Bootcamp day 2

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Visit us at marsdd.com

Pitching to Investors Bootcamp

Day 2

B O G O T A , 2 4 - 2 6 A U G U S T 2 0 1 6

L A N C E L A K I N G

J O N E W O R R E N

26 August 2016

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Agenda, Day 2

09:00 Recap & Agenda

09:15 Business Model Canvas with Examples

10:15 Break

10:30 Business Model Design - Front end only

11:30 Show me the Money

11:45 Finance Strategy

12:30 Lunch

13:30 Financial Projection & The Ask

15:15 Break

15:30 The Team

16:00 Pitch Clinic

16:45 Review & reflection

17:00 Adjourn

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Business Model Canvas plus Examples

8/26/2016

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Startups vs Companies

Startup

Phase

Scaling

Phase

Search

Business Model?

Execution

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The 3 stages of the search

process

1. Customer Problem

2. Product Solution

3. Business Model

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Business Model - Definition

A business model describes the value an organization offers its customers and illustrates the capabilities and resources required to create, market and deliver this value and to generate profitable, sustainable revenue streams.

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Business Model Design (2009)

7

• Alex Osterwalder (Business Model Generation)

• Applied Design Thinking to a complex problem

• Encourages iteration and innovation at a business level

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Pg 8

Who else do you need to make your model work? Who can do the work that you can’t or won’t do?

What things must you do to attract customers and produce your value proposition?

What resources do you need to perform the key activities?

What does it cost to operate the model ? Fixed cost? Variable cost? Capital cost?

What problem do you solve? What job does your product do for the customer? What are the benefits of your product?

What types of relationships do you have? How do your customers want to relate to you?

How do customers find you? How do they buy? How do you deliver?

Who do you serve? Who pays you? Who uses your product?

How do you get paid? How much?

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1. Funders:

Philanthropically-

minded people

2. Users:

Low income or

Underserved or

entrepreneurs

3. Volunteers and

interns

1. Who are your stakeholders?

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Kiva.org is a non-profit

organization that gives

philanthropically-

minded people the

ability to help alleviate

poverty internationally

by enabling them to

provide safe,

affordable micro-

capital online to fund

impoverished

entrepreneurs who are

creating better lives for

themselves and their

families.

1. Funders:

Philanthropically-

minded people

2. Users:

Low income or

Underserved or

entrepreneurs

3. Volunteers and

interns

2. What are your value propositions for your

stakeholders?

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philanthropically-

minded people the



by enabling them to

provide safe,

affordable micro-


impoverished




families.

*Kiva.org

*Field partners

*Social Media

1. Funders:

Philanthropically-

minded people

2. Users:

Low income or

Underserved or

entrepreneurs

3. Volunteers and

interns

3. How do you find funders and

entrepreneurs?

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philanthropically-

minded people the



by enabling them to

provide safe,

affordable micro-


impoverished




families.

*Stories and statistics

online

*YouTube/Vimeo

*Social Media

1. Funders:

Philanthropically-

minded people

2. Users:

Low income or

Underserved or

entrepreneurs

3. Volunteers and

interns *Kiva.org

*Field partners

*Social Media

4. How do you keep and grow your customers?

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philanthropically-

minded people the



by enabling them to

provide safe,

affordable micro-


impoverished




families.


online

*YouTube/Vimeo

*Social Media

*Microfinance donations

*Grants

*Corporate sponsors

*Foundations

1. Funders:

Philanthropically-

minded people

2. Users:

Low income or

Underserved or

entrepreneurs

3. Volunteers and

interns *Kiva.org

*Field partners

*Social Media

5. What kind of revenue are you earning?

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*Marketing

*Translating

*Web/e-commerce

*Financial mgmnt

*Int’l volunteer

acquisition, training &

management



philanthropically-

minded people the



by enabling them to

provide safe,

affordable micro-


impoverished




families.


online

*YouTube/Vimeo

*Social Media


*Grants

*Corporate sponsors

*Foundations

1. Funders:

Philanthropically-

minded people

2. Users:

Low income or

Underserved or

entrepreneurs

3. Volunteers and

interns *Kiva.org

*Field partners

*Social Media

6. What are the activities you needed to operate your

business model?

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*Marketing

*Translating

*Web/e-commerce

*Financial mgmnt

*Int’l volunteer


management

*KIVA.org

*Multilingual loan

reviewers

*Web developers

*Writers & translators

*Volunteers



philanthropically-

minded people the



by enabling them to

provide safe,

affordable micro-


impoverished




families.


online

*YouTube/Vimeo

*Social Media


*Grants

*Corporate sponsors

*Foundations

1. Funders:

Philanthropically-

minded people

2. Users:

Low income or

Underserved or

entrepreneurs

3. Volunteers and

interns *Kiva.org

*Field partners

*Social Media

7. What are the resources needed to

carry out the key activities?

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*International

microfinancers (field

partners)

*International

volunteers

*Kiva Fellows (live in

remote countries)

*Legal advisors

*Marketing

*Translating

*Web/e-commerce

*Financial mgmnt

*Int’l volunteer


management



philanthropically-

minded people the



by enabling them to

provide safe,

affordable micro-


impoverished




families.


online

*YouTube/Vimeo

*Social Media


*Grants

*Corporate sponsors

*Foundations

1. Funders:

Philanthropically-

minded people

2. Users:

Low income or

Underserved or

entrepreneurs

3. Volunteers and

interns *KIVA.org

*Multilingual loan

reviewers

*Web developers


*Volunteers

*Kiva.org

*Field partners

*Social Media

8. Who are the partners that do the

work and provide the resources you can’t

or won’t?

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*International


partners)

*International

volunteers


remote countries)

*Legal advisors

*Marketing

*Translating

*Web/e-commerce

*Financial mgmnt

*Int’l volunteer


management



philanthropically-

minded people the



by enabling them to

provide safe,

affordable micro-


impoverished




families.


online

*YouTube/Vimeo

*Social Media

*Kiva.org

*Field partners

*Web/e-commerce developing & hosting

•Marketing & communication resources

•Multilingual resources/loan reviewers

*Travel expenses

*International bank fees

*Program development


*Grants

*Corporate sponsors

*Foundations

1. Funders:

Philanthropically-

minded people

2. Users:

Low income or

Underserved or

entrepreneurs

3. Volunteers and

interns *KIVA.org

*Multilingual loan

reviewers

*Web developers


*Volunteers

*Kiva.org

*Field partners

*Social Media

9. What is the cost of operating this business

model?

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*International


partners)

*International

volunteers


remote countries)

*Legal advisors

*Marketing

*Translating

*Web/e-commerce

*Financial mgmnt

*Int’l volunteer


management



philanthropically-

minded people the



by enabling them to

provide safe,

affordable micro-


impoverished




families.


online

*YouTube/Vimeo

*Social Media

*Web/e-commerce developing & hosting

•Marketing & communication resources

•Multilingual resources/loan reviewers

*Travel expenses

*International bank fees

*Program development


*Grants

*Corporate sponsors

*Foundations

1. Funders:

Philanthropically-

minded people

2. Users:

Low income or

Underserved or

entrepreneurs

3. Volunteers and

interns *KIVA.org

*Multilingual loan

reviewers

*Web developers


*Volunteers

*Kiva.org

*Field partners

*Social Media

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ACTIVITY: THE PEE-POO-BAG

Business Model Design

8/26/2016

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• 10 Minute Business Model

Challenge: Design a Business Model in 10 Minutes (Right Side Only)

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1

9

6

5

4

3

2

7

8

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Pg 23




What does it cost to operate the model? Fixed cost? Variable cost? Capital cost?






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• 10 Minute Business Model

Challenge: Design a Business Model in 10 Minutes—(Right Side Only)

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“The purpose of business is

to create a customer”

Peter Drucker, The Practice of Management

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Validation= Identifying a predictable and

repeatable customer acquisition process

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BREAK

8/26/2016

ACTIVITY: YOUR BUSINESS MODEL

Business Model Design

8/26/2016

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• Working in 4 different groups

• Help each other create the business model canvas for your business

• Do only RIGHT SIDE

• Work fast

• Do one business at a time

• 10 minutes per business

Business Model Canvas

8/26/2016

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• Use your business model to answer the question: How are you going to make money on that?

• For your pitch: Summarize the front end of your business model in 2-3 bullet points

Show me the money

September 2014

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Finance Strategy

8/26/2016

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Our Future Matters

• Required by tax authorities

• Ability to assess the results of day-to-day operations

• Ability to communicate the performance of your company to: – Investors

– Suppliers

– Banks

• Used by investors to assess the value of your business and where they should invest their money (required for due diligence). The bottom line: these statements are a universal measure across all companies, sectors

• Application for credit, tax credits, grant funds

• Ensure financial control over the company

Why are Financial Statements Important?

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Our Future Matters

• Three main components: balance sheet, income statement, cash-flow statement – Balance sheet: assets, liabilities, equity

– Income statement: revenue, cost of sales, operating expenses

– Cash-flow statement: cash from operating activities, financing activities, investing activities

• Notes to the financial statements provide additional detail on the figures within the above three statements

What are Financial Statements?

Records of the financial results from activities of a business

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Our Future Matters

The Balance Sheet

What the company owns or owes at a point in time

Expected to be used or sold within 12 months

Expected to be used or sold within 12 months

Expected to be used or sold more than 12 months in the future

Expected to be used or sold more than 12 months in the future

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Our Future Matters

The Statement of Profit and Loss

Key margins

What the company has earned in revenue or incurred as expenses over a period of time

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Our Future Matters

The Statement of Cash Flows

How the company has spent and received physical cash over a period of time

Cash from day-to- day operations

Cash from purchase or sale of long-term assets

Cash from funding

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Our Future Matters

• Forecasting picks up where your business model left off

• Turns a qualitative business model into a quantitative forecast model

Introduction to Forecasting

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Our Future Matters

•Manufacturing (COGS)

•Marketing

•Salaries

•Rent

•Supplies

•Web hosting

•Unit sales

•Monthly fees

•Licensing

•Repair

ABC Company Inc.

For year ending Dec 31

Revenue

Unit sales $ 4,000

Monthly fees $ 2,000

Licensing $ 3,000

Repair $ 1,000

Total Revenue $10,000

Cost/Expense

Cost of goods sold $ 3,000

Gross Margin $ 7,000

Marketing $ 1,000

Salaries $ 3,000

Rent $ 1,000

Supplies $ 500

Web hosting $ 500

Total Expenses $ 9,000

Net Profit $ 1,000

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Our Future Matters

• Validate your business model

• Provide milestones for management and investors

• Identify impact of business decisions

• Identify when a change is required in a timely manner

• Ensure you don’t run out of money!

Why Forecast?

The numbers behind your business model

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Our Future Matters

• Bottom up: starts with the base level inputs and layers them together to determine what the end result will be

• Top down: starts high level with the desired end result and backs into the inputs to get there

Basics of Forecasting

Bottom up is much more credible than top down

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Our Future Matters

WHAT NOT TO DO:


Entrepreneur says: “We only need to get 1% of the projected $3 billion

market by year five and have worked backward to develop earlier

annual sales projections in the plan”.

Year five projected sales = $30 million

All Competitors

Your Company

Tip: It is better to segment the market and show your market share in relation to a specific smaller segment. You’ll create a more realistic plan for you to follow. Investors like to back companies who will be significant players in their market segment (15-25%) and are focused in their approach.

* From TechStart model

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Our Future Matters

WHAT TO DO:

•Distribution channel = Pediatrician doctors

•Recruit doctors as follows: 150 in year one at trade shows/cold calling (60 signed up already)

2,400 doctors by year five of the plan, serving up to 30,000 patients

•Product pricing: Annual patient revenues of $1,000 per year—resulting in $30 million of

revenue in year five of plan

Pricing starts at $1,200 per year; competition drives average price down 20% over period of the plan

•Require six regional sales and support reps to support the doctor network


* From TechStart model

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Our Future Matters

• Overestimating revenues and underestimating expenses

• Using unrealistic timelines

• Overestimating efficiency gains

• Using ad revenue as a suitable source of material revenues (it isn’t)

• Underestimating the amount of time employees take to get up to speed

• Not allowing for staff to work at less than 110% (not everyone is a founder!)

• Forgetting that costs change over time: – Employment costs usually increase

– Marketing costs should be high in the beginning periods

– Manufacturing costs should decrease with higher volumes

• Not taking payment/collection terms into account

Common Pitfalls

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Our Future Matters

• Complete the statement of expense forecast model for at least three years for your business

• Consider information in relation to: – Pricing of your product/service

– Starting to forecast sales volumes

– Answering questions regarding the results shown in your forecast model

– Having discussions around how your company is generating revenue (different pricing methods, billing frequencies, payment terms, distribution channels)

– Identifying competitor companies in your industry, region

Homework

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Our Future Matters

• Structure of financial statements: balance sheet, statement of profit and loss, statement of cash flows

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Our Future Matters

Basic ratios to identify if there is an issue within the company:

•Current ratio: – Current Assets / Current Liabilities

– If the ratio is below 1, it is an indicator that the company will have issues paying short-term debts. A target between 1.2 and 2 is healthy

Balance Sheet Ratios

Identify the effective use of resources to generate value

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Our Future Matters

Basic ratios to identify if there is an issue within the company:

•Debt/equity ratio: – Total Liabilities / Shareholders’ Equity

– The higher the ratio, the more debt has been taken on to drive growth. When the ratio starts to get high, you want to ensure the cost of borrowing is less than the growth being experienced

– Target ratio will be dependent on the industry

Balance Sheet Ratios

Identify the effective use of resources to generate value

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Our Future Matters

• Gross margin is a key metric for investors:

– Revenue – COGS / Revenue

– If gross margin is too low, it can indicate either inappropriate pricing, costs that are too high or a mix of both

– First try to assess expense run rate—it is much easier to change than price. Can it be reduced? Is it in line with your industry? What efficiency gains can implemented? Can you renegotiate supplier contracts?

– If costs are in line with your industry, review your pricing strategy: Are you giving too much away? Are you in line with competitors? Are you offering deep discounts?

What is Gross Margin?

Profit before operating expenses, one-off expenses and taxes

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Our Future Matters

• Operating margin is a key metric for management: – Revenue – COGS – Operating Expenses / Revenue

– Quickly tells you how much profit made per dollar of sales

– Strong indicator of efficiency of day-to-day operations

– Easily comparable across your industry and to your competitors

What is Operating Margin?

Profit before one-off expenses and taxes

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Our Future Matters

• What are your startup costs?

• What are your base ongoing costs?

• Determine your key milestones

• What are you going to use the funds for?

• When would you look to raise funds again?

• How much contingency have you built in?

How Much Funding Do You Need?

Detail your needs

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Our Future Matters

• Forecast by month for the first year, by quarter for two to five years after that (paid user numbers, pricing, margins, cost base)

• Clear milestones over the next 12-24 months • Clear outline of components required to hit

milestones • Sufficient headcount to support the growth • A team with depth of experience (sales, IT/technical,

finance/operations—hire if needed) • It should be clear what the funds are going to be

used for • Funding is sufficient to hit milestones and

contingency

What do Investors Look for in an Investment?

Use your forecast to support your business story

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Our Future Matters

• Scorecard method

• Market comparables

• First Chicago method

• Exit value/EBITDA and/or revenue multiple

• Discounted cash flow

Types of Business Valuations

Always try at least two methods— investors do

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Our Future Matters

• Basis: comparable transactions in the recent market

• How it works: recent transactions are reviewed and assessed against your company identifying key pro/con differences

• Required inputs: industry knowledge, differentiating factors between your companies and comparable companies

• Commonly used: companies with high potential to grow quickly but little history or financial metrics to show, by angel investors

Valuation Method: Market Comparable

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Our Future Matters

• Basis: EBITDA and free cash flow

• How it works: EBITDA in the expected year of exit x multiple + cash flow from present to exit year discounted back to present

• Required inputs: EBITDA, multiple factor, discount rate, free cash flow forecast

• Commonly used: more established companies with positive cash flow currently or in the near future

Valuation Method: EBITDA Multiple Value

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Our Future Matters

• Basis: yearly cash flows

• How it works: yearly cash flows are discounted back to current period, sum of all years is the value

• Required inputs: free cash flow by year, discount rate

• Commonly used: more established companies with positive cash flow currently or in the near future

Valuation Method: Discounted Cash Flow

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LUNCH

8/26/2016

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Financial Projection & The Ask

8/26/2016

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BREAK

8/26/2016

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Team

Culture & capacity

8/26/2016

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Entrepreneurship - defined

Howard Stevenson, Harvard Business School

“Entrepreneurship is the

pursuit of opportunity

beyond resources

controlled”

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• Can-do attitude

• Creative

• Determined & Prudent:

– Borrow - before you buy

– Prototype – before you build

– Get paid – before you deliver

– Contract – before you hire

Entrepreneurial M.O.

September 2014

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• Responsible for defining the problem to solve

• User/Customer empathy

– Observation, interviewing, experimenting

• Integrative/holistic thinker (business & tech)

• Solution oriented

• Communicator

• Analytical – can distill information

“Designer”

September 2014

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• Responsible for finding a business model and financing

• Strategic & Opportunistic in balance

• Credible

• Creative

• Analytical

• Aware (but not afraid) of boundaries

“Hustler”

September 2014

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• Responsible for creating the solution

• Multi-disciplinary

• Curious and mastery-oriented

• Fast

• Creative

“Hacker”

September 2014

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Growing startups

8/26/2016

< 25 employees

NASCENT

3 roles/person

Variety in jobs

Hustler, hacker, designer

Part-time CFO

Part-time PR

25–50 employees

EARLY GROWTH

More specialization

Some organization

Part-time HR

Many 1-2 roles

Customer acquisition

SCALE

75+ employees

Execution

Processes

Functional structure

“FOUNDER

ITIS?”

GR

OW

TH

SEA

RC

H

Contract jobs

Professional management

More locations

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Pg 66




What does it cost to operate the model ? Fixed cost? Variable cost? Capital cost?






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PITCH CLINIC

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SUMMARY & REFLECTIONS

8/26/2016

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