Chuck Eesley

eesley@mit.edu

http://www.mit.edu/~eesley

Success Factors for Technology-Based Entrepreneurs

Entrepreneurship Club July 17th, 2007Small Talks July 18th, 2007

Innovation = Invention + Commercialization

• MIT 2 inventions/day, 4 patents/week, 20 start-ups/year, but only a fraction survive, grow, get acquired, or IPO

• Entrepreneurial success is not about heroism or luck, there is a formula!

• Want to move towards a more specific formula than:

Great tech. + big market + great people = success

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Ph.D. Student at the MIT Sloan School of ManagementWhile a student at MIT • Analyst at Lux Capital – recruited senior scientists and identified Scientific

Advisory Board for Genocea Biosciences; worked on deal flow; building database of area material/life sciences serial entrepreneurs.

• Carlyle Group – due diligence• Acting CEO for Learning Friends, software start-up, finalist in Hong Kong

University of Science and Technology International Business Plan Competition• Mentor - materials science start-up Hydrophen, an MIT Enterprise Forum ICE

finalist in 2006; Altagenix and Hemetrics (semifinalists) in the MIT 100K

• NeuroCog Trials, Inc. consulting - Pfizer, Johnson & Johnson, and GlaxoSmithKline on clinical trials for schizophrenia

• While an undergraduate, in 2002 first prize ($50,000) in the Duke Startup Challenge - Sun Dance Genetics, Forbes Small Business top 14 startups in 2003

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Success Factors for Tech.-Based Start-ups:

• Bigger founding teams

• Prior founding experience

• Work experience / social network

• Connections to VCs, personal savings

• Patents

• Persistence

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Cox (1972) Hazard Rate RegressionDependent Variable = IPO(subjects start being at risk at year of firm founding)

Note: coefficients are hazard ratios – numbers >1 represent higher likelihood of IPO

Idea from graduate thesis 1.15 (0.66)

Idea from MIT class 5.42 (4.50)*

Idea from MIT UROP 3.77 (2.45)*

Prior IPO 1.68 (0.39)*

Venture Capital 1.69 (0.43)*

Angel Investors 1.52 (0.51)

Patent 1.73 (0.32)**

# Cofounders 1.27 (0.09)***

Number of observations 1509

Bigger Founding Teams

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Founding teams can be a lot of fun!

Chuck Eesley

First Place in Duke Startup Challenge, May 20026

Early Hiring and Co-founder Mistakes Can Be Deadly!

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Prior Founding ExperiencePanel A –Revenues (in constant 2001 dollars)

Firm Rank1st firms(N=556)

2nd firms(N=182)

3rd firms(N=84)

4th firms(N=21)

5th firms and higher

(N=36)

Median Revenues (‘000’s) 836 1,784 924 1,181 7,274

Standard Dev. (‘000’s) 153,000 117,000 130,000 10,800 21,200

Panel B – Lag (from graduation and from the prior firm founding)

Firm Rank1st firms(N=761)

2nd firms(N=241)

3rd firms(N=150)

4th firms(N=71)

5th firms and higher

(N=31)

Lag Between Subsequent Firms (years) 14.02 7.95 7.38 6.99 6.71

Lag St. Dev. 9.78 6.90 6.73 5.42 6.378

Prior Founding Experience

9Revenues are in dollars and divide by the age of the firm and then take the natural log to adjust for skew.

Age Distribution of MIT Alumni Entrepreneurs at First Firm Founding

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22-24 28-30 34-36 40-42 46-48 52-54 58-60 64-66

Age

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Firms Founded Prior to1970Firms Founded in the1970s

Firms Founded in the1990s

Work Experience

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# Responses % of FoundersMIT-Doing outside-funded research 33 2.1MIT-Graduate thesis 45 2.87MIT-In class 10 0.64MIT-Informal discussion with students 27 1.72MIT-Other 32 2.04MIT-Other research 16 1.02MIT-Professional literature 6 0.38

MIT-Undergraduate Research Opportunity 8 0.51MIT-Visiting scientists, engineers, or entrepreneurs 6 0.38MIT-Working with an outside company 30 1.91Other Sources-Discussions with social or professional acquaintances 193 12.3Other Sources-Other 102 6.5Other Sources-Research conference 10 0.64Other Sources-Working in the industry 915 58.32Other Sources-Working in the military 46 2.93

Sources of Product/Service Ideas

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Work Experience and Teams

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Work Experience and Teams

Work Experience and Ideas

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Work Experience and Ideas

Initial Funding – Savings and VC

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Net Worth Adjusted for Age

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

1 2 3 4 5 6 ormore

Lifetime Firms

ne

t w

ort

h /

ag

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Net worth / age

Persistence!

(in ‘000’s of $)17

Famous MIT Entrepreneurs

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Mr. d'Arbeloff co-founded Teradyne, now the world's largest producer of automatic test equipment with MIT classmate Nicholas DeWolf in 1960.

In 1965, Ray Stata founded Analog Devices, Inc. with his former MIT roommate, Matthew Lorber '56 EE and Richard Burwen (a Harvard alumnus).

Edward Roberts co-founded Pugh-Roberts Associates, Medical Information Technology, Inc., Sohu.com, Inc., Advanced Magnetics, Pegasystems, PR Restaurants, Interactive Super Computers, and Visible Measures.

Patrick McGovern

Phil Sharp

Noubar Afeyan

Bob Langer

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Current/Next Generation MIT Entrepreneurs

• Joel Moxley, Chris Loose – Stericoat• Josh Lake, David Kaufman – Hemetrics• David Miller• Micah Sze• Helen Chuang – MAD Nanolayers• Joe Jacobsen – Codon Devices• Prof. Angela Belcher – Cambrios• Prof. Yet-Ming Chiang – A123• Roanna Padre - Altagenix• Zeid Barakat• Albert Park• Forrest Liau• Andy Peterson, Tracy Mathews, Curt Fischer – C3 Bioenergy

• You?!?

Panel A – Proportion of Founders Choosing MIT for the Entrepreneurial Environment

Graduation Decade1960s

(N=313) 1970s

(N=373) 1980s

(N=315)1990s

(N=214)

12% 19% 26% 42%

Panel B – Factors as Important in Venture Founding*

Graduation Decade1960s

(N=111)1970s

(N=147)1980s

(N=144)1990s

(N=145)Students 24% 38% 50% 66%Faculty 42% 37% 28% 37%Research 32% 30% 26% 33%Entrepreneurial network 25% 32% 40% 50%

MIT Entrepreneurship Center 1% 2% 1% 12%MIT Business Plan Competition 1% 0% 3% 30%

MIT Factors in Venture Founding

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Why Are So Many Entrepreneurs Drawn to MIT?

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• Focused on de novo, seed and early stage investments in the physical and life sciences• Companies created by Lux Partners have cumulative market cap in excess of $20B• Built 20 companies – 15 exits via IPO or acquisition• Lux Research – provides strategic advice and intelligence for emerging technologies• ETF w/ Powershares w/ assets ~$150M• First to found political industry association on nanotechnology, The NanoBusiness Alliance • First to launch nanotech investment publication with Forbes• Currently investing $100 million fund, 6 investments so far

About Lux Capital

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In Summary:

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• These team/organizational factors likely apply to non-tech-based start-ups as well.• With technical risks and long R&D cycles, they become more important.

Cool tech. and a big market are not sufficient:

• Bigger founding teams• Prior founding experience• Work experience / social network • Connections to VCs, personal savings• Patents• Persistence

Chuck Eesley

eesley@mit.edu

Thank you!

As one survey respondent stated: “I look at the MIT experience as training in problem solving. Business is a series of ‘problem sets’ that must be solved, so MIT is a key training ground.”

* Thanks to Adam Kalish (Lux Capital) who provided extensive comments/edits/encouragement for this presentation.

Extra slides

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First Firm Foundings by Decade

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200

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500

600

700

800

1930s 1940s 1950s 1960s 1970s 1980s 1990s

Decade of Founding

# o

f fi

rms All Alumni

Women

Non-U.S. Citizens

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First Firm Foundings per 1000 Alumni within Category

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100

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400

1950s 1960s 1970s 1980s 1990s

Decade of Graduation

nu

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All alumni

Women

Non-U.S. citizens

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Proportion of Entrepreneurs by School

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Proportion of MIT Entrepreneurs from Each School

0%

10%

20%

30%

40%

50%

60%

70%

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90%

100%

1930s 1940s 1950s 1960s 1970s 1980s 1990s

Decade of First Firm Founding

Per

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rs Architecture and UrbanStudies

Humanities + SocialSciences

Sciences

Management

Engineering

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Figure 8

Proportion Entering Entrepreneurship from Each School

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

1950s 1960s 1970s 1980s 1990s

Decade of Graduation

Per

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Table 1Select Trends in Graduates Becoming Entrepreneurs

Panel A - Median Age at First Firm Founding (years)Decade of Graduation 1950s 1960s 1970s 1980s 1990sAll 40.5 39 35 32 28

Non-U.S. Citizens 38 35.5 36.5 32 29Women 42 41 40 35 29

Panel B - Proportion of Entrepreneurs by Final Degree (%)

Decade of First Firm Founding1950s

(N=60)1960s

(N=167)1970s

(N=284)1980s

(N=507)1990s

(N=653)Bachelor’s 53.2 44.0 41.3 46.8 25.3Master’s 36.4 36.0 40.3 38.4 56.2Doctorate 10.4 20.0 18.4 14.9 18.5

Panel C - Proportion of Founders from Certain Academic Departments (%)

Decade of First Firm Founding1950s

(N=54)1960s

(N=147)1970s

(N=2521980s

(N=448)1990s

(N=620)EE & CS degrees 20.4 26.5 18.7 25.4 22.7Management degrees 16.7 14.3 13.5 13.8 15.8Life Sciences degrees 0.0 2.7 4.0 4.9 4.7

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