11 The scale of credit in the US is hard to take in. $49 trillion The scale of credit in the US is hard to take in ... $49 trillion ½ US GDP
12 The Marshall Plan 1947 cost US$ 115bn US Civil War 1865 cost US$ 165bnUS New Deal 1939 cost US$ 500bnThe Marshall Plan 1947 cost US$ 115bnThe Vietnam War 1975 cost US$ 698bnIraq War 2003 – to date cost US$ 1.2trBailouts announced to date 2008 – 2009 US$ 9.5 trillion (including guarantees)All numbers inflation adjustedSource: NY Times
13 If you spent US$1,000,000 each day from the day Jesus Christ was born until today, you would only have spent about US$710bn, almost 30% less than the magic US$1 trillion BUT the same as the TARP!
14 Explosion in overall debt and huge dependence on foreign money inflows into the US to pay for it.
25 Historic Depressions Source: www.niesr.ac.uk accessed 29/06/11 See also Reinhart and Rogoff “The Aftermath of Financial Crises”
26 Worst not over yet Growth will come Fragile, as underlying imbalences Cycle not complete until 2014 or laterReal value halvedBargainsBank defaults -> Government defaults (PIIGS and BRICs)Insurance and pension scheme defaultsNo money for VCs (LPs default)No exit routes for equity investmentsSocial unrest, rise of dictators....
27 The scale of credit in the US is hard to take in. $49 trillion The scale of credit in the US is hard to take in ... $49 trillion ½ US GDP
28 The Marshall Plan 1947 cost US$ 115bn US Civil War 1865 cost US$ 165bnUS New Deal 1939 cost US$ 500bnThe Marshall Plan 1947 cost US$ 115bnThe Vietnam War 1975 cost US$ 698bnIraq War 2003 – to date cost US$ 1.2trBailouts announced to date 2008 – 2009 US$ 9.5 trillion (including guarantees)All numbers inflation adjustedSource: NY Times
29 Explosion in overall debt and huge dependence on foreign money inflows into the US to pay for it.
30 How will the debt be repaid? Conquest (failed)Default (go bust)Deflation, then Inflation/DevaluationPrinting money (quantitative easing)Recovery needs eitherTechnological innovation such as low energy priceNew financial engineering for new source of money
31 Stagflation High interest (to control inflation) Classical shock response (for e.g. 1971)Rapid inflationNo increase in real outputEconomic/Government responseHigh interest (to control inflation)Low taxes (to stimulate production)GrantsBADSavings, wealth, pensionsCurrent deficit; few projectsWeak dollar – fewer imports
54 An Entrepreneur is…Someone who starts a project without having the full resources or knowledgeEstimate, guess and gut feelRisk takingMarket riskTechnology riskFinancial riskValue accrues as risk lessensGuesses replaced by justified factsAs development progresses and market establishedTransition from intangible hopes to reality and cash-flowRisk lessens, hence value increases
55 Why? Why now? Why me? Know yourself Barriers to market entry Because I can: available time and resourceJust graduated, or made redundant and nothing else to doBrilliant idea or market opportunityWhy me?Barriers to market entryWhat have you got to make it through?Expertise, resource, relationshipsBarriers to competitionWhat stops others doing the same thingIPR, network effect, nicheUnique advantagesKnow yourselfKnow your motivation so you can motivate othersWhat counts as success?
56 You need cash… Most will be millionaires And need to bePension issueSay household income of £50K @ 4% -> £1.25MInflation for 40 3% -> x 3 -> £3.75MHouse, etc say £250K -> 750KTotal £4.5MYou won’t save £4.5M from a salaryTradingStarting an Enterprise
57 Why are you doing it? Wealth generation Better toys Make a difference You need £5M by the time you retire, for a modest lifestyleBetter toysMake a differenceSocial consequencesGeneration of employmentDeath of the nation stateFun or profit?Lifestyle or high growth?FundingEventual size?
58 High Profit vs High Growth LifestyleRestaurant/shopP&LOrganic Growth20 yearsDebt financeHigh GrowthSell the CompanyChain of Restaurants/shopsBalance SheetInvestmentExit route5 yearsEquity
60 Market NeedLargest risk factor: everything else is process or resourceWho needs it?Why?What are they doing now?How much is it worth to them?How is it sold, or advertised?Routes to marketAlliancesBrandingUnder served needCompetitionWhat other solutions?Sustainable or one-shot wonder?Growing marketGlobal potentialTotal available market > 1000* investment
61 Who needs it? FAB: Features Advantages Benefits This program runs really quicklyAdvantages:Less waiting timeUses less resourcesBenefits:Less frustrationYou can get more doneCheaper to runUSPs: Unique Selling PointsMarket Research
62 Market: Who loves ya? Techie Speak FAB: Features Advantages Benefits This chip uses a double super-helical fooglefargAdvantages:Less PowerMore speedBenefits:CheaperSmallerWorks better in marginal conditionsBatteries last longerYour friends will be enviousCustomer Speak
63 Business Model How do you make money from it? Faster, better, cheaper LandgrabSell something for more than it costsGoods, services, IPR ,subscriptionCharge a commissionAgent, brokerage, auction, marketplaceSell advertising spaceLotteries and other scamsFaster, better, cheaperHow long for? Go like a rocketAmazonBrave new worldHow to predict?
64 Reaching The Customer How do you know what they want? Trust Market researchWho? How many? Key issues? Pricing?Focus groupsHow do they find out about it?TrustOpen or closed sourceEscrow, performance bonds etcDirect or indirect salesDistribution chainWeb salesSales forceRetail: opportunity to purchaseWho is your real customer? Who makes the decision?CRMHelp desks, documentation, etcProductisation
65 Crossing the ChasmGeoffrey Moore, after Everett RogersTechUtility
67 Strong management team You can’t do it all by yourself“Small” project >10 person-yearTeam building1:3:10 ruleAlliancesRecruit experienceFinancial DirectorSales & MarketingTraining & experienceM erchant bank/Management ConsultancyMBA
68 Senior Team US UK Chair Senior figure; Old wise head Experience and contacts; Major dispute resolution; part-timeCEOManaging DirectorFinding money; Investor relations; Style setting; Keeping the peaceCFOFinance DirectorAccounts etc. Office management; Administration, Legals, Quality controlCTOTechnical DirectorInventing new things; developmentCOOProduction DirectorRunning the factory and distributionVP MarketingMarketing DirectorDeciding what and how to sell; pricing Marcoms; Market informationVP SalesSales DirectorSelling; CRM;
70 Believable Plans Business Plan Development Plan Marketing plan Adverts, mail shots, web-sitesSales PlansDistribution, Direct SalesQuality PlansFinancial ProjectionsBudget60% IRRPay back financing in third yearCash flow
71 Variables Resource Time Function “ You can have any two of quick, good or cheap, but not all three”
72 Productisation Generalisation Documentation Legals Does the product work on all target systems?Hardware variants/constraintsO/S variantsInternationalisationLanguage, number, date and time formatsDocumentationInstallation, User Guide, Reference Manual, Help texts, examples, trainingSystem manual, maintenance documentationConformanceLegalsIPR generated (Copyright, trademark)IPR usedLicence, contract, liability
74 Plan for quality Cheaper in the long run Build-in from the start; can’t be added laterBoard-level function“Good Practice”
75 Standards ISO 9000/BS 5750 BS 7799 Internal standards Tracebility Information Management and SecurityInternal standards
76 Control and review Record key decisions Control key documents Control versions and deliverablesDefine standardsCoding standardsNaming conventionsRoutine structureTestingDocumentation standardsHouse styleConventions and examplesReview and Audit
77 Key Documents Project Definition Base definition Control User Requirement DocumentProject Constraints DocumentBase definitionFunctional Specification or prototypeTop Level designControlProject PlanProject LogQuality PlanDocument Plan
78 Writing the Business Plan Executive Summary and funding requirement1. Concept2. The Market3.1 Global market size and need3.2 Sustainability3.3 Competition3.4 Marketing plans4. The Team4.1 CEO4.2 CTO4.3 CFO4.4 VP Sales and Marketing
79 Writing the Plan - 2 5. The technology and its IPR 6. Summary of plans 6.1 Development plans6.1.1 Methodology6.1.2 Milestones6.2 Marketing6.3 Sales and distribution6.4 Quality and industry standards7. Financials
80 Writing the Plan - 3 Appendices: Financial model Key staff Letters of supportCorrespondence re IPRFull development planFull marketing and sales planExamples and brochures
81 Living Document Revise frequently Learning process Different audiences/sensitivitiesInvestor PresentationsPowerpointEvery board meeting/investor meetingBudgetProject PlanVersion controlV 154.2
82 Sources of finance Family and friends £50K Angels £500K BanksSecurityAngels £500KVenture Capitalists £5MVCAVCB $25MMezzanineStock Market floatation $250MAcquisitionExit
83 Why stages? Risk/Reward profile differ Successive dilution Typically 30% dilution each stageInvestment = pre-money valuation/2“Squeeze the Angels”