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

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

3 Funding Plan & Management Plan Two Weeks  Publishing your plan  Investor presentations  Hand-in  Management Plan  Financial Plan (4 slides)  Income Statement  Balance Sheet  Cash Flow  Assumptions

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

5 Funding Plan & Management Plan Funding Requirement  Look at Cash Flow from  Operating Activities +  Funding Activities  Is this enough?  Look at monthly Cash Flow  Operating Activities +  Funding Activities

6 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

Hecho en Casa Sources & Uses Statement FinancingAmountOwnershi p Uses 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 $ 6,300

8 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

9 Funding Plan & Management Plan Advantages & Disadvantages  Equity  Debt  Grants  Non-traditional

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

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

12 Funding Plan & Management Plan Methods for Determining Valuation  Tangible book value  Discounted cash flow  Price/Earnings  10 x Net Income  6 x EBITDA  Venture Capital method

13 Funding Plan & Management Plan Venture Capital Method - Key Assumptions  Net Profit  Valuation Multiple  Investor ROI

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

15 Funding Plan & Management Plan Management Plan

16 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 directors?  Will you have a board of advisors?

17 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?

18 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?