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Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Financing the On-Line Financing the On-Line BusinessBusiness
Bretttrout.comBretttrout.com
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Information Technology Information Technology professionals are notoriously professionals are notoriously bad at creating a business bad at creating a business plan.plan.
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
What is a Business What is a Business Plan?Plan?A blueprintA blueprintA living documentA living documentConstantly evolvingConstantly evolving
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
What goes into a What goes into a business plan?business plan?
Articulate your visionArticulate your vision Agree on company goals, objectives, Agree on company goals, objectives,
methodsmethods Be honestBe honest Get Advice!Get Advice!
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Business Plan Business Plan ComponentsComponents
Executive summaryExecutive summary Company overviewCompany overview Business environmentBusiness environment Company descriptionCompany description Company strategyCompany strategy Financial reviewFinancial review Action planAction plan
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Executive SummaryExecutive Summary
Business conceptBusiness concept Long and short term goalsLong and short term goals Define main marketDefine main market Customers Customers Describe company’s vision and marketDescribe company’s vision and market Summarize current financial positionSummarize current financial position
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Company OverviewCompany Overview
Written for the lay personWritten for the lay person Mission statementMission statement Objectives, values and visionObjectives, values and vision
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Business EnvironmentBusiness Environment
Market analysisMarket analysis Marketing and sales activitiesMarketing and sales activities Products and servicesProducts and services OperationsOperations
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Company DescriptionCompany Description
Type of businessType of business DistinctionDistinction Management teamManagement team
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
StrategyStrategy
Product developmentProduct development Product supportProduct support PricingPricing MarketingMarketing DistributionDistribution Capital requirementsCapital requirements DeploymentDeployment
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Financial ReviewFinancial Review
Historical dataHistorical data Prospective revenue projectionsProspective revenue projections Income statementsIncome statements Cash flow projectionsCash flow projections Pro Forma valuationPro Forma valuation Financial opportunityFinancial opportunity RiskRisk TimingTiming
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Proposal for Proposal for Implementing Business Implementing Business PlanPlan
New required skill setsNew required skill sets Employee motivationEmployee motivation Policy proceduresPolicy procedures
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Business Plan PrioritiesBusiness Plan Priorities
Management teamManagement team Market analysisMarket analysis Sales modelSales model Description of technologyDescription of technology InfrastructureInfrastructure Financial projectionsFinancial projections
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Management TeamManagement Team
Most critical componentMost critical component Complimentary skill setsComplimentary skill sets Shared visionShared vision
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Market AnalysisMarket Analysis
Define targetDefine target Understand market dynamicsUnderstand market dynamics Identify vulnerable nichesIdentify vulnerable niches Understand your competitionUnderstand your competition
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Sales ModelSales Model
Develop sales strategyDevelop sales strategy Examine why customer buysExamine why customer buys Pinpoint decision makersPinpoint decision makers Identify sales cycleIdentify sales cycle Enlist experienced salespersonEnlist experienced salesperson
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
TechnologyTechnology
Merely a piece of the pieMerely a piece of the pie Protect proprietary aspectsProtect proprietary aspects
PatentsPatents
TrademarksTrademarks
CopyrightsCopyrights
Trade SecretsTrade Secrets Investigate scalabilityInvestigate scalability
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
InfrastructureInfrastructure
Corporate structureCorporate structure C CorpC Corp S CorpS Corp LLCLLC Sole ProprietorshipSole Proprietorship
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
InfrastructureInfrastructure
Management structureManagement structure Identify advisorsIdentify advisors Define board of directorsDefine board of directors Develop financial projections – monthly, Develop financial projections – monthly,
first year, quarterly thereafterfirst year, quarterly thereafter
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Tweak business plan to Tweak business plan to capitalize on:capitalize on:
Market vulnerabilityMarket vulnerability
Customer needs.Customer needs.
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Financing the On-Financing the On-Line BusinessLine Business
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
ChronologyChronology
Type of financing depends on present Type of financing depends on present position of companyposition of company
StagesStages DevelopmentDevelopment Start-upStart-up GrowthGrowth
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Development stageDevelopment stage
Personal time Personal time Personal resourcesPersonal resources
CapitalCapital EquipmentEquipment SpaceSpace TechnologyTechnology
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Start-up StageStart-up Stage
FFA (Friends, family and associates)FFA (Friends, family and associates) Bank loansBank loans
CollateralizeCollateralize Small Business AdministrationSmall Business Administration Government assistance – GrantsGovernment assistance – Grants Iowa Department of Economic DevelopmentIowa Department of Economic Development Iowa Finance AuthorityIowa Finance Authority
• IncubatorIncubator
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Growth StageGrowth Stage
Business managementBusiness management Private (Angel) investorsPrivate (Angel) investors Venture capitalVenture capital
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Personal Resources and Personal Resources and TimeTime
Pros:Pros: FastestFastest Most efficientMost efficient Immediately Immediately
availableavailable
Cons:Cons: Potentially the most Potentially the most
devastatingdevastating Always limitedAlways limited
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Friends, Family and Friends, Family and AssociatesAssociates
Pros:Pros: FastFast SimpleSimple
Cons:Cons: Could possibly Could possibly
jeopardize jeopardize relationshipsrelationships
Define expectations in writing
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Collateralized Bank LoanCollateralized Bank Loan
Pros:Pros: Relatively quickRelatively quick ReliableReliable Won’t jeopardize Won’t jeopardize
friendshipsfriendships Standardized criteriaStandardized criteria
Cons:Cons: Requires collateralRequires collateral
May use existing May use existing contracts or contracts or accounts accounts receivablereceivable
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
SBA LoansSBA Loans
Pros:Pros: Relatively fastRelatively fast SimpleSimple
Cons:Cons: Typically < $100,000Typically < $100,000 $50,000 for one page $50,000 for one page
applicationsapplications Restrictions on useRestrictions on use
Cannot use to pay Cannot use to pay ownersowners
Cannot use to Cannot use to purchase business purchase business from direct descendantfrom direct descendant
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Manage Business OptionsManage Business Options
Accelerate receiptsAccelerate receipts Minimize work in progressMinimize work in progress Minimize inventoryMinimize inventory Establish early pay benefit with creditorsEstablish early pay benefit with creditors Avoid late chargesAvoid late charges No downsideNo downside
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Angel InvestorsAngel Investors
Pros:Pros: FinancingFinancing Option for smaller Option for smaller
companiescompanies May bring expertise May bring expertise
in addition to moneyin addition to money
Cons:Cons: Typically requires 15-Typically requires 15-
25 percent of 25 percent of companycompany
Typically expects 25-Typically expects 25-35 percent return, 35 percent return, compound in 3 to 5 compound in 3 to 5 yearsyears
Desire exit at 5 yearsDesire exit at 5 years
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Institutional InvestorsInstitutional Investors
Pros:Pros: Largest fund Largest fund
potentialpotential Option to obtain Option to obtain
second and third second and third trench funding from trench funding from the same sourcethe same source
Cons:Cons: Very strict managersVery strict managers May take over May take over
management of management of companycompany
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Angels and InstitutionsAngels and Institutions
Typically require 15-25 percent of Typically require 15-25 percent of companycompany
Typically expect 25-35 percent return, Typically expect 25-35 percent return, compound in 3-5 yearscompound in 3-5 years
Expect exit at 5 yearsExpect exit at 5 years
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
IncubatorIncubator
Pros:Pros: Provides dozens of Provides dozens of
minor servicesminor services Turnkey company Turnkey company
rife with consultants rife with consultants and managersand managers
Can provide contacts Can provide contacts with money streamswith money streams
Cons:Cons: Typically requires 15-Typically requires 15-
25 percent of 25 percent of companycompany
Assumes exit and Assumes exit and growth in 2-4 yearsgrowth in 2-4 years
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Unique Opportunities in Unique Opportunities in IowaIowa
Emerging Growth GroupEmerging Growth Group
IncubatorIncubator
Separate investment fund Separate investment fund armarm
SITISITI
Angel investor formsAngel investor forms
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Unique Opportunities in Unique Opportunities in IowaIowa
Papajohn Capital ResourcesPapajohn Capital Resources ISU Business Development ISU Business Development
CenterCenter The Council for Regional EquityThe Council for Regional Equity
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Do not take their Do not take their money unless they money unless they bring something else bring something else to the table.to the table.
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
What Investors Want to What Investors Want to KnowKnow
How much money do you want?How much money do you want? How is the money going to be spent?How is the money going to be spent? How is their money going to be How is their money going to be
recouped?recouped?
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
What Investors Want to SeeWhat Investors Want to See
Solid business planSolid business plan Incredible management teamIncredible management team Written terms and conditions to protect Written terms and conditions to protect
investmentinvestment Infusion of their expertiseInfusion of their expertise Regular updatesRegular updates Exit strategyExit strategy
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Forcing investors to sign a Forcing investors to sign a non-disclosure agreementnon-disclosure agreement
Have two business plan formatsHave two business plan formats ConfidentialConfidential Non-ConfidentialNon-Confidential
Show confidential business plan and Show confidential business plan and detail technology only after signing NDAdetail technology only after signing NDA
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Tailoring the business Tailoring the business plan to one investorplan to one investor
The most vocal investor is typically not The most vocal investor is typically not the wisestthe wisest
Do not incorporate into business plan Do not incorporate into business plan unless without consensusunless without consensus
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
First to MarketFirst to Market
Better to be fastBetter to be fast Best to be onlyBest to be only
Emphasize Emphasize Speed to market Speed to market Barriers to entryBarriers to entry
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Over-Reliance on High-Over-Reliance on High-Profile PartnersProfile Partners
Customer Customer K-Mart K-Mart BurdensomeBurdensome
Vendor Vendor AOL AOL Failure to deliverFailure to deliver
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Ignoring Management Ignoring Management Team’s Growth SkillsTeam’s Growth Skills
Outline team’s start-up experienceOutline team’s start-up experience Detail their transition expertiseDetail their transition expertise Balance their future contributionBalance their future contribution Note their exit strategy experienceNote their exit strategy experience
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Understating the MarketUnderstating the Market
Be honest about competitorsBe honest about competitors Shows consumer needShows consumer need Demonstrates profit potentialDemonstrates profit potential
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Overstating the MarketOverstating the Market
OptionsOptions U.S. Worldwide prescription drug U.S. Worldwide prescription drug
marketmarket U.S. prescription analgesic marketU.S. prescription analgesic market
Investors see through the ruse and Investors see through the ruse and discount the remainder of the plandiscount the remainder of the plan
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Emphasizing The FutureEmphasizing The Future
Define MilestonesDefine Milestones Show past ability to meet goalsShow past ability to meet goals
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Unrealistic FinancialsUnrealistic Financials
Not to HighNot to High Not to LowNot to Low
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
Focus on TechnologyFocus on Technology
Instead, focus onInstead, focus on Management teamManagement team FinancialsFinancials Marketing Marketing Consumer needConsumer need Barriers to entryBarriers to entry Return on investmentReturn on investment
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
ResourcesResources
Emerging Growth Group Emerging Growth Group InfrastructureInfrastructure CapitalCapital
SITI SITI Business plan developmentBusiness plan development IntroductionsIntroductions
Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout
NetworkNetwork
Ask around (network) to find the Ask around (network) to find the best:best: Service providersService providers InvestorsInvestors Management teamManagement team Strategic alliancesStrategic alliances