A business plan is a detailed document describing your business idea and projecting your projected financial performanceThere is a basic flow to the document and it almoss always covers the topics you see on the overe headA good business plan is very thorough
Investor / Lender DemandsLenders and investors expect to see that you have a clear business plan before they take a risk on your business. Attract CollaborationUnless you can sell “ice to the Eskimos”, serious collaborators / partners will demand to read through your concept before they team up.Attention to DetailsAs you are work on your plan, you’ll probably find that there are many aspects of your new business that you haven’t considered.Planning saves money and time since you will be able to deal with issues before they become a problem.Management ToolKeeps you focused on where you are and where you want to be in the future. Prioritizes tasks: daily and long term.
Don’t procrastinateSomeone may beat you to market if you don’t put your ideas into action quicklyRaising capital is a slow process. Start early.Don’t share your business concept with everyone you knowLoose lips sink shipsProtect your intellectual capitalCreate a marketable planUnderstand your audienceThink like an investorPay attention to how you package your plan
ThoroughnessA detailed analysis of your idea, the marketplace, your competitors, your marketing strategy, your management team, and financial projectionsThe more detailed your financial projections, the betterAudience drivenAddresses the principal questions / concerns from the INVESTOR‘s perspectiveSpeaks to the investor in THEIR languagePaints a realistic pictureInvestors expect to see a business plan that paints a realistic financial picture of the anticipated growth of the company.If the plan is overly aggressive and not consistent with growth in the industry, your plan will probably be shelved.Addresses pros and cons of the business ideaIt isn’t a sales brochure, it’s the foundation for making an educated investment decisionNOT A SALES TOOLConveys professionalism Demonstrates your business acumen
Attracts attentionStands out from the crowd in a good wayInvestors receive countless bland business plans. A good plan makes their day. Demonstrates your marketing capabilitiesMost aspiring entrepreneurs don’t see their business plan as an extension of their sales collateralDemonstrates your knowledge & skillsDemonstrates your business acumenFosters goodwillThe perception that your business has "intrinsic value” that can’t be captured on a financial statementThere are some really good software programs that guide you through the process of writing a business plan (business plan pro)
WritingKeep it clearEasy to UnderstandDefinitions for technical terms are consistent Minimal repetitionKeep it conciseUses the minimum # of wordsOnly include relevant facts & ideasEfficient use of ideas & wordsWrite naturallyKeep the tone conversationalDon’t write an academic research paperBe LogicalOrganizedUse factual statementsReference your factsProfessional ToneAvoid humorEver meet a Venture Capitalist? Enough said…PositiveAvoid negatives (e.g. “There is an opportunity for” instead of “This doesn’t exist”)Be confident, but don’t avoid addressing weaknessesProvide both the pros & consA potential investor may have ideas to address your weaknesses
PackagingStand out from the crowd and demonstrate your marketing capabilitiesProvide product samplesBe willing to demonstrate your product on demandCreate dynamic presentation materialsSlidesFilmCustomer testimonialsResearch the investment team before you present to themTailor your communications to their backgrounds, expertise and interestsRemember that investor’s resources aren’t infiniteYour business plan is competes for funding against every other business plan the investor receivesYou’re competing for attention as well as funding
Early Stage FinancingSeed Financing — A small amount of money involved (usually $50,000 or less). Funds are used to develop a concept. The earliest stage of financing. Typically, friends, family, or partners R&D Financing — A tax advantaged partnership set up to finance product development. Investors secure tax write-offs for their investments. If the product becomes successful, they share in the profits. Startup — Money is used for product development and initial marketing. While startup companies are organized, they have not sold products commercially. First Stage — The entrepreneur usually has developed a prototype. Funds are used to initiate full scale manufacturing and sales.Expansion Stage FinancingSecond Stage — Working capital for the initial expansion of a company that is shipping product but may not yet be showing a profit.Third Stage — Also called “Mezzanine” financing. Capital at this stage is used for major expansion including physical plant expansion, marketing, and working capital.Fourth Stage — Also referred to as “bridge” financing. This is financing for a company expecting to go public within six months to a year. Often bridge financing is structured so that it can be repaid from the proceeds of a public underwriting.Acquisition/Buyout FinancingAcquisition Financing — Funds provided to a firm to finance its acquisition of another company.Management LBO — Funds provided to enable an operating management group to acquire a product line from either a public or private company concern.Public Market — The purchase of over-the-counter stock. The venture investor is involved with improving the company.IPOA public stock offering
Seed Financing — A small amount of money involved (usually $50,000 or less). Funds are used to develop a concept. The earliest stage of financing. Typically, friends, family, or partners R&D Financing — A tax advantaged partnership set up to finance product development. Investors secure tax write-offs for their investments. If the product becomes successful, they share in the profits. Startup— Money is used for product development and initial marketing. While startup companies are organized, they have not sold products commercially. First Stage — The entrepreneur usually has developed a prototype. Funds are used to initiate full scale manufacturing and sales.
Expansion Stage FinancingSecond Stage — Working capital for the initial expansion of a company that is shipping product but may not yet be showing a profit.Third Stage — Also called “Mezzanine” financing. Capital at this stage is used for major expansion including physical plant expansion, marketing, and working capital.Fourth Stage — Also referred to as “bridge” financing. This is financing for a company expecting to go public within six months to a year. Often bridge financing is structured so that it can be repaid from the proceeds of a public underwriting.
Acquisition Financing — Funds provided to a firm to finance its acquisition of another company.Management LBO — Funds provided to enable an operating management group to acquire a product line from either a public or private company concern.
Public Market — The purchase of over-the-counter stock. The venture investor is involved with improving the company.
AngelsThey tend to invest their own money and reputation in earlier stage companies.The really good ones (yes, there are bad ones) have built their own businesses from the ground up.They tend to get their ‘hands dirty.’They tend to bring their friends along for the ride.When the dollars need [to] get big for future financing rounds, angel investors usually voluntarily step back.They tend to want influence over day to day operationsVenture CapitalistsThey tend to invest in later stage companies with some revenue, product completed, and market traction…. after an initial angel round has been done.The really good ones (yes there are bad) come with a big rolodex of contacts and partners to help you cross some of the early hurdles.They tend to be more bankers/financiers than operating people…They tend to look at a business with a black/white eye on financial numbers [Returns!]…The good ones will often bring along investment partners in a syndicate. … They seem to apply a formula …. If something has worked for them with a portfolio company in the past, they’ll apply the same logic to future companies. [Study their portfolio!] They are investing other people’s money … and if they perform well those people will give them more money to invest. [Motive!]WHALESAn person with a lot of money who really doesn’t know what he’s doing when it comes to startup companiesNot always good to find a whale (give examples)
You won’t be an Angel’s only investmentEach individual investment an Angel makes is very riskyA 2007 study by the Angel Capital Association found that:47% -- Lost Investment (5 in 10)26% -- 1x to 4x Return (3 in 10)15% -- 4x to 6x Return (2 in 10)8% -- 6x to 30x Return (1 in 10)4% -- >30x Return(>1 in 10)An Angel typically invests no more than $250,000 in any one investmentDon’t invest any more than 10% of funds in any one venture
Expect a very high rate of return if you secure angel capital. Again the baseline payment raTE IS AROUND 10 TO 1. However, in today’s economy this rate is going up. It’s not unheard of for SaaS businesses to pay upt o 30 to 1.Have realistic expectations before you sit down with investors.Tell the story of AMP and their 5 to 1 expectations.
SCALE! SCALE! SCALE!Given the failure rate of their investments, Angels take gambles on companies that offer very high growth potentialTo provide ROI, your opportunity MUST Scale!Your Valuation MUST be reasonable!Investors are NOT being greedy by seeking 25%/year ROI’s.These are VERY high risk investments.That you can walk the walk as well as talk the talkExecution by Entrepreneur is IMPERATIVE for success.You can manage your financials: Revenue growth, Margins, EBITDA values, etc.Superior Management is critical to achieve a successful exit.They want your venture to move swiftly to the next stage of funding so they can get out and move on.They want Rock Stars and Superheroes on your management team.
You can expect to be asked a lot of questions by Angel Investors. A good angel does thorough due diligene. Don’t lie or stretch the truth because they are going to do their own homework anyway.
Your PitchA “pitch” is simply how you present your company verballyIt can be formal or informalAny verbal communication to an outsider about what your company does or will do should be considered a pitchBEFORE you communicate your new ideas to ANYONE, lay out your pitch on paperNetworking may lead to investorsWrite out your full pitch for informal situationsList out the supplementary materials you’ll need to make your pitch effective everything from business cards to your business planModify your pitch for different situations
An elevator pitch is a short informal presentationIt’s an introduction to your business that engages discussion / gets someone interested in learning moreShort, Simple, Memorable: “What, How, Why.”“We’re X for Y” is ok if 1) it’s true 2) X & Y are well-knownMax 3 key words / phrases, 2 sentences.It doesn’t have to take place in an elevatorMake it easy for non-experts to understandYou never have a second chance to make a first impression
An elevator pitch is a short informal presentationIt’s an introduction to your business that engages discussion / gets someone interested in learning moreShort, Simple, Memorable: “What, How, Why.”“We’re X for Y” is ok if 1) it’s true 2) X & Y are well-knownMax 3 key words / phrases, 2 sentences.It doesn’t have to take place in an elevatorMake it easy for non-experts to understandHave some type of promotional material to distribute to anyone who listens and shows interestAlways have a business card at a minimum
Formal presentationsANY scheduled meeting to discuss your business ideas, funding opportunities should be considered a FORMAL presentationTips on contentMake sure your discussion points are covered in your business planDemonstrate your products / provide samplesA team approach works bestBe organizedDon’t over promise. This is NOT a sales presentationTips on your presentationCome preparedOutline your goals before the meetingPlan your agendaLeave collateral materials behindWatch the clockBe promptDemonstrate good time management skills Don’t let the meet run lateTake the lead but keep it interactive and encourage discussionTips on your imageDress appropriatelyWatch your languageAvoid off color humorFollow upALWAYS send a thank you noteAddress the questions that were unanswered in the meetingList out the next steps
Asking for Investment ConsiderationDon’t beat around the bushHow Much Money Raised / Now Raising? Show 3 Budgets: Small, Medium, LargeShow how you’ve got “Small” already lined upShow “Optionality”, Competitive Interest (if poss.)What Will you Do with the Capital?Key Hires (Build Product)Marketing & Sales (Drive Revenue)CapX, Ops Infrastructure (Scale Up)Map Out Achievable Milestones with Non-Linear Increase in ValueShow what will get you to next milestone (product, customers, hires)Show how the capital you have is more than adequateShow substantial UPTICK in value when milestone is achievedfunctional productinitial customers / revenuebreak-even or profitableAddress what type of pay back the investor should expect to receiveAre you willing to grant equity?When will you begin to show a positive ROI?Don’t expect an immediate decisionThe decision process typically takes 90 days or moreDon’t appear desperateInvestors will leverage desperation to their advantage when negotiating termsIf you’re uncomfortable with the investor, it’s best to walk away
Forget Competitive AdvantageAngel Investors and VCs *really* like Unfair Advantagebig market leadexperienced teamex-Google PhDscore / “breakthrough” tech“defensible” IP / patents“exclusive” partnershipgreat sales/marketingInvestors enjoy watching your competitors suffer… Unfair Advantages weaken your competitors and allow you to quickly develop market shareUnfair Advantages mitigate a considerable amount of your investor’s riskMany VC’s are known to encourage dog fighting as a hobby
Your management team is often your make or break point with investorsDo they have the skills, passion, and temperament to propel a startup?Do they have successful track records?Does your team interact well with the investor?Do they have business management experience in a startup environment?Are they leaders?People that get potential investors hot and botheredGeeks with deep technical backgroundEntrepreneurs who have sold companiesRecognized experts in their field or sector?Sales/Marketing who Make it RainTeams that have worked together before and shown real successFriends and relatives who are simply “really good people” do not countDo they have skin in the game?Have they fronted money during the seed stage?Do they have an equity agreement?Are they willing to sign non-compete agreements?Also Identify:Key Hires you Need but *Don’t* Have, and…… you’ve got candidates lined up in those areas ... ready to hire as soon as you close funding… or at least job descriptions / est. salary
More on Your Management Team…Qualities that investors look for but generally go unsaidGood healthNatural leadership presenceSelf-confidence / healthy egosHumility / no arrogance Sense of urgencyComprehensive awarenessRealistic outlookConceptual abilityThey have superior conceptual abilities. Chaos does not bother them because they can conceptualize order.Low need for status Their need for status is met through achievement not through material possessions.Objective approachThey take an objective approach to personal relationships and are more concerned with the performance and accomplishment of others than with feelings.Emotional stabilityThey have the stability to handle stress from business and from personal areas in their lives.Attraction to challengesThey are attracted to challenges but not to risks. It may look like they are taking high risks, but in actuality they have assessed the risks thoroughly.Manage to the numbersThey can describe situations with numbers. Financial acumenThey understand their financial position and manage it. Make sure there are no weak links in your management teamIf your investors aren’t impressed, it reflects on your ability to recruit talentWorse still, your investors may handpick people to manage your business
Realize the risk involved in going to market with a really great ideaThere are people who will steal your ideas for their own personal gainYour risk of theft increases exponentially with each person you tell.Word of mouth is powerful. Who know who else may find out down the road.Forget confidentiality agreements with potential investors95% of serious investors won’t signVC’s and Angel investors network to lean more about your ideaThey want to make sure your story is consistentThey want to assess the market and the viability of your product on their ownGet employees and contractors to sign confidentiality agreementsGet management to sign non-compete agreementsPut trademark / service mark symbols on all of your intellectual capital and apply for copyrights as soon as possibleRegardless of how quiet you keep things, you’ll be surprised at how quickly new competition will sprout up once you move to market
Set Realistic Expectations for YourselfAs an Entrepreneur you will be turned down A LOT!!Understand that there may be a number of reasons for your opportunity to be ‘rejected.’Beyond the basic opportunity, the market size, the amount of funding you need, the competition, the product, the industry niche, the lack of any barriers to entry, the management team, etc., etc….You may be rejected solely because of an investor’s portfolio management discipline.Continue to look for additional sources of investment capital even if an investor shows interestYou never know when or why they may back out
07.13.2012Bankrolling your ideaA crash course in how to sell your business opportunity tothe investment community from an investor’s perspectivePresented by Erik GagnonChief Strategist, Chi Rho Communications burn curate | 1
ABOUT CHI RHO COMMUNICATIONS bankrolling your BIG idea |2
SEMINAR TOPICS YOUR BUSINESS PLAN CREATING A MARKETABLE BUSINESS PLAN THE FUNDING PROCESS TYPES OF INVESTORS SELLING YOUR BUSINESS PLAN TO INVESTORS GENERATING INVESTOR BUZZ PROTECTING YOUR INTELLECTUAL CAPITAL bankrolling your BIG idea |3
YOUR BUSINESS PLAN bankrolling your BIG idea |4
WHAT IS A BUSINESS PLAN? Executive Summary Company Summary Products and Services Market Analysis Summary Strategy and Implementation Summary Management Team Overview Financial Plan Investors hear new business concepts nearly every day. Your business plan is your main tool to gain their ATTENTION. bankrolling your BIG idea |5
WHY IS YOUR BUSINESS PLAN SO IMPORTANT? Investor / Lender Demands Attract Collaboration Consider the Details Management Tool Fail to plan and you plan to FAIL! bankrolling your BIG idea |6
AVOID THESE COMMON MISTAKES Procrastination Sharing your business plan with the world Distributing a bland plan Distributing an incomplete or error-filled plan Pay as much ATTENTION & FOCUS to your business plan as you do your product or service! bankrolling your BIG idea |7
WHAT INVESTORS EXPECT FROM YOUR PLAN Thoroughness Audience driven Paints a realistic picture Addresses pros and cons of the business idea Conveys professionalism Demonstrates your business acumen Investors expect your plan to be INVESTOR READY. Create a plan that is marketable and stands out from the crowd. bankrolling your BIG idea |8
CREATING A MARKETABLE BUSINESS PLAN bankrolling your BIG idea |9
ELEMENTS OF A MARKETABLE BUSINESS PLAN Attracts positive attention Demonstrates your marketing capabilities Demonstrates your knowledge & skills Demonstrates your business acumen Fosters goodwill Business Plans are a lot like resumes, the good ones generate a QUICK RESPONSE while the rest wind up in the trash bankrolling your BIG idea | 10
TIPS ON WRITING YOUR BUSINESS PLAN Keep it clear Keep it concise Write naturally Be Logical Professional Tone Be confident, but don’t avoid addressing weaknesses Understand the INVESTOR’s MIDSET and write your business plan directly to them bankrolling your BIG idea | 11
TIPS ON PACKAGING YOUR BUSINESS PLAN Stand out from the crowd & demonstrate your marketing capabilities Provide product samples Be willing to demonstrate your product on demand Create dynamic presentation materials Research the investment team before you present to them You generally have to spend money to make money so INVEST in your presentation materials bankrolling your BIG idea | 12
THE FUNDING PROCESS bankrolling your BIG idea | 13
THE STAGES OF FUNDING 1. Early Stage Financing 2. Expansion Stage Financing 3. Acquisition/Buyout Financing 4. Initial Public Offering (IPO) Capital investment is a STAGED PROCESS. Securing investors usually isn’t a one-time deal. bankrolling your BIG idea | 14
EARLY STAGE FINANCING Seed Financing R&D Financing Startup First Stage THINK about your long term growth objectives and your funding objectives very early on in your business planning process bankrolling your BIG idea | 15
EXPANSION STAGE FINANCING Second Stage — a.k.a. “Working Capital” Third Stage — a.k.a. “Mezzanine Financing” Fourth Stage — a.k.a. “Bridge Financing” Pay attention to EQUITY DILUTION very early in the funding process if you want to maintain majority ownership of your company bankrolling your BIG idea | 16
ACQUISITION / BUYOUT FINANCING Acquisition Financing Management LBO Complex deals require professional EXPERTISE. If you aren’t a finance expert then hire one. bankrolling your BIG idea | 17
INITIAL PUBLIC OFFERING •Public Stock Offerings If you GO PUBLIC some day, consider hiring a CEO who has successfully taken a company public before bankrolling your BIG idea | 18
TYPES OF INVESTORS bankrolling your BIG idea | 19
ANGEL INVESTORS vs. VENTURE CAPITALISTS Unless you have a rich uncle, Angel investors and Venture Capitalists are your main sources of STARTUP CAPITAL bankrolling your BIG idea | 20
MORE ABOUT ANGEL INVESTORS You won’t be an Angel’s only investment Each individual investment an Angel makes is very risky 47% -- Lost Investment (5 in 10) 26% -- 1x to 4x Return (3 in 10) 15% -- 4x to 6x Return (2 in 10) 8% -- 6x to 30x Return (1 in 10) 4% -- >30x Return (>1 in 10) Demand high returns from each investment because they CANNOT know and WILL NOT know which one deal will succeed wildly. Nor can they reliably predict which ones will fail miserably. Expect to PAY OUT huge returns to your Angel investor when your business begins to generate a positive ROI bankrolling your BIG idea | 21
RULE OF THUMB FOR ANGEL INVESTORS Angels look for a 10x return on EVERY deal Seek to exit deals 5-7 years down the road Typically invests no more than $250,000 in any one investment Don’t invest any more than 10% of funds in any one venture To receive SERIOUS consideration from Angel Investors your ROI should be 30-40% minimum bankrolling your BIG idea | 22
WHAT ANGELS LOOK FOR IN A POTENTIAL DEAL SCALE! SCALE! SCALE! Your Valuation MUST be reasonable! You have the capacity and ability to execute Angels look to MINIMIZE RISK by selecting ventures that offer rapid growth potential, a high rate of return & strong management teams bankrolling your BIG idea | 23
14 QUESTIONS YOU WILL DEFINITELY BE ASKED 1. Who are your major competitors? 2. What makes your products and services unique? 3. Who are your targeted customers 4. How have your targeted customers responded to your prototype? 5. What is your marketing strategy for your products and services? 6. How much angel capital are you seeking? 7. How do you plan to distribute my investment? 8. What time frame do you expect the invested money to last? 9. What is my stake in the company and my ROI? 10. What will happen next if the company fails? 11. How much profit will your company make? 12. How much money do you have invested in your venture personally? 13. Do you have experience in this field? 14. What are the long term goals of the company? bankrolling your BIG idea | 24
SELLING YOUR BUSINESS PLAN TO INVESTORS bankrolling your BIG idea | 25
YOUR PITCH A “pitch” is simply how you present your company verbally Any verbal communication to an outsider about what your company does or will do should be considered a pitch Lay it out on paper before you talk to outsiders Identify complementary materials you need to make your pitch effective Chances are your products or services have a UNIQUE SELLING POINT… Your business plan better have one too bankrolling your BIG idea | 26
THE ELEVATOR PITCH An elevator pitch is a short informal presentation Engages discussion / gets someone interested Make it Short, Simple, Memorable: “What, How, Why.” Max 3 key words / phrases, 2 sentences. Make it easy for non-experts to understand Think through your elevator pitch CAREFULLY before you discuss your business with anyone… friends, family and acquaintances included bankrolling your BIG idea | 27
ALWAYS BE PREPARED TO MAKE YOUR PITCH Practice! Practice! Practice! Keep some type of promotional material ton you at all times Always have a business card at a minimum You never have a second chance to make a first impression Sometimes strange encounters lead to big things. ALWAYS be prepared to make your pitch. bankrolling your BIG idea | 28
FORMAL PRESENTATIONS Perfect your presentation Come prepared Watch the clock Image is Important Always follow up Investors want you to demonstrate your CAPABILITIES when they meet with you… Put on a show! bankrolling your BIG idea | 29
ASKING FOR INVESTMENT CONSIDERATION Don’t beat around the bush Don’t expect an immediate decisions Don’t appear desperate Investors expect discussions to focus on financial outcomes… specifically what type of ROI they can expect bankrolling your BIG idea | 30
GENERATING BUZZ AMONG INVESTORS bankrolling your BIG idea | 31
UNFAIR ADVANTAGE Forget Competitive Advantage Angel Investors and VCs *really* like Unfair Advantage Big market lead Experienced team ex-Google PhDs Core / “breakthrough” tech “Defensible” IP / patents “Exclusive” partnership Great sales/marketing Chances are your products or services have a UNIQUE SELLING POINT… Your business plan better have one too bankrolling your BIG idea | 32
PEOPLE OVER PRODUCT Your management team is often your make or break point with investors Types of people who get potential investors excited: Geeks with deep technical background Entrepreneurs who have sold companies Recognized experts in their field or sector Sales/Marketing rainmakers Teams that have worked together before and shown real success Make sure your management team has skin in the game Attract world class talent BEFORE you solicit investment capital… it’s a differentiating factor that every investor respects and appreciates bankrolling your BIG idea | 33
TALENT ATTRACTS ATTENTION Seek people with A-caliber startup qualities If your investors aren’t impressed, it reflects on your ability to recruit talent Worse still, your investors may handpick people to manage your business if you are talent deficient Ideas don’t make money, PEOPLE make money bankrolling your BIG idea | 34
PROTECTING YOUR INTELLECTUAL CAPITAL bankrolling your BIG idea | 35
GUARD YOUR IDEAS Being first to market isn’t always an advantage Confidentiality agreements with employees & contractors are musts Get management to sign non-compete agreements Forget confidentiality agreements with potential investors Trademark / service mark your intellectual property Expect new competition soon after you go to market There are NO PATENTS for business ideas… If someone leverages your ideas and leapfrogs you, you have little or no recourse bankrolling your BIG idea | 36
SET REALISTIC EXPECTATIONS You will likely be turned down A LOT! Learn to handle criticism Deals often fall through Finding the right investor takes time and effort Investors will demand results LEARN from every rejection you receive… understand why and refine your business plan and pitch strategy accordingly bankrolling your BIG idea | 38