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Financing The Online Business

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  • 1. Financing the On-Line Business
    • Bretttrout.com
  • 2. Information Technology professionals are notoriously bad at creating a business plan.
  • 3. What is a Business Plan?
    • A blueprint
    • A living document
    • Constantly evolving
  • 4. What goes into a business plan?
    • Articulate your vision
    • Agree on company goals, objectives, methods
    • Be honest
    • Get Advice!
  • 5. Business Plan Components
    • Executive summary
    • Company overview
    • Business environment
    • Company description
    • Company strategy
    • Financial review
    • Action plan
  • 6. Executive Summary
    • Business concept
    • Long and short term goals
    • Define main market
    • Customers
    • Describe company’s vision and market
    • Summarize current financial position
  • 7. Company Overview
    • Written for the lay person
    • Mission statement
    • Objectives, values and vision
  • 8. Business Environment
    • Market analysis
    • Marketing and sales activities
    • Products and services
    • Operations
  • 9. Company Description
    • Type of business
    • Distinction
    • Management team
  • 10. Strategy
    • Product development
    • Product support
    • Pricing
    • Marketing
    • Distribution
    • Capital requirements
    • Deployment
  • 11. Financial Review
    • Historical data
    • Prospective revenue projections
    • Income statements
    • Cash flow projections
    • Pro Forma valuation
    • Financial opportunity
    • Risk
    • Timing
  • 12. Proposal for Implementing Business Plan
    • New required skill sets
    • Employee motivation
    • Policy procedures
  • 13. Business Plan Priorities
    • Management team
    • Market analysis
    • Sales model
    • Description of technology
    • Infrastructure
    • Financial projections
  • 14. Management Team
    • Most critical component
    • Complimentary skill sets
    • Shared vision
  • 15. Market Analysis
    • Define target
    • Understand market dynamics
    • Identify vulnerable niches
    • Understand your competition
  • 16. Sales Model
    • Develop sales strategy
    • Examine why customer buys
    • Pinpoint decision makers
    • Identify sales cycle
    • Enlist experienced salesperson
  • 17. Technology
    • Merely a piece of the pie
    • Protect proprietary aspects
    • Patents
    • Trademarks
    • Copyrights
    • Trade Secrets
    • Investigate scalability
  • 18. Infrastructure
    • Corporate structure
      • C Corp
      • S Corp
      • LLC
      • Sole Proprietorship
  • 19. Infrastructure
    • Management structure
    • Identify advisors
    • Define board of directors
    • Develop financial projections – monthly, first year, quarterly thereafter
  • 20. Tweak business plan to capitalize on: Market vulnerability Customer needs.
  • 21. Financing the On-Line Business
  • 22. Chronology
    • Type of financing depends on present position of company
    • Stages
      • Development
      • Start-up
      • Growth
  • 23. Development stage
    • Personal time
    • Personal resources
      • Capital
      • Equipment
      • Space
      • Technology
  • 24. Start-up Stage
    • FFA (Friends, family and associates)
    • Bank loans
      • Collateralize
      • Small Business Administration
      • Government assistance – Grants
      • Iowa Department of Economic Development
      • Iowa Finance Authority
      • Incubator
  • 25. Growth Stage
    • Business management
    • Private (Angel) investors
    • Venture capital
  • 26. Personal Resources and Time
    • Pros:
    • Fastest
    • Most efficient
    • Immediately available
    • Cons:
    • Potentially the most devastating
    • Always limited
  • 27. Friends, Family and Associates
    • Pros:
    • Fast
    • Simple
    • Cons:
    • Could possibly jeopardize relationships
    Define expectations in writing
  • 28. Collateralized Bank Loan
    • Pros:
    • Relatively quick
    • Reliable
    • Won’t jeopardize friendships
    • Standardized criteria
    • Cons:
    • Requires collateral
      • May use existing contracts or accounts receivable
  • 29. SBA Loans
    • Pros:
    • Relatively fast
    • Simple
    • Cons:
    • Typically < $100,000
    • $50,000 for one page applications
    • Restrictions on use
      • Cannot use to pay owners
      • Cannot use to purchase business from direct descendant
  • 30. Manage Business Options
    • Accelerate receipts
    • Minimize work in progress
    • Minimize inventory
    • Establish early pay benefit with creditors
    • Avoid late charges
    • No downside
  • 31. Angel Investors
    • Pros:
    • Financing
    • Option for smaller companies
    • May bring expertise in addition to money
    • Cons:
    • Typically requires 15-25 percent of company
    • Typically expects 25-35 percent return, compound in 3 to 5 years
    • Desire exit at 5 years
  • 32. Institutional Investors
    • Pros:
    • Largest fund potential
    • Option to obtain second and third trench funding from the same source
    • Cons:
    • Very strict managers
    • May take over management of company
  • 33. Angels and Institutions
    • Typically require 15-25 percent of company
    • Typically expect 25-35 percent return, compound in 3-5 years
    • Expect exit at 5 years
  • 34. Incubator
    • Pros:
    • Provides dozens of minor services
    • Turnkey company rife with consultants and managers
    • Can provide contacts with money streams
    • Cons:
    • Typically requires 15-25 percent of company
    • Assumes exit and growth in 2-4 years
  • 35. Unique Opportunities in Iowa
    • Emerging Growth Group
    • Incubator
    • Separate investment fund arm
    • SITI
    • Angel investor forms
  • 36. Unique Opportunities in Iowa
    • Papajohn Capital Resources
    • ISU Business Development Center
    • The Council for Regional Equity
  • 37. Do not take their money unless they bring something else to the table.
  • 38. What Investors Want to Know
    • How much money do you want?
    • How is the money going to be spent?
    • How is their money going to be recouped?
  • 39. What Investors Want to See
    • Solid business plan
    • Incredible management team
    • Written terms and conditions to protect investment
    • Infusion of their expertise
    • Regular updates
    • Exit strategy
  • 40. Business Plan Flaws
  • 41. Forcing investors to sign a non-disclosure agreement
    • Have two business plan formats
      • Confidential
      • Non-Confidential
    • Show confidential business plan and detail technology only after signing NDA
  • 42. Tailoring the business plan to one investor
      • The most vocal investor is typically not the wisest
      • Do not incorporate into business plan unless without consensus
  • 43. First to Market
    • Better to be fast
    • Best to be only
    • Emphasize
      • Speed to market
      • Barriers to entry
  • 44. Over-Reliance on High-Profile Partners
    • Customer
      • K-Mart
      • Burdensome
    • Vendor
      • AOL
      • Failure to deliver
  • 45. Ignoring Management Team’s Growth Skills
    • Outline team’s start-up experience
    • Detail their transition expertise
    • Balance their future contribution
    • Note their exit strategy experience
  • 46. Understating the Market
    • Be honest about competitors
      • Shows consumer need
      • Demonstrates profit potential
  • 47. Overstating the Market
    • Options
      • U.S. Worldwide prescription drug market
      • U.S. prescription analgesic market
    • Investors see through the ruse and discount the remainder of the plan
  • 48. Emphasizing The Future
    • Define Milestones
    • Show past ability to meet goals
  • 49. Unrealistic Financials
    • Not to High
    • Not to Low
  • 50. Focus on Technology
    • Instead, focus on
      • Management team
      • Financials
      • Marketing
      • Consumer need
      • Barriers to entry
      • Return on investment
  • 51. Resources
    • Emerging Growth Group
      • Infrastructure
      • Capital
    • SITI
      • Business plan development
      • Introductions
  • 52. Network
    • Ask around (network) to find the best:
      • Service providers
      • Investors
      • Management team
      • Strategic alliances
  • 53. Thank You