business plan formulation and venture capitalist
TRANSCRIPT
![Page 1: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/1.jpg)
Business Plan Business Plan FormulationFormulation
Business Plan Business Plan FormulationFormulation
Venkatesh SarvasiddhiVenkatesh SarvasiddhiHead-Direct MarketingHead-Direct Marketing
HCL TechnologiesHCL Technologies
![Page 2: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/2.jpg)
Outline of the Presentation
• Business Plan basics: What? For whom?
• Fund raising process• Venture Capital firms• Structure of a business plan• Details of the individual sections• Final checklist
![Page 3: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/3.jpg)
Business Plan and its Target Audience
• VCs / Angels• Potential senior employees• Bankers• Attorneys and accountants• Leasing companies
BP is a “document” and not a Power point presentation !!
It is targeted at:
![Page 4: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/4.jpg)
Stages in the Growth of a Company
• Idea / Concept• Prototype / Proof of the concept• Incubation / Product
development• Organization building• Scale up (alliances, partnerships)• IPO: Initial Public Offer
![Page 5: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/5.jpg)
Funds Requirements
• Idea / Concept: USD 10K• Prototype: USD 50K• Product development: USD 0.5M –
2M• Organization building: USD 8M-10M• Scale up: USD 50M • IPO: Initial Public Offer
![Page 6: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/6.jpg)
Sources of Funds
• Idea / Concept: Personal savings• Prototype: Loan from friends and
relatives• Incubation: Angel / Early stage fund• Organization building: VC, first round• Scale up: Second round / growth/ scale
up funds • IPO: Investment bankers, underwriters
![Page 7: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/7.jpg)
Cost of Equity
• Angels would expect higher rate of returns than VCs
• Typical VC expectations is 40-50% compounded annual return
• Risk-return curve: New venture increasingly reduces its risk as it goes through stages
![Page 8: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/8.jpg)
Types of Risks
• Technology risk: Platform does not succeed
• Product risk• Market risk: Competitor, price-
performance• Management risk: Scale-up, team building• Product liability risk• Image risk: Cultural, socio-economic
factors (mostly for pharma / biotech)
![Page 9: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/9.jpg)
Venture Capital Firms
• VCs and Angels provide private equity for young companies
• Angels / High net worth individuals• Early stage VC firms• Scale-up VC firms• Technology / “Space” specific
Biotechnology Networking Chips and hardware E Commerce
![Page 10: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/10.jpg)
Structure of a VC Firm
• General partners 3-5 (themselves successful entrepreneurs): put about 2-3% of the corpus
• Limited partners (Pension funds, Retirement plans)
• Management fee is about 2-3 % per year• Funds about 5-30 new companies per year• Employs junior managers for due
diligence(associates)• After IPO/Acquisition, general partners keep
20% of gains, limited partners get Principal+80%
![Page 11: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/11.jpg)
VC Firm’s Annual Throughput
• 10,000 qualified business plans
• 1000 meetings
• 400 company visits
• 25 new investments
![Page 12: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/12.jpg)
Role of the VC in the Portfolio Company
• Negotiate aggressive terms• Select strong co-investor• Help in constituting the Board of
Directors• Assist in
Recruitment Market validation Strategic relationships
• Pursue liquidity aggressively
![Page 13: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/13.jpg)
Valuation: Bargaining Point
• Causes of mismatch Asymmetry of information Ego Greed
• Factors that drive the valuation– Technology, ESOP rates, management– Orders in hand, scalability, brand strength
![Page 14: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/14.jpg)
Difficulties in Valuing Start-up Companies
• Immediate earnings are negative
• No past history
• No comparable companies
• No market prices
![Page 15: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/15.jpg)
VC Fund Raising Process
• Introduction (phone call, e-mail, referral)• Submit business plan / executive
summary• Presentation• Company visit• Due diligence (management reference
checks, customer calls, market analysis)• More meeting(s)• Term sheet• Legal / Closing
![Page 16: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/16.jpg)
The Deal: Capital Structure
• Equity allocation Founders (20 %) Future employees (Option pool)
(40 %) Investors (40 %)
• Number of investors / firms• Imbalance, Dilution
• Serious investors ask for 20% or more of ownership
• Pre and post-finance valuations
![Page 17: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/17.jpg)
Term Sheet
• Agreement to agree or to work towards investment
• Captures key terms of the final legal contract
• Seat on the Board, Founder vesting• Key terms
Equity allocation, type (preference, convertible)
Liquidity, conversion
![Page 18: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/18.jpg)
New Oak Communications, Inc.
Round Date Share Price (USD)
Total Financ
e
Post-money Valuation
Seed 9/96 1.00 120K 1.2M
First 11/96 3.75 4.25M 7.0M
Second 8/97 5.67 7.50M 48.0M
Acquisition *
1/98 30.05 NA 156M
* Acquired by Bay Networks, Inc.
![Page 19: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/19.jpg)
What is the financer looking for?
• Basic value proposition• Market size, segmentation, target customers,
competitors• Entry barriers, IP protection, Unique Selling
Points• Technology expertise and domain knowledge• Alliance and strategic partnerships• Promoters, Board of Directors, Top
management (VPs)
![Page 20: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/20.jpg)
Checklist continued…
• Team (Project management, execution capabilities)
• Scalability and growth potential• Marketing and selling plan: channels,
distributors, customer acquisition costs• Milestones and deliverables (prototype, proof-
of-concept, beta customers)• Requirement and application of funds: Setting
offices, where, how many?• Equity/Capital structure, Financing policies
(debt/equity ratio)
![Page 21: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/21.jpg)
Checklist continued…
• Revenue model: Sources of revenue (service/product mix)
• Profitability, break even point, growth estimates (revenue, team size)
• Risks and contingencies: De-risking/risk management/risk containment plan
• Projected (pro-forma) financial statements • Exit strategy (IPO, equity buyer, strategic
buyer, Merger & Acquisition)• Valuation and offer (equity price, number of
shares)
![Page 22: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/22.jpg)
Business Plan Document
• Agreed program of expectations, actions, and results to which the whole team is willing to commit
• Description of why, how, and when the firm will accomplish economic viability
• Economic viability comes from sustained positive cash flows
![Page 23: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/23.jpg)
Business Plan Structure
• CEO is perpetually writing a business plan!!
• BP should be limited to about 30-35 pages
• Subject matter should have graphs and pictures
• Must have a 3-4 page executive summary
• Allied material should go to the appendix
![Page 24: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/24.jpg)
Business Plan Sections1. Executive summary2. Introduction / Company Overview3. Concept / Proposition / Product
description4. Market opportunity5. Competition survey6. Development Plan and milestones7. Marketing Plan8. Management9. Financials10.Offer11.Appendix
![Page 25: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/25.jpg)
Introduction / Company overview
• History of the company, when incorporated
• Founders and their brief profiles
• Form of the organization: C, S corp, LLC
• Product / Service
• Current revenues and profits (if any)
![Page 26: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/26.jpg)
Concept / Proposition
• Description of the product / service
• Intellectual property protection
• Unique selling points – differentiators
• Unfair advantage over competitors ?
![Page 27: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/27.jpg)
Market Opportunity
• What unfulfilled need the product satisfies
• Market size, segmentation
• Target customers, demographics
• Is it a new market, growth market, or established market ?
![Page 28: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/28.jpg)
Competition Survey
• Identify existing competitors
• Substitute products
• Potential competitors
• SWOT analysis
![Page 29: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/29.jpg)
Development Plan and Milestones
• Prototype : How will it look
• What will be version 1 – what features
• Precise description of the milestones and dates
• Initial team scale-up
![Page 30: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/30.jpg)
Marketing Plan
• Strategy – direct or through channels
• Quantitative marketing goals (revenues, team size)
• Branding strategy, Co-branding, if any
• Distribution and alliances
• Pricing and promotion
![Page 31: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/31.jpg)
Management
• Team structure – CEO, CFO, CIO, CTO
• Vice Presidents (marketing, finance, engineering)
• Organizational chart
• Letters of intent from potential senior team members
![Page 32: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/32.jpg)
Financials
• Pro forma (Projected) and existing financial statements
• Balance sheet
• Profit and loss statement (Income statement)
• Cash flow statement
• Break even analysis
![Page 33: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/33.jpg)
Offer
• Valuation
• Basis for valuation (P/E, Revenue multiples)
• Percent of the company for investment
• Exit routes for the investors
• Capitalization structure
![Page 34: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/34.jpg)
Appendix
• Endorsement from reference customers
• Letter of Intents from potential customers
• Product block diagrams
![Page 35: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/35.jpg)
Executive Summary• Company name , address, contact person, email,
phone• Brief history of the company: date founded, headcount• Management summary: Promoters, senior staff• Brief description of product/service and its strengths
and weaknesses (Elevator pitch)• Market – existing and projected (industry,
competition), focus area, revenue model (sources of revenue)
• Growth potential, projections• Milestones – achieved and projected (prototype, beta)• Finance – needs and applications, offer, pre-money
valuation, financials.
![Page 36: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/36.jpg)
Final Checklist !!
• Look for spelling mistakes• Provide a table of contents• Check page number consistency• Do not bind in a hard folder• Write a nice covering letter• Do not use too many colors and fonts• Explicitly add confidentiality clause
in the beginning
![Page 37: Business plan formulation and venture capitalist](https://reader036.vdocuments.net/reader036/viewer/2022062307/554c1db1b4c905ec518b5401/html5/thumbnails/37.jpg)
Summary
• Business Plan preparation is a serious process which takes 2-4 months
• Fund raising itself takes 4-7 months
• Business Plan is a dynamic document