Market research

Opportunity

You need to be able to demonstrate that an opportunity to capture a market exists and that you have the technology that can seize that opportunity. To do this you are required to have researched the size and growth rate of the market you are wishing to enter, your competitors and their strategy.

The larger and more valuable the market you are trying to enter, the more return is likely to be made and thus the more attractive it will be to Cascade and other prospective investors.

Route to Market

It is important to understand how to grow your sales: by sector, by geography, and by targeting the important stakeholders along the value chain. You need to consider at what point in the value chain you are going to be entering and how to best approach potential customers (the profit margins and driving forces change depending upon the point at which your customer is on the value chain).

All of these factors, together with the industry sector, how much risk is involved, the size of the opportunity, cost of setting up manufacturing etc will determine whether a licensing or spin-out route is best.

Awareness of Customers

You need to be aware of the motivation to buy your product at all stages in the value chain. Your customer may be a competent manufacturer looking to save cost, grow existing market share or even enter a new market. Successful commercialisation depends on all parties seeing clear gains for their companies.

Time to Market

This can vary widely, some technologies may be implemented within 12 months in high growth markets (for example the mobile phone market has seen an rapid change in structure and growth of technology over the past 5 years). It is more likely, however, that the technology will take longer before revenue flows. Be realistic. Note however that early revenue increases the valuation of a spin out company, especially when market conditions are difficult.

Product Range

The best opportunities have a range of applications. A single product or 'niche' application rarely justifies seed funding. Ideally, the technology will address two or more applications that have different risk profiles in respect of time to market or technical complexity. This will prove to the Fund Manager that the risk is spread thus meaning that the overall risk associated with funding an opportunity is lower and this will lower the financial return required.