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8/2/2019 AIChE Nov06

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Building a Successful

Entrepreneurial Venture

Lawrence B. Evans

Founder Aspen Technology, Inc.

President-Elect AIChE

New York

November 6, 2006


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Why is this topic important?

Thinking about starting your owncompany

Working currently for entrepreneurial

venture Considering joining a start-up

Feeling this is a good time for

chemical engineers


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Cleantech products and services:

Optimize use of natural resources

Reduce ecological impactLower costs and improve profitability

In Q2 2006 cleantech was 3rd

largestventure investment category with

12.4% market share in North America

Cleantech is a hot venture

investment category


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www.cleantech.com Copyright 2006, Cleantech Venture Network, All rights reserved

Energy-related deals: 43% of total by amount; 36% of number of deals

North American Investments


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Outline

Getting started

Developing the business plan

Raising financingSucceeding as a growing, successful

company


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Case Study: AspenTech

Formed in 1981

Leading company providing softwaresolutions to the process industries

Software used for engineering,manufacturing, and supply chainmanagement

Revenues of $293 million in recent fiscal year1200 Employees Worldwide


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Annual Employee GrowthFiscal Year Ended June30

82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 970

200

400

600

800

1000

1200

1400

82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97


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82 83 84 85 86 87 88 89 90 91 92 93 94 95 9682 83 84 85 86 87 88 89 90 91 92 93 94 95 96

0

20

40

60

80

100

120

160

140

180

97

Annual Revenue GrowthFiscal Year Ended June 30


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Stages in the Evolution of

AspenTech

1976 1981Aspen Project at MIT

1981 1986 Starting Up

1986 1991 Building the Business1991 1994 Establishing the Record to

go Public

1994 Public Offering


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AspenTech Prehistory the 1960s

MIT was a hotbed of activity in

computer-aided design.Activity was underway in:Mechanical EngineeringCivil EngineeringElectronic Circuit DesignArchitectureSoftware Engineering

Chemical Engineering was missing.Most major chemical and petroleum

companies had proprietary in-housesystems.


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The ASPEN Project at MIT

1976-1981Goal: to develop a next-generation process simulator

to be used by many companiesASPEN: Advanced System forProcess ENgineeringFunded by: the US Department of Energy (DOE) and

65 companies at $6.5 millionMotivation: support development of synthetic fuels

industryAcquired Monsanto FLOWTRAN program as starting

pointDelivered the software to DOE in 1981


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Imagine it is early 1981Imagine it is early 1981

The ASPEN Project is going to wind down

The ASPEN software will be delivered to

DOE

What do I need to do to start a company tocommercialize the ASPENsoftware?

What do I need to do prior even to preparingWhat do I need to do prior even to preparinga business plan or raising financing?a business plan or raising financing?


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Getting Started

Develop the idea for the business

Articulate a vision

Recruit the founding teamEstablish credibility


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The Idea for AspenTech

Create a software company for computer-aided chemical engineering

Like Macneal Schwendler (NASTRAN)

Like ComputervisionLike SimSci and Chemshare

Cullinane Software had recently had a

successful IPO one of the first VC-financedsoftware companies


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The Vision for AspenTech

Enable companies to try out new plantson the computer before committing tosteel and concrete

Create a next-generation system thatcould be used by many differentcompanies in different locations


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The AspenTech Founding Team

In 1981 eight key staff members from theASPEN Project at MIT formed AspenTech,including:

Larry Evans CEO

Joe Boston VP TechnologyHerb Britt VP DevelopmentPaul Gallier VP Sales.

All were full-time, except Evans on leave fromMIT.


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Lessons Learned: Getting Started

It is often easier to develop somebodyelses idea.

Have a simple vision and concept.

Peer companies are important.

The founding team doesnt have to beperfect.

You need to have credibility.


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Raising Financing and Starting Up

Develop a business planSpecific marketValue proposition to customers

Plan for commercializationFinancial projections

Identify funding sources

Sell the plan and close on financingRecruit a strong Board and AdvisorsOpen the doors for business


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Market for AspenTech Software

Target market was engineers in theprocess industriesHorizontal market

Sized by number of chemical engineers

Selling to the VP of Engineering

In practice it turned out that our bestmarket was the chemical industry


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Value Proposition for AspenTech

Offered subscription for $50K per yearto get continually updated software

Economic justificationLess than cost of one software developer

Increased productivity of engineers

Ultimately we discovered the value wasin making better engineering decisions


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AspenTech Commercialization Plan

Initially, we supported the public versionof Aspen.We created a commercial software

product within a year with improvedcapabilities.We used user groups to suggest

enhancements.Producing reliable software on

schedule proved to be very difficult.


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AspenTech Financial Projections

Revenues were driven by number ofcustomers and amount of annual fee.

Expenses were driven by number of

people required to develop.

Our projections ultimately proved to bepretty good just took a year longer

than expected.


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AspenTech Funding Sources

Traditional VC firms werent interestedProcess industries were unexciting

Would not fund a part-time entrepreneur

We raised about $1 millionFounding employees

Individual angel investors

State funded venture organization


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AspenTech Board and Advisors

We assembled a strong Board

Only two founders were on the Board

Sam Bodman agreed to serve asadvisor

One Board member had strongindustrial business experience


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AspenTech Open for Business

In October 1981, we began operations.We obtained a nonexclusive license

from MIT for the ASPEN software.Rented space from MIT adjacent to the

campusObtained computer time on the MIT

time sharing computer while purchasing

a new VAXWe began calling on companies who

had participated in the ASPEN project.


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Lessons Learned: Financing

Be flexible in finding funding sources

Initial market ideas change

Vertical markets are very important

Our business model evolved fromsubscription to software licensing

Senior founders needed to sell


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Imagine now it is 1982Imagine now it is 1982

AspenTech is up and runningWe are working on the first

commercial release of ASPEN PLUS

We have signed up our firstcommercial customers to subscribeto ASPEN PLUS

What do we need to make thecompany succeed and grow?


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AspenTech Succeeding and Growing

Add people and resources

Manage the stages of growth

Raise additional financing

Deal with challenges


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Succeeding and Growing

We added additional key members tothe management team 1981-82:Ken Morse Sales and MarketingMary Dean Finance

Betsy Walkerman General Counsel.We developed the first new commercial

release of ASPEN PLUS in 1983.

We delivered new releases annually.We developed strong links with

customers through user groups.


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Succeeding and Growing (continued)

We became profitable in 1983.We sold two major licenses in China in 1983.We established operations in Europe in 1984.We raised $2.6 million in venture capital from

Advent International in 1986.We acquired Prosys Technology, Ltd. In the

UK in 1991.We went public in 1994.


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Critical Success Factors at

Each Stage of Growth


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Success Factors for Starting Up

Get founders to leave jobs and join start-up.

Attract investment from angel investors.

Develop the initial technology and products.

Get customers to buy the early products.Form a strong outside Board who will give

good, critical advice.


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Success Factors for

Building the Business

Engage a supportive venture financingorganization.

Develop a culture of strong financial

performance.Build global sales and support

organization.

Raise enough capital.


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Raise Enough Capital

Decide how much working capital youneed.

If you dont have enough, you have to

bet the company on every major order.Our rule of thumb was working capital

equals 40% of annual revenues.


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Growing Profits are Crucial

Growing profits are the measure ofsuccessful business management.

The difference between a company that

is making money vs. losing money isthe difference between night and day.

A track record of profit growth is

essential to going public.

A Culture of Profit Growth Doesnt


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A Culture of Profit Growth Doesnt

Come Naturally

In the early phases companies are run atbreakeven.

There is a tendency to focus on revenuegrowth rather than profit growth.

There is no shortage of investmentsneeded.

You have to decide to budget for the profit

first, then decide how much you can spend.You may have to moderate the growth.


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Conclusions


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Lessons Learned

The challenges change at each stage of

growth.People are the most important resource.

Every company will have multiple cash crises.

It is important to seek good advice.It is important to sustain a good strategy.

Be prepared for change as the company

grows.You will be surprised at what you can

achieve.


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Application to Other Industries

The AspenTech example is for asoftware company.

Other industries will have a different

business model.But the basic principles will be similar.


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Thank You!

aiche nov06

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