New Venture Competition 2019 Market Sizing Forecasting Announcements / Reminders

Important Dates New Venture Fair New Venture Finals Thursday 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 29, 2018 Plan to be available 1:30PM to 7PM (main event 3:00 to 6:30PM) New Date !!

Resources Mentors MVP Grant Wilcox Incubator (The Garage) Mixer tomorrow night – 6PM – The Garage Incubator at Mosher Strategic Planning Session with Stuart Jenkins and his new startup, Monday Feb 11, 4:30PM to 6:30PM, the Garage Trusted Peer MVP Grant Up to $500 for development of your Minimum Viable Product Wilcox Incubator (The Garage) For team meetings

Upcoming NVC Events

Winter Events Date Type Topic Attendees Location Feb 5 Workshop Defining / Quantifying the Market All Teams Phelps 1437 Feb 6 General Team / Mentor Mixer The Garage Feb 12 Business Model Canvas Workshop Teams Feb 19 Defining and Quantifying the Market - Teams Present Feb 26 Bus. Mod. Canvas – Teams Present Mar 5 Revenue & COGS Forecasting Mar 7 New Venture Fair Requirements ESB 1001 Mar 12 Revenue & COGS Forecasting – Teams Present

Spring Events Date Type Topic Attendees Location Apr 4 General NVC Spring Kick-off - Preparing for the NV Fair All Teams ESB 1001 Apr 9 Workshop Go to Market Strategies Workshop Teams Phelps 1437 Apr 16 Go to Market – Teams Present Apr 17 Developing Poster Board & Investor Pitch Deck Apr 23 Telling the Story & Pitch Practice (Mini Fair) Apr 30 Legal – IP & Corporate Formation May 2 New Venture Competition Fair Qualified Corwin May 29 New Venture Competition Finals Voted

Defining and Quantifying Your Market Opportunity Why? Highlight the business opportunity for your stakeholders Develop and display knowledge of the business and the 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) AKA Target or “Launch” Market The segment of SAM with the maximum potential given the current business model Identifiable “traction” 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

Identify / Quantify your Market TAM, SAM, SOM Very useful for thinking about and segregating your market Not always ideal for explaining or presenting it Don’t feel restricted to using these labels !! 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 within your market that your product/service could theoretically serve Broad by definition Not likely attainable Distribution limitations, resource limitations, launch timelines, initial focus 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.

Total Available Market (TAM) Example 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) 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 Likely not 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 Addressable Market (SAM) Example New seatbelt for airplanes Initial design is 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) (AKA - Initial Target or Launch 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 should be based on a percentage of your defined SOM! Target mkt – further refinement of SAM; narrower focus, often specific demographic target

Serviceable Obtainable Market (SOM) Example 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 X What’s the TAM? The cell phone market? The iPhone market? The iPhone X market? The iPhone accessories market? Total iPhones in the world X the price of your product? Total iPhone Xs 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 X Initial design is a bit large & heavy What’s the SAM? The iPhone market? The iPhone X market? The “heavy user” iPhone X market? The “heavy user” iPhone X 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 X 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 X market? The on-line iPhone X market for “heavy users”? The on-line iPhone X 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? Avg. transaction fee X number of grocery purchases? Avg. 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 (SOM) 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.

Example: Bulbs-R-Us TAM = worldwide LED lightbulb market Bulbs-R-Us has new technology to make high- efficiency low-cost LED light bulbs First Product is a non-dimmable bulb Initial market identified = commercial TAM = worldwide LED lightbulb market SAM = worldwide non-dimmable LED lightbulb 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 offers a novel treatment that eliminates the need for knee replacement surgery TAM Knee replacement market? Knee replacement patients X annual cost of treatment? Will new, simple treatment grow the number of patients? Will lower pricing (treatment vs. surgical) reduce the $$ market? SAM Assume only appeals to private pay insured today (non-medicare) Knee replacement patients - private pay X annual cost of treatment SOM (Initial Target = teaching hopsitals) Private pay knee replacement patients in teaching hospitals X annual cost of treatment 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

Takeaways There is often times no single right answer You have to develop a case, and justify it Justification may require top-down and bottoms up analysis Top-down Utilize market research to determine how many users meet your different characteristics What is the industry? What is its growth rate? Possible Resources Thompson One (Thompson Reuters Database) Lexis Nexis Bottoms-Up Customer lists, trade associations, other sources of customer information Identify how many customers there are, and how many end users each customer has Use industry data and market validation feedback to determine pricing Your assessment of market size (SOM especially) will change as you perform market validation and acquire new information from customers

Financial Forecasting

Financial Forecasting Our main objective for the New Venture Fair: Forecast revenue for three year horizon after launch Units and dollars Forecast cost of revenue Cost of product or service being sold Forecast gross profit Demonstrate reasonable Gross Margin for products / services offered Address key operating cost metrics Customer acquisition cost Customer churn rate (if applicable) Lifetime value of customer

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 Market penetration Pricing Revenue model Growth rates

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 Be able to defend your assumptions Industry benchmarks, historical products, market validation

Forecasting Cost of Revenue / Gross Profit 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. Gross Profit (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%

Key Operating Metrics Customer acquisition cost Cost to acquire a new customer Costs related to finding and winning a new customer divided by the number of new customers Sales, marketing costs related to customer acquisition Customer churn rate (if applicable) What is the rate of customer retention, year after year? The inverse is your churn rate Lifetime value of the customer How much revenue is made from one customer, before they churn The goal: Lifetime value > Customer acquisition cost

Other Operating Costs R&D G&A Optional to forecast these for the New Venture Fair If we can demonstrate a healthy enough Gross Profit Margin, we can make a reasonable assumption (under most circumstances) that will be able to absorb these operating costs to make an acceptable Operating Profit Margin What if cost of revenue in the launch phase does not demonstrate a healthy Gross Profit Margin?

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 Key Operating Metrics Three-year time horizon (forecast by year, not quarter) Template will be provided Not mandatory to use – your model may be different State key assumptions Unit sales quantity, pricing, growth rates Office hours will be offered