Engine Incubator

Driving the Start-up Revolution

James Delaney March 2009

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Engine Innovations
Driving the Start-up revolution

Engine drives entrepreneurial growth and return to investors through consulting and resource management. Our vision is to be the company that entrepreneurs and investors look to for success in launching or investing in a start-up.

Start-up Market in US and in Minnesota is large and growing despite barriers to success
Many Entrepreneurs:
Lack connections to the investment community and lack experience in resources for obtaining capital Are product-focused more than they are focused on the construction of their business Overlook long-term strategic vision Are often unfamiliar with strategic analysis techniques and frameworks Lack the time and resource to effectively identify good service providers Lack scale which limits bargaining power

 600,000 companies are started in the US each year 13,000 in Minnesota $26 Billion is invested in 50,000 start-ups by Angel investors in 2007  Patent applications up 140% since 1990

Small Business Administration Profile of MN - http://www.sba.gov/advo/research/profiles/08mn.pdf SBA Working paper - The Importance of Angel Investing in Financing the Growth of Entrepreneurial Ventures www.sba.gov/advo/research/rs331tot.pdf Center for Venture Research: THE ANGEL INVESTOR MARKET IN 2007: MIXED SIGNS OF GROWTH www.wsbe.unh.edu/files/2007%20Analysis%20Report_0.pdf US Patent Office Statistical Reporting - http://www.uspto.gov/go/taf/h_counts.htm

Investors face significant barriers to success

Investors and investment firms can only have expertise in a few industries. Investors are not positioned to provide high-touch management and consulting that startups require Angel investors struggle to effectively perform due diligence on possible investments due to time restraints and limited diligence tools

 27% of seed-round investments are lost to bankruptcy - $7 Billion loss each year.  50% of Angels report <1x return on their investments

Center for Venture Research: THE ANGEL INVESTOR MARKET IN 2007: MIXED SIGNS OF GROWTH www.wsbe.unh.edu/files/2007%20Analysis%20Report_0.pdf Publication: Returns to Angels in Groups - http://ssrn.com/abstract=1028592

However, incubators support start-up success

90 80 70 60 50 40 30 20 10 0 Startup 4 Year Survival Rate Incubator Startup 4 Year Survival Rate % of start-ups that make it to the critical 4year mark

81% 20%

Data compiled from National Business Incubator Center, National Business Incubation Association and the Small Business Administration

Despite start-up success, the traditional incubator model has limitations

 Housing incubator clients is not vital at the outset; most start-ups stay virtual far longer than they did in the past.  Fee for service model drains startups of cash, regardless of performance.  Incubator staffing models result in business- and industry- silos within the incubator  Limitations reduce scalability and profitability of the incubator, to the detriment of incubator and investors
NBIA 2006 State of the Business Incubation Industry NBIA Publication

 Business incubation is a >$1Billion business per year  94% of business incubators are not-forprofit  Minnesota has four incubators, three are notfor-profit.

Engine: A New Model for Business Incubation

Engine for Entrepreneurs We provide business services and resources through a network of preferred service providers and consultants. Through this network and our relationship with investors, we give start-ups the best chance for funding and business success. Engine for Investors Engine delivers due diligence, industry expertise and ongoing services for angel investors and their clients. These are the three proven success components for Angel investors. Through this process we increase the IRR of our Angel clients.

Driving the start-up revolution

Improve success rate of start-ups Increase rate of return for investors Create the largest, most profitable business incubator in the United States

Engine provides essential ongoing to support to start-ups

Intellectual support for start-ups Engine has a network of industry experts and generalists who provide consulting to start-ups. 3-5 consultants provide team-based consulting to assist the start-up at a critical time. This service provides: Objective thinking on important issues facing the start-up An enhanced network of industry experts Ongoing support in the first 6-12 months of the start-up development

High participation in start-ups can increase ROI for investors from 1.3X to 3.7X per company 59% of investments return <1X when the investor has a low level of expertise in client company s industry

Publication: Returns to Angels in Groups - http://ssrn.com/abstract=1028592 8

Engine provides network of service providers to start-ups

Logistical support for start-ups Engine works with a network of preferred service providers to support start-ups with legal, accounting, banking, IT, HR and other services. Each start-up that works with Engine has access to these preferred providers. This network offers: Substantial cost savings on start-up services Easy access to a single source for providers Streamlined, centralized billing for all services

Engine saves entrepreneurs approximately 25% on start-up expenses.

Engine provides essential due diligence services

Engine Decision Tool  Proprietary tool for analyzing and scoring start-up Investors can conduct independent needs analysis on prospective companies Enables those charged with due diligence to compare prospective companies to each other and to past companies Engine Shark-Tank Day  Entrepreneurs present their business plan  Scores and critical feedback are provided in report form to each start-up and investors as requested by the start-up  Select companies are invited to be an Engine client after this process is completed.

High due diligence can increase ROI for investors from 1.1x to 5.9x

Publication: Returns to Angels in Groups - http://ssrn.com/abstract=1028592 10

Engine generates short-term revenue prior to clients reaching an equity event

Short-term Revenue Model Engine provides: Central billing function Fees from investors for due diligence and ongoing support services Support to entrepreneurs that are past the launch stage but need assistance Sale of research and data Long-term Revenue Model Engine takes an equity stake in each of the companies that are selected for Engine services. This is a success-based model that is mutually beneficial Engine develops short-term revenue to cover operating expenses including staffing, salary and potentially profitability. The pool of equity in a large number of start-ups enables Engine to be hugely profitable upon equity events of startup companies in the portfolio

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Engine Innovations - a new model for incubation

Enhance the success rate of startups Increase the return on investment for investors Develop a profitable, thus sustainable and scalable business incubation model Develop the business eco-system in Minnesota to encourage a vibrant entrepreneurial environment Develop a portfolio of equity in start-ups for Engine and constituents

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Engine Innovations
Driving the Start-up Revolution

For more information about Engine, please contact: Jim Delaney JDelaney@WeDriveBusiness.com 612-720-7022

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