The Basics of the Innovation Ecosystem and some of its main components

Transcription

1 The Basics of the Innovation Ecosystem and some of its main components Dr. ENVR E-154: The Innovation Ecosystem and Sustainable Product Design Sample of some of the main points seen in this class

2 Recap from last class Outline Basic Technology Innovation Process Quality Function Deployment Patterns of Evolution for Technological Systems Concept of Technology Maturity From Detailed Design to Implementation Innovation Ecosystem Concept Slide # 2

3 Outline Drivers of the Innovation Ecosystem Creativity VS Innovation Paradox Social and Economic Pressures that hinder the formation of high tech startups Incentives for basic research, business incubators and accelerators exists in most places, but they are not enough to promote the expansion of startups Innovation Ecosystem s main components Slide # 3

4 Outline Proposed methodology to assess the maturity of an Innovation Ecosystem Recommendations to create a healthy Innovation Ecosystem in any community Slide # 4

5 Innovation Ecosystem Concept It is the regional scheme to create high tech startups because it requires the participation of the whole community to make it work in an effective way (it is similar to what happens in nature where interdependency of biological species creates a balance that maintains a healthy local system). Slide # 5

6 Drivers of the Innovation Ecosystem Creativity VS Innovation Paradox Children are creative, but don t have the technical/scientific knowledge to invent. Adults have that knowledge, but have lost their natural creativity For that reason, the most creative time for individuals is when they are teenagers or young adults, this is also the time when they complete their formative years (vocational school or college). This is also the best time to start a business, but this is not an easy task at this age for reasons that will be discussed in the next few slides Slide # 6

7 Drivers of the Innovation Ecosystem Social and Economic Pressures that hinder the formation of high-tech companies - Teenagers and young adults don t have assets or access to bank loans due to lack of credit history - High-tech startups are riskier than businesses with conventional business models, so they would get a higher interest rates even if they could access bank loans Slide # 7

8 Drivers of the Innovation Ecosystem Social and Economic Pressures that hinder the formation of high-tech companies - There are social and economic pressures to find a job in established companies, either because they need to pay student loans, to increase their professional status to get promoted in vertically oriented corporate hierarchies or the need for a permanent job to have money to get married and start a family Slide # 8

9 Drivers of the Innovation Ecosystem Incentives for basic research, business incubators and business accelerators exist in most places, but they are not enough to promote the expansion of startups Slide # 9

10 Drivers of the Innovation Ecosystem Government is not a deployment agency: This means that it is not the government s responsibility to scale up a particular technology or beneficial service Slide # 10

11 Drivers of the Innovation Ecosystem Government s assistance usually ends after the first demonstration facility, then companies are in the debt markets trying to get money to finance commercial scale operations: At this stage, higher risk of sustainable projects creates incentives for financial institutions to set higher interest rates which hinder the development of sustainable operations Slide # 11

12 Drivers of the Innovation Ecosystem Financial issues with different stages in technology innovation $ Maturity Decline Gestation Birth Expansion Slide # 12 $ in Scaling-up a Technology or Business Idea ( The Valley of Death ) Bank Loans at a high interest rate Family Loans Angel Investors Venture Capitalists Crowdsourcing University Collaborations Business Accelerators Government Interventions Etc. Time

13 Drivers of the Innovation Ecosystem Public Basic Research Research Grants Fiscal Incentives Innovation Awards Patents Grants for First Prototype Demonstration Facility $ in Scaling-up a Technology or Business Idea ( The Valley of Death ) Bank Loans at a high interest rate Family Loans Angel Investors Venture Capitalists Crowdsourcing University Collaborations Business Accelerators Government Interventions Slide # 13 Manufacturing and/or Service Sales Worldwide Distribution Initial Public Offering (IPO) Business Expansion Etc. etc.

14 Innovation Ecosystem s Main Components Proper legal framework for innovation and investment Good educational and research system that collaborates with local businesses and serves as a source for new ideas and technologies, as well as the base for business incubators and accelerators A healthy financial system that can fund new high tech business ideas for entrepreneurs without a credit history A critical mass of entrepreneurs with diverse complementary professions that serve as the core team and founders of high-tech startups Slide # 14

15 Innovation Ecosystem s Main Components Proper legal framework for innovation and investment A system with intellectual property laws and good enforcement so they feel free to share their ideas. Otherwise people become highly secretive and academia does not work with entrepreneurs or the private sector A legal framework that enables money transfers between investors and startups in an objective, predictable and fair way A legal system that defines the legal identity and regulates the activities of different entities of the Innovation Ecosystem Regulations for academic collaborations, business clusters, joint ventures and government grants A legal framework that enables a knowledge economy Slide # 15

16 Good Educational and Research + Academic Collaborations Good educational and research system that collaborates with local businesses and serves as a source for new ideas and technologies, as well as the base for business incubators and accelerators Slide # 16

17 Good Educational and Research + Academic Collaborations University Collaborations Business Development and Business Accelerators Applied Research Collaborations Slide # 17 San Diego Center for Algae Biotechnology - San Diego State University - University of California - San Diego - Scripps Oceanographic Institute

18 Good Educational and Research + University Collaborations Academic Collaborations Business Incubator: It is an entity that helps the entrepreneur in refining an idea, technology or business model. It usually starts by providing a physical space and basic business development services to a start-up company (it defines a plan) Business Accelerator: It provides diverse services to a start-up company with a defined business model or technology. It facilitates networking, financing, strategic planning, manufacturing and distribution contracts (it helps in executing a plan) Slide # 18

19 Good Educational and Research + Academic Collaborations University Collaborations Slide # 19

20 Innovation Ecosystem s Main Components A healthy financial system that can fund new high tech business ideas for entrepreneurs without a credit history Bank loans are unavailable for young people with no assets or credit history It would take a long time to save money to properly fund a technological startup High-tech or Sustainable businesses have a higher risk than companies with conventional business models Slide # 20

21 Financing Options for a New Business Angel Investors: You get start-up capital that will help you to pay for the first year of operations (equipment, supplies, rent, payroll, etc.) in exchange for convertible debt or a little bit of equity in the new company Advantages: You get money almost immediately Disadvantages: It is really difficult to find an angel investor and the amount of money that they offer is modest (between $20,000 to 1 Million U.S. dollars Dr. Slide # 21

22 Financing Options for a New Business Venture Capital: You get money to assist you in starting your business or expanding your business at a very rapid pace Advantages: You get relatively large amounts of money really fast Disadvantages: You need to pitch your idea and have a solid business plan to convince Venture Capitalists, you have to give up equity capital, so VCs own part of your business Dr. Slide # 22

23 Financing Options for a New Business Venture Capital: comes from a group of investors that aggregate a pool of money to be used by a Venture Capital Firm to fund starting companies. The start-up business gives equity (stock) in the company in order to receive money. VC s make money based in their exit strategy which could be a sale of the company or an Initial Public Offering (IPO) which means that the company stock is available to the public Dr. Slide # 23

24 Financing Options for a New Business Usually new technological ventures are financed by VC firms, why? They have a higher technological and business model risk Banks usually invest in conventional or safe ventures, otherwise they charge a very high interest rates New ventures are unpredictable, but could produce significant profits Dr. Slide # 24

25 Financing Options for a New Business Venture Philanthropy. It is a practice that uses tools and procedures from Venture Capital funding to promote the creation and growth of innovative ( risky ) social ventures Source: Dr. Slide # 25

26 Financing Options for a New Business Usually a Venture Philanthropy (VPh) group is created when an NGO gathers several foundations or individuals to create a social development fund that will have procedures that mimic a Venture Capital group, so you have a risk and social enhancement management team that issues money to different social start-ups and demand a Social Return of Investment (jobs, poverty eradication, lives saved, increases in quality of life or basic income, reduction of disease, etc.) Dr. Slide # 26

27 Financing Options for a New Business Hierarchy of VPhs Preferences, jobs and sustainability Thousands of jobs Hundreds distributed jobs Hundreds of jobs in one site Social start-ups creating jobs, poverty eradication, human health protection, social equity, etc. : - Low starting costs - Fast development - Fast social impacts - A lot of flexibility to get equipment and hire personnel - Multiplier effects Example: micro-credits, e- commerce, e-learning, clusters of cooperatives, etc. Dr. Companies using technological platforms that improve quality of life: - Relatively low starting costs - Un-tangible but important benefits - More flexibility than manufacturing Example: Sustainable supply chain services, sustainability consultant companies, NGO s, etc. Slide # 27 Support to one big local company or tangible service : - High starting costs - Proven revenue streams, but at risk of becoming commodities - Difficult to sell or liquidate assets - Lack of flexibility in hiring and firing personnel - Low profit margins Example: Manufacturing facilities, tangible services, etc.

28 Financing Options for a New Business Crowdfunding could be used for different causes, you can check some of the top crowdsourcing sites to raise money in the following link:

29 Innovation Ecosystem s Main Components A critical mass of entrepreneurs with diverse complementary professions that serve as the core team and founders of high-tech startups Companies should get the best people with complementary talents, if everyone is good in only one area, the team is weak Slide # 29

30 Proposed methodology to assess maturity of the Innovation Ecosystem We use a similar procedure to the one used to determine Maturity for a technology (seen before in this presentation during the regular class for ENVR E-154) with a few modifications We switch number of inventions with number of high tech startups created in the region in the past 5 years We find out the amount of financing and/or capitalization from venture capital groups and angel investors to startups in the area for the past 5 years We still analyze the level of invention, but this time we apply it to the startups main products by sector to get a regional average invention level Slide # 30

31 Proposed methodology to assess maturity of the Innovation Ecosystem Slide # 31

32 Recommendations to create a healthy Understand your Community s Strengths (for example for Boston they are: Biotech, Clean Tech, Medical Devices and Financial Services) Create a cluster of companies serving one sector to increase aggregate demand for technological products Educate the financial community in the region so they can form Venture Capital and Angel Investment groups Promote academic collaborations and educational excellency in the region Create a legal framework that protects intellectual property and defines identities of tech organizations Innovation Ecosystem Slide # 32

33 Questions? Slide # 33