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New Venture Ideation

Transforming Innovative Ideas Into Companies

Howard Lee MorganDirector, idealab

Partner, First Round Capital

January 28, 2009

IdealabHistory

idealab! Methods

Expansion & ContractionSV, NY, Boston, London

Companies

Entrepreneurial Marketing Framework

Examples

Agenda

HLM History

I’m a lapsed academic

CCNY ’65, Cornell Ph.D. ’68

Professor at Cornell, Caltech, HBS

Penn (Wharton and Moore)

Machine #50 on the net (1973)

36 years of email

Arca Group – 1989 to present

Started in 1996 by Bill Gross - I was lead investor

New form of corporation to capture opportunity

Move from idea forward

Factor out common problems – infrastructure

Space – silicon valley, startup in garage

Focus on ideas, product feature/function and time to market

Idealab History

Basic Concept

Start the idea, own 100%

For outside ideas, keep significant stake

Dilute for management, add other investors

Work to create 100, 100 person companiesversus one 10,000 person company

Keep incentives localDo more ideas than companies

Idealab Methodology

Idea creation

Idea prototyping

Idea filtration

Realizing Individual Potential

Leverage Assets and Resources

Idea Creation

Attract the brightest minds

Reward creative thinking

Look for passion about ideas

Regular brainstorming

Monthly meetings

Weekly calls

Topical reviews

Trend analysis

Idea spreadsheet

Brainstorming

Build quick prototype

Metrics metrics metrics

Sense and respond

Repeat

Idea Prototyping

Exec summary – 1 page tops

Market size

Time to develop and market

New Venture Group Analysis

Summary business plan

Viability of the business model

Recruiting talent

Raising Money

Defensibility and sustained advantage

Idea Filtration

Work with quality people

Let them have an impact

Give them significant equity ownership

Listen and interact with them

Realizing Individual Potential

Provide centralized services

Combine buying power

Network to share knowledge

Force introductions, not deals

Believe in the free market

Leverage Assets and Resources

Opened in Pasadena 1996, new open layout

High energy space

Not enough conference rooms

College dorm effect

Synergy

Physical Layout

Offices and incubateesPasadena – both an idealab! and The idealab!,

also corporate HQApteraDWPowerEvolution RoboticsEnergy Innovations, eSolarSnap.comX1

OtherPartsearch (NYC)Newbury Networks (Boston)Airwave (San Mateo)

Brainstorming areasSocial networking, 3D printing Energy independence

Open Office Layout

How we differ from VCs

Bacon and eggs –commitment/involvement

idealab! committed, VC involved

VC model is great – ICP adds those benefits

ICP now Clearstone – about $500MM under mgmt

Entrepreneurial Marketing Framework

3 product lines, 5 markets – product/service, stock, company

Customers (+$$)

Users (-$$)

Investors (+$$)

Recruits (-$$)

Strategic Partners (+/-$$)

Morgan/Lodish 3 by 5 approachProducts Shares Image

Customers(+$$)

Sell Benefits and value

Stability of company

Users (-$$)Ease of use/benefits

Investors (+$$)

Growth and earnings potential

Enhance value

Personnel (-$$)

Work in hot product area

Value of options

Why work there

Strategic Partners (+/-$$)

Add to their offerings

Gain investment

Increase credibility

Venture Involvements

Cylink Corporation (SFNT)Franklin Electronic PubMyPoints.com (now UA)Infonautics (now Tucows)Viewpoint Corp.Segue SoftwareTickets.com Unitronix CorpeMachinesInternetBrands.comUnited OnlineEvolution RoboticseTrue, Inc. (RIP)Metaphor SolutionsFirst Round CapitalDel.icio.us (YHOO)

Bikini.com (RIP)Infogate (AOL)idealab!New.net Overture Services (Yahoo)Half.com (eBay)Partsearch TechnologiesEnergy InnovationsPayTrust (Metavante)PeoplelinkPlanalyticsCommission Junction (VCLK)Traffic.comTrakusUtility.com (RIP)

“Having just the vision’s no solution, everything depends on execution” – Stephen Sondheim

Shorten time to market

Listen to the customers (sense and respond)

Leverage our network

Remain committed to excellence

Transform Innovative Ideas Into Winning Companies

Questions? Comments?

Email me at Howard@idealab.com

Blogwww.waytooearly.com

Thank you!