orrick materials business plan guidelines for founders space may 2011

8/6/2019 Orrick Materials Business Plan Guidelines for Founders Space May 2011

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Business Plan Guidelines

May 2011


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BUSINESS PLAN GUIDELINES

The business plan used for your initial VC pitch generally takes the form of a power pointpresentation consisting of the following slides (try to keep each topic to a single slide).

Executive Summary (OK to be two slides)

This is a high level summary of the key points from each of the other sections of the business plan.

Market Opportunity

This is a description of the industry and gives statistics for the size of the market being addressed byyour products. It should include market forecasts for a few years out. All of your statistics and

forecasts should be based on impressive third party sources. This section should contain adiscussion of the pain the industry is facing that is solved by your products. You will describe yoursolution to this pain later under the Solution section, but this section should set up the straw manfor you to knock down.

Business Model

This is a very specific description of how you will earn revenue. You need to give the details of howyou will charge fees. You need to characterize the type of fee, who will pay the fee and exactly whatthey are paying for from the customers perspective.

Technology and Products (or Services)

This is a high level description of the technology you will develop (including your IP protectionstrategy) and the products or services you will sell. You need to walk a fine line between disclosingenough to give the impression that your technology is whiz bang but keep in mind the risk thatthis business plan might inadvertently or otherwise be shared with others. Leave the really sensitivestuff to the verbal part of the presentation if you can.

Solution

This is where you will knock down the straw man you previously set up in the MarketOpportunity section. This is a discussion of how your products, technology or business will solvethe pain currently being faced by your industry.

Competition

This is a discussion of each of your competitors (name names) and a realistic assessment of theirstrengths and weaknesses. You need to describe your barriers to entry here and discuss how youwill beat your competitors. This is a critical part of the business plan and often the VCs will knowof a competitor that you werent aware of. That can be disastrous, so you have to do yourhomework very thoroughly on this topic area. If the VCs do know of additional competitors,hopefully it will be ones that you could not have known about since they are in stealth mode, inwhich case you should just roll with the punches as you try to address that competitors business onthe fly.


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Sales and Marketing Strategy

This is a discussion of your sales and marketing strategy. Give both an overview of your strategy

generally and then try to be specific about any unique tactics that you will use. This needs to becompelling. When the VC thinks about this from the customers perspective, they need to see howyour approach would be an effective one.

Operations

Describe your operations and try to give a clear sense of how you will make, sell and deliver yourproducts or services. Focus on things like facilities, employee headcount and any other major costside items that you need to execute your business plan. Up until this point, you have focused mainlyon the revenue side of your business, this is where you start to describe your key cost drivers.

Financial ProjectionsProvide your projected income statement from funding through profitability. Most VCs will want tosee a break-even point within 4 years of their investment (of course earlier is always better). This will depend in part on the time horizon for the particular fund they are using to make theinvestment since a given fund may be closer to a liquidity event where the fund must makedistributions to its limited partners. Your presentation needs to be reasonably detailed. A good ruleof thumb is to break out any items that contribute 10% or more to the total of a particular category.Having said that, you probably dont want to break down your operating expenses into more than 5or 6 line items. Your projections need to be reasonable and you will need to defend them at a verydetailed level with the VCs. This is the slide that you will spend the most time discussing. VCs willprobably stop you here and start asking questions at this point. Some are patient and hold the Q&A

until the end of your presentation, but you should let them interrupt here if they want to. Just beaware that the most common approach that VCs get sick of seeing from entrepreneurs is a set offinancial projections that essentially say the market is huge and if we get just 1% market share, wewill be hugely successful. The better approach is not to have merely an arbitrary assumption aboutmarket share, but have some reasons why you will be able to generate the revenue in yourprojections. Also, theres probably not much point in trying to claim that your projections arereally conservative, since thats what everyone says. You want to give the impression that you aremaking reasonable assumptions and that you are savvy enough to know that virtually no projectionsare actually conservative.

Investment Schedule and Use of Proceeds

This is a discussion of the timetable for and amount of each financing event you have assumed inyour financial projections. In addition, you need to describe in reasonable detail what the proceedsof each financing will be used for. The level of detail should dovetail with the line items in yourfinancial projections. You need to show all of the financing you believe will be needed to get toprofitability. In general, most companies try to take in as small an investment as possible that will bejust enough to get the company to the next milestone where the companys valuation goes up. Forexample, an early stage company might take in just enough money to enable them to develop aprototype or otherwise get to proof of concept if that will significantly increase the value of thecompany. This strategy is designed to minimize dilution for the founders, but needs to be balancedagainst the relative comfort that having extra money in the bank can provide. Often, this strategy


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dovetails with the VCs desire to invest in tranches to help boost the IRR for their investment.You just need to be aware that tranche investing means that you need to pre-agree on the valuationsfor each milestone, which can be difficult. Sometimes tranche investing means that the VC actually

wants to put the entire amount in at the initial valuation even though the company only receives themoney as it hits the milestones. This means the founders dont get any valuation credit for hittingthe milestones and may really end up being an option on the part of the investors to invest if themilestones are not realistically achievable.

Analysis of Risks

This is a discussion of the material risk factors that face the investors. Obviously, every startup isrisky and all face many of the same risks generally. Try to be specific about the particularweaknesses you think you may have. Here again, you want to appear reasonable and balanced inyour analysis. Think about how you can mitigate these risks for purposes of the Q&A discussion.

Management

Give the bios of the founders and the key executives for your company, including the CEO, CFO,the chief technology person and the sales and marketing person at a minimum. Its OK to give thebios for your Board of Directors and your Advisory Board members, but VCs wont be tooimpressed with name dropping if it appears that those persons will have only a high level role. Inreal estate, its location, location, location. In venture finance, its team, team, team. This is a criticalsection of the presentation and will probably be the most important element from the VCsperspective for making an investment. Because of the inherent risks involved with startups, mostVCs take comfort from their belief that a smart management team will find a way to make moneyeven if their initial business plan fails or hits a roadblock.

Other Sections

Depending on your business, there are a number of other sections you may want to include if theyare somehow unique, impressive or important for your business plan. Some of these include:Potential Customers; Current Key Customers; Exit Strategy; Distribution Channels; StrategicPartners; Stockholder Profile; Legal Structure; Regulatory Environment; Clinical Trials; and Industryor Scientific Awards. Obviously, these guidelines cover a standard set of issues to be addressed inyour business plan presentation, but your individual business plan needs to be tailored to yourbusiness and there could be many other aspects not covered here that would be important to coverif they are unique, impressive or otherwise important to your business plan. Most VCs will only

want to sit through 12 to 15 slides, so only add to the above sections if its truly important tounderstanding your business.


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Orrick Attorney Biographies &Contact Information

May 2011


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Related Practice Areas Corporate Governance Advice

Emerging Companies

Venture Capital and StrategicInvestments

Mergers and Acquisitions

Capital Markets

Education J.D., cum laude, Georgetown University

Law Center, 1994

B.A., cum laude, University ofPennsylvania, 1989

Honors American Jurisprudence Award,

Commercial Law

American Jurisprudence Award,Decedents' Estates

Languages English

French

Lowell D. NessPartner, CorporateSilicon Valley(650) [email protected]

Lowell Ness is a partner and a founding member of the firms EmergingCompanies Group in the Silicon Valley Office. He has considerableexperience in securities law and corporate governance matters. His practice

focuses on high growth emerging companies and involves venture capitalfinancings, mergers and acquisitions, public offerings and private placements.His clients include startup companies from the earliest stage and wellestablished public companies. Mr. Ness also represents both private equityand venture capital funds.

Recent transactions include representation of:

Premier Devices in its $84 million sale to Sirenza Microdevices.

Micrus Endovascular in its initial public offering and a secondarypublic offering.

PDF Solutions in its initial public offering and concurrent private

placement.

Landec in a PIPE offering of common stock to private investors.

Mr. Ness acted as either company counsel or investors counsel in venturecapital financings for BayPackets, Buildfolio, CaritaSoft, Chenomx,Cognigine, Convergence CT, CustomerNation, DeltaGen, Financial Engines,Ishoni Networks, Horizon Photonics, MariTech, MetiLinx, MediaQ, MIOX,Mobilitec, NavLink, Network Physics, NewPort Communications, nth degreesoftware, OnFiber, Partnerware, peerMusic, Swift Financial, ValiCert, Varian,VirnetX and Zoom Systems.

He acted as either company counsel or underwriters counsel in public

offerings by BankAmerica Corporation, Central Garden & Pet, ESSTechnology, Fritz Companies, The Gap, Health Systems Design Corp, IlFornaio, Novatel Wireless, Orbit Resources, PG&E, Providian, SelectComfort, S3 Incorporated, The PMI Group, Transamerica, Trendwest,Varian and West Marine.

He has also represented numerous companies in connection with mergersand acquisitions, including ABM Industries, ALSTOM, Business Evolution,Capstan, ESS Technology, FunMail, Intersperse, Kinders, Louisiana Pacific,


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MediaQ, MIOX, NeoVista Software, Outdoor Industry Group, PDFSolutions, Pinnacle Systems, PG&E, Promedix, Redwood Empire Bancorp,Saqqara, Symphony Systems, Topcon, Varian, Versatron, Windom HealthEnterprises and Zend.

Mr. Ness began his career at the firm as a summer associate in 1993.

Mr. Ness has taught a course in Securities Regulation at Santa ClaraUniversity School of Law.

Mr. Ness is a frequent speaker at national MCLE seminars on topics thathave included Legal Opinions, Drafting Stockholders' Agreements,Corporate Governance for Family Businesses and Mergers & Acquisitionsfor LLCs.

Admitted in

California

Memberships

American Bar Association

State Bar of California, Business Law Section

Bar Association of San Francisco

Member, Executive Board, Law & Policy in International Business, 1992-1994


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Related Practice Areas Emerging Companies

Venture Capital and StrategicInvestments

Mergers and Acquisitions

Corporate

Education J.D., Harvard Law School B.S., summa cum laude, Philosophy,

University of Utah

B.A., summa cum laude, Japanese,University of Utah

Honors Phi Beta Kappa

Languages Japanese

Joseph Z. PerkinsManaging Associate, CorporateSilicon Valley(650) [email protected]

Joseph Z. Perkins, a corporate associate in Orrick's Silicon Valley office, is amember of the Emerging Companies Group, which advises emergingcompanies and venture capital firms. Mr. Perkins's practice focuses on

providing private venture financing and merger and acquisition services toInternet, high tech, and clean technology companies.

Some of Mr. Perkins's current and former clients include:

Bleacher Report (funded by Hillsven Capital, SoftTech VC, and others)

Calista Technologies (acquired by Microsoft)

CubeTree (acquired by SuccessFactors)

Flourish Network(a 501.c.3 corporation)

Flurry, Inc. (funded by Draper Fisher Jurvetson and InterWest)

Greenplum (funded by Meritech, Sierra, Mission and others)

Handmark(company-side acquisitions)

LS9 (funded by Flagship Ventures, Khosla Ventures and LightspeedVenture Partners)

MIOX (funded by Sierra, DCM and others)

MyShape (funded by DFJ and others)

PowerSet (acquired by Microsoft)

Xobni Corporation (funded by Khosla Ventures, First Round Capital,Baseline Ventures, Blackberry Fund and Cisco)

SAY Media - fka VideoEgg (funded by August Capital and others)

Voxify (funded by Palomar Ventures, El Dorado Ventures and SigmaPartners)

Prior to receiving his Juris Doctor from Harvard Law School, Mr. Perkinsspent four years as an officer of a company that provides language and travelservices to Japanese travelers.

Admitted in

California

orrick materials business plan guidelines for founders space may 2011

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