I have just returned from the University Startup Conference in Washington, D.C. This is the first academic conference that I have attended in the last 34 years and I recommend that you space out your academic conferences at least every 40 years. The conference was held at the National Institute of Health facilities, where the level of security would suggest that I am glad I live outside the Beltway.
The conference brought together representatives from several federal agencies that give research grants to foster scientific research, state government officials who foster economic development, state university administrators principally responsible for technology transfer, venture capitalists who get their deal flow from these groups and me and one other person interested in boot camps for student entrepreneurs. I gave one of my usual humorous, insightful talks that was of interest to one other person and when I find them I am going to thank them for attending.
Not surprising in this gathering of federal, state and university officialdom, the people that had the most useful information were the VCs. They told good war stories about all the conditions attached by these types of officials to deals they had considered. The most important point for entrepreneurs is that the conditions you agree to before you bring in the VC may prevent the VC from structuring a proper return on the deal and consequently kill it. A few examples cited were:
- Granting anti-dilution protection to prior investors
- Granting liquidation preferences to prior investors
- Agreeing to high royalty percentages on licensed technology, even if they are contingent on performance (5% or less appeared to be generally acceptable)
- Agreeing to an escalating, fixed payment schedule for royalties
- Agreeing not to move your business out of a state
Of course there were several questions from the officials on how the VCs valued companies with significant federal or state grant monies. The consistent answer from the VCs was that prior money invested (in any form) had no effect on their determination of pre-money valuation. They explained that they backed into a valuation based on their target 10X return in five years. A noticeable hush came over the room after this answer.
A Canadian government official (who probably wandered into the conference by mistake) commented to me that U.S. citizen interest in immigrating to Canada is near an all time high. If interested, the words to O Canada in English and French are here.