Venture Business

1. Venture Business 20030920 이기범 20000135 노영우

2. Definition & General Idea • What is a venture start-up company (VSC)? • How do VSCs work?

3. Entrepreneurs who started in their 20s • Microsoft (Bill Gates & Paul Allen) • Netscape (Mark Andressen) • Dell Computer (Michael Dell) • Apple Computer (Steve Jobs and Steve Wozniak) • Digital Equipment Corporation (Ken and Stan Olsen) • Federal Express (Fred Smith) • Genentech (Robert Swanson) • Polaroid (Edwin Land) • Nike (Phil Knight) • Starbucks (Howard Schultz) • Web-I(윤석민), NC소프트(김택진), NHN (이해진), 한글과 컴퓨터(이찬진), 세롬기술(오상수), …

4. Path for Company • 사업 아이디어 • 공동창사자 수배 • 사업 계획서(Business Plan) 만들기 • 경영진 확보 – stock option • 종자돈 조달 (venture capitalist) • 은행 예치 • 사업장 마련하기 • 창사 • 신규 직원 채용 • 추가 자금 조달 • 첫 제품 출시 • 운전 자금 조달 • 신규 기업 공개 • 보통 4- 8년 소요

5. Why Start a (high-tech) Business? • To fulfill personal ambitions and interests • Money and power • Improve life style • World Peace? • How about you

6. Why Start a (high-tech) Business? • Growing the economy • Net new jobs • Approximately 600,000 to 1,000,000 new businesses in U.S. yearly. • Silicon Valley, Boston, and Washington D.C. • Newly formed high-tech firms consistently created between 22 to 28 percent of all high-tech jobs • It is new high-tech firms that create economic growth

7. 사업 Item 선정의 고려사항 • 기술개발 환경 • 우수성 • 활용도 • 파급효과

8. Technology or Product? • Buyers have no interest in your technology • Buyers want to see a product that solves a problem or creates a competitive advantage for them

9. Forming a Team • Forming a team?! Why?

10. Statistics On Teams • Members with previous entrepreneurial experience form teams that have a better survival rate. • Companies that are started by teams show a higher success rate (2 to 1) • High tech cost to develop is very high

11. Reasons For a Team • Every business startup needs additional people • Founding team is one of the most important factors that determine the value of an enterprise • “A” strategies come from “A” teams

12. More Reasons for a Team • Commercialization of new technologies is a group effort • Skills required for commercialization are not often found in one person • Technology is not the only hard part of a high tech startup

13. Team’s Importance • Great teams are in short supply. • Plenty of technology, plenty of entrepreneurs, plenty of money, plenty of venture capital. • There's enormous change underway in every facet of the world. • To take full advantage of those opportunities, focus on the team. Teams win.

14. Members of a Team • An expert in the technology. • An expert in sales and marketing. • An expert in finance, budgeting, and financial control. • An expert in manufacturing of products of similar type. • Other experts.

15. Team Formation Know-how • Proper selection is vital • A business needs much more than technology to thrive • New firm management teams rarely change during the first 6 years • Common mistake: • Limiting the choice of founding team members to your own personal network!

16. Team Formation Method 1 • Select individuals who are much like you • Extension of you • Example • If you are an extrovert, you cannot hire someone who is introverted, negative and hates people.

17. Team Formation Method 2 • Select individuals who possess the skills that you do not have • Keep outlook in mind

18. What is a Business Plan? • A multipurpose document • articulates the critical aspects, basic assumptions and financial projections • Blueprint for the company • Force the entrepreneur to think through business concept in systematic way • Interest and attract potential investors for new business support • May serve as legal document with which fund raised • Optimistic in nature and one-side presentation, but should contain a full disclosure of risks • Example • “This investment is highly speculative and is suitable only for individuals who can afford a total loss of their investment” • Should not contain “deals” • Usually more formal offering memorandum is followed

19. Business Plan Structure • Table of Contents, Table of Figures, etc • Executive summary • Introduction • Business operations • Corporate history • Corporate structure • Founders background • Employees Background

20. Business Plan Structure • Products and services • Production Process • Engineering • Technology • Technology future • Problems Identified

21. Business Plan Structure • Industry Analysis • Broad overview • Industry segment analysis • Regulations • Profitability Potential • Competitive analysis • Market spending • Tech substitutes • Competitor matrix

22. Business Plan Structure • Markets • Geographic • Target market • Market niche • Feature and benefits • Product positioning • Product differentiation

23. Business Plan Structure • Channels of Distribution • Current • Proposed • Promotion • Advertising • Public relations • Printed and Non-printed material • Trade shows etc.

24. Business Plan Structure • Cash flow • Income statement • Balance sheet • The 20X rule • Banks want ratios

25. BP Lengths According to Receiver • Banks 10 ~ 20 pages • Investors • Interested in factors that predict growth < 40 pages

26. BP Lengths According to Receiver • Strategic partner • Looking for a strategic fit for tech or products < 40 pages • Management team operations > 60 pages • Operational > 100 pages • M&A – P/E comparisons etc.

27. BP Lengths: Don’t Worry! • Let the most articulate team member lead or edit the writing • Don't obsess over the plan. • Better plans are often 30 pages, but sometimes just 3 • Intel: 1 page Sun: 3 pages

28. Business Plan Properties • Should be short ( < 40 pages) and clearly written • Do not assume the reader is expert in the technology and the market • Show Attractiveness of the market, Price you can charge, Competitive advantage • Have the plan read by a financial advisor and account • Better have the plan read a legal advisor to avoid later trouble • “Investors are guaranteed an attractive financial returns” • Put standard boilerplate • The Executive Summary, The Company, The Product or service, The market, Competition, Sales and marketing, Operations, Financials, Appendix로 구성

29. Business Plan Contents – 1/4 • Executive Summary • Most critical, first impression of the venture • Should be written last • Briefly explain • The company’s status and its management • Product or services and benefits to users • Market and competition • A summary of the company’s financial prospects • Amount of money needed and how it will be used • The Company • Company’s origin, objectives and management • How the company will be organized, who will fill these roles, and their responsibility • Background on the founders

30. Business Plan Contents – 2/4 • The Product or Service • Details on product: • What needs does the product meet - compared with competitor’s • If already in use, the usage, results, customer testimonials • If not manufactured, key milestones in the process • Patent and proprietary technology • The Market • Size, rate of growth, purchasing characteristics. • The company’s perspective on the market • Reaction from the market

31. Business Plan Contents – 3/4 • Competition • Competitive firm and products. Competitor’s product, price, marketing approach • Sales and Marketing • Explain how the product will be sold • How target customers identified • How awareness will be built through advertising, promotion, direct mail, etc. • Detail distribution channel, direct sales force, reps, direct mail, etc • Address product introduction strategy to the marketplace

32. Business Plan Contents – 4/4 • Operations • How the product manufactured • Facilities, subcontractors, equipments • Financials • 5-year financial projection • Income statement, balance sheet, cash flow forecast, break-even analysis, • Highlight sales, earnings, cash surplus in summary form • Driven by documented assumption in units and price • Amount of money sought • Anticipated exit route for the investors. • Appendix • Resume of all key personnel, their responsibilities • Portray them as a well-balanced team • Other supporting documents

33. What is a Board of Directors • The law requires a corporation to have a board of directors to protect the interests of the corporation and shareholders • An effective board can also provide independent advice and act as a check to the CEO • But for small companies, usually founders

34. Goal of Ownership • To treat each founder as fairly as possible • Success of company depends on each founder working hard • Each founder must be satisfied that the ownership arrangement is fair

35. Questions for Determining Ownership • Who will own what percentage of the business? • Who will actually be in control? • What property and how much money will be contributed to the business by each founder? • How much time will the participants be expected to devote to the business? • What incentives will be provided to remain with the business? • What happens when a founder leaves? • What protections does a founder have against being kicked out of the business? • Are there other persons who were involved with the business who are not currently actively involved?

36. Ownership • Splitting the pie can be the most difficult decision • Determines who benefits from the company's success and to what degree • Often an avoided issue • Delaying resolution of this issue can be disastrous • Consider almost any contribution to the business that you think should be recognized • Cash and property contributed to the company • The nature of contributed property • Future contributions expected from each founder • Cash, property, time and effort (sweat equity), or technical or business expertise • The opportunity costs each founder will incur by joining the business

37. Ownership: Be Fair, Not Equal • Establish a fair formula for the distribution of shares of stock among the team members • Fair does not mean equal! • Valuation is negotiable among the team members • Any value that is agreeable to all is appropriate and fair

38. Ownership • High tech startups frequently distribute stock options instead of stock • Allows the team to avoid paying tax on stock • Team members want to have the right to vote in shareholder meetings • Options have no voting rights on holder • Make your team member remain employed in firm • Issue the shares over a period of three to five years with so many for each year

39. Maintaining Control • 51% • Closely held ( founding team) • A few shareholders have over 50%

40. Funding • Pre-seed • Seed • Startup • Early (First Stage) Venture • Late stage venture

41. Funding

42. Funding: Pre-Seed • Small amount of funds required by the nascent entrepreneurs in order to define their value proposition, convince themselves of the viability of the concept and initiate activity • Primarily self-funded or provided by the 3F • 3F: Friends, Family and Founders. • $150,000

43. Funding: Seed • Small amount of capital provided to an inventor or entrepreneur to prove a concept and to qualify for start-up capital • Involves • Product development • Market research • Building a management team • Developing a business plan

44. Funding: Startup • Provided to companies completing product development and initial marketing • Companies may be in the process of organizing, or they may already be in business for one year or less, but have not sold their product commercially

45. Seed and Startup Sources • Self • Individual Angel investors • Customer financed • Non-diluteable equity sources • Firms in these stage are high tech startups with no sales • Funding required is often less than $500,000

46. What is an Angel Investor? • An affluent individual who provides capital for a business start-up, usually in exchange for ownership equity • Unlike venture capitalists, angels typically do not manage the pooled money of others in a professionally-managed fund • Angel investors often organize themselves into angel groups to share research and pool their own investment capital

47. Roles of Angel Investors • Angel capital fills the gap in start-up financing between the 3F and venture capital • Angel investment is a second round of financing for start-ups • Difficult to raise more than $100,000~$200,000 from friends and family • Venture capital funds will not consider investments under $1 ~ 2 million • Accounts in total for more money invested annually than all venture capital funds combined • US$24 billion vs. $22 billion in the US in 2004 According to the University of New Hampshire's Center for Venture Research

48. Funding: First Stage

49. Funding: First Stage • Provided to companies that have expended their initial capital and require funds to initiate full-scale manufacturing and sales • Traditionally been funded by Venture capitalists • Increasingly being addressed by angel networks and large firms interested in strategic partnerships • The typical placements are under $2,500,000

50. How Venture Capitalists Work 1/3 • The classic approach is for a venture capital firm to open a fund • A fund is a pool of money that the VC firm will invest • The firm gathers money from wealthy individuals and from companies that have money they wish to invest • The firm will raise a fixed amount of money in the fund • For example, $100 million