Business Plan Preparation Frank Moyes Leeds College of Business University of Colorado Boulder, Colorado 1 Funding, Management, Competitive Advantage

Today’s Agenda Management Plan Competitive Advantage Funding Plan In the Fire Operations Plan Development Plan Team Meetings Hand-in: Operations Plan Development Plan Preliminary 5 year Income Statement 2 Funding, Management, Competitive Advantage

Two Weeks Publishing your plan Investor presentations Executive Summary Hand-in Management Plan Financial Plan (4 statements) Income Statement Balance Sheet Cash Flow Assumptions Dec 6 & 7 workshop on investor presentations 3 Funding, Management, Competitive Advantage

Management Plan 4 Funding, Management, Competitive Advantage

Company Organization I Describe how your company will be organized Prepare an organization chart Will you have a board of directors? Will you have a board of advisors? 5 Funding, Management, Competitive Advantage

Company Organization II What is the ownership structure of your company? What percent of the company do each of the founders own? Do you plan to have a stock option plan? Incentive plan? 6 Funding, Management, Competitive Advantage

Management Team Describe the founders and principal managers who will run your firm. Write a short paragraph on each of the key managers? (Include resumes in the Appendix) What will be their duties and responsibilities? What unique skills do they bring to the venture? How will they be compensated? Is there a significant “hole” in the team? How do you propose to fill it? 7 Funding, Management, Competitive Advantage

Competitive Advantage Funding, Management, Competitive Advantage 8

Identify Your Resources Human: social, employee knowledge, experience, accumulated wisdom, labor cost and skills, etc. Intangible: patents, trade secrets, know-how, copyrights, databases, etc. Organizational: culture, contacts, policies, Boards of Directors & Advisors, suppliers, service providers, etc. Financial: access to capital (equity & debt), cash reserves, government grants, etc. Physical assets: plant & equipment, raw materials, location, working capital, etc. 9 Funding, Management, Competitive Advantage

Identify Your Capabilities Network - well developed, high-quality, accessible contacts that take years to build Marketing - differentiation, branding, positioning Product/service - design features & benefits Sales & distribution - rep organization Total operational approach - Dell, Wal-Mart Supply chain management - Asia contacts Relationships - regulators, politicians, investors 10 Funding, Management, Competitive Advantage

Barriers You Can Establish Intellectual property Switching costs to your target customer Customer loyalty Agreements with customers, suppliers, strategic partners Control of the distribution channel 11 Funding, Management, Competitive Advantage

Funding Plan 12 Funding, Management, Competitive Advantage

Funding Plan Determine requirements Prepare Sources & Uses Offering Valuation 13 Funding, Management, Competitive Advantage

Funding Requirement Look at Cash Flow from Operating Activities + Investing Activities Is this enough? Look at monthly Cash Flow Operating Activities + Investing Activities 14 Funding, Management, Competitive Advantage

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Sources & Uses For each round of equity or debt, how will the money be spent? Common uses Marketing campaign to launch a new product Set up Call Center Development expenses of a new product or process Prototype Capital expenditure for equipment or systems Working capital 17 Funding, Management, Competitive Advantage

Hecho en Casa Sources & Uses Statement FinancingAmountOwnershipUses of Funds Round A (June 2005) $315, %Salaries $221,800 Inventories $ 60,100 Working Capital $ 16,400 Capex $ 15,000 Other $ 1,700 Round B (Oct. 2006) $310, %Salaries $197,100 Inventories $ 79,200 Capex $ 30,000 Other $ 3,700 Round C (Q3 2007)$170,0004.0%Salaries $122,000 Inventories $ 41,700 Capex $ 6, Funding, Management, Competitive Advantage

Financial Dynamics Who does the financial projections? Should my projections be optimistic or pessimistic? Investor questions 19 Funding, Management, Competitive Advantage

Offering Equity Amount of investment Form of investment Preferred or common Warrants Share of equity Exit strategy Nontraditional Joint ventures Customers & Suppliers Debt Amount of loan Interest rate Repayment schedule Collateral Warrants or conversion rights Grants 20 Funding, Management, Competitive Advantage

Advantages & Disadvantages Equity Debt Grants Non-traditional 21 Funding, Management, Competitive Advantage

Sources of Equity Funding Bootstrapping F, F (and F) Angels Venture Capital Guido 22 Funding, Management, Competitive Advantage

Valuation Why do valuations? Dilution: division of ownership between Investors and Founder How does investor get a return? Art - not a science 23 Funding, Management, Competitive Advantage

Methods for Determining Valuation Discounted cash flow Multiples Earnings 10 x Net Income 6 x EBITDA Revenue Tangible book value Venture Capital method 24 Funding, Management, Competitive Advantage

Required Rates of Return Seed 80%+ Start-Up 60% Early Stage 50% Second Stage 40% Exit 25% 19x 10x 8x 5x 3x ROI 5 yr. Increase 25 Funding, Management, Competitive Advantage