New Venture Competition 2018 Review Application Requirements for New Venture Fair Review Market Sizing Financial Forecasting Basics

Contact us if you need help Dave Adornetto TMP Lecturer and Entrepreneurship Program Director Phelps 1314 dadornetto@ucsb.edu NVC Office Hours: Mon & Tues 2:30 to 4:00PM and by appointment Tomorrow (Friday 3/9): 2:30 – 3:30 Sarah Hilliard Entrepreneurship Associate Phelps 1333 swhilliard@ucsb.edu * Slides are posted on TMP Website (“beyond the classroom” page)

Important Dates New Venture Fair New Venture Finals Wednesday May 2, 2018 Corwin Pavilion Plan to be available 3:30PM to 8PM (main event 5:00 to 8:00PM) New Venture Finals Thursday May 24, 2018 Plan to be available 1:30PM to 7PM (main event 3:00 to 6:30PM) Last Day to Submit NVF Application Sunday March 25, 2018 Don’t hesitate to complete and submit early

Resources NVC Seminars / Workshops Do you need a mentor? MVP Grant Business Model Canvas Market Sizing Developing Financial Projections Legal: Business Formation, IP Strategies TBD – April * Developing an Investor Pitch TBD – April * Pitch practice with mentors – April 24th Do you need a mentor? Send email to Sarah by 12PM Friday 3/9, explain the help you need MVP Grant Up to $300 for your Minimum Viable Product for market validation * All NVC students are welcome to attend these seminar workshops

Application Deliverables New Venture Fair Application Deliverables

Applying for the New Venture Fair Submit application no later than Sun, March 25, 2018 Preferably before March 18th No exceptions Text sections of application in MS Word or PDF format 1.5 spaced Prepare financial projections on spreadsheet Summary data (tables / charts) in PDF format Attach complete spreadsheet file for support

Applying for the New Venture Fair Application Contents - 4 Components Summary Information (1 page) Executive Summary of Business (3 pages max, 1.5 spaced, 12+ font) Draft of Business Model Canvas (1 page) Financial Projections Summary (1 page) Detail (attach spreadsheet file)

1. Summary Information Business name & tag line (if you have one) Logo Inspiration for your product / business idea Team bios (used for data collection only) Names, pictures, nationality / ethnicity Major area of study, level (U1, U2, U3, U4, GM, GP) Degrees earned, being pursued Anything else you’d like us to know about you

2. Executive Summary of the Business Overview of the business / product / service Problem being solved Value proposition (why your customers will pay for it) Benefits of your product, and how it differs from others Revenue model - how your business makes money Pricing, Upfront vs. Recurring Revenue, Product Sale, Subscription, etc. How the product works (i.e. the technology), if appropriate The market your business / product serves i.e. market size, market growth rates, competition, etc… Financial highlights 3-year revenue, product cost and gross margin projections

3. Business Model Canvas Include a draft of your Business Model Canvas What’s a Business Model Canvas? A lean startup template for developing a business model Critical elements: Value proposition Customers Revenue model / cost structure Infrastructure Finances Helps to align activities by illustrating potential trade-offs

Lean Launch: The Business Model Canvas 7 4 1 6 2 8 3 9 5

4. Financial Projections Market size Total, servable, target markets Units and dollars Proforma: Revenue, COGS, Gross Margin projections Three years Market penetration assumptions, projected unit sales, selling price Product costs related to your sales assumptions Optional: 3-year Pro-Forma Income Statement Summary Revenue, COGS and Operating Cost projections Templates / formats provided at upcoming workshops

Upcoming Events

Upcoming Events Date Time Event Location 8 Mar 6:00PM Workshop: Financial Forecasting ESB 1001 25 Mar 5:00PM Last Day to Submit New Venture Fair Applications Email 5 Apr 5:30PM Spring Kickoff for NVF Teams TBD April Seminar Legal & IP Developing an Investor Pitch 24 April Poster Board Pitch Practice with Mentors

After the Competition

The “Garage” Startup Incubator After the Competition The “Garage” Startup Incubator 1,500 sq. ft., Co-Working & Meeting Space Garage Floor - Mosher Alumni House Available to qualified UCSB students, alumni, affiliates Work on the Garage began after the competition two years ago, but it became a reality when the Alumni Association began to partner with us and we receive funding from the state under AB2664. Thanks to our friends at Alumni we’ve designed a 1500 foot space for co-working and events that will provide high-potential teams a place to to go AFTER the competition. I’d like to thank Sue Wilcox and George Thurlow for their support on this. Sue partner

The “Garage” Startup Incubator After the Competition The “Garage” Startup Incubator Home of the “G2” Summer Launchpad Mentor / Alumni Assistance Network Angel Investor Contacts Close Proximity to Key Campus Resources: Makerspace Development labs

“G2” Summer Launchpad Summer program to facilitate transition from academic environment to the real world Focus shifts from ideation and business model development… to ...product commercialization and business launch As mentioned earlier, the Garage will be the home of the G2 Summer Startup Launchpad A program designed to facilitate the transition - for high-potential UCSB startups - from the academic environment to the real world Accordingly, the focus moves from idea creation and business model development, to business launch and product commercialization The program is sponsored by the Goleta Entrepreneurial Magnet (GEM), which provides important funding

Quantifying Your Market Opportunity Why? Quantifying Your Market Opportunity Highlight the business opportunity for your stakeholders Display knowledge of your business and market Establish credibility and confidence Develop internal benchmarks

Identify / Quantify your Market Total Available Market (TAM) The total $$ potential within your market that your product/service serves Serviceable Addressable Market (SAM) The segment of TAM for which the value proposition of your product/service is strongest Serviceable Obtainable Market (SOM) (Target) The segment of SAM with the maximum potential given the current business model Believe all are familiar with concepts shown here, but w/.review quickly. TAM – big picture view of all buyer/seller relationships in the market for your product/service. SAM – that part of the TAM where your value proposition has the best fit Target mkt – That portion of the SAM where you think you can most successfully target your product/service

Total Available Market (TAM) The total $$ potential in your market that your product/service could theoretically serve Usually broad Not likely attainable Distribution limitations, development timelines, breadth of product line, etc. Important to capture only the market related to your business TAM – again, the whole array of buyer and seller relationships in the market you’re targeting – 1st cut. Broad brush – often covers wide range of buyers, sellers, products. Easiest to estimate and may find analyst reports or studies that can help.

Serviceable Addressable Market (SAM) The segment of TAM for which the value proposition of your product/service is strongest Sharpens the focus on a particular segment of the market Theoretically 100% attainable, not practical to attain it now Minimally attainable by a startup with limited resources SAM – a narrower focus since your value prop likely doesn’t apply to an entire, broad mkt. Examples:

Serviceable Obtainable Market (SOM) (AKA - Initial Target Market) Further refinement of the Servable Market Might be a demographic or geographic sub-segment of a market Fully attainable with 100% market share Enables focus given limited startup resources Your revenue forecast at launch should be based on a percentage of your defined SOM! Target mkt – further refinement of SAM; narrower focus, often specific demographic target

Total Available Market (TAM) Example 1 New seatbelt for airplanes What’s the TAM? The air travel market? The airplane market? The airplane accessories market? The seatbelt market for all types of vehicles Total airplane seats X the price of your product? TAM – again, the whole array of buyer and seller relationships in the market you’re targeting – 1st cut. Broad brush – often covers wide range of buyers, sellers, products. Easiest to estimate and may find analyst reports or studies that can help.

Serviceable Addressable Market (SAM) Example 1 New seatbelt for airplanes Initial design for luxury private jets jets What’s the SAM? The luxury private jet market ? The luxury private jet accessories market? The luxury private jet seatbelt market? TAM – again, the whole array of buyer and seller relationships in the market you’re targeting – 1st cut. Broad brush – often covers wide range of buyers, sellers, products. Easiest to estimate and may find analyst reports or studies that can help.

Serviceable Obtainable Market (SOM) Example 1 New seatbelt for airplanes Initial design for luxury private jets jets Only have resources for US distribution What’s the SOM? The US luxury private jet market ? The US luxury private jet accessories market? The US luxury private jet seatbelt market? TAM – again, the whole array of buyer and seller relationships in the market you’re targeting – 1st cut. Broad brush – often covers wide range of buyers, sellers, products. Easiest to estimate and may find analyst reports or studies that can help.

Total Available Market (TAM) Example 2 iPhone aftermarket camera accessory, fits only the 7 What’s the TAM? The cell phone market? The iPhone market? The iPhone 7 market? The iPhone accessories market? Total iPhones in the world X the price of your product? Total iPhone 7s in the world X the price of your product? TAM – again, the whole array of buyer and seller relationships in the market you’re targeting – 1st cut. Broad brush – often covers wide range of buyers, sellers, products. Easiest to estimate and may find analyst reports or studies that can help.

Serviceable Addressable Market (SAM) Example 2 iPhone aftermarket battery accessory, fits only the 7 Initial design is a bit large & heavy What’s the SAM? The iPhone market? The iPhone 7 market? The “heavy user” iPhone 7 market? The “heavy user” iPhone 7 owners X the price of your product? TAM – again, the whole array of buyer and seller relationships in the market you’re targeting – 1st cut. Broad brush – often covers wide range of buyers, sellers, products. Easiest to estimate and may find analyst reports or studies that can help.

Serviceable Obtainable Market (SOM) Example 2 iPhone aftermarket battery accessory, fits only the 7 Initial design is a bit large & heavy Have resources only for internet sales What’s the SOM? The on-line iPhone market? The on-line iPhone 7 market? The on-line iPhone 7 market for “heavy users”? The on-line iPhone 7 market for “heavy users” X the price of your product? TAM – again, the whole array of buyer and seller relationships in the market you’re targeting – 1st cut. Broad brush – often covers wide range of buyers, sellers, products. Easiest to estimate and may find analyst reports or studies that can help.

Total Available Market (TAM) Example 3 New app for grocery food shopping Transaction fee revenue model What’s the TAM? The food market? The grocery market? The grocery delivery market? Transaction fee x number of grocery purchases? Transaction fee x number of delivered grocery purchases? TAM – again, the whole array of buyer and seller relationships in the market you’re targeting – 1st cut. Broad brush – often covers wide range of buyers, sellers, products. Easiest to estimate and may find analyst reports or studies that can help.

Serviceable Addressable Market (SAM) Example 3 New app for grocery food shopping Transaction fee revenue model App targets premium grocery buyers What’s the SAM? The premium grocery market? The premium grocery delivery market? Transaction fee x number of premium grocery purchases? Transaction fee x number of premium delivered grocery purchases? TAM – again, the whole array of buyer and seller relationships in the market you’re targeting – 1st cut. Broad brush – often covers wide range of buyers, sellers, products. Easiest to estimate and may find analyst reports or studies that can help.

Serviceable Obtainable Market (SAM) Example 3 New app for grocery food shopping Transaction fee revenue model App targets premium grocery buyers Roll-out strategy starts with western states What’s the SOM? Transaction fee x number of premium grocery purchases in western states? Transaction fee x number of premium delivered grocery purchases in western states? TAM – again, the whole array of buyer and seller relationships in the market you’re targeting – 1st cut. Broad brush – often covers wide range of buyers, sellers, products. Easiest to estimate and may find analyst reports or studies that can help.

BulbsRus makes high-efficiency low-cost non-dimmable LED light bulbs Example: BulbsRus BulbsRus makes high-efficiency low-cost non-dimmable LED light bulbs TAM = worldwide LED lighting market SAM = worldwide non-dimmable LED lighting market SOM (Target) = non-dimmable commercial LED lighting in the US Believe all are familiar with concepts shown here, but w/.review quickly. TAM – big picture view of all buyer/seller relationships in the market for your product/service. SAM – that part of the TAM where your value proposition has the best fit Target mkt – That portion of the SAM where you think you can most successfully target your product/service

What if we’re disrupting a market? Believe all are familiar with concepts shown here, but w/.review quickly. TAM – big picture view of all buyer/seller relationships in the market for your product/service. SAM – that part of the TAM where your value proposition has the best fit Target mkt – That portion of the SAM where you think you can most successfully target your product/service

Example: NewKnee Therapeutics NewKnee makes a drug that eliminates the need for knee replacement surgery TAM Knee replacement market? Knee replacement patients X annual cost of the drug? Will simplified remedy grow the market ($$)? Will lower drug pricing vs. surgical option shrink the market ($$)? SAM Knee replacement patients that private pay X annual cost of the drug (insurance companies not yet reimbursing) SOM (Initial Target) Private pay knee replacement patients in teaching hospitals X annual cost of the drug Believe all are familiar with concepts shown here, but w/.review quickly. TAM – big picture view of all buyer/seller relationships in the market for your product/service. SAM – that part of the TAM where your value proposition has the best fit Target mkt – That portion of the SAM where you think you can most successfully target your product/service

Financial Forecasting

Financial Forecasting Our main objective for the New Venture Fair: Demonstrate a reasonable Gross Margin for the products / services being offered Gross Margin Revenue minus Cost of Revenue divided by Revenue = GM Example: Revenue = $1M, COGS or COR of $300K Revenue: $1,000,000 COGS / COR: 300,000 Gross Profit: $700,000 Gross Margin 70%

Building a Revenue Forecast Tells the story of how your business makes money Demonstrates your go to market / growth strategy Identifies various products / services offered Includes key assumptions and inputs

Building a Revenue Forecast Key inputs and assumptions Quantity Based on your SOM / target markets Assumed market penetration rates (must justify) Go to market strategy Average selling price May change over the planning horizon May differ for additional products Market growth rates Must be able to defend your assumptions Industry benchmarks, historical products, market validation

Forecasting Cost of Revenue The cost of providing your product / service to your customer For hardware / hard goods: Material, labor, overhead to produce the product For software Costs related to providing / supporting the product Customer support hotline, server infrastructure, etc. For now, we are not concerned with operating costs unrelated to providing the product / service Sales & Marketing, R&D, G&A (we’ll include these later) Theory: If you have a healthy enough GM, you will be able to absorb these operating costs

Financial Forecast – For the NV Fair Revenue, Cost of Revenue, Gross Profit, Gross Margin % Revenue and COGS for all products sold Gross Profit and Gross Margin % in aggregate Three-year time horizon State key assumptions Units sales quantity for each year Pricing over the planning period Growth rates Other?