Business Plan Preparation Funding Offering, Valuation & Executive Summary Frank Moyes Leeds College of Business University of Colorado Boulder, Colorado Funding, Offering, Valuation & Executive Summary

Tonight Hive Live case Offering & Valuation Executive Summary Source & Use of Funds In the Fire – Operations & Development Plans Hand-in Operations Plan Development Plan Management Plan 5 yr income statement Funding, Offering, Valuation & Executive Summary

Next Week Publish Your Plan Investor presentations Next Week Publish Your Plan Investor presentations Team Meetings to review Financial Plan (4 slides) Funding Plan, Offering & Valuation, Sources & Uses, Risks (4 slides) Hand-in Financial Plan + Assumptions (print out all pages of the Financial Model) Funding Plan Funding, Offering, Valuation & Executive Summary

End of Semester Schedule Practice Presentations Workshop April 22 (optional) 12 teams @ 45 minutes 2 sessions beginning at 8:00am April 26 Cut Round for grade Presentations 30 min sessions Hand in 2 copies of Plan Financial model – all worksheets 2 copies of slide presentation Presentations in Rooms 125 & 124 15 minute presentation 15 minute Q & A Select 4 teams for finals Funding, Offering, Valuation & Executive Summary

End of Semester Schedule (continued) April 28 four finalists submit 6 copies to Entrepreneurship Center before 12:00 noon May 3 Undergraduate Business Plan Competition Reception at 5:30 Competition in Room 224 at 6:00 Invite friends and family Attendance required to do FCQ’s & peer evaluations Funding, Offering, Valuation & Executive Summary

Salary Information Salary info http://www.salary.com Salary Information Salary info http://www.salary.com http://www.salaryexpert.com http://www.monster.com http://salary.monster.com/ Funding, Offering, Valuation & Executive Summary

Funding Requirement Look at Cash Flow from Is this enough? Funding Requirement Look at Cash Flow from Operating Activities + Funding 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, Offering, Valuation & Executive Summary

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, Offering, Valuation & Executive Summary

Offering Equity Nontraditional Debt Grants Amount of investment 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, Offering, Valuation & Executive Summary

Advantages & Disadvantages Advantages & Disadvantages Equity Debt Mezzanine Grants Non-traditional Equity Benefit: permanent capital no later impact on cash flow 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, Offering, Valuation & Executive Summary

Sources of Funding Bootstrapping F, F (and F) Angels Venture Capital Sources of Funding Bootstrapping F, F (and F) Angels Venture Capital Guido Funding, Offering, Valuation & Executive Summary

Valuation Why do valuations? 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 Funding, Offering, Valuation & Executive Summary

Methods for Determining Valuation Methods for Determining Valuation Tangible book value Discounted cash flow Price/Earnings 10 x Net Income 6 x EBITDA Venture Capital method Funding, Offering, Valuation & Executive Summary

Venture Capital Method - Key Assumptions Venture Capital Method - Key Assumptions Net Profit Valuation Multiple Investor ROI Funding, Offering, Valuation & Executive Summary

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 customeres 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, Offering, Valuation & Executive Summary

Executive Summary Opportunity/Need Product/Service Target market Executive Summary Opportunity/Need Product/Service Target market Competitive advantage Process Management Financials See Jim Linfield’s slides Funding, Offering, Valuation & Executive Summary

Executive Summary Opportunity = Size, trends Executive Summary Opportunity = Size, trends Compelling Need = Problem being solved, Target market = Describe, why purchase Product/Service = Features & benefits Competitive Advan = Unique, sustainable Process = Produce & deliver Management = Experience Financial = Revenue, when profitable Funds required, exit Funding, Offering, Valuation & Executive Summary