3.3 Research Design
To understand the context of any new business endeavor and identify what ques- tions a Business Plan is trying to answer in the most relevant and efficient way, e.g.
the actions that are intended in its programming, we can investigate the economic assumptions lying behind strategic organizational writers Austrian-economic view on entrepreneurship (Landreth & Colander 2001 – Drucker 1955).
Actor Network Theory can help understanding the role of accounting devices in a science based start-up success (Skærbæk& Tryggestad 2010, Belkaoui 1999).
The Venture Cup process is viewed as a framing process through which enrollment of a number of stakeholders can occur and where the Business Plan in this framing becomes a purification point. The Venture Cup competition limited time span of the process, with an end date and a fixed BP to evaluate, creates an overflow in compari- son with the real continuation of a start-up‘s enrollment and the dynamic develop- ment of the BP expected by investors. (Gartner et al 1992, Callon 2007)
The scientific focus will be on identifying actors, mapping their network, and the common problems in the entrepreneurs‘ narrative, to understand what the BP needs to translate of the strategic elements into useful economic projections.
ANT will be used in the research design to re-frame the Business Plan as an acting technology. I assume that the Investors‘ main policy is to identify successful start- ups, and that the Venture Cup process is trying to teach students with an interest in entrepreneurship skills necessary to pursue such a career.
A successfully acting BP will reflect and address the overall strategies and problems of a start-up, and Accounting is a tool of strategy implementation in an organization (Chapman 2005, Chua 2007, Dent 1990,), especially for industries that are science based and have a high level of complexity in the creating of Value Delivery Systems (Hansen & Mouritsen 2005, Du Gay 1994, Delueran et al 2010). Thus I must under- stand what the relationship is between accounting and entrepreneurship to under-
stand the translations being sought by actors (Foss& Klein 2008). The discussion will in its framing combine the micro level of accounting, budgeting and calculating ROI (Aqraou 1997) and macro levels of Value Delivery Systems (Aaker 2005, ) and entrepreneurial venture in a science based industry (Frei & Leleux 2004).
3.4 Scientific Position
In order to answer anything from a theoretical point of view, and to state something of universal value, I need a suited economic methodology. I view the science of eco- nomics as an abstract a priori science and theory of praxeology18, and I will primarily use Schumpeter and followers of the Austrian school such as Drucker and Porter to define key concepts in entrepreneurship and strategy.
To clarify how an innovation creates a market which is hard to predict and where only entry barriers can be foreseen we will adopt Schumpeter‘s proposition from 1961, that if the market had little or no barriers it would already be full of players, and that if such a new market is discovered, only the entry barriers hinder new play- ers from joining that market. A market will eventually be destroyed by new markets or it will reach an equilibrium where price due to competition, will lead to diminish- ing returns.
This thesis , however, rejects the reigning belief (Schumpeter 1961, Kor et al 2007) that entrepreneurs or the people who choose to invest in them are of a different risk- adverseness than ‖Homo Economicus‖ (Gartner 1989). In accordance with Jones (2001) and Kirzner (1973) the entrepreneur is only using an informational ad- vantage to be more efficient with resources than the current suppliers of the market.
On top of induction and deduction the Entrepreneur uses imagination to put known entities into an innovative logic setting, the method called abduction by C.S. Peirce.
(1901)
Since ―Business is a practice that is best learnt from its practitioners― (Mises, 1962), I have chosen to interview stakeholders such as would-be entrepreneurs who have participated in the Danish Venture Cup finals.
18 In Mises (1998) defining of praxeology only humans’ can act, but here it is used in combination with the ANT view the BP becomes both actor and device
4 ANT theory
In an ANT understanding, success of an actor is dependent on enrollment of cham- pions that will further ones policies21. Using ANT we can investigate what transla- tions the accounting device must make to enroll the start-up‘s network successfully.
And what the stakeholders22 are looking for in the Business Plan and start-up.
4.1.1 Four moments of translation
M. Callon in his paper ― Some elements of a sociology of translation ― (1986) analy- zes the scientific process and power building of three scientists as an enrollment process of other actors, fishermen and colleague biologists, through a translation device. He defines ―four moments of translation” in the process of identifying actors and network relationships.
a) The problematization
To be successful in the creation of a network, one must make oneself and one‘s posi- tion relevant through relating to other actors in the network, and establish oneself and one‘s translation as an indispensable part of the network, e.g. an obligatory pas- sage point. An Obligatory Passage Point (henceforth OPP) is a question, and its an- swering can benefit all of the actors. Inter-definition of actors is where hypothe- sis about actors are defined and their relationship to the translation. At this moment the identities of the scientists, problematizing the translation, should also be de- fined. “The problematization describes a system of alliances, or associations, be- tween entities, thereby defining the identity and what they want” (M. Callon 1986).
The OPP is the device of interessement23. b) Interessement
Shows how allies in the network are locked into place answering the problematiza- tion and motivation of actors. The definition of identity, goals and interest is howev- er dynamic and interdependent of the other actors using the OPP.
c) Enrollment
Will define and coordinate the roles of the network. Transactions, negotiation and use of Interessement devices. Some actors will have resistance, and changes will be
21 Policies in this thesis meaning the hypothesis and goals of the actor.
22 ―Stakeholder‖ and ―actor‖ is used interchangeably in this paper.
23 Word used by Callon (1986)
done to accommodate this. Obtaining their endorsement may help in locking other actors into the network and keep them open to negotiation of translation. (Ibid) d) Mobilization of allies.
The goal of the actor is to be perceived as a spokesman deemed representative of the problematization, and to ensure that the negotiation and adjustment regarding the device is useful for other possible actors‘ enrollment in the network. In the end, one actor should represent the collaborative view of the others and then be in a position to negotiate the OPP's translation with newcomers. The Venture Cup jury verdict and picking of a winner is seen as synthesizing of the investor wisdom and thus can be used as a qualifier when negotiating with other investors.
“Dissidence”24 is not negative but rather a space for clarification, either if spokes- men are rejected or end the negotiation of the devices translation. When a DTU- student says he has chosen ―not to continue the start-up‖, he is not dismissing the premise of the BP, but rather taking its ratios to be correct, and thus deducing that the investment is not an attractive business model to pursue due to his acquired cal- culative equipment.
4.1.2 Accounting in an ANT Perspective
According to M. Callon (2007) the market is created by economists, who through agreeing on theories can build common standardized models, which they then can discuss in an objectified manner. The subject of this scientific discussion, economics, cannot be observed outside the framework of these models. As a consequence, the field of accounting formulation is drawing interest, since all the technical equip- ment‘s principle is traceable through written articles expressing ideas, and the championing of these ideas are reliant on argumentation in the theoretical frame- work e.g. using calculative equipment.
This opens up the reality of ‖economics‖ and ‖market‖ to re-framing by non- economists if they construct models (the accounting device) which can be used to argue in a manner that can be embraced by economists as in line with their profes- sion‘s own theories and models (P. Holm 2007). Even if the creator of an accounting device does not subscribe to basic economic tenants such as maximization of profits or the always rational homo-economicus, she can use the translation deriving from these to build arguments that will convince economists, hence enrolling them into her network of belief, (Skærbæk & Tryggestad 2010)
24 Word used by Callon(1986) to describe interaction between ”actors” .
Calculative equipment is a form of translation which derives from interaction with the economic actors, and illustrates an enrollment strategy. In the case described in
‖The role of accounting devices in performing corporate strategy‖ (Skærbæk & Tryg- gestad 2010) the first mates‘ union use calculative equipment to create awareness and convince politicians of the groups' security concerns. The focus on security is, however, not the dominant one in the start of liberalization process but rather emerges as the strategy pursued by Scandlines is framed as an investment calcula- tion. The ferry officers take the IPO requirement of a correct balance sheet and cal- culate liabilities of the new company in a different way, where they use their knowledge of pension and labor rules to prove that the savings on personnel cost were incorrectly estimated. By taking a ―development -not liquidation‖ strategy on its word, the ferry employees could translate their concerns of job stability into a cash-flow discussions and change themselves from an employee's union into an identity of ―accountants in the wild‖ (Skærbæk & Tryggestad 2010/ Callon 2007).
In a context where controlling, cost optimization and budget are the lingua franca (in the example between public servants and politicians) ― accounting is an integral part of framing strategy, that is to say the accounting devices become strategic in a role of (re)formulating strategic ends and rationales, rather than being limited to implementation” (Skærbæk & Tryggestad 2010)
4.1.3 Objectifying the Business Plan
In the context that science-student start-ups operate much of the same occurs. To see the innovation into a marketable and profitable product, accounting in the form of a BP seizes to be about mere implementation but must adopt and integrate in its formulation the problematization that it encounters and in this hopefully achieve enrollment of actors in the network that can further its cause. To do this the BP must seem objective25 enough to be scrutinized by the different actors who come in con- tact with it and also seem accommodating of the discussion and questions that have been raised, in a new version of the BP that can enroll yet new actors in the network.
Actors could be scientists, entrepreneurs, investors, institutional stakeholders with the politically defined aim of job-creation and stable growth
The BP is acting as a device, but can be seen in at least two framings as an organiza- tional road map with the goal of identifying strategic choices ahead, or as an invest- ment paper with cash-flow and comparable ratios to alternative investment objects.
25 In Callon articles objective is used in the two meanings: as a “non-emotional and rational” and as “a detached object”
The black boxing that I am hoping to illuminate is whether the Venture Cup Compe- tition process can truly simulate the complexity of high-tech start-ups and directly enable growth in innovative technologies, and what connection is there between participation in the Venture Cup Process and acquiring second and third tier fun- ding through the widely established and accepted model for Business Plan writing.
One Obligatory Passage Point is the ‖investment decision‖ by a venture capitalist.
The analysis of the budget part of the BP or viewing the whole BP as a piece of accounting trying to capture the value of a number of non-financial aspects of the proposed business organization, enables the forecasted budget to act as a purifica- tion of a number of intangible strategic assumptions, immersed in economic a priori about the successful commercialization of innovation. The cost of capital and cost securing the IP position of a firm highlights the specific problems of nano, pharma- ceutical and biotech industry in comparison with service and software, in the finan- cial model presented in the BP.
The importance of performative utterances in economic an activity An object is the organization of information in a manner that will be seen as detan- gled of its subjective origins. To detangle itself it will need to ‖be constructed as rea- sonably stable and thing like. A minimum of agreement as to the nature and limits of (in the quoted example) property rights and how they can change hands must be negotiated. These things do not lie in wait, ready to spring into forth from univer- sal human nature, but need to be constructed often with tremendous amounts of hard work” (P. Holm 2007).
Using a distinction from R. Austin, M. Callon (2007 ) points out, that economists can create objects by Performative utterance and the dis-entanglement ‖cause the reality that the utterance described to exist‖. Thus the performative utterance can be described and explored as an economic reality. The performative utterances condi- tion of felicity26 is one that is always in flux, but aims at incorporating all the articu- lation generated in its network through adjusting the utterance to its reality.
4.1.4 Calculative Equipment in the Start-up Company
The performative utterance that we have examined in this thesis is the BP and the detangling happens through negotiation of accounting methods. Through this analy- sis we want to understand what entails a translation about ―a profitable business‖
that creates and enables science based start-ups‘ network and enrollment. When the
26 Callon uses this term in the 2007 article to define when a performative utterance is stable and fulfilling its intended policies
participants in Venture Cup hand-over their BP to a jury it becomes the purification point of the calculative equipment gained through the workshop, pitch practice and iterative process.
”it seems as if managerial eloquence is a precondition for success in such start-ups.
Without extensive experience or demonstrable successes, the trust of others was reliant on the images and visions that the managers were able to create by words and Power point presentations” (Mouritsen & Kreiner 2003)
All the start-ups involved in Venture cup are initiated as an idea without a corporate organization to support or required typical accounting control. Yet as soon as the science students go beyond their personal investment of time there will be requests for accountability, either for clients billing purposes or for prospecting funds.
Through interaction with external actors the start-up will collect examples of what accounting-data is wished for and create documents that can satisfy the knowledge seeker. Most likely the first version presented will be problematized. The start-up will rework and adjust the accounting based on the feedback of the recipients.
To be successful the start-up must gain enough calculative equipment to enroll and lock its economically savvy investors. An entrepreneur must have superior
knowledge of her product to see an opportunity in the market for the innovation; she will have to solicit experts in other fields amongst them the financial. Integration and formalization can be seen as a solution to demands for stability from customers and complementary firms. Also internally in a company the prioritization and value creating strategies are highlighted by the measurements metrics, and the monitored resources will through problematization be seen as something to negotiate about.
(Mouritsen & Kreiner 2003). Furthermore the more capital heavy an industry, a start-up is attempting to become a part of, the more external funding will be needed before making a product-sale and controlling the investment. This will require or- ganizational competencies to produce accounting standardization early in the start- up‘s life-cycle.
Having thus developed a comprehensive analytical framework in which to under- stand the context and dynamics of the start-up, I now turn to the next part of the analysis in which I will explore what accounting a start-up must translate to its net- work of actors, and if the BP enables the enrolling of more allies into the start-up economic rationale.
5 Three Science based Start-ups Narratives
5.1 The Start-up and Business Plan in Venture Cup 2010
The empirical setting of the Venture Cup competition gives us a standardized pro- cess to investigate how business plan formulation has helped scientific innovators gain the calculative equipment necessary to turn into business savvy entrepreneurs.
The competition is exclusively for student start-ups. It gives participants the oppor- tunity to present their business idea and win 50.000 DKK in their category. There are five; Service, Software, Applied Sciences, Cleantech and Lifesciences.27
A start-up gets 250.000 DKK, in services and cash, if it is the overall winner. The Venture Cup organization and prizes are sponsored by public and private stakehol- ders. The competitions goal is to clarify an innovation‘s business potential both to the innovator and to other champions28 like investors and future employees.
Through a succession of different workshops and boot-camps, the vague business idea grows from an innovation to an observed customer pain29 with an estimation of market potential. A number of business practices are introduced to the participants, with marketing and presentation being focal points. These workshops assess organi- zational competencies needed to reach the targeted segment, and in the end a cash- flow based on the cost of that organization and the financial structuring to reach break-even.
This is, however, also an iterative process where the background of the entrepreneur and his/her unique innovation gets explored, and problems unfolded feed further exploration. Nonetheless, what is crucial background information for one partici- pant‘s start-up may not be the same as for another start-up competing for the same ultimate prize in a given year's Venture Cup.
In the world outside the competition, there would be a number of different funding opportunities to compete for, but the Venture Cups business plans‘ elements serve
27 The categories were changed in 2011 to Cleantech & Environment, Life Science & Medtech,.
Mobile & Web, People & Society, and Product & Technology
28 A champion is used in this context to describe a person who promotes the start-up and becomes an actor in the economic network.
29 Consumer pain is in this context defined as the problem a given product will solve for the consumer.
as a basic model that can be alternated to accommodate an appropriate device for enrollment in the future
5.2 Kkloud: “T”, a computer science student
Interviewees’ background:
T is master student of computer science and had prior to participating in Venture Cup Competition not thought about starting a company. He has, however, worked in a number of industries - amongst them the movie making industry - and has, since he was a teenager, programmed different applications to help him in his everyday tasks and job.
His partner in the start-up team is a co-computer science student and longtime col- laborator on programming projects.
How the mentioned science based start-up entered the Venture Cup competition:
The team never made an ―idea paper‖ or participated in the ―Idea competition‖ or any of the pitching/feed-back workshop.
They were suggested to enter the Venture Cup Competition by an employee at Ven- ture Cup Vest (Jylland) and she helped greatly in developing their Business Model and formulating the BP submitted to the jury.
Brief description of innovation.
A chat-client that can up- and download at the same time. It is an open program but not open-source.
Due to the technologies used of cloud-hosting and application, T and his partner named their start-up Kkloud. Today they have a start-up called GETT that has a similar functionality but not the same underlying technology.
Writing the BP tailored to Venture Cup competition
To understand their invention‘s possible commercial uses they interviewed different potential users. T knew of the problems ad-agencies, film- and Tv producers have with heavy file sharing.
The employee from Venture Cup did most of the formulation of the BP budgets, and the numbers mentioned in the marketing part were very randomly selected.
Most relevant feedback encountered in the process of developing the Business Model:
T and his partner had never before thought about making a start-up based on a software application. However after winning 50.000 Dkk in the final, they decided to pursue the idea.
A month later they both moved to Copenhagen from Århus to be closer to investors and a more lively incubation scene.
Insights you can use after writing a BP and pitching your invention:
Basicly that there was others who were interested in this technology, and that it might be possible to work with it fulltime
―We took the decision after the Venture Cup finals to move to Copenhagen from Jutland to start a company based on the technology and market we had discovered‖
(own translation).
Most relevant feedback for pursuing entrepreneurship encountered in the process of Venture Cup:
The Competition gave many contacts to meet people, actually too many, and you can get a meeting with anyone in Denmark when you have won the Venture Cup Finals.
The problem is, that it doesn‘t give you access to capital. The team was invited to go on a trip to Silicon Valley for Danish software entrepreneurs and there things a very different, no one ever asks about the start-up‘s BP.
It is only in Europe, and especially in Denmark, that there is so much focus on the BP. As programming entrepreneurs the original team doesn‘t want to think about exits, they want to see if it works and if we can get more users.
Continuing Kkloud?
After a year of working on it, the two team members will get paid for the first time next month. They have added someone to the Team who has done several software start-ups successfully, and are learning a lot from him. they also recently got a busi- ness Angel, he is still developing his own web based company, but he has made sure that the start-up has cash for servers.
When the start-up launched the new GETT technology six months ago, it had so many users that all development had to stop, and just dealing with the number of users and server capacity became the main priority.
When the team now present our start-up to investors we now give very different numbers, than in the BP. The potential funders, they meet now, are more interested in metrics and distribution than cash-flows and exit models.
―I have had to learn a lot as a CEO and especially as a first time manager; I have had to learn that in business it is all about figuring out what the other guy wants. You find that out and then you present that information to him. Same when motivating my programmer‖ (own translation)
5.3 Blue Power (“K”, an engineering student)
Interviewee’s background:
K was a master student of engineering, president of Startdust DTU (a student driven entrepreneurship network) and had prior to participating in Venture Cup been a central person in promoting entrepreneurship at DTU and other universities.
His start-up team was formed with a co-engineering student ―J‖, and after the Idea- competition they added a CBS master student ―B‖, who helped formulate part of the BP submitted to Venture Cup. Another Business Student ―D‖ was added later.
How the mentioned science based start-up entered the Venture Cup competition:
After the DTU-Danfoss workshop, the group already had the initial ―idea paper‖ to participate in ―Idea competition‖ conducted in January 2010 by Venture Cup. Here the group could pitch their idea to a jury and won the Clean-tech category competi- tion.
The group had from the start decided to pursue a Venture Cup Competition final with the innovation to get the maximum of workshops, networking and feedback to develop their understanding of starting a company.
Brief description of innovation.
In the DTU-Danfoss/Stardust Workshop, a new polymer was introduced, and the students were asked to come up with possible commercial uses.
K and his partner suggested it could be used as a harvester generating electricity from sea wave movement, and named their start-up Blue Power.
Writing the BP tailored to Venture Cup competition
K added D as a team member to show, that the original science student inventors were aware of the ―people risk‖, and that he was thinking about organizational chal- lenges ahead.
While participating in the different rounds of Venture Cup the goal was to ―make one plan, and then progress, and change it along the way to suit the competition and investors questions‖.
The BP was initially based on the Venture Cup template and then feedback was given by former participants in the Venture Cup, and then the business peoples‘ feedback.
No one from DTU incubators participated in the writing or gave feedback on the Business Model.
Most relevant feedback encountered in the process of developing the Business Model:
―the BP is good for making you think of certain aspects… but maybe your time [as a science student] would be better spent on something else‖
As a start-up Blue Power is currently not feasible for the engineering students to pursue.
Insights you can use after writing a BP and pitching your invention:
The content of the BP has changed since the Venture Cup Finals. We did several different BPs‘ - for the ―real‖ start-up you must adjust the elements:
The one presented to DTU professors etc. needed to focus on the scientific perspec- tives- you have to ask ―Can we set something up? Academia is necessary to build this [university-partnering] part of the project. It is a way to keep the investment down‖
Bootstrapping is necessary on scientific work to bring the idea to proof-of-concept.
The Professors at DTU do not want to be the R&D department of Danfoss ―but we can look into it for free‖
For business people it is more about presenting something interesting financially and marketwise ―just to get them to sit down and talk [about the project]‖.
Most relevant feedback for pursuing entrepreneurship encountered in the process of Venture Cup:
The technology has to be ready for use
