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Invest Proforma

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  • 1. INVESTMENT BRIEF PRO FORMA Executive Summary Investment Summary Business Plan A firm’s ability to become ‘investment ready’ is critical if they are to be successful in attracting any type of equity investment. Whilst every business angel or venture capital fund is different, a number factors constitute investment readiness. As the British Venture Capital Association notes (1998:9-10) small to medium enterprises (SMEs) need to ask themselves a number of questions before going down the venture capital road. They are:  Does your company have high growth prospects and are you and your team ambitious to grow your company rapidly?  Does your company have a product or service with a competitive edge or unique selling point?  Do you and / or your management team have relevant industry sector experience?  Do you have a clear team leader and a team with complementary areas of expertise, such as management, marketing and finance?  Are you willing to sell some of your company’s shares to a venture capital investor or business angel? If you are serious about going down the venture capital path and you feel that you are investment ready, then you must be able to confidently answer ‘yes’ to each of the questions above. If not, you should take the time to find out more about the venture capital game and attend investment ready seminars and workshops before making the next step. Both the Investment Venture Capital Team (Department of State Development) and private sector organisations run seminar and workshop programs on venture capital and investment documentation. It is important to note also that the market may not warm to any project just because it has an excellent business plan. Due to the high risk involved and the effect of financial market expectations on investment, even a firm with the best business plan can fail in their initial attempts to attract equity investment. Alternatively, it is essential to investigate other finance options suitable for your particular operation. If you are realistically confident in proceeding then the following pro forma document will be of use to you in preparing your business plan and investment brief. The brief is broken down into 3 sections: 1. The Executive Summary (which may be given to any interested parties) 2. The Investment Summary (which is generally submitted to the analyst) 3. The Business Plan (which should only be provided to VC Funds during serious negotiations) It is advisable to conduct research and seek professional advice to assist in the preparation of these documents, and to ensure that laws, eg Corporations Law are not contravened. It is worth noting however, that the entrepreneur’s ability to actively contribute to the development of these documents is a good indication to the investor of the management team’s ability to successfully operate the business, and inturn, generate a high return on the Venture Capitalist’s investment. Please contact the Investment Venture Capital Team on 3224 8514 (Christina Vincent), 3224 7548 (Helen Polzin) or 3404 3645 (Stewart Gow) if you have any queries. Good Luck! 1. Executive Summary Investment VC Team initiative 1
  • 2. This document can be made available to any interested parties and should concisely refer to the following:  Purpose of the Business Plan – to raise money ($x) to fund commercialisation…..  The Background – history of product development to date.  Funding to Date – what investment has the company so far attracted or your own funds.  Management Team – experience in relevant industry sectors, skills in marketing, accounting, running a successful business, experience in commercialising a product and raising investment.  The Market and The Opportunity – the product/service and what need it meets and the opportunity that presents in the marketplace.  Strategic Competitive Advantage of Product/Service – how the product/service is better than existing competitors, intellectual property protection and other barriers to entry.  Investment Opportunity – equity share offered in return for money and how the money will be spent ie marketing, employing research/management team, production, R & D and the expected return on investment, how investor will exit with funds. The executive summary should not be more than four pages and should clearly summarise the business plan and the investment opportunity using concise language. Additionally, given the quantity of proposals a Venture Capitalist receives and the time restrictions placed on them, the quality of the summary will be the deciding factor for the investor in determining whether to pursue the opportunity or throw the proposal in the rubbish! “The first paragraph is essential, the first sentence is critical”1 Finally, whilst a strong and convincing sales pitch is essential even at this point in time, it is important that confidential or strategic information and other intellectual property are omitted from the document to protect trade secrets from “falling into the wrong hands”. 2. Investment Summary The investment summary will generally be submitted to the analyst and should clearly establish the deal proposed to potential investors, namely:  The financial and operational status of the company (to the extent which would be reported to the Australian Taxation Office)  The amount of funds being sought  The length (life) of the investment  Entry strategy for the equity investor (ie, how will the venture capitalist come on board)  Structure of the deal  Transactions to be completed (eg common shares issued)  Exit strategies Whilst it is almost guaranteed that the deal initially proposed will be renegotiated by both parties, it is nevertheless important to clearly state the investment opportunity from the outset. 1 Chris Golis (1998:84) Enterprise and Venture Capital, Allen and Unwin, Sydney. Chris Golis is also Executive Chairman of Nanyang Management, an independent venture capital fund manager. Investment VC Team initiative 2
  • 3. 3. Business Plan The third and final section of the brief is the business plan, which should be thorough in detail, covering all aspects of the company, its product and the deal structure, requirements and exit strategies involved. As this document will contain highly sensitive information regarding factors such as intellectual property and marketing strategies, the business plan should not be made available until the parties involved have entered into serious negotiations. The fundamental elements of a business plan are outlined below: • Executive Summary Incorporates the key elements of the business plan namely:  The product or service  The market, the opportunity, and the strategy  Business Operations  Management  Risk identification and analysis  Financial Projections  Amount and use of finance required  Exit Strategy Options and Timing  Mission Statement  Legal Status of the company • Table of Contents • Market Segment  Product or Service 1. General Description and stage of product life cycle - (ie. Research completed / prototype / 1st version ready / 2nd version ready etc) 2. Unique Selling Points 3. Opportunities for second generation products 4. Legal protection  Market Analysis 1. Define the market (domestic and key overseas markets) 2. Competitor analysis 3. Who are the customers 4. What are the projections for the company and the market 5. Niche market opportunities / Market segmentations  Market Strategy Investment VC Team initiative 3
  • 4. 1. Market positioning 2. Pricing 3. Promotion and advertising 4. Overseas markets 5. Distribution 6. Strategic alliances 7. Product life cycle analysis • Business Operations  Manufacturing 1. The production process, out-sourced operations (and how trade secrets are protected) 2. Production costs, resources required, production capacity and suppliers  Research and Development 1. Status of developments and strategic alliances 2. Legal protection (including overview of any patents held or applications) 3. Development plans • Management  Profiles of CEO and management team, skills, experience and track record  Establish complementary areas of skill  Current and potential skills gaps and how this will be resolved  Appointment of Non Executive Director (NED)  Remuneration  Organisational Chart • Risk Identification and Analysis  SWOT Analysis  Identify risks and how they will be managed  Identify key success factors Investment VC Team initiative 4
  • 5. • Financial Segment  Independently audited statements should be available during later stages of the process, including due diligence  Financial Statements (5 years including past 2 years where possible) 1. Monthly cash flows 2. Profit and Loss Statement 3. Balance Sheet 4. Several ratios: net margin, gearing, stock, creditors and debt ratios, return on equity, interest cover, annual sales/employee, contribution and break even point • Application of Funds  Amount of funds required (in this initial round), from what sources and their intended use  Anticipated future rounds of capital-raising  Capital structure and ownership (before and after funding, and include expected rate of return  Implementation schedule • Exit Strategy  Possible exit options  Best time for exit  Realistic Exit Value • Appendices  Market research studies (Professional market analysis studies are essential)  Product brochures  Resumes of CEO and Management Team  Other detailed information of value Investment VC Team initiative 5
  • 6. Sources and other useful information sources: Golis (1998) Enterprise and Venture Capital: A Business Builder’s and Investor’s Handbook; Allen and Unwin; Sydney Activities and Resources Department of Trade and Industry (UK) Website: www.dti.gov.uk/ Aurora Funds: The Investment Process Aurora Funds Inc Website: www.aurorafunds.com/iprocess.htm. Winning Australian Venture Capital AVCAL Website: www.avcal.com.au Venture Capital: investing in Britain’s Future BVCA Website: www.bvca.co.uk Private Capital Council PCC Website: pcapital@ocean.com.au Steps to Growth Capital – Canadian Government website for growth companies Website: http://strategis.ic.gc.ca/sc_mangb/invskill/engdoc/homepage.html strategis.ic.gc.ca/sc_mangb/invskill/engdoc/homepage For further information please contact: Investment Venture Capital Team Department of State Development Stewart Gow: (07) 3224 8593 Email: stewart.gow@sd.qld.gov.au Christina Vincent: (07) 3224 8514 Email: christina.vincent@sd.qld.gov.au Helen Polzin: (07) 3224 7548 Email: helen.polzin@sd.qld.gov.au Facsimile: (07) 3224 4910 Investment VC Team initiative 6

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