Business Plan Preparation Frank Moyes Leeds College of Business University of Colorado Boulder, Colorado Funding Plan & Management Plan

Funding Plan & Management Plan Tonight’s Agenda Management Plan Funding Plan In the Fire Operations Plan Development Plan Team Meetings Hand-in: Preliminary 5 year Income Statement Customer acquisition costs Funding Plan & Management Plan

Funding Plan & Management Plan Next Week Publishing your plan Investor presentations Executive Summary Team meetings – review financial projections Hand-in Management Plan Financial Plan (4 statements) Income Statement Balance Sheet Cash Flow Assumptions Funding Plan & Management Plan

End of Semester Schedule I Practice Presentations Workshop 45 minutes Dec 8 beginning at 8:00am Dec 9 beginning at 1:00pm Room 330 Voluntary Dec 10 (Monday) 12:00 noon email Exec Summary in Word doc to Frank Business Plan Preparation: Publishing Your Plan

End of Semester Schedule II Dec 13 (Wednesday) Cut Round 11 teams for grade Hand in 2 copies of Plan Financial model – all worksheets 1 copy of slide presentation Presentations in Rooms room S110 & S127 15 minute presentation 15 minute Q & A Select 4 teams for finals Grading Criteria are on the website Attendance required to do FCQ’s & peer evaluations Business Plan Preparation: Publishing Your Plan

End of Semester Schedule III Jan 18 (Friday) four finalists submit 6 copies to Entrepreneurship Center before 12:00 noon Jan 24 Undergraduate Business Plan Competition Reception at 6:00 Competition in Room 210 at 6:00 Invite friends and family Business Plan Preparation: Publishing Your Plan

Funding Plan & Management Plan

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? Funding Plan & Management Plan

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? Funding Plan & Management Plan

Funding Plan & Management Plan 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? Funding Plan & Management Plan

Funding Plan & Management Plan Determine requirements Prepare Sources & Uses Offering Valuation Funding Plan & Management Plan

Funding Plan & Management Plan Funding Requirement Look at Cash Flow from Operating Activities + Investing Activities Is this enough? Look at monthly Cash Flow How decide if realistic? Discontinuities What's wrong seasonality growth contingency procuction inefficiencies stat-up costs Sensitivity? Funding Plan & Management Plan

Funding Plan & Management Plan

Funding Plan & Management Plan 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 Funding Plan & Management Plan

Hecho en Casa Sources & Uses Statement Financing Amount Ownership Uses of Funds Round A (June 2005) $315,000 41.0% Salaries $221,800 Inventories $ 60,100 Working Capital $ 16,400 Capex $ 15,000 Other $ 1,700 Round B (Oct. 2006) $310,000 15.5% Salaries $197,100 Inventories $ 79,200 Capex $ 30,000 Other $ 3,700 Round C (Q3 2007) $170,000 4.0% Salaries $122,000 Inventories $ 41,700 Capex $ 6,300 Funding Plan & Management Plan

Funding Plan & Management Plan Financial Dynamics Who does the financial projections? Should my projections be optimistic or pessimistic? Investor questions Questions Why does GP increase from 45% to 52% in yr 2? If we reduce the investment in year 3 from $3KK to $1KK? OR, increase from $3KK to $5KK? Optimism vs Pessimism Investors VC's want size Angels want to be involved & a return Friends and Family want you to succeed Hostage to fortune VIDEO show Funding Plan & Management Plan

Funding Plan & Management Plan 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 Funding Plan & Management Plan

Advantages & Disadvantages Advantages & Disadvantages Equity Debt Grants Non-traditional Equity Benefit: permanent capital no later impact on cash flow Expensive Issues of control and decision making offer a piece of company: dilution Shareholders want a return can be difficult to manage Lots of strings: board seats, Preferred stock (get money first), right 1st refusal Exit strategy Debt Benefit: don't give up share of company But, convertible debt at option of lender Bank debt: want to see assets and history of profits and cash flow Personal guarantee Must be paid back: impacts cash flow Interest expense Mezzanine Sits on balance sheet between debt and equity Debt, but doesn't have to be repaid right away Equity, warrants Strong cash flow history Grants: Neither debt or equity Strings Getting grants becomes the objective Non-traditional: Joint ventures, strategic partnerships, Customer and supplier: special terms or equity Know more about your business than you want Could comprise exit Funding Plan & Management Plan

Funding Plan & Management Plan Sources of Funding Bootstrapping F, F (and F) Angels Venture Capital Guido Funding Plan & Management Plan

Funding Plan & Management Plan Valuation Why do valuations? Dilution: division of ownership between Investors and Founder Art - not a science Objective: reach agreement on approach Funding Plan & Management Plan

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

Required Rates of Return Required Rates of Return 5 yr. Increase ROI Seed 80%+ Start-Up 60% Early Stage 50% Second Stage 40% Exit 25% 19x 10x 8x 5x 3x Seed: proof of concept Start-up: set-up production and initial sales Early stage: full scale operations and market development Second stage: expansion Exit: harvest CCG Seed prototype show to customers investors: #250K + #50K business plan got oreder for 6 systems Start-up site in Cambridge 2,000sq ft ordered materials and parts 5 people Sales Director cashed check Early 2 sites same business park 5,000 sq ft distributor Europe CFO High margins 60%+ lose control Second stage new location 20,000 sq ft 45 people to 75 Marketing Director bank loans offices in Paris and Frankfurt US market Exit partner Carlton for US #12 million Funding Plan & Management Plan