HOW TO WRITE A

1. HOW TO WRITE A FEASIBILITY SUMMARY The 16th Annual Edward L. Kaplan, ’71 New Venture Challenge 2011-12 Steve Kaplan Ellen Rudnick

2. WORKSHOP AGENDA PRESENTATION • REVIEW NVC TIMELINE • FEASIBILITY SUMMARY: KEY ELEMENTS • OUTSIDE - IMPACTS • DOS & DON’TS • Q&A AFTERWARDS • FAST PITCH • CASUAL NETWORKING

3. NEW VENTURE CHALLENGE TIMELINE Mar 26 TODAY Developing a New Venture (Bus 34104) begins Feb 6 Phase 1 Feasibility Summaries Due April 27 Feb 23 Full Business Plans Due Phase 11 Teams Announced May 21 Finalists Announced Feb 28 Phase II Orientation Harper Center May 24 NVC Finals Harper Center JANUARY FEBRUARY MARCH APRIL MAY Phase I Phase II Finals

4. BETWEEN NOW & THE DEADLINE Feb 6 Polsky Center Coffee Hour TODAY Phase 1 Feasibility Summaries Due WEDNESDAY, JAN 11 • 4:30-5:30PM Creating an MVP for the NVC (Avi Stopper) TUESDAY, JAN 17 • 12:00-1:00PM Polsky Center Coffee Hour WEDNESDAY, JAN 18 • 4:30-5:30PM EVC Feasibility Summary Working Session TUESDAY, JAN 24 • 4:45-6:15PM Polsky Center Coffee Hour WEDNESDAY, JAN 25 • 4:30-5:30PM Polsky Center Coffee Hour WEDNESDAY, FEB 1 • 4:30-5:30PM JANUARY FEB Phase I

5. FEASIBILITY SUMMARY KEY ELEMENTS • MANAGEMENT TEAM • FINANCIAL INFORMATION • PROGRESS TO DATE • BUSINESS RISKS • COMPANY MISSION • MARKET INFORMATION • PROPRIETARY ASPECTS • REVENUE MODEL • OPERATIONS MODEL

6. KEY ELEMENTS MISSION What are you selling? What problem are you solving? How big is the problem? Why should an investor read any further?

7. The company has developed the SalivaSac™, a proprietary semi-permeable membrane that enables the collection in saliva of biochemical markers below 12 kilodaltons. The company will focus on finding those applications which meet this criteria and where there is an advantage to collecting a non invasive sample. KEY ELEMENTS MISSION EXAMPLES ex 1 The company has developed the SalivaSac™, a proprietary semi-permeable membrane that enables the collection in saliva of biochemical markers below 12 kilodaltons. The company will focus on finding those applications which meet this criteria and where there is an advantage to collecting a non invasive sample. ex 2 The Company’s objective is to develop non invasive medical diagnostic tests. The first application is for using a proprietary saliva collection device to measure glucose levels in diabetics.

8. KEY ELEMENTS MARKET INFO How do you define your market? Who is the customer? What is the potential market size? How much do costumers buy?

9. $558M (21%) Surfaces $147M (25%) Prof artists Paint $2.8B Art supply industry Brushes Frames 75% market is price sensitive KEY ELEMENTS MARKET SIZING

10. KEY ELEMENTS COMPETITION How will you win? • Who are current players in the market? • Who could be your competition in the future? • What are your competitive (dis)advantages? • How are you positioned with respect to competition? • What barriers to entry will protect you? • IP, Customer development process, etc.?

11. KEY ELEMENTS TECHNOLOGY Describe technology if there is a key differentiator / element of plan • Is it proprietary? Are there patents? • Are there key milestones in terms of development or product testing? • What are the technology risks?

12. KEY ELEMENTS GO TO MARKET What is your revenue model & go to market strategy? • How will you make money? • Why will the customer buy your product/service? • How will you get to the customer? • What will the customer pay? • Why are you sure the customer will pay this? • Have you spoken to customers? • How many customers will you get?

13. KEY ELEMENTS OPERATION MODELS How will you deliver this product/service? • Outsourced vs. in-house resources? Do the costs of providing this product/service provide a sufficient profit? Are there execution risks?

14. KEY ELEMENTS MANAGEMENT TEAM Who makes up your team? Advisors? Partners? • Who are they? • Why are they relevant for this business? • How do you plan on filling these gaps?

15. KEY ELEMENTS MANAGEMENT TEAM e.g. Frank Smith, our CTO, has extensive experience in managing and building data warehouses. He previously served as Vice President in charge of Thompson Financial’s database management systems, and worked as a consulting manager with IBM for organizations building data warehouses. Frank received a B.S. in computer science from MIT and an MBA from Chicago Booth with a concentration in operations. e.g. We currently are looking for a Director of Sales. We have identified several individuals in data/information companies also selling to the Fortune 500 companies, consulting and investment firms that would be interested once we have secured our financing.

16. KEY ELEMENTS PROGRESS UP-TO-DATE Milestones that have been achieved Patents, trademarks that have been filed Testing your business assumptions: • Prototypes, MVPs, websites, focus groups, beta customers, etc.

17. KEY ELEMENTS BUSINESS RISKS What are you worried about? What do you plan to do about it?

18. KEY ELEMENTS COMPARABLES Are there comparables in the industry or other industries that validate your business model? • Who are they and have they been successful? • How are they valued and how did they get funded? • Have there been successful exits? Multiples? • Have similar businesses failed? Why? (look for “corpses”)

19. A FRAMEWORK FOR EVALUATING A BUSINESS PLAN STEVE KAPLAN

20. “ ” How Will Angels and VCs Evaluate a Business Plan or Opportunity? When I look at an opportunity, I use the following framework: OUTSIDE- IMPACTS

21. OUTSIDE -IMPACTS Opportunity, Uncertainty, Team, Strategy, Investment, Deal, Exit.

22. OUTSIDE-IMPACTS • (O) Opportunity: Is this a positive present value opportunity? (Does it have IMPACTS?) • (I) What is the idea / industry? • (M) Is the target market large enough to support substantial growth/valuation? • (P) Why does the opportunity generate a positive present value? What is unique? • (A) Acceptance: Will customers in that market accept / buy this new product / service? • (C) Why won't the value be competed away? • (T) Why is this a good time to enter? • (S) Speed? How quickly can this be implemented?

23. OUTSIDE-IMPACTS • (O) Opportunity: Is this a positive present value opportunity? (Does it have IMPACTS?) • (I) What is the idea / industry? • Explain the idea / opportunity clearly and succinctly • What problem does it solve? • What is the pain point • (M) Is the target market large enough to support substantial growth/valuation? • How large is the overall market? • How large is the market segment you are targeting? • Who are the key customers? • How many are there? • What will they spend? • Provide solid support for your analysis. • Are there additional opportunities?

24. OUTSIDE-IMPACTS • (O) Opportunity: Is this a positive present value opportunity? (Does it have IMPACTS?) • (P) Why does the opportunity generate a positive present value? What is unique? What is differentiating? • The answer to this should be implicit in other parts of OUTSIDE-IMPACTS. But, doesn’t hurt to be explicit. • Why will you make money? • How will you make money? • What is your “edge?” • First-mover advantage? • Network effect • Switching costs • Execution • Technology? • Advantage? • Defensible?

25. OUTSIDE-IMPACTS • Is this a positive present value opportunity? (Does it have IMPACTS?) • (A) Acceptance: Will customers in that market accept / buy this new product / service? • Who is the customer in the target segment? Put yourself in shoes of a customer. • How does the customer spend the day • Why will they buy your product / service? • What do they buy now? • Why do they buy what they do now? • Why will they switch from their current product? • How will you get to the customers? • Direct Salesforce? Resellers? Distributors? • How much of each? How quickly? • Advertising • How much will it cost? • Common to underestimate time / cost • How will you keep customers? How much will it cost?

26. OUTSIDE-IMPACTS • Is this a positive present value opportunity? (Does it have IMPACTS?) • (C) CUSTOMERS, CUSTOMERS, CUSTOMERS • Get beta sites, beta customers, etc. • VC pitches • Kathryn Gould

27. OUTSIDE-IMPACTS • (C) Why won't the value be competed away? • What will existing competitors do? • What will other new entrants do? How will you respond? • (T) Why is this a good time to enter? • Why hasn't the opportunity been taken already? • (S) Speed? How quickly can this be implemented? Good opportunities have positive IMPACTS. If the opportunity does not have IMPACTS, then it should not be pursued.

28. OUTSIDE-IMPACTS • (U) Uncertainties: What are major uncertainties? • Possible uncertainties: • Market size • Customer acceptance • Customer approach • Competition • Management team • Potential real options • Which uncertainties can be managed so that outcome is more likely to be favorable? • Choice of initial customers? Choice of investors? • How do the answers affect the opportunity?

29. OUTSIDE-IMPACTS • (T) Team • Can management team implement opportunity? • How does previous experience relate to opportunity? • How “hungry” is the management team? • If management pieces are missing: • What pieces are missing? • What type of person will you look for to fill them? • How will you find that person? • For VCs, a good team and a good opportunity are necessities. • (S) Strategy • Is strategy consistent with opportunity, uncertainty, team, and exit?

30. OUTSIDE-IMPACTS • (I) Investment Requirements • Forecasts and cash flow requirements • Forecasts: • What do investors look for? • Possibility of 10x return • Credible forecasts • Growth, margins, exit value • Analogs • What do investors do? • Cut forecasts “in ½,” “by 2/3” • Push out forecasts • What should you do? • Plausible best-case scenario

31. OUTSIDE-IMPACTS • (D) Deal • Does deal structure provide appropriate incentives? • Is the deal priced attractively? • Do key individuals have incentives to do deal? • Do key individuals have incentives to make deal work? • Does deal structure provide / ensure appropriate governance? • Does deal structure help manage the uncertainties? • (E) Exit • Can investors exit the deal? How? • Is the deal priced attractively? • If an investment does not pass the OUTSIDE tests, leave it outside.

32. GrubHub.com • a website for finding and ordering from restaurants that deliver. • have to call every restaurant in city to get menu / ask if and where they deliver. Info is hard to collect. • M - Not a huge market, but large enough. • Make money off on-line ordering. • A - • Useful for consumers. • Key issue is whether you can get them economically. • Restaurants follow once consumers are engaged. • P - • First-mover advantage / network effect for consumers. • Costly and time intensive to get menu / delivery info. • Consumers have no reason to switch because restaurants pay.

33. Bump • iPhone App to exchange contact info. • Uses unique identification of two phones from: • GPS • Synchronicity of Bump • A - • Consumers liked it / found it useful • Huge piece of luck when billionth iPhone App • P - • Network effect • But what is M? I? How do you make money?

34. DO’S AND DON’TS

35. DO’S & DON’TS AVOID CLICHÉS • “We have no competition.” • “We are the low cost provider.” • “We only need a 5% market share.” • “Our numbers are conservative.”

36. DO’S & DON’TS AVOID ACRONYMS • Don’t assume everyone reading plan has your knowledge base • When you use an acronym, explain it TFT (the first time)

37. DO’S & DON’TS NO AUTOPILOT • Make sure the car has a driver. Someone should be the current CEO. OK to say you will find a permanent / better one later.

38. DO’S & DON’TS BE CLEAR & BRIEF • Yes: • Middleware for wireless networks • No: • Develops and delivers an integrated suite of packaged applications for web and wireless deployment. Global enterprises use these applications to become more competitive and profitable by establishing and sustaining high-yield interactions and transactions with customers, suppliers, and employees.

39. DO’S & DON’TS CAPTURE ATTENTION • Typical VC will not read past the first page • Should answer the following questions in the first page • - What is the opportunity? • - Why does anyone care? • - How will it be achieved? • - What is your unique differentiator?

40. DO’S & DON’TS EXAMPLES & EXPERIENCES Provide tangible examples / experiences wherever possible: • Reference customers • Actual customers best. Potential customers next best. • TALK TO CUSTOMERS. Describe what you discovered. • There is nothing more important than a customer! Focus on how you are going to get that first customer. • Credible partners, suppliers, advisors, etc. • Identify comparable businesses or business models

41. IN CLOSING NEXT STEPS

42. RESOURCES CHICAGONVC.COM • Link to online team building site where people can post ideas and team openings • Link to key dates, deadlines, and events for the 2011-1\2 New Venture Challenge • Link to sample business plans, NVC class workshops, sample equity agreement • Link to official rules and regulations, sample feasibility summaries • Check here for the latest news on current & former NVC Companies

43. RESOURCES LINKD.IN/NVCIDEAS Get feedback on a new business idea! Find team members for your NVC Entry! Share your resume & expertise to let other students find you!

44. TONIGHT FAST PITCH & NETWORKING • Get food, come back • 30 mins of pitches • Around the room, 45 sec per pitch • Casual Networking

45. TONIGHT FAST PITCH & NETWORKING In 45 seconds, say: • Your Name: • Company name: • Short Description:  • Needs:  John Smith Banana Hats We make hats for monkeys Finance Guru, Developer