How To Start Your Business Without Taking A Huge Risk miltonchang@incubic incubic

1. How To Start Your Business Without Taking A Huge Risk miltonchang@incubic.com www.incubic.com

2. A What I’ve Learned from the HBS and The “School Of Hard Knocks”!

3. 1971 • Newport (Research Equipment, IPO), Uniphase (OEM lasers, IPO and later JDSU), Cyonics (OEM argon lasers, a sister company of Uniphase), CyberOptics (robotic vision systems, IPO), Questek (excimer lasers, acquired), Laser Power Optics (infrared optical components, IPO), and Lightwave Electronics (argon lasers, acquired). Euphonix (audio mixing systems, IPO), Iridex (laser ophthalmic systems, IPO), and Gadzoox (storage area networks, IPO), New Focus (laser equipment, IPO). • 2000 Incubic Ventures…invested in about 12 companies… Now • Precision Photonics (optics), mBio (Medical diagnostic), Greystripe (Mobile Advertising), Aurrion (Silicon photonics) Companies I Started/Incubated

4. Preparing to become an entrepreneur • Starting a business • Idea, business model, business plan, raising capital, • Forming the team, getting going… • Running a business • Organizational strategy, marketing, R&D, Manufacturing, operation, financial management… • Maximizing exit valuation The Book Offers Practical Insight

5. The process of starting and preparing to start a business • PLUS a few words about how to gain access to opportunity in America like everyone else Addressing Two Topics Of Interest Today

6. “Go for it!” Come up with a big idea, raise venture capital, gain first-mover advantage, get rich and famous. • Statistically 10 out of several hundred business plans get funded and maybe 3 would get to a meaningful exit. • This high-risk approach can provide a handsome average return to investors who have a portfolio of companies…but takes a toll on the entrepreneur. Starting Company The Usual Way

7. This business model overlooks the first principle of entrepreneurship: Efficient use of capital to create value • Everyone want to gain first-mover advantage for a big win • A hot idea is often behind the wave, plus • Haste-makes-waste, mistakes are costly and unavoidable. • Hard on the entrepreneur; big win or nothing. The Conventional Approach Is Risky

8. Big Bets for Big Rewards • Software: Google ($50M), Groupon ($135M). • Hardware: Segway ($150M), Soyndra (1.5 Billion) • In contrast: Newport $150K, New Focus $2M, • Uniphase (Now part of JDSU) $2M.

11. A Practical Approach That Works Even For A First-Time Entrepreneur • Start with a niche business where you are an industry insider doing what you are really good at • Prove out the business concept with a “business prototype” before commit to making a major investment • Develop the business strategically and thoughtfully • Develop the organization and your people • Open to an early acquisition

12. Spend as little as possible to validate the business model to enable you to make a logical decision, or a potential acquirer to recognize the value • Having shipped products to a few respected customers • Getting potential customers to commit to placing a firm order • Deciding on the right next step What Is A Working “Business Prototype”?

13. You have industry insider insight to provide a valuable competitive advantage • Low initial investment makes it easier to raise funds • You can manage with common sense and gain management acumen as you go • You can get new product ideas from customer to expand without taking product risk • You can raise money at an attractive valuation when rapid expansion is justified A Company Must Put Capital To Work To Create Value Efficiently

14. Headline: Johnson &Johnson dropped out of the stent business! (even though the company it acquired pioneered the procedure) • Taking a systematic approach may not slow you down • Instead: • Learn from “pioneer’s” mistakes • Develop IP to prevent being shut out of the market What About First-Mover Advantage?

15. IPO presents a high hurdle • An early acquisition is likely to produce the highest ROI for all involved • It is capital efficient to incubate the idea in a startup company • It is capital efficient to scale the business in an established company • Acquisition is not within your control. Focus on execution; Acquisition will occur only when you have a proven business prototype with high potential Acquisition Is A More Likely Exit Scenario Today

16. A business must use its resources to create value efficiently to provide an attractive return to its investors and stakeholders • Be well prepared before you start: Understand the marketplace, develop a viable business model, write a thorough business plan, garner adequate resources, and execute. • Start in an industry where you really understand • First prove out the business concept with a “business prototype” • Open to an early acquisition to maximize ROI • Work for a well managed company to practice entrepreneurship Take Home Messages_ Starting A Business

17. Think long term. Rome is not built in one day • #1 requirement: Be really good at what you do! • Become an expert in something. A generalist cannot compete effectively for opportunities • Cover your bases __ The first step is being successful on the job • Express yourself well • Expand your reach. • Never stop learning • Develop relationships/network • Build bridges between your origin and America Succeeding In America

18. Develop self-awareness • Take an interest in business and management • Work for a well managed company • Choose work based on learning and growth opportunity • Take on project management responsibility & engage a mentor • Build reputation and network • Participate in professional societies Preparing For Entrepreneurship

19. Choose a project that capitalizes on your strengths • Do not take on any task unless you have a high level of confidence that you can succeed…Once you take it on, work to a meaningful completion • Give to get • Find a mentor; be receptive to inputs • Before you disagree with a viewpoint, first understand what is behind the idea. Useful General Principles

20. A Available at www.miltonchang.com

21. With Best wishes! Milton Chang Incubic Management LLC miltonchang@incubic.com www.incubic.com