Funding via Partnership

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Funding via Partnership

• Pamela Lipson

Case study Imagen Partnership parameters
MIT Enterprise Forum, September 18, 2003 No Money
Down Raising Capital from Unconventional Sources
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Funding options as a function of Markets and
Technologies
Flexible Funding
Fixed-fundedproject
Many funding options here (VC)
Customer Funding
Lets consider a concrete example
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Imagen technology
THE PROBLEM Visual pattern recognition over a
wide range of acceptable variations.
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Imagen technology at work Potential Markets
Image web search
Face Recognition
Trademark Search
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Looking for a Partner

• Secure funds to develop technology for a
  particular market
• Find a partner who is already in the general
  business to shoulder most of the market risk
• Develop a relationship that would allow both
  parties to work together to match the technology
  to the market needs
• Gain experience creating a commercial product
• Develop intellectual property base
• Develop name recognition

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Imagen and Teradyne find an opportunity to
explore together
Printed circuit board manufacturing
INSPECTIONSYSTEMS
Opportunity to visually test boards while
they are being manufactured
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Imagens technology extends to printed circuit
boards
Parts and boards have a wide range of acceptable
appearances. This variation must be distinguished
from true defects.
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Partnership through thick

• 1998, Imagen Teradyne start in earnest
• Initial targets Large US electronic
  manufacturers (EMS)
• 1999, Successful Beta test with
  large-cell-phone-manufacturer
• 2000, Begin to ramp production for first customer
  ship

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Partnership through thick and thin

• 2000 high tech crash, reduction in demand for
  electronics
• Manufacturing sites buying decision center of
  gravity changes to Asian areas
• New indigenous competitors pressure western
  Average Selling Prices
• End-product technology evolution result in a
  change in product requirements

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Teradyne and Imagen react together

• Imagen enhances technology to address new product
  requirements
• Teradyne works on machine infrastructure cost
  down
• Teradyne and Imagen form a heavy-weight
  (multi-disciplinary) team to focus on Asia
  wireless accounts (early adopter for in-process
  test)

• The results
• Break-in accounts in China, Taiwan, and USA
• Evaluations starting in Korea, Japan, and Europe
• First long term studies of machines performance
• End of line defects reduced by an order of
  magnitude

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End of case studyNow for some general remarks
about partnerships.
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Partnerships

• Advantages
• Funding sufficient to weather the storm
• Can approach markets products that do not
  follow traditional VC return curves.
• Partner brings significant assets to the table
• Experience
• Access to the market
• Brand recognition.
• Disadvantages
• Dependence for possibly critical functions
• Inherited inertia from bigger partner
• Difficult to transition to other markets and
  other products.

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Pre-nuptials for a Successful Partnership?

• Funding for technology development
• Fixed/ Variable based on Milestones
• Monetary Rewards
• technology milestones
• sales milestones
• Intellectual Property ownership
• Original IP/New IP
• Field of Use, geography, period of time, customer
  segment
• Equity
• Marketing control of product and technology
• Sales control
• Separation Criteria

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ConclusionFor an emerging technology in an
emerging market partnership is a good funding
choice
Technology Maturity Emerging Mature
Flexible Funding Via partnership
Fixed-fundedproject
Emerging Market Maturity Mature
Many funding options here (VC)
Customer Funding
lipson_at_imagen-inc.com