The Start-up

Handbook
The Start-up Handbook

©2014 • THE BOARD OF TRUSTEES OF THE UNIVERSITY OF ILLINOIS

ALL RIGHTS RESERVED • 1ST PRINTING, SPRING 2014
 TABLE OF

Contents

I NTROD U CT IO N .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Marketing ............................................................................................................ 14

Marketing Analysis (The Five C’s) ........................................................... 14

FO RMI N G YO U R B U S IN ESS . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Segmentation, the Target Market, and Positioning (STP) ................... 15
Marketing Mix (The Four P’s) ................................................................... 16
Making the Decision to Form a Business .................................................... 5
Feasibility considerations ............................................................................. 5
U NIV E R SITY RESO URCES FO R START-UPS . . 18
Validating Your Idea . .......................................................................................... 6
Intellectual Property and Your Business ........................................................ 7 University Resources for Start-ups . ........................................................... 18
Inventions and Patents . ................................................................................ 7 Proof of Concept funding ........................................................................... 18
Copyright . ........................................................................................................ 7 The Offices of Technology Management . .............................................. 19
Licensing Intellectual Property from the University .................................... 8 University of Illinois Research Park .......................................................... 19
The University’s System for Technology Transfer . ................................. 8 EnterpriseWorks . ......................................................................................... 19
Licensing . ......................................................................................................... 9 EnterpriseWorks programs ....................................................................... 19
License Negotiations ..................................................................................... 9 EnterpriseWorks Chicago . .......................................................................... 21
Developing a Business Plan ............................................................................ 10 IllinoisVENTURES . ....................................................................................... 22
Points to Remember when Preparing the Business Plan . .................... 11 Resources for Student Entrepreneurs . .................................................... 23
Entities and Legal Formation of a Business .................................................. 12
Business Entities at a Glance . .................................................................... 13
F UNDI N G YO U R B U S IN ESS .. . . . . . . . . . . . . . . . . . . . . . . . 25 HUM A N R ESO URCES ................................... 31

Types of Funding ................................................................................................ 25 Standard Labor and Employment Laws . ....................................................... 31

Funding Sources ................................................................................................ 25 Fair Labor Standards Act (FLSA) ............................................................... 31
Self-Financing . .............................................................................................. 25 Workers’ Compensation .............................................................................. 31
Bootstrapping ................................................................................................ 25 Unemployment Insurance ........................................................................... 31
Federal Grants ............................................................................................... 25 Equal Employment Opportunity ................................................................ 31
Loans ............................................................................................................... 26 Tax Withholding ............................................................................................ 31
Business Plan Competitions ...................................................................... 26 Employment Eligibility and New Hire Requirements ................................ 32
Joint Ventures ............................................................................................... 27 Non-Disclosure and Non-Compete Agreements,
Angels ............................................................................................................. 28 Conflict Acknowledgements . ......................................................................... 32

Venture Capital ............................................................................................. 28

Securing Funds ................................................................................................... 28
ONLINE R E SO URCES . ................................. 33
The Business Plan . ....................................................................................... 29
The Business Team ...................................................................................... 29
The Investor . ................................................................................................ 30 CONTACTS ................................................. 34
 Introduction

Innovations generated by University of Illinois research have

a profound impact on human issues and the creation of
businesses, jobs, and economic well-being. There are many
ways to translate University technology and innovation into
societal benefit; starting a company is one of them. The
University has put in place a unique and comprehensive system
supporting entrepreneurship and economic development.

For a new entrepreneur, the question is where to start. The

Office of Technology Management is proud to present
this handbook as an introduction to both the University’s
resources and to basic business concepts and considerations.
We hope you find it useful.

4 • THE START-UP HANDBOOK

 Forming
Your Business

Making the Decision Identifying the market need can be a challenge if Internal considerations concern your
your expertise is in technological development and commitment and willingness to start a business.
to Form a Business innovation rather than marketing and technology
commercialization. You should note that, no Factors include:
Starting a company is one way to further develop matter how innovative a technology is, if it does • Available time
and commercialize technologies created at the not address an actual need at a price which • Personal resources
University of Illinois. Several factors should customers are willing to pay, the technology has • Risk tolerance
be weighed when deciding whether to form no market. If your start-up’s technology does not • Resilient and flexible attitude
a business. These considerations comprise a solve an actual problem at a competitive price, • Managerial support
feasibility checklist and can be divided between then the start-up is more likely to fail.
external and internal factors. Starting a business requires a large time
It is important to understand the market in which commitment, and it is not uncommon for new
your technologies will compete. Knowledge of entrepreneurs to underestimate the time needed.
FEASIBILITY CONSIDERATIONS a market can be acquired through professional Additionally, you should consider your personal
External considerations concern the marketplace market research, government data, trade resources and whether you are comfortable
for the start-up’s product as well as the potential publications, and networking with prospective committing those resources to the endeavor,
performance of the product in that market. customers. The decision to form a start-up although it is not always necessary to do so.
should be made only after acquiring a strong
Factors include: understanding of the market and how your product Furthermore, while starting a business can lead
• What product or service the start-up will offer or service would fit into that market. to tremendous wealth, it comes at significant risk.
• Whether the product or service satisfies a need The reality is that many start-ups fail. You should
that people value be willing to accept this risk. Finally, unforeseen
• The price a customer would pay for the product challenges will always arise when starting a business.
or service Consequently, it helps if you can adapt quickly to
• The market’s size and effect on start-up changing conditions and remain committed to the
profitability endeavor, or recognize when to stop.
• The regulatory landscape

Forming a Business • 5
 Validating Your Idea
When you are contemplating starting a company, one of your first steps
should be to assure that you are creating a product or service that customers
will buy. The Customer Development Model, created by Steve Blank*, can
help you do this.

The model consists of four steps — customer discovery, customer validation,

customer creation, and company building. Because each step is recursive,
you may remain in each for any duration of time, refining and repeating the
processes involved.

1. Customer Discovery
Target potential customers and determine if the problem your product solves
is important to potential buyers.

2. Customer Validation
Develop a sales process that successfully sells your product.

3. Customer Creation
Starting a Company While Remaining at the University Build on the sales accrued during customer
validation and begin to put money into marketing
When a start-up includes one or more University faculty members or other University employees, your product.
conflict of interest should be addressed. Depending on the circumstances, a conflict of interest
management plan may be needed. 4. Company Building
Transition the company from an informal
This plan outlines the relationship between your activities with the company and your research development team into a formal entity.
and teaching responsibilities (see box on page 7). The plan identifies and mitigates possible
areas of conflict, such as those related to conflict of commitment and/or conflict of interest, On the Urbana campus, companies can pursue
as well as prepares for disclosure and management of these conflicts. To initiate a conflict of this validation process through the NSF I-Corps
interest management plan, contact the Office of the Vice Chancellor for Research (OVCR) on program which is designed to help University
your campus. entrepreneurs recognize product opportunities
arising from academic research. See page 20 for
more information.

6 • THE START-UP HANDBOOK

*For additional information on the Customer invention so that others can reproduce and learn
Development Model, consider reading The Lean from it. In that way, the patent monopoly provides Conflict of Interest
Startup by Eric Ries and The Four Steps to the the incentive to share advances with the public and Responsibilities
Epiphany by Steve Blank. thereby contribute to growth in the field.
• Obtain prior written approval to
Inventorship engage in non-University income
Intellectual Property Inventorship is defined by U.S. patent law. generating activities.
Broadly, an inventor is one who alone, or together
and Your Business with others, conceived of the ultimate working • Disclose such activities annually,
invention. A patent application must be filed in the whenever a substantial change occurs,
For many faculty start-ups, intellectual property names of the true inventors. The legal criterion for or when required by granting agencies.
is the business’ key asset and gives the start-up a inventorship is not the same as that for academic
competitive advantage. The following subsections authorship. Inventorship is not a reward for • Refrain from spending so much time on
briefly discuss intellectual property in the form of hard work to someone who only worked under external activities that they interfere with
inventions and patents, as well as copyright. For a direction. Inventorship is tied to the claims in your University responsibilities.
more in-depth review, please refer to the Handbook a patent application and is determined at the time
for Inventor’s and Innovators or talk to your Office of the patent application is filed. As the claims in • Refrain from advancing your own interest
Technology Management (OTM). a patent application change, so may inventorship. or the interest of family members to the
detriment of the University’s interest.
Ownership
INVENTIONS AND PATENTS Inventorship does not equal ownership. • Disclose involvement of University
An invention can be anything man-made that Organizations usually own the inventions students or employees in your
is new, useful, and non-obvious. Inventions developed by their employees. The Board external activities.
may include, but are not limited to, processes, of Trustees of the University of Illinois owns
methods, machines, articles of manufacture, University of Illinois patents, as established by • Work with the department head to
devices, chemicals, and compositions of matter. Article III of the University’s General Rules. identify and evaluate potential conflicts,
Inventions can be protected by patents. and manage or eliminate them.

U.S. law recognizes the value of innovation to the COPYRIGHT

economy and provides the owner of a patent with Copyright is the form of intellectual property that
a time-limited monopoly (20 years) to prevent protects the expression of a creative idea that is
others from exploiting the invention without fixed in a tangible form. It is an acknowledgement
permission. In exchange for this exclusive right, the of who created the work.
published patent document must fully describe the

Forming a Business • 7
For example, in The Wizard of Oz, copyright the work without permission. Works owned by THE UNIVERSITY’S SYSTEM FOR
protects the order of the words in the story, as the University should bear the following copyright TECHNOLOGY TRANSFER
well as the layout of the pictures, color, and words notice: © 20XX The Board of Trustees of the The University has resources designed to
on the page. The ideas, plot, and characters are University of Illinois. All rights reserved. facilitate all stages of the technology transfer
not protected. Each adaptation of this classic process. Overseen by the Office of the
tale (book, screenplay, movie, music) generates There is also a formal registration process to Vice President for Research (OVPR), the
independently copyrighted works. document copyright in the Library of Congress. University’s technology commercialization
infrastructure is comprised of several entities
For scientific writing, copyright does not protect the Author owned copyrights last for the life of the and many programs.
procedures, systems, processes, concepts, formulas, author(s) plus 70 years after the last surviving
discoveries, or devices described in the work. author’s death. Employer owned copyrights last Entities
Similarly, for software, copyright does not protect for 120 years from the work’s creation or 95 years • The Offices of Technology Management
the underlying concepts, processes, systems, from the first publication of the work, whichever on the Urbana and Chicago campuses evaluate,
alogrithms, program logic, or layouts. is shorter. patent, and license the University’s intellectual
property.
Copyright constitutes a bundle of legal rights,
which include the right to copy, display, perform, Licensing Intellectual • IllinoisVENTURES LLC provides consultative
distribute, and make changes to the original services, funding, and business development
copyrighted work. These altered versions of Property from the support for early stage, research-driven
original works are known as derivative works. companies, particularly those deriving from
Copyright provides the owner with the right to University the University of Illinois, other Midwestern
determine how the work is copied and distributed universities, and Federal laboratories.
to others, such as through traditional or online Usually, the cornerstone asset of a faculty
publication, open access, sale, lease, or lending. It start-up is the intellectual property owned • The University’s Research Parks
also gives the copyright holder the right to charge by the University. The following sections and incubators in Urbana and Chicago
royalties for a work’s use. briefly discuss the University’s system for facilitate the growth of early stage companies,
transferring intellectual property into a start- encourage R&D collaboration between the
Automatic Application of Copyright up via a license. For more detailed information University and private industry and public
Unlike patentable inventions, copyrighted concerning intellectual property and the agencies, and attract established companies
works are automatically protected under U.S. University’s process to evaluate and protect that benefit from close working relationships
copyright laws without having to undergo a intellectual property, see A Handbook for with University faculty and students.
formal registration process. However, it is still Inventors & Innovators.
important to affix an appropriate copyright notice Each of these entities, along with many other units,
to notify others that they are not free to utilize offers many supporting programs for entrepreneurs.

8 • THE START-UP HANDBOOK

For more information, see the University Resources LICENSE NEGOTIATIONS the significance of the invention to the product
for Start-ups section on page 18. The licensing process begins by discussing a term or service, and the base upon which the royalty
sheet summarizing the essential business terms is applied (e.g., unit, component, subsystem).
of the agreement. Below are the types of business Royalty payments may be structured in different
LICENSING terms generally addressed. ways, such as one-time or recurring fees.
A license is a written agreement granting some
or all of the University’s rights as owner of an Scope of License Rights Sublicense Sharing
intellectual property (licensor) to a company License rights — such as exclusive, nonexclusive, Exclusive licenses usually allow the right to
(licensee). The licensee undertakes certain field-of-use limitations, and territory limitations sublicense, or authorize others to make, use, and/
obligations and responsibilities to commercialize — are established to be commensurate with or sell the University’s technology to facilitate
the intellectual property. the licensee’s product development plans widespread use. Revenues you receive from
and the market. The University’s licensing sublicenses are also shared with the University.
The University licenses its varied technologies objective is to obtain widespread use of its
(patents, software, databases, creative works) to technologies through a well thought out
companies or individuals that demonstrate the commercialization plan.
capability and commitment to develop early stage
innovations into commercial products or services. License Fee
An initial fee based on the
If you would like to license University technologies scope of license rights and
for use in your start-up, you will be asked to the University’s investment
demonstrate such commitment by providing a in the intellectual property.
written technology and business development
plan. This plan should include but is not limited to Royalties
a description of the technologies to be licensed, Your company will be
the resulting product, market analysis, a product expected to pay royalties
development timeline, and the company resources when products or services
committed to development. that require the use of
the technology are sold
The terms of the license are negotiated based or transferred. Royalties
on factors such as the type of technology, the can be expressed as a
industry area, the level of development, the time percentage of sale or
to market, and the licensee’s commercialization a fee per selling unit.
plan. The terms should anticipate potential pivots Royalty rates vary
in the company’s strategy to accommodate the according to the industry,
market or the product.
Forming a Business • 9
Minimum Royalties Developing a investor. Consequently, it is the most important
Minimum royalty payments are established to part of the plan. It should answer these questions:
encourage diligence in developing and selling Business Plan
products or services based on the technology. • What is the company’s mission?
A business plan is a strategic description of how • Why is it important?
Patent Reimbursement your start-up will advance its technology and • How will the company make money pursuing
Recovery of the costs incurred by the University achieve profitability and success. It is a living its mission?
for protecting the technology in the U.S. and other document and will need to be revised to reflect • How will the company develop its technology
countries is part of the license. Typically, patent the changing conditions of the business and the into products?
costs that accrue prior to licensing are repaid via a market in which it operates. • What experience do the founder and
payment plan, while patent costs during the term management team have?
of the license are paid as they are incurred. The true value of developing an initial business • How much money is necessary?
plan is not the finished product itself, but the • What level of return can an investor expect?
Performance (Diligence) Milestones research and thought behind the plan. Creating a • Why that level of return?
University technologies often require significant business plan helps you systematically consider all
additional development before they are ready for aspects of the business. Additionally, a business Business Description
the market. You will be asked to provide periodic plan is critical for a start-up that is trying to The business description provides more extensive
reports and meet specific milestones in order to secure external funding. The business plan information concerning your company’s mission
retain the license, especially an exclusive license. demonstrates to outside investors that you have than was provided in the executive summary. If the
Milestones are usually industry specific. thoroughly explored both the market and how your executive summary is an elevator pitch, then the
product or service fits in that market. The level business description is similar to an extended, more
License Compliance of detail in the plan will depend on the types of descriptive elevator pitch, helping investors quickly
After you license University technology, your investors or funding you are seeking. understand the business’ goals and its unique
Office of Technology Management will manage position. The business description should include:
the license to ensure all terms and conditions are The remainder of this section will look at some of the
adhered to and the technology reaches its fullest most important parts of a business plan. However, it • The nature of the business and the marketplace
potential. is not a comprehensive guide, but an introduction to needs the business will satisfy
the various elements you should consider. • An explanation of how the start-up’s products,
If the terms and conditions are not met, the technologies, or services address those needs
license may be terminated or revised, in which Executive Summary • The specific companies or customers the start-
case the invention may become available for The executive summary is a snapshot of the up will serve
licensing to another company. business. It acts as an elevator pitch and is usually • The competitive advantages the start-up has,
the first opportunity to catch the interest of an such as personnel, technology, or value creation

10 • THE START-UP HANDBOOK

Market Analysis Marketing Plan
The market analysis presents market research There are many factors that go into the marketing
showing the current state of your start-up’s process, which will be highlighted in greater detail
industry segment, as well as the target market in the Marketing section of this handbook (page
for your product or service. At a minimum, the 14). For the business plan, it is important to show
market analysis should contain: how your product or service will be positioned in
the minds of customers versus the competition.
• A specific description of the target market Elements deserving consideration are:
• The revenues and growth rates of the market,
including a five-year projection • Key factors in the customer selection process
• A demonstration of a strong market need for • Customer perception of competitor
your product or service performance in the key factors
• A competitive analysis • How your start-up’s offering will perform in the
• The results of marketplace interviews or other key factors
primary market research • Market share goals and how they will be achieved

Investors want to know that you have carefully Management Team

considered and fully understand the market The management team section defines the roles
your start-up will target. Further, the market of the management team and presents their POINTS TO REMEMBER WHEN
analysis must honestly address the competitive biographies. Investors prefer to see that the team PREPARING THE BUSINESS PLAN
environment. Unfortunately, there is no market has relevant business and technical experience. To reiterate some of the most important concepts
that is void of competition, and investors are you should be mindful of when preparing the
keenly aware of this. Even new products in Financials business plan:
so-called “uncontested markets” face indirect The financials should provide the current status
competition from substitute offerings. The of the business and a realistic expectation of its • Focus on the customer and the market need,
analysis should acknowledge this reality. position after five years. The goal is to determine NOT on the technology
the cash needed for the start-up to succeed, as • Acknowledge your competition honestly
Additionally, most investors want to see well as the reasonable revenues and profits that • Include elements of the strategic plan
independent evidence of market validation. can be expected from the investment. A five- • Ask for ongoing feedback from an experienced
Examples of this include the results of your market year projection will necessitate making some entrepreneur
research, customer surveys, and interviews. assumptions. These assumptions should be noted. • Discuss current capital structure
You should also be prepared to justify on what • Make sure the plan flows narratively from
basis the assumptions were made. Additionally, section to section
this section should detail how any cash invested in • Keep the business plan as succinct as possible
the business will be used.
Forming a Business • 11
Entities and Legal Generally, venture capital investors prefer to S Corporations
invest in C corporations because of a C corp’s S corporations, similar to LLCs, are generally
Formation of a Business ability to issue preferred stock to investors. The flow-through entities for tax purposes, with
structural accountability of a C corp is well- the S corp’s taxable income distributed to
Business entities are ways to classify the defined, with management reporting to the board its shareholders in equal proportion to their
organization of your business as recognized of directors. C corporations can issue incentive ownership share. S corporations may have no
by law. While you have many entity options stock options to employees, giving employees an more than 100 shareholders. Additionally, the
available to legally form the business, there are equity stake in the success of the corporation. shareholders must be individuals, with some
three that merit particular attention because limited exceptions.
they are common entities for technology-driven LLCs
start-ups: C corporations, Limited Liability For tax purposes, LLCs are flow-through entities. Like C corporations, S corporation ownership
Corporations (LLCs), and S corporations. These Corporate revenue is not taxed at the corporate transference is flexible. However, S corporations
entities differ significantly regarding taxation, level but passes through to the LLC’s owners, do not have the ability to issue multiple classes
ownership, fundraising, governance, and where it is taxed at the individual level. Like C of stock. Most venture capital investors want
employee compensation. corporations, LLCs may have an unlimited number preferred (rather than common) stock as a
of owners. However, transference of ownership condition of the investment. Consequently,
Selection of the business entity that best suits is more difficult, usually requiring the approval of S corporations are generally unattractive to
a particular start-up should be done with the the other owners. For this reason (among others professional investors.
consultation of an attorney and/or accountant not touched on here), venture capital investors
who has experience advising start-up companies. generally do not favor investing in LLCs. S corporations closely mirror the accountability
Consequently, the following sections are meant as standards of C corporations. S corporations
an introduction to common business entities and Additionally, the pass-through tax treatment of may issue incentive stock options to employees.
should not be construed as professional advice. LLCs can cause undesirable taxable income to However, unlike C corporations, Federal law
investors. LLCs generally operate without the restricts S corporations from issuing stock
C Corporations formalities of a C corp, with the owners managing to certain individuals, most notably non-U.S.
C corporations are separate taxable entities from the day-to-day operations. An LLC may offer citizens and non-U.S. residents.
their shareholders. Consequently, the earnings membership interests to employees, but cannot
of a C corp are generally taxed twice: first at the offer incentive stock options.
corporate level based on the taxable earnings of
the corporation, and then at the shareholder level
based on distributed dividends. C corporations
may have an unlimited number of shareholders
who are not required to manage the corporation’s
day-to-day operations.

12 • THE START-UP HANDBOOK

 Place of Incorporation

BUSINESS ENTITIES AT A GLANCE In addition to deciding which type of entity

is best for the start-up, an entrepreneur
C Corp LLC S Corp must also determine in which jurisdiction
to incorporate the business. Often
Liability • Shareholders are not typically • Members are not typically • Shareholders are not typically
responsible for the debts of responsible for the debts of responsible for the debts of
entrepreneurs will incorporate the start-up
the corporation. the LLC. the corporation. in their home state, however, many venture
capital firms prefer — or even insist upon
Tax • Taxed at the entity level. If • If properly structured there is no • No tax at the entity level. — incorporation in Delaware because
Implications dividends are distributed to tax at the entity level. Income or • Income or loss is passed through.
shareholders, dividends are also loss is passed through to members.
of Delaware’s predictable and business
• No double taxation.
taxed at the individual level. • No double taxation. friendly laws. Before making any decision,
• No pass through of income or loss. it is best to consult with an attorney to
• Double taxation if income is help weigh the pros and cons concerning
distributed to shareholders as
dividends. different places of incorporation.

Complexity of • State filing required. • State filing required. • State filing required.
Formation and
Management
• Board of directors, annual • Some formal requirements, • Board of directors, annual Commercial Liability
meetings, and annual reporting but less formal than S and C meetings, and annual reporting
• Managed by board of directors corporations • Managed by board of directors Insurance
who are elected by shareholders. • Members have an operating who are elected by shareholders.
agreement that outlines Liability insurance is mandatory for all
management responsibilities.
companies and is explicitly required
Effect on Ability • Shares of stock are sold to • Possible to sell interests, though • Shares of stock are sold to
before a company can lease space in
to Raise Capital raise capital. subject to operating agreement raise capital. EnterpriseWorks. Insurance for businesses
• No limitation on the number of restrictions. • Limited to 100 shareholders. Only is usually packaged as “general business
shareholders, different stock • No limitation on the number of one stock class allowed. Only
classes allowed (which is preferred members, and different classes of U.S. citizens and residents may
insurance” and can cover everything from
by investors). ownership are allowed. hold shares. personal injury and product liability to
• Easier to convert to a C corp than company vehicles.
an LLC if venture capital is sought.

Courtesy of Singleton Law Firm, P.C.

Forming a Business • 13
Marketing involved in the purchasing process. These roles Competitors include not only those currently in
include the initiator, the decider, the influencer, the market, but future competitors either in the
The essence of marketing is the process by which the purchaser, and the user. While an individual form of new entrants to the market or substitute
firms identify, create, provide, capture, and sustain may occupy several or all roles, this is not always offerings. You should assess the strengths and
value for their customers. Value is the benefit the case. For example, the eventual decision to weaknesses of these competitors to better
provided to the customer. purchase desktops for an office may be made by determine how to differentiate your start-up in the
the company’s CFO, but the users will actually be minds of consumers. Additionally, the marketing
There are many good resources to assist you in the the company employees. Further, the company’s IT analysis should address the motivations and
marketing process. This section is an introduction department will likely influence the decision. strategies of your competitors so that you can
to some of the major principles of marketing and anticipate the likely reaction of rivals to new
is meant as a starting point in understanding the In addition to the purchasing process, you should competition.
marketing process. understand your customers’ decision making
process. Considerations include, but are not Collaborators – Who should your company enlist
limited to, whether your customers search for to assist and how do you motivate them?
MARKETING ANALYSIS information before making a purchase, and if
(THE FIVE C’S) so, in what manner? What are the criteria your Collaborators include upstream suppliers and
A preliminary market analysis focuses on five customers use in evaluating alternatives? You downstream distributors. Developing a strategy
main areas of consideration: customers, company, should understand all aspects of your customers’ to gain the support of industry collaborators
competitors, collaborators, and context. processes for evaluating and purchasing, as well as entails a thorough knowledge of the collaborators
how your product or service fits into that process. cost structures, margin expectations, and
Customer Needs – What needs does the business relationships with competing firms.
seek to satisfy? Company Skills – What special competence does
your company have to meet customer needs? Context – Are there cultural, technical, and/or
You should know the specific market need your legal factors that limit your firm’s options?
offering satisfies. This, however, is not enough. The marketing analysis should include an honest
Aside from thoroughly understanding your assessment of your business’ strengths and You should understand the environment in which
customer’s needs, an in-depth analysis of customer weaknesses. Considerations should include the your business will operate. This context (or
usage patterns and buying decisions is also company’s financial footing, production capability, climate) includes macroeconomic factors such
necessary for effective marketing. Keep in mind and other assets (such as IP). as the political and regulatory environment, the
that purchasing decisions are often a collaborative economic environment, the social and cultural
process and not solely at the discretion of the Competition – Who competes with your company environment, and the technological environment.
user. Researchers have identified definitive roles in meeting those needs?

14 • THE START-UP HANDBOOK

SEGMENTATION, THE TARGET
MARKET, AND POSITIONING (STP)
Once the situational analysis is completed through
the five C’s, the next steps are to define how to
The Marketing Process
identify customer segments within the market,
determine which of those segments to target, and
Marketing Analysis (The Five C’s)
position your company in the minds of customers.
CUSTOMERS   COMPANY   COMPETITORS   COLLABORATORS   CONTEXT
Segmentation
Market segments are groups of potential
customers who share certain traits. Commonly TARGET PRODUCT
MARKET
used bases for segmentation include demographic MARKET AND SERVICE
SEGMENTATION
(e.g., age, income, gender, occupation), geographic SELECTION POSITIONING
(e.g., nation, region, urban vs. rural), and lifestyle CREATING
(e.g., single vs. family oriented). However, these VALUE
broad categories are only starting points to
Marketing Mix (The Four P’s)
determine how the market is best segmented.
Additional segmentation can take the form: PRODUCTS PLACE
PROMOTION
AND SERVICES (CHANNELS)
• User status: non-user vs. user
• Usage rate: light, medium, heavy user CAPTURING PRICING
• Benefits sought: performance-oriented vs. VALUE
price-oriented
• Loyalty status: none, moderate, strong,
totally loyal SUSTAINING CUSTOMER CUSTOMER
• Attitude toward product: unsatisfied, VALUE ACQUISITION RETENTION
satisfied, delighted

PROFITS
Target Market
You should consider the following factors when
determining which segments to target:

• The comparative strengths and weaknesses of

your offering compared to the competition

Forming a Business • 15
 MARKETING MIX (THE FOUR P’S)
The marketing mix comprises the activities of
a marketing program. The discrete activities
Positioning Statement Formula: are the tactics a business uses to accomplish
its marketing strategy. The marketing mix is

[ OUR PRODUCT/BRAND ] is [ SINGLE MOST IMPORTANT CLAIM ] among commonly broken into four different areas of
activity: product, place (channels), promotion, and
pricing. The following subsections introduce these

all [ COMPETITIVE FRAME ] because [ SINGLE MOST IMPORTANT SUPPORT ]

concepts briefly.

Product
The product is not simply a tangible object
that a business sells, but the entire bundle of
benefits offered to the consumer, including any
• Your overall goals and how the segments align The positioning statement is a succinct services. This is the total product concept or the
with those goals description of how your firm wishes to be viewed integrated product. From a marketing standpoint,
• The resources necessary to properly serve by customers. Essentially, it is how you want the total product concept must be seen through
the segments customers to think of your offering in relation to customers’ eyes as the total value delivered to
• The need and potential availability of the competition. customers from purchasing the product.
collaborators to assist in reaching the segments
• The likely financial returns from serving
the segments

Positioning
In conjunction with determining the market
segmentation and target market, you should also
make a conscious choice about how your company
will position itself in the marketplace. Often the
determination of the positioning will itself indicate
the proper target market.

16 • THE START-UP HANDBOOK

For example, when purchasing an Apple iPod, a promotional strategies combine personal and
customer is not merely getting the device itself, non-personal selling to educate customers by Board of Directors
but also its integration with iTunes, iCloud, and informing them of the key features and benefits of
the psychological connection to the Apple brand. the product and close the sale. A board of directors’ main function is the
This is the bundled value to customers. Viewing overall management of a business. While
the product in such a large framework creates Pricing executives are tasked with the day-to-day
opportunities to differentiate your offering from The combination of the product, place, and supervision of the business, the board
your competitors. channel will largely determine the customers’ of directors is responsible for high-level
perception of your offering’s value. The perceived decisions. These can include, but are not
Place: Marketing Channels value is the maximum price that customers are limited to, decisions to raise capital and/or
The channels are the ways in which your firm willing to pay for your product. The difference sell the company. The board of directors is
actually delivers its product to the customer. between the maximum price customers will pay elected by a company’s shareholders and is
Essentially they are the distribution of the benefits and the actual cost of producing the product is accountable to the shareholders.
to the market. The places in which your firm will the value that your firm produces. The amount of
make its product available will be influenced by captured value you seek should be determined by
such considerations as the actual product itself, your overall marketing strategy. Board of Advisors
the target market, and positioning.
Unlike a board of directors, a board of
For example, if your offering is a consumer product advisors is an informal board. The members
positioned as a commodity, it will need as large of a board of advisors are generally
a distribution as possible. Conversely, a premium experienced professionals who can assist
offering will require a limited distribution in select a start-up with pertinent expertise in the
stores to enhance the perception of the product’s company’s market or industry. Additionally,
exclusivity. Additionally, if your customers are a board of advisors may be able to connect
businesses, then the channel will need to reach the start-up to sources of funding. The
business customers and not retail outlets. board of advisors may also help to fill in
gaps during the start-up’s early stages,
Promotion when resources are not available to hire
Promotion is how your company communicates full-time professionals to fill needed
to customers about the benefits of its offering. functional roles.
It incorporates both personal selling efforts as
well as non-personal ones, such as advertising,
sales promotion, and public relations. The best

Forming a Business • 17
 University
Resources for
Start-Ups
potential investors and partners. Proof of concept
funding supports activities such as:

• building prototypes
• conducting commercial feasibility tests
• demonstrating the mitigation of risk
• addressing issues identified by industry that EnterpriseWorks on the Urbana campus
improve the ability to license or attract capital
from investors Incubators
University Resources
Both the Urbana and Chicago campuses have An incubator is a facility designed to
for Start-ups proof of concept funding programs. To be eligible accelerate the development of young
for funding, projects must be based on an companies. Incubators are ideal for early-
The University of Illinois has many resources for invention that has been disclosed to the Office of stage businesses because they provide an
start-ups and entrepreneurs. The University’s Technology Management. Those interested must array of resources including peer support
Research Park and the EnterpriseWorks incubators submit pre-proposal applications to their OTM. and professional services specifically
in Chicago and Urbana are key resources that geared for start-ups.
provide physical space, services, and programs Urbana-Champaign: The Illinois Proof of
specifically designed to help new businesses Concept Fund (I-POC) Advantages common to many incubators:
succeed. Additionally, IllinoisVENTURES is The I-POC Fund, managed by the Office of
an early-stage venture capital firm and offers Technology Management, is made possible • A variety of function-specific spaces from
guidance, resources, and funding to start-ups. by contributions from the Office of the Vice offices to lab suites fully outfitted with
For students, many entrepreneurial workshops, Chancellor for Research and colleges and units lab equipment
programs, and competitions exist. across campus. I-POC awards range from $10,000
- $50,000. • Reduced overhead costs through the
pooling of equipment and resources
PROOF OF CONCEPT FUNDING Chicago: Proof of Concept Awards Program
Proof of concept funding helps bridge the gap The POC Awards Program is part of the UIC • Shared common areas, which encourage
between University research labs and the Chancellor’s Innovation Fund. It is conducted knowledge transfer between tenants
marketplace by funding development that will twice yearly with grants up to $75,000 for
demonstrate an innovation’s market viability to awarded projects. • On-site consulting, training, and
support resources to help guide
start-ups to success

18 • THE START-UP HANDBOOK

THE OFFICES OF TECHNOLOGY ENTERPRISEWORKS The EIRs keep weekly office hours and are
MANAGEMENT EnterpriseWorks is a 43,000 square-foot available to any Research Park client or
The Offices of Technology Management are University-owned start-up incubator located University of Illinois faculty, staff, or
responsible for managing the intellectual property in the Research Park. EnterpriseWorks offers student entrepreneur.
generated by research and educational activities short-term leases for laboratory and office suites.
at the University of Illinois. Additionally, it offers programs specifically They can advise on issues including:
designed to help start-ups succeed, such as • business consulting
Their shared mission is to encourage innovation, the Entrepreneur-in-Residence (EIR) program • strategy assistance
enhance research, and facilitate economic and other business support services. Since the • marketing and communication assistance
development through the transfer of intellectual incubator opened in 2003, it has become the • investor preparedness
property. They provide responsive professional launching pad for more than 145
services to ensure that the results of University start-up companies.
research are successfully transferred outside the
University, driving economic growth in Illinois and
benefiting the general public. ENTERPRISEWORKS
PROGRAMS University of Illinois
Licenses to use University intellectual property Entrepreneur-in-Residence Research Park
in a start-up company are negotiated with your Program (EIR)
«««
campus Office of Technology Management. The EIR program hires
experienced technology 2011 Outstanding Research Park by the Association
entrepreneurs to provide of University Research Parks
UNIVERSITY OF ILLINOIS monthly counseling to «««
RESEARCH PARK new start-up ventures and
More than $575 million raised in venture capital and
The University’s Research Park, located on the prospective technology
Urbana campus, provides an environment where entrepreneurs. The program angel funding by incubated companies
technology-based businesses can collaborate selects peers who have «««
with the University’s faculty and students, as faced similar challenges in More than $43.5 million in SBIR and STTR grants
well as have access to University services. It is commercializing research or
awarded to companies in the Park between
currently home to the EnterpriseWorks incubator early-stage technology and are
and more than 90 companies, including many able to provide advice derived from 2004-2012
Fortune 500 companies. their own experiences in successfully
attracting investors and industrial clients.

Forming a Business • 19
 NSF I-CORPS AT THE UNIVERSITY OF ILLINOIS The goals of the program are to help you:
Additionally, the EIR program hosts monthly NSF I-Corps is a partnership program designed to • validated your market size, value proposition,
training events featuring topics such as teach University entrepreneurs how to determine and customer segment
intellectual property basics, business product opportunities from academic research. • be in a position to apply to the National NSF
development and sales, SBIR/STTR grant writing, I-Corps program
and investor options and negotiations. The Urbana campus is an I-Corps Site, which is • pitch to investors if needed
geared for developing potential I-Corps Team • Apply for SBIR funding
To receive consultation from one of the EIRs, projects and providing an entrepreneurial program
applicants should submit an online request form for potential faculty and graduate student teams More than 30 teams participated in the program
through http://go.illinois.edu/eirhelp. Entrepreneurs to complete together to access their business in the first year alone.
may select an EIR or have one assigned to them potential. I-Corps Sites provide infrastructure,
by the EnterpriseWorks staff based on the subject advice, resources, networking opportunities, I-Start
matter and availability of the team. training, and modest funding to enable groups to EnterpriseWorks also offers the I-Start
transition their work into the marketplace or into Entrepreneur Assistance Program. I-Start is
becoming I-Corps Team applicants. a matching award program offering a suite of
first-year professional services. I-Start can help
with business development, business formation,
SBIR application, marketing, and bookkeeping.
Participants also receive referrals to service
I-Start Entrepreneur Scope of Services providers offering rates that match the funding
level. The EIRs help to evaluate I-Start clients and
Financial and Payroll Student Shared Services
Legal Services Business Planning SBIR Assistance
Services Center
monitor their progress.
• Initial company • Write business plan • Finding solicitation • Payroll • Market research
formation, bylaws, with inventor input and agency fit administration • Presentation
Affiliate Program
application for FEIN The Affiliate Program is an affordable pre-
• Market research • SBIR process • Quarterly financial assistance
(filling fees paid by guidance statements incubation program helping early stage start-up
entrepreneur) • Financial projections • Initial template
• Draft budget • Assistance with website companies access services. The program includes:
• Stockholder • Recommendation on
Quickbooks setup
agreements and sources of capital • Writing assistance • Logo assistance
certificates • Assistance • Help with letters of • Social media, • Mailing address and mailbox at EnterpriseWorks
• Stock option plan with hiring and support adwords
incorporation • Access to shared conference rooms
• Employment • Project management • IT/Computer
agreement
decisions system setup (up to • Access to “hoteling” space for shared office use
• Registrations and
• Non-disclosure submission 100 hours of student with a computer, printer, Internet, and MS
work)
agreements Office programs
• Access to EIR services

20 • THE START-UP HANDBOOK

• Invitations to weekly Research Park ENTERPRISEWORKS CHICAGO • Talent
programming and events EnterpriseWorks Chicago creates a vibrant EnterpriseWorks Chicago educates inventors
• Research Park website tenant listing entrepreneurial ecosystem that engages the entire on the business of commercialization and
• Allied Agency Status with Illinois University of Illinois at Chicago campus, leverages creates entrepreneurial experiences for
University of Illinois system-wide assets, connects students to develop broader skills. Providing
Business Support Services: resources within and beyond the University to access to entrepreneurs-in-residence,
• Designer-in-Residence program available to support emerging technology companies, and mentors, industry experts, and functional
help with product design shares economic benefit with the greater Chicago specialists cultivates new talent and creates an
• On-site staff providing assistance with community and the state of Illinois. environment that attracts serial entrepreneurs
operations, information technology, and and fills the talent pipeline for emerging
administrative needs EnterpriseWorks Chicago executes this function technology companies.
• Assistance with hiring student employees around five pillars of an entrepreneurial ecosystem.
• Referrals to funding services and professional
service providers
• Hazardous waste disposal and lab safety Health Technology Innovation (HTI)
consultation through the University’s Division
of Research Safety EWC’s flagship initiative is HTI, convening At HTI scientists, engineers, investors and
• Procurement assistance with the University’s at the intersection of Health, Technology industry experts are working to validate
stores and facilities at University rates and Innovation. Anchored in the Chicago technology, create new products and
• Mail and package handling Technology Park, HTI is a national best practice accelerate new ventures.
• On-site lab supply stock room in shared wet and dry laboratory facilities.

Events for Entrepreneurs: Centered on collaboration space, a fully

• Speakers from the local business and equipped meeting and classroom with HD
technology communities video conferencing systems, smart board
• Monthly social events technology and more, all aimed at nurturing
• TechCocktail and TechMix technology the unique commercialization path of the life
demonstrations sciences and complex research technologies.
• CU Software User Group
• CU Women in Tech bi-monthly lunch
• Annual career fair
• Summer concert series

Forming a Business • 21
• Innovation • Networks within the capital community to improve
EnterpriseWorks Chicago serves as a vehicle for EnterpriseWorks Chicago creates opportunities and access to capital along the
innovation, finding commercial potential through opportunities for entrepreneurs, students, commercialization continuum.
company formation and start-up ventures. and inventors to formally and informally
connect to a broader community through
• Infrastructure events, exchange engagements and news ILLINOISVENTURES
EnterpriseWorks Chicago provides incubation of entrepreneurial interest at the city, state, The Board of Trustees of the University of Illinois
offices and laboratory facilities, implements national and global level. launched IllinoisVENTURES in 2002.
training and support programming, and offers
an operational infrastructure to serve as a hub • Capital Under the guidance of a world-class board
for a robust entrepreneurial ecosystem. EnterpriseWorks Chicago cultivates comprised of leaders from all phases of the
funding sources and builds relationships investment community as well as academia,

Chicago Innovation
Mentors (CIM)
Incubator Leasing Process
Chicago Innovation Mentors helps
connect University and Chicago-area Prospective tenants at EnterpriseWorks submit an application and their business plan for
technology-based start-ups with review (typically takes one week). Acceptance is contingent upon the following:
mentorship teams. Those in partnership
with Chicago Innovation Mentors receive üü The applicant must be an incorporated for-profit company with a valid tax ID

commercialization guidance and learn üü Must have a research and/or technology orientation

valuable entrepreneurial skills. CIM offers üü Must be an early-stage company

resources in the following areas: üü Preference for start-ups with a relationship with the University of Illinois
üü The applicant must have a real need for incubation facilities and services

• Intellectual property üü Focus on getting a product to market and generating revenue

• Financing üü Personal commitment to building a business, not a hobby

• Networking in Chicago üü A high-quality business plan

• Commercializing technology üü The principals involved should be well-qualified in their field of technology and have (or plan to have) experienced management on
the team
• Team management
üü The company must be financially solvent with a plan to raise sufficient capital to achieve its business plan

Both the Urbana and Chicago campuses are All leases at EnterpriseWorks are one year in length and use a standard University template. Leases are cancellable by the tenant
members of CIM. with 30 days notice. Rates include utilities, furniture, internet service, and access to shared facilities. Tenant is responsible for having
commercial liability insurance and optional phone servce.

22 • THE START-UP HANDBOOK

IllinoisVENTURES has created a state-of-the-art RESOURCES FOR STUDENT • Invention to Venture (I2V) is a program
environment for new company formation via a ENTREPRENEURS of the National Collegiate Inventors and
unique public/private partnership that is The Technology Entrepreneur Center (TEC) is Innovators Alliance that teaches students
a valuable resource for those interested in an interdisciplinary center on the Urbana campus technology entrepreneurship basics and
starting up a company. that engages faculty, students, and alumni in the network building skills. Several workshops are
practice of entrepreneurship. Since TEC’s creation offered each year.
In 2004 IllinoisVENTURES raised their first in 2000, the center has provided skills, resources,
venture fund, the Illinois Emerging Technologies and experiences that are essential for successful • Discarded to Precious (D2P) is a competition
Fund, in recognition of the limited presence innovators and entrepreneurs. hosted by TEC and the School of Art + Design
of seed and early-stage technology investors that challenges students to transform discarded
actively committing capital in Illinois. TEC offers: material into something more useful.

To date, IllinoisVENTURES has formed and • Innovation LLC, created as a partnership

supported an array of companies in multiple between University Housing and TEC, is an
business domains throughout the region, entrepreneurial living-learning dorm in the About IllinoisVENTURES
which have attracted substantial third-party Illinois Street Residence Hall where students
co-investment from leading investment firms are actively involved with and exposed to TEC • Total assets under management:

$65
across the nation. opportunities.

With offices in Champaign and Chicago, • Charm School provides students with
IllinoisVENTURES professionals provide an opportunity to spend a day learning the
MILLION
guidance to faculty in early market assessment, skills necessary to succeed in a professional
competitive analysis, business strategy, and other environment. Students spend the day
activities necessary to create high potential, perfecting their networking and interviewing • ATTRACTED

$600
venture-ready businesses. The firm also provides skills, as well as learning to dress professionally
funding through all stages of business creation and build standout resumes.
and development.
• SocialFuse is a recurring event for students,
faculty, and community members who wish MILLION
to pitch ideas and network with others from
various majors and backgrounds. The event 3rd-party co-investment in
features start-up pitching followed by informal holdings — over 13:1 leverage
networking.

Forming a Business • 23
• The Patent Clinic is a joint effort
between TEC and the College of
Law in which selected participants
from the Cozad New Venture The Start-Up Resource Matrix
Competition and the Illinois
Innovation Prize can compete Every innovation follows a unique FUNDING Seed and

IM
Angel
to have their patent application path to market impact, and so the

M T/
PA
Funding

A R
C
R K EV
drafted free of cost. University has developed this system

ET EN
of resources to support innovators
SBIR Phases
The Academy for Entrepreneurial with different needs at different stages I and II

U
E
Leadership (AEL) has offered of the commercialization process. IllinoisVENTURES
entrepreneurship programs, services, The specific programs an innovator
and resources to faculty, students, chooses to access will vary depending
and community members since its on the needs of the technology and the
creation in 2004. AEL also helps to intention of the innovator. I-Start
encourage entrepreneurial awareness
and initiatives across all disciplines POC Business
RESOURCES Plan

RESOURCES
on the Urbana campus. Funding

EXTERNAL
INTERNAL

Competitions

The Student Start-up Initiative by

EnterpriseWorks provides student I-CORPS
entrepreneurs with free space each
semester. This space is assigned
based on competitive proposals
submitted by students.
UI I-CORPS
site
Awards and Competitions: IP Management, Marketing,
• Cozad New Venture Competition Chicago and Licensing (OTM)

• Illinois Innovation Prize Innovation

Mentors Start-Up Incubation and
• NCIIA Grants Entrepreneurs- Mentorship (EnterpriseWorks
in-Residence and external resources)
OSPRA
R

Early-Stage Funding
ES

(IllinoisVENTURES and
EA

external resources)
RC

MENTORSHIP
H

24 • THE START-UP HANDBOOK

 Funding Your
Business and disadvantages. This section will briefly University’s incubators offer technical assistance
discuss different types of funding sources. and counseling to faculty entrepreneurs who are
interested in securing SBIR or STTR grants.

SELF-FINANCING SBIR
Self-financing is exactly as it sounds: a business SBIR is a highly competitive program that
funded by the personal savings of the founders. encourages domestic small businesses to engage
Types of Funding This allows the entrepreneurs to maintain in research and development that has the potential
complete control of the business. Additionally, for commercialization. The stated mission of the
Funding can be divided into three categories, each when external funding is sought, investors look SBIR program is to support scientific excellence
of which has different implications for the investor, for entrepreneurs who have “skin in the game.” and technological innovation through investment
investee, and business: An entrepreneur who has self-financed a business of Federal research funds in critical American
has already signaled to investors that he or she is priorities to build a strong national economy. The
Grants serious about moving the business forward. program’s goals are to:
No obligation to repay provided that the terms of
the grant are met. • Stimulate technological innovation
BOOTSTRAPPING • Meet Federal research and development needs
Debt Bootstrapping is the reinvestment of early product • Foster and encourage participation in
Borrowed funds, repayable on a fixed schedule sales into a company. It requires a customer- innovation and entrepreneurship by socially and
with interest. centric process of development that permits the economically disadvantaged persons
company to bill for early sales. Bootstrapping • Increase private-sector commercialization of
Equity allows entrepreneurs to maintain control of a innovations derived from Federal research and
Ownership through either stock or membership; business without having to acquiesce to outside development funding
Equity funding can have profound effects on influence, while also preventing the entrepreneurs
by-laws, voting rights, operational control, and from risking their own personal savings. STTR
future rights. STTR is another program that expands funding
opportunities in the Federal innovation and
FEDERAL GRANTS development arena. Central to the program
Funding Sources The Small Business Innovation Research is the expansion of the public and private
(SBIR) and Small Business Technology Transfer sector partnership to include the joint venture
Many start-ups fail due to a lack of resources. (STTR) programs offer grants to qualified small opportunities for small businesses and nonprofit
Obviously, one of the keys to a start-up’s success businesses. The purpose of these programs is to research institutions. STTR’s most important
is securing funding. Small business funding comes help fund early-stage R&D at small technology role is to bridge the gap between performance of
from several places, each one having advantages companies, including faculty start-ups. The

Funding a Business • 25
 basic science and commercialization of resulting are a few examples of competitions, participation
Eligibility for SBIR innovations. The stated mission of the program is in which could provide resources and assist in
& STTR Grants to support scientific excellence and technological refining your business plan and pitch.
innovation through the investment of Federal
• U.S. business organized for profit research funds in critical American priorities to Cozad New Venture Competition
build a strong national economy. The program’s This competition awards an estimated $150,000
• All research and development must be
goals are to: in cash and in-kind prizes and is open to all
performed in the U.S.
full and part-time undergraduate and graduate
• Independently operated and at least 51% • Stimulate technological innovation students on the Urbana campus.
U.S. owned by individuals • Foster technology transfer through
• 500 employees or fewer, cooperative R&D between small businesses Illinois Innovation Prize
including affiliates and research institutions The Illinois Innovation Prize is awarded annually
• Increase private sector commercialization of to the most innovative student on the Urbana
• For the SBIR program, the principal innovations derived from Federal R&D campus. Winners are chosen by the Technology
investigator’s primary employment Entrepreneur Center and receive prize money.
(more than 50% commitment) must be
with the small business concern at the LOANS PROPEL Business Plan Competition
time of the award and for the duration of The two primary options for start-ups to secure Sponsored by the iBIO IndEx, this competition
the project period debt financing are through either banks or the offers a $10,000 cash award. To be eligible
• For the STTR program, the principal Small Business Administration (SBA). Banks often companies must have their main company
investigator can be employed with want to see two to three years of financials before offices and staff located in Illinois, Indiana,
the small business or the participating they consider making a business loan. Obviously, Iowa, Kansas, Michigan, Minnesota, Missouri,
non-profit research institution but this can pose significant challenges for new Ohio, or Wisconsin. Competitors should be life
must have a formal (minimum 10%) start-ups. Additionally, if a bank considers lending sciences companies or current or past PROPEL
commitment with the small business to a start-up operation, the loan would be heavily companies. Additionally, companies should be in
concern. Additionally, the small business collateralized with the entrepreneur’s personal the pre-revenue stage or have revenue less than
concern will conduct not less than 40% assets. Alternatively, the SBA participates in loans $2 million.
of the work and the partnering research programs that are designed to help start-ups.
institution will not perform less than 30 National Collegiate Inventors and Innovators
% of the work. Alliance (NCIIA) Grants
BUSINESS PLAN COMPETITIONS With support from The Lemelson Foundation, the
Numerous business plan competitions exist that NCIIA awards approximately $2 million in grants
can help you secure some initial funding. Following annually to U.S. colleges and universities. There

26 • THE START-UP HANDBOOK

are several different NCIIA grant programs, but
their common goal is to support technological Key Terms
innovation and entrepreneurship with a positive
societal impact. Some terms are common to venture capital, Preferred stock
and you will inevitably encounter them in the Capital stock provides a specific dividend that is
Licensing Executives Society Graduate course of securing funding. A few of the most paid before any dividends are paid to common
Student Business Plan Competition important concepts include: stockholders and takes precedence over
This annual competition with a $10,000 grand common stock in the event of liquidation.
prize focuses on business plans that hinge on Risk
ground-breaking technologies and services and The quantifiable likelihood of loss or less-than- Convertible stock
also emphasize intellectual property strategies expected returns. Preferred stock that can be converted into
that support business goals. a specified amount of common stock at the
Return holder’s option.
JOINT VENTURES The annual return on an investment, expressed
Your start-up may benefit from strategic alliances as a percentage of the total amount invested. Liquidation preference
with larger companies. The advantages of entering In venture capital, the right to receive a specific
into joint development agreements include Common stock value for the stock if the business is liquidated;
financial support from a corporate partner and/ Securities representing equity ownership in more generally, the order in which credits
or investor with a long-term perspective, access a corporation, providing voting rights, and are satisfied in the event of the business
to industry knowledge and key markets, and entitling the holder to a share of the company’s liquidating.
potential acceleration of a product’s time-to- success through dividends and/or capital
market. However, these potential advantages often appreciation. In the event of liquidation, Exit strategy
come with some risks that should be carefully common shareholders have rights to the The way in which an investor plans to close
considered. These risks include: a potential claim company’s assets only after debtholders, out an investment; venture capitalists and
to the IP rights of the start-up; the larger partner bondholders, and preferred stockholders have angels typically have an IPO or acquisition exit
demanding exclusive rights to some markets for been satisfied. strategy to relinquish their holdings and realize
a period of time; the start-ups dependency on a return on their investment.
the larger partner’s continued support, leading
to additional pressure to achieve predetermined
milestones; the loss of the start-up’s ability to
control its destiny; and risk of diluting the financial
benefit to the start-up.

Funding a Business • 27
ANGELS development and growth of the company, typically
Angel investors are typically wealthy individuals taking a board seat. This hands-on approach limits
who meet the IRS and SEC definitions of an the number of companies in which a venture
accredited investor. Increasingly, however, angel capital firm will invest.
investors are working in association with other
angel investors, often in an organized angel Although many venture capital firms invest in
group. Angels look for companies that have great start-ups founded by entrepreneurs with close
people and great teams. Additionally, companies ties to the University, it is important to note that
that have a potential competitive advantage the majority of start-ups do not receive venture
in rapidly growing markets are an attractive capital. Of the 100 business plans that a venture Dilution
investment to angels. Angels typically are capital firm will receive, typically only 10 get a
involved in the seed stage of funding and often close look and extensive due diligence. Of those When a start-up issues new shares of stock,
have expertise in the start-up’s industry, putting 10, generally only one will receive funding. an entrepreneur must keep the effects
them in a position to offer mentoring assistance. of dilution in mind. Dilution is when the
When considering whether to invest in a issuance of new shares of stock decreases
company, a venture capital firm will consider the the proportional ownership of existing
VENTURE CAPITAL management team, the concept, the marketplace stockholders.
Venture capital firms are professional, institutional and market growth potential, the fit with the
managers of risk capital used to fund ideas that venture capital fund’s objectives, the value- Every round of equity funding results
could not be financed with traditional bank added potential for the firm, the necessary in dilution.
financing. Additionally, the funded ideas generally capital to grow the business, and, perhaps most
threaten established products or services and importantly, a clear exit strategy. For example, if a company initially
require five to eight years to launch. Venture issues ten shares of stock equally to ten
capital firms make an equity investment in individuals, then each shareholder will hold
the start-up’s illiquid stock. Consequently, any Securing Funds 10% of the company. If the company then
return on the investment occurs from the stock’s issues an additional ten shares to a single
appreciation and eventual liquidity, either in the When approaching investors, you should investor, the total shares outstanding is 20,
form of a public offering or private sale. consider not only the types of funding to seek, and the original ten shareholders will each
but also how your start-up’s business plan own 5% of the company. The single investor
Venture capital firms provide more than money and management team will affect investors’ holding the newly issued shares will own
to start-ups. Once an investment is made, the determination of whether to invest in the 50% of the company.
venture partner will play an active role in the company or not.

28 • THE START-UP HANDBOOK

THE BUSINESS PLAN • A failure to recognize that a product itself does team as well. For this reason, when you are
Although the creation of a business plan is not constitute a business pitching to investors, remember that you are
discussed more extensively in a previous section, • Claims that a product will sell itself selling yourself and the management team, not
it is important to note and reiterate aspects of • Unrealistic belief that the product will have only the innovation. If an investor doesn’t believe
the business plan to which investors will give no competition that your team can execute, then the strength
particular consideration. of the start-up’s technology or offering simply
THE BUSINESS TEAM will not matter. When seeking funding, you must
The pitch and executive summary are the most Investors will carefully evaluate not only your demonstrate that your management team has the
important tools you have to gain the initial business plan and offering, but the business knowledge, ability, and drive to succeed.
interest of an investor. The focus should be on
the problem and the solution that the start-up
will provide. Specifically, the “job” that a potential
customer needs to accomplish and how your
company’s offering will do that “job” better,
more efficiently, and/or cheaper than existing
alternatives. The pitch and executive summary
The Different Stages of Funding
should focus on the practical benefits of the
offering and not the technical features. Because
Early Stage Later Stage IPO Secondary
the focus is on the practical benefits, the pitch and
Offerings
executive summary should avoid technical jargon.
VCs, Acquisitions/Mergers
The pitch needs to be straightforward and honest.
& Strategic Alliances
Additionally, weaknesses should be acknowledged
and addressed in detail. The pitch and the
Angels, FFF, Public Market
executive summary should be concise.
Seed Capital
Further, the business plan should demonstrate Break even
a clear vision and strategic outlook. Investors
REV EN UE

will want to see that the business plan reflects

your comprehensive understanding of the
market. Additionally, investors are alert to
certain red flags indicating that an entrepreneur
TI ME
has unrealistically or not adequately evaluated
the market and the strength of the start-up’s
proposed offering. These include:

Funding a Business • 29
Your management team should demonstrate that
it has management experience and a product
prototype. Additionally, investors want to know
that the business model has been validated,
specifically that the product not only will work but
that the price, sales channels, and marketing will
actually lead to, or has led to, profitability. Again,
the management teams clear understanding of
the market opportunity and of the competitive
environment are critical to investors.

THE INVESTOR
When approaching investors, be mindful that they
are concerned with the return on their investment
above all else. All investors want five key questions
answered:

• How much will it cost me?

• What do I get?
• How will you spend my money?
• What is my expected return?
• When will I get my return?

The ideal investor will offer a start-up more

than just funding. The right investor will also
lend his or her experience to the business,
mentoring and partnering with the management
team. Additionally, the right investor will be
able to support the business in future rounds of
funding through a strong network of contacts,
both in the start-up’s industry and within the
investment community.

30 • THE START-UP HANDBOOK

 Human
Resources
WORKERS’ COMPENSATION EQUAL EMPLOYMENT OPPORTUNITY
Businesses are required by law to provide workers’ The Equal Employment Opportunity (EEO) Act
compensation for all employees. Workers’ protects employees from discrimination by
compensation provides coverage to employees employers on the basis of race, gender, age, and
in the event of accidental death or serious injury disability. A business is subject to the EEO if it
during the course of employment. This coverage has 15 or more employees that have worked for at
There are many regulations that must be followed is normally purchased through private insurers. least 20 weeks. Additionally, the EEO Act requires
when deciding to hire an employee, and at first, The Illinois Worker’s Compensation Commission that posters be displayed in the workplace to
it can seem overwhelming. Fortunately, there are (IWCC) provides many resources to employers inform employees of their rights under the law.
many resources available to assist small business seeking to purchase a worker’s compensation
owners with compliance. This section provides policy. Contact information for the IWCC can
a basic overview of legal requirements you should be found in the Resources section. TAX WITHHOLDING
be familiar with before hiring employees. It begins Taxes must be withheld from employee wages
with standard labor and employment laws and at both the Federal level (Federal Insurance
ends with non-disclosure and non-compete UNEMPLOYMENT INSURANCE Contributions Act-FICA and FUTA) and the
agreements. More detailed information can be Unemployment insurance contributions are state level. In order to complete the necessary
found on each of these topics through the Small collected both at the Federal level through the forms, businesses will need a Federal Employer
Business Association and the Department of Labor. Federal Unemployment Tax Act (FUTA) (IRS Identification Number (FEIN). The following
Form 940) and at the state level. Businesses are provides a basic breakdown of the primary forms
required to contribute if they have employed one needed for state, as well as Federal tax withholdings.
Standard Labor and or more workers in each of twenty weeks in a
calendar year or have paid at least $1,500 in total State
Employment Laws wages during a calendar quarter. The Illinois Department of Revenue stipulates
that businesses are required to withhold taxes. To
New employers should register online with Illinois calculate withholding rates, the Department of
FAIR LABOR STANDARDS ACT (FLSA) TaxNet to receive the appropriate information Revenue provides a guide with tax tables, IL 700-T,
The FLSA is designed to enforce fair labor practices about filing for unemployment insurance. Illinois which can be found on the Illinois Department
and includes regulations concerning minimum TaxNet provides new employers with a packet of Revenue website. Employees are required to
wage, overtime eligibility, and proper recordkeeping that contains information on applicable tax rates complete an IL-W-4 declaring their number of
practices for exempt and non-exempt employees. for small businesses as well as resources to guide allowances. Additionally, all Illinois businesses
Two types of coverage exist: enterprise and small businesses through the filing process. paying wages or salaries that are subject to
individual. Enterprises with at least two employees withholding are required to file an IL-941 on either
or that conduct at least $500,000 a year in a quarterly or annual basis.
business are covered by the FLSA.

Human Resources • 31
Federal
The Internal Revenue Service stipulates that
businesses are required to withhold taxes for all
employees. Employers and employees are required Form Filer Filed with Content
to file several forms to comply with this regulation.
W-2 Employer IRS Details wages of employee; submitted yearly
Several of the standard forms are outlined in the
table below. W-4 Employee Employer Number of allowances employee wants withheld

IRS Form 940 Employer IRS Annual tax return that covers Federal unemployment taxes
At the end of the year the employer is required
to provide the employee with a copy of the W-2 IRS Form 941 Employer IRS Quarterly Income Tax Return

in addition to a 1099. The IRS provides copies

of all of these forms as well as numerous
resources about filing information and due dates
for small businesses.

Employment Eligibility Non-Disclosure Payroll, Taxes, and

and New Hire and Non-Compete Direct Deposit
Requirements Agreements, Conflict Consider hiring a CPA or using professional
accounting software to set up a payroll system
All new employees are required to file an I-9 Acknowledgements before hiring. This will ensure that employee tax
verifying work authorization. Additionally, all withholdings are properly accounted for and will
businesses are required to register new hires with While there is no legal requirement that also allow easy documentation of issues related to
the Illinois Department of Employment Security employees sign a non-disclosure agreement direct deposit.
(IDES) within the first 20 days of employment. or non-compete agreement, it is strongly
Furthermore, the Federal government requires recommended that all businesses require new hires
that posters be displayed in the workplace to sign such agreements to protect proprietary
informing employees of safety procedures, information. Likewise, conflict acknowledgement
work rights, discrimination policies, etc. In agreements are important, especially in a
EnterpriseWorks, these posters are displayed in university setting. These agreements should be
shared areas, so as to cover all of the businesses drafted by a legal professional.
housed in the facility.

32 • THE START-UP HANDBOOK

 Online
Resources Technology Entrepreneur Center (includes Illinois Workers’ Compensation Commission
the Cozad Competition and Illinois Innovation iwcc.il.gov
Prize) tec.illinois.edu
Mentors, Angels & Venture Capital Networks
Urbana-Champaign Angel Network Chicago Innovation Mentors
champaigncountyedc.org/business-services/ chicagoinnovationmentors.org
CHICAGO small-business-services/angel-investing
iBio PROPEL ibiopropel.org

Chancellor’s Innovation Fund cif.uic.edu GENERAL Illinois Venture Capital Association

illinoisvc.org
Innovate@UIC innovate.uic.edu Competitions & Forums
Mid-America Healthcare Investors Network
Biz Plan Competitions
mhinonline.com
Office of the Vice Chancellor for Research bizplancompetitions.com
tigger.uic.edu/depts/ovcr/research The Midwestern Research University Network
Clean Energy Challenge cleanenergytrust.org
mrun.us
URBANA-CHAMPAIGN Invest Midwest investmidwestforum.com
SBIR and STTR grants
Licensing Executives Society Graduate
Academy for Entrepreneurial Leadership SBIR & STTR: sbir.gov
Student Business Plan Competition
business.illinois.edu/ael
lesfoundation.org/competition/index.html SBIR: zyn.com/sbir

Entrepreneurship at Illinois National Collegiate Inventors and Innovators

entrepreneurship.illinois.edu Alliance Grants (NCIIA) nciia.org/grants U.S. Small Business Administration sba.gov/

Illinois Proof of Concept Fund (I-POC) Equal Employment Opportunity eeoc.gov U.S. Securities & Exchange Commission sec.gov
otm.illinois.edu/IPOC
Fair Labor Standards Act dol.gov/whd/flsa Withholding Information
Office of the Vice Chancellor for Research State (Illinois TaxNet) taxnet.ides.state.il.us
research.illinois.edu I-9 uscis.gov/files/form/i-9.pdf
State (Illinois Revenue) revenue.state.il.us

Research Park Resources for Entrepreneurs Illinois Department of Employment Security Federal irs.gov
researchpark.illinois.edu/resources (including new hire reporting) ides.state.il.us

Human Resources • 33
 Contacts

CHICAGO URBANA-CHAMPAIGN UNIVERSITY ADMINISTRATION

Office of Technology Management Office of Technology Management Office of the Vice President for Research
University of Illinois at Chicago University of Illinois at Urbana-Champaign University of Illinois
1853 West Polk St. Suite, 446 Chicago, IL 60612 Ceramics Building Suite 319 346 Henry Administration Building
312.996.7018 • [email protected] 105 S. Goodwin Ave., Urbana, IL 61801 506 S. Wright St. Urbana, IL 61801
otm.uic.edu 217.333.7862 • [email protected] 217.265.5440 • [email protected]
otm.illinois.edu research.uillinois.edu

IllinoisVentures IllinoisVentures
University of Illinois at Chicago University of Illinois at Urbana-Champaign
2242 W. Harrison St, Ste 201, Chicago, IL 60612 60 Hazelwood Drive, Ste 212, Champaign, IL 61820
312.251.0700 217.239.1950
illinoisventures.com illinoisventures.com

EnterpriseWorks Chicago Research Park and EnterpriseWorks

University of Illinois at Chicago University of Illinois at Urbana-Champaign
2201 West Campbell Drive, Chicago, IL 60612 60 Hazelwood Drive Champaign, IL 61820
[email protected] 217.333.8324 • [email protected]
enterpriseworkschicago.com researchpark.illinois.edu

©2014 • THE BOARD OF TRUSTEES OF THE UNIVERSITY OF ILLINOIS

ALL RIGHTS RESERVED • 1ST PRINTING, SPRING 2014