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Authentic Audio Quest for Venture Capital May 11, 1999

Authentic Audio Quest for Venture Capital May 11, 1999. David Runton Pete Smith Rajashi Runton Renee Savera Rob Michael. Agenda. Introduction to the Audio Market The Alpha Product The Business Plan. Understanding Customer Needs. Attributes Characterization and Evaluation (A.C.E) matrix.

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Authentic Audio Quest for Venture Capital May 11, 1999

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  1. Authentic AudioQuest for Venture CapitalMay 11, 1999 David Runton Pete Smith Rajashi Runton Renee Savera Rob Michael

  2. Agenda • Introduction to the Audio Market • The Alpha Product • The Business Plan

  3. Understanding Customer Needs Attributes Characterization and Evaluation (A.C.E) matrix

  4. The Audio Market • Brand Recognition is the greatest entry barrier • From Porter’s Five Forces Model • Industry Rivalry • Large, well funded corporations • Well known competition • Buyer Power • Ultimately, Consumers must buy the product

  5. Product Concept • Digital, Digital, Digital • Tube Based Circuitry • Inherent design enhances even harmonics • Desired for warmth • Impedance levels allow for “better sounding” components Can we find a way to merge the two technologies?

  6. Product Design • The Tube Signal Shaper - Alpha Product • Tube based preamplifier • Designed to work with existing systems • Target customer desires for: • Natural Sound - Warmth • High Quality • Clarity/Crispness

  7. Current Home Stereo System Left Speaker Compact Disc Player Tuner Amplifier Stereo Video Source Right Speaker

  8. Enhanced Home Stereo System Tube Preamplifier Left Speaker Compact Disc Player Tuner Amplifier Stereo Video Source Right Speaker

  9. Customer Acceptance • Customer Testing • Processed / Unprocessed Sample Songs • Listen for yourself! • Preference Ratios

  10. Customer Acceptance • High Quality • Scored high • Aesthetic Values • Brand Recognition • High Tech Appearance • Scored low - not a surprise • No brand recognition • Simplistic Front Panel

  11. Use of Industrial Design • User Interface Redesign • Human interface considered • Functionality enhanced • High-Tech appearance addressed

  12. Market Potential • Realistic market potential: 252k units (yearly) • Market awareness: 22.5% • Level sales • Based on 1996 component stereo sales • Retail Price: $300 • 20% markup from wholesale • Gross Margin: 49%

  13. Predicted Sales • Bass model for Sales Prediction • Based on five years of realistic sales potential

  14. Authentic AudioMission Statement The provision of full and natural sound solutions that provide user control and satisfaction within the audio environment.

  15. Business Form Progression • Mature form to focus on Core Competencies

  16. Supply Chain Configuration High Volume Low Volume Distribution

  17. Mature Business Configuration • Maintain market focus • Create agile competitive advantage • Split based on market segments/platforms • Pro Audio Division • Consumer Division

  18. Pro Audio Platform • Focus on Analog to Digital Link • Beta - Bass Guitar Preamplifier • Lambda - Professional Microphone Preamplifier Preamplifier Digital Recorder Preamplifier Digital Recorder

  19. Pro Audio Platform - Enablers Engineering Design (Modular Components) Strategic Partner Bass Guitar Preamplifier Microphone Preamplifier

  20. Consumer Platform • Utilize DSP / Software Modeling • Kappa - Car Stereo Preamplifier/Crossover y[n] x[n] Technology Enablers End Products

  21. Investment Requirements • Investment required to provide cash for • Alpha Product Development/Production • Branding Campaign • $4 Million Required • $2 Million in 1999 • $2 Million in 2000

  22. Projected Cash Flows • Rate of Return = 33% NPV (R=15%) = $13.7M

  23. New Product Schedule/Revenues Introduction Date • Alpha - November ‘99 • Beta - October ‘00 • Lambda - October ‘01 • Kappa - December ‘01

  24. Risk Evaluation • Customer Acceptance Risk • Survey shows 50% desire • But market is very much “preference” based • Brand Recognition • If not established market potential affected • Major partnership required

  25. Risk Evaluation • Startup Manufacturing Risk • Successful implementation of Supply Chain • Capacity Limits and Cycle Time • Schedule Duration Risk • Meet introduction dates • Product Rollouts planned for Trade Shows

  26. Immediate Future Actions • Alpha Product Production - November 1999 • Complete device redesign • Safety Certification (U.L.) • Production ramp-up • Start Branding Efforts

  27. Branding Strategy • Partner with a major theatre processing firm • Survey results point to perceived value • Start major branding campaign focusing on desired attributes.

  28. David Runton Pete Smith Rajashi Runton Renee Savera Rob Michael

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