Scheduling and Management of Seed Fund Allocation across Multiple NPD ProjectsAshok Rangaswamy

Dept. of Information TechnologySri Shakthi Institute of Engineering and Technology

Coimbatore, INDIAashok AT siet.ac.in

Abstract- The most important factor affecting the implementation of innovative ideas is the ineffectiveness in the delivery

of seed fund. Sometimes the most significant innovation does not receive the fund and in certain situations proper help is

not extended to the innovators. In order to eradicate this issue, the proposal to manage multiple NPD projects is put forth.

Seed fund is the vital factor in conceiving the ideas into new products for commercial use. It is difficult to schedule and

manage the seed money for multiple new product development (NPD) projects, especially for large scale government

initiatives. The process model to effectively manage the seed fund for multiple NPD projects is proposed and its

application to the accelerated radical innovation (ARI) methodology is discussed.

Keywords-Seed fund, venture capital, NPD, new product development

I. INTRODUCTION

Innovation can create positive externalities in the form of spillover benefits to the economic

growth of the country as well as it eradicates poverty. The government needs to generate large

scale invention outcomes to attain the socio economic transformation. Recently, Indian

government announced the launching of INR 5000 Crore innovation fund to support the new

ideas for the inclusive economic growth. Seed funding is the key enabler to transform the

concepts into new commercial products. To manage the rapid development of new products at a

larger scale, the seed fund has to be effectively distributed across many projects.

The study [1] shows that the majority of R&D efforts were spent on incremental innovation.

The study cautions that focusing only on incremental innovation will not be effective and rather

counterproductive in today’s flat world, where competitive innovations breakthrough across the

world. Thus, radical innovation is the only solution to attain the maximum breakthrough that

would significantly impact on the country's economy.

The table I [1] clearly shows that the new product development (NPD) project’s execution time

from concept to turn out to market is much longer than an acceptable period. This result clearly

states why corporate are hesitant on pursuing breakthrough innovations [1].

Uncertainty is the killer of many new product development (NPD) projects. The risk elements

need to be identified throughout the life cycle of NPD. Once risk element which potentially

endangers the NPD project’s outcome is identified, it has to be mitigated first, before proceeding

further with the project.

TABLE I. HISTORICAL INNOVATION LIFE CYCLES

Sl.No Innovation

Approx. life cycle time from

concept to final approved

design for production (in years)

1 Atomic bomb 12

2 GMO in food products 35

3 Powered flight 54

4 Wind electricity 140

For effective monitoring, risk management and to control the throughput of the multiple NPD

projects, it is mandatory that there has to be an effective mechanism. In this proposal, throughput

is defined as the number of successful NPD projects to the total projects in the specific time unit.

Hence, a novel approach is proposed, in which the effective tracking, control and optimization

of the seed fund utilization across multiple NPD projects is achieved. This approach adopts the

scheduling mechanism, which is used to control multiple computing processes.

The seed fund to multiple NPD projects is delivered in stages, after evaluating the progress at

each stage. The high potential project with promising results gets the highest priority in fund

allocation. This progressive seed fund allocation to the highly prioritized NPD projects will

enhance the throughput for the seed fund allocated.

II. EXISTING PRACTICE

A. Incremental Innovation

A stage-gate® system [2] is the commonly accepted practice for innovation management of

low and medium level technology innovations. It is the incremental innovation model. The

process of incremental innovation progresses through five stages, with assessment and approval

gate in-between:

Stage 0: Idea conceptualization Gate 1: Idea screening

Stage 1: Scoping (technical assessment) Gate 1: Scope approval

Stage 2: Build business case (detailed investigation) Gate 2: Approval to development

Stage 3: Development Gate 3: Approval for testing

Stage 4: Testing and validation Gate 4: Approval for launching

Stage 5: Launch

The seed fund is normally released after successful pass through each gate. It is the most

accepted model for incremental innovation, in which breakthrough seldom happens. The potential

pit fall in this model is that there is a long gap from conceiving the idea (stage 0) to start working

on the idea (stage 2). Further, seed fund is delivered with major chunk, once it is approved in gate

2. Since then, there is only a little control on how the seed fund is effectively utilized. Many ideas

go to “sleep/ zombie” mode even before they are given the fair chance of development.

B. Radical Innovation

Accelerated radical innovation (ARI) method [1] holds the potential to accelerate the radical

innovation to achieve the breakthrough findings. ARI methodology[3] consists of the following

steps to achieve the radical innovation in accelerated mode.

1) Inception period

Inception period focuses on identifying challenges in implementing the project.

Step 1. Recognize threat or opportunity

Step 2. Define breakthrough and life cycle position

Step 3. Identify grand challenges

3a, Market and societal challenges

3b. Scientific and technological challenges

3c. Business and organizational challenges

3d. Cluster/ Network challenges

Step 4. Determine key ARI hurdles

Step 5. Assess hurdles

Step 6. Establish ARI system vision

2) Implementation period

After the steps followed in inception period, several steps are followed here to launch the design.

Step 7. Form value innovation network

Step 8. Accelerated innovation prototyping

Step 9. Launch ARI prototype design

Step 10. If market is confirmed, launch ARI standard design.

The methodology for seed fund delivery is not specified in this innovation management process

available in the literature.

III. WHAT INVENTORS WANT

The ideal seed fund delivery process has to support the inventors, mentor them and come along

their path as the true companion towards success. The current master-slave model won’t be

appreciated by many recent inventors, who do not want to be disturbed during invention, by the

name of funding and also the fund allocation can be made more effective than that process.

The seed funding to the inventors can be compared with the caring ensured to mothers before

the birth of the baby. Since the fertilization of the idea in their mind, inventors try to hold the

invention process within them till the delivery of the prototype. Inventors need to be carefully

supported, assessed for the growth condition of the invention, supplemented with seed fund at

frequent intervals and are mentored when the progress of invention is critical. This is exactly the

fact that every true inventor expects from seed fund managers. They do not want to annihilate

their ideas or to deliver the unsuccessful invention outcome.

The ideal seed fund delivery process/ innovation incubation center needs to ensure security

throughout the invention period such that the outcome meets the purpose and helps the inventor as

well as the whole world. Existing seed fund management system does not effectively manage, if

too many ideas flow into the process. There is always the chance of spoiling the inventors’ spirit

through the scrutinizing process of ideas, as inventors are always afraid of protecting their ideas,

skeptical about revealing it to others just for funding since they are highly energized towards

implementing the idea, rather than disclosing it. Many inventors may not even turn-up for the

seed fund or kill potential ideas in the very nascent stage. Thus the core objective of the seed

fund, which is to boost the innovation, is diluted in the existing fund management model.

IV. PROPOSED MODEL FOR SEED FUND MANAGEMENT

A. Process Model

Each NPD project is considered as the individual project thread. The thread is initialized, when

the fertilized idea enters into the funding process. The thread starts its journey from the dormant

state. The thread moves to ready state, when the thread is passed in the idea screening and the

project is kick-started. The management of multiple NPD projects as threads into different states

is depicted in fig. 1.

Figure 1. Seed fund management process for multiple NPD projects.

Figure 2. Scheduler for seed fund delivery.

B. Mode of fund delivery

Mode of fund delivery is classified into two phases:

a. During inception period

b. During implementation period.

Two different modalities are used in each phase to simplify the funding access for inventors. During the

initial inception period, the installment of seed fund is delivered as MFI (microfinance institution) loan

for each project. If the NPD project progress is not satisfactory, it is treated simply as the MFI loan and

the money is collected from the inventors as weekly payment, till the satisfactory progress is made to get

the approval. Once the NFD project gets the approval, the MFI loan is augmented as seed fund, without

the need of repayment at regular intervals.

Once the inception period is completed (ARI [4] steps 1-6), the seed fund accrued is carried over to

the micro venture support wing. The term agreement is reached between the spin-off company and the

micro venture partner. In the implementation period, micro venture partner provides the remaining seed

fund support as the venture capital in return for the equities. In the implementation period, incubation

support is provided to the start-up. If there is any deviation in the progress, proper mentoring will also be

provided. These two modalities are depicted in fig. 3 and fig 4. Intensive care will be provided in the

implementation period to bring the maximum throughput for the total seed money invested during the

period.

1) Inception Period

Figure 3. Mode of fund delivery in the inception period

(ARI steps 1 to 6).

2) Implementation Period

Figure 4. Mode of fund delivery in the implementation period

(ARI steps 7 to 10).

C. Seed Fund Delivery

Seed fund shall be delivered to the project threads which are in ready state. If multiple projects wait in

the ready state, which is the core problem in providing fund , the seed fund will be delivered to the

project thread with highest priority. Priority is the dynamic attribute assigned to each project thread.

Priority shall be dynamically calculated based on the project progress, value creation and other attributes.

There is also a provision to force the priority to any level as per the seed manager’s decision.

The scheduling process for the seed fund delivery is shown in fig. 2. The highest priority project

thread is taken into “current” project under consideration state by the scheduler. If resources for the

current thread are unavailable or decision making team waits for more information about the current

thread, it will be taken to “blocked” state. Once the information or resource required is available, the

blocked thread will be taken to either current or ready state, depending on its priority. The history log will

be maintained for each thread to record attribute values in each step and each state.

Pre-emption: There is the specific scenario, where high priority project thread enters into ready state,

when low priority project is being considered for the fund delivery. The scheduler, which maintains the

queuing and processing of the project threads, immediately assesses this scenario, notifies the decision

making team and brings down the current thread into holding (“ready”) status and takes-up the highest

priority project thread for the fund allocation consideration (“current”) state.

D. Assessment

Each NPD project thread needs to be assessed while it is in the waiting state. The following attributes

are essential in assessing the potential breakthrough innovation [1]:

A1.Innovation vision

A2.Identified customers

A3.Competitive position (valuation)

A4.Innovation design (Feasibility and maturity)

A5.Manufacture and distribution (envisioned)

A6.Innovation reliability

A7.Innovation stakeholders

A8.Geographical scope

A9.Market volume

A10. Business plan

The progress that must be achieved for each attribute in the successive steps of ARI methodology is

shown in table II [1].

TABLE II. PROGRESS LOOKUP TABLE

ARI

stepA1 A2 A3 A4 A5 A6 A7 A8 A9 A 10

1 20 20 20 20 20 20 20 20 20 20

2 40 30 40 30 30 30 30 30 30 30

3 50 40 50 40 40 40 40 40 40 40

4 60 50 60 60 50 50 50 50 60 60

5 70 60 70 70 60 60 50 60 60 60

6 80 70 80 80 70 60 60 60 60 60

7 80 80 80 80 80 70 70 70 70 80

8 80 80 80 90 80 80 80 80 80 90

9 90 90 90 90 90 90 90 90 90 90

10 100%

Note: Progress is expressed as the percentage of required progress at step 10 for each attribute

This table is referred to take the decision to continue funding further, after the NPD project thread

moves from executing state to waiting state. If the progress is below the threshold of the expected level

mentioned in the table, the NPD project is rejected and taken to dormant state. In dormant state,

mentoring and improvement can be done; then the decision of revamping the project shall be taken.

Analytical Hierarchical process (AHP) helps in selecting the high priority project from the pool

available in the ready state. The AHP maintains the hierarchical tree, showing the criteria of selection. It

helps in reducing the complexity of the selection process, by reducing the complex decision making into

a group of elementary comparison [5]. The Fuzzy AHP approach [6] to solve the priority assignment for

the multiple projects will be derived and considered in the scope of the future work.

V. CONCLUSIONS

The proposed framework thus provides an effective seed fund delivery to the new inventions thereby

ensuring the development of actual outcome following every step. If the resource or the progress is not to

the expected level the inventor is mentored and the seed fund delivery is done only after the progress is

achieved. This process suggests that both the investors and the inventors will be benefited through

venture partners. In this framework, the micro finance institute and the micro venture partner are

employed together for the effectiveness of fund delivery. Hence, many innovations can be brought into

real implementation and thus our country’s economy will definitely improve. Further implementation of

this proposal will surely help the country by bridging the gap between inventors and investors as well as

technology enhancement will take place in the mere future.

REFERENCES

[1] John P. Dismukes, Lawrence K. Miller, John A. Bers, Jai A. Sekhar and Alec E. Shelbrooke, “Accelerated Radical Innovation (ARI) Methodology Validation”, PICMET 2009 Proceedings, pp 677-691, August 2-6, 2009

[2] Robert G. Cooper, Scott J. Edgett and Elko J. Kleinschmidt, “Optimizing the Stage-Gate® Process: What Best Practice Companies are Doing - Part One”, Research Technology Management (Industrial Research Institute, Inc.) Volume 45, Number 5, 2002.

[3] Bers, J. A., and Dismukes, J. P., “Accelerated Radical Innovation: The Execution Side”, Final Submitted to PICMET’09 Conference, April 2009.

[4] Bers, J. A., Dismukes, J. P., Miller, L. K., and Dubrovensky, A., “Accelerated Radical Innovation: Theory and Application”, Technological Forecasting and Social Change, 2009. 76(1): p. 165-177.

[5] Greg A. Stevens and James Burley, “Piloting the Rocket of Radical Innovation, Research and TechnologyManagement”, 2003.

[6] Mohammad Reza Mehregan, Mona Jamporazmey, Mahnaz Hosseinzadeh, and Mohsen Mehrafrouz, “Application of Fuzzy Analytic Hierarchy Process in Ranking Modern Educational Systems’ Success Criteria”, International Journal of e-Education, e-Business, e-Management and e-Learning, Vol. 1, No.4, October 2011.