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University of Connecticut Writing a Business Plan

University of Connecticut Writing a Business Plan. February 23, 2010. Form / grow seed-stage technology ventures Joint venture of Phoenix and CT Innovations Investments of $500K to over $1 million Focused on CT-based companies with Complete business plan Proprietary technology

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University of Connecticut Writing a Business Plan

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  1. University of ConnecticutWriting a Business Plan February 23, 2010

  2. Form / grow seed-stage technology ventures Joint venture of Phoenix and CT Innovations Investments of $500K to over $1 million Focused on CT-based companies with Complete business plan Proprietary technology Beta-stage prototype Fully invested in eight portfolio companies Two acquisitions (SignStorey to CBS, Design2Launch to Kodak) Two remaining operating companies Next Generation Ventures $15 Million Venture Fund • Initial management team • Well-defined market niche • Clear path to revenue and profitability

  3. Capital with experience Our hands-on approach combines capital with operations experience and expertise Industry Expertise Financial Capital Operational Skills We build relationships of trustbased on our experience, knowledge, and ability to contribute

  4. Introduction

  5. Introduction Entrepreneurs rarely get it right on their first try … Start-up survival rates over time Number of Start-ups VC funded 3/10 w/o VC funds 1/10 Year

  6. Introduction A small % of “good ideas” get venture funding

  7. Introduction $ Commercial Success Angel $500M $500M $1,000M $5,000M $10,000M $50,000M Seed IDEA Business Formation Development/ BETA Finalize/ Market Entry Market Penetration Growth/ Profitability IPO/Sale 3-5 Years Early Funding Stages Late IPO

  8. Introduction High risk - high returns “Angel” “Seed Stage” “Early” “Late” “IPO” $ Valley of Death Maturity

  9. Investment activity at decade low

  10. Investment activity at decade low

  11. Low level of exits Venture-backedmerger & acquisition exits 2007 to 2009 Venture-backedinitial public offerings 2007 to 2009

  12. Overview Nearly 3,000 companies receive venture capital funding per year in the US … over $17B in 2009! • Angel Investors - Friends, family and wealthy individuals • Seed-stage Funds - Vulcan Ventures, NextGen, Institutional angels, etc. • Strategic/Corporate Investor - Intel Corporation, Cisco Systems, Dell Ventures etc. • Private Equity Funds - JP Morgan Capital, Oak Investment Partners etc. • Commercial Banks - Fleet, Citigroup etc. • Investment Banks - Goldman Sachs, Credit Suisse First Boston etc.

  13. Most active venture investors in 4Q09

  14. Most active venture investors in 4Q09 14 Firms did ten or more deals

  15. Limited Partners Pension Funds Corporations Insurance Companies Endowments Angels/Individuals Non-Profits Public The Funding Process Provide Capital Allocate Capital Use Capital Investors VC Funds Portfolio Companies • General Partners • Professionals • Entrepreneurs

  16. The Funding Process About 85% of private equity is controlled by funds, created by pools of investors (limited partners) … General partners manage the pool and share the profits LPs 99% of $ 80% VC Fund Portfolio Companies $ GPs 1% of $ 20%

  17. At NextGen we have a 5-Step review process…but the real work starts in step 5… The Funding Process Pre-screening “First Pass” Phase I DD Present to IAB Invest/Support

  18. Management, Management, Management! Proprietary technology or competitive advantage Productivity enhancement Provides genuine business solution Unique, not easily imitated Attractive market opportunity Size and growth rate of target market Limited competitors & alternative solutions Ability to become a market leader What do they look for? Strong management is key!

  19. Attractive financial returns Well-developed and achievable business model demonstrating scalability and high returns (IRR > 50%) Path to profitability Feasibility of Plan Path to market Strategic partnering Definitive stages of development Exit strategy (know the options) Strategic partner Sale of company IPO What do they look for?

  20. What do they look for?

  21. What do they look for? 1-PageSummary Multi-page Executive Summary Full Business Plan Business Plan Presentation Financial Model and Projections Term Sheet and Due Diligence Financing Documents

  22. 1-Page Exec Summary This template is commonly used by angel investment groups • The benefits are: • Quick overview • Standardized • Makes you think • The “gist” or “heart”

  23. Full Executive Summary • Two to five pages long • The people • The opportunity • The context • Market trends, assumptions, competitors, comparative strengths and differentiators • Risk and reward • Exit strategies

  24. The Powerpoint Ten slides is sufficient • Title • Problem • Solution • Business Model • Underlying Magic • Marketing & sales • Competition • Your team • Financial projections • Status & timeline From “The Art of the Start” by Guy Kawasaki (2004)

  25. The Business Plan • A written document • Summarizes the purpose and strategy of your business • Provides details on operations, financing, marketing, sales, distribution, management • Describes market trends, opportunities, competition • Explains your business model

  26. A Typical Business Plan • Executive Summary • Business Description • Product / service • Industry background, trends • Company background • Goals and milestones, objectives

  27. An Typical Business Plan • Marketing Plan and Strategy • Target market and customers • Competition and market share • Pricing strategy • Promotion and distribution • Operations and Support • Quality targets • Technology requirements • Service support

  28. An Typical Business Plan • Management Team • Experience and expertise • Organizational structure • Intellectual property rights (know-how) • Financial plans and projections • Income statement, balance sheet • Cash flow statement • Break-even analysis • Funds needs and sources

  29. An Typical Business Plan • Risks and Opportunities • Potential problems, risks and mitigations • “Real” expansion opportunities • Appendix • Detailed support for financial forecasts • Timeline and milestones • Important background information (e.g. market research)

  30. A Sound Business Model • Generates revenues by selling something to customers • Projected to make profits with revenues that exceed the expenses of generating revenue • Produces free cash flow by generating cash in excess of working capital and capital expenditures

  31. A Sound Business Model • A concept that “makes meaning” • Increases quality of life • Rights a wrong • Prevents the end of something good • A realistic “go to market” strategy • Good profit margins • Clear path to exit for investors • Angels are happy to get cash flow • Private equity needs exits

  32. A valuable opportunity • “Me Too” business plans • Can be copied • Often lead to normal “rents” … tight margins • May not be worth the risks • Unique, differentiated business plans • Barriers to entry (IP, distribution, operations) • Not easily copied • Higher potential for wealth creation • IPO = needs high growth; M&A = make vs buy

  33. First to market • Can be a mixed blessing • Sometimes leads to sustained competitive advantage • Sometimes leads to higher costs, rougher road, educating the competition • Not sufficient as a sole differentiator • There’s always someone bigger, better funded out there • Competitors and “partners” can be brutal

  34. Beyond cash … the Network $ is only part of the equation ... General Partner VC Firm BOD Advisors $ & Mgt Banks Search Portfolio Companies Legal Accounting

  35. Earn a management fee to pay for the overhead Net realized gains from liquidity event Share in the upside after returning original principal of limited partners Earn a “carried interest” in the portfolio companies Aligned incentives with portfolio companies and limited partners Money ? VC's only win when their companies win Remember “the 1/3 rule”

  36. Money ?

  37. Can they add value in your industry? Have they been in either an operating or start-up role? Is the chemistry right? Do you like the person you will be working with? What is their track record? What do their peers think of them? Do they have the stomach for “early-stage” Can they lead the next round? Are your long-term interests aligned? VC Selection ? The right VC can make all the difference

  38. Conclusion So what does it take to raise venture funding? Perseverance

  39. Next Generation Ventures LLC – www.nextgenven.com Kauffman Foundation – www.emkf.org Venture Economics – www.ventureeconomics.com Venture Wire – www.venturewire.com New England Tech Wire – ww.newenglandtechwire.com Pricewaterhouse Coopers Money Tree survey – www.pwcmoneytree.com Wharton Private Equity Boot Camp – http://wep.wharton.upenn.edu/equity/materials.aspx Useful Links

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