How to Write a Fundable Business Plan Investing in Software Ann Winblad Stanford Startup School

2 Hummer Winblad Venture Partners First Fund Exclusively for Software Investing –Founded September 1989 $1B Under Management –8 investment professionals –Fund V: $420M (raised 2001) All Stages, focus on early stage including seed –Usually Part of First Round of Venture Funding –Usually Lead or Co-Lead 98+ Investments to Date: 16 IPOs, 31 Acquisitions

3 Investing: Steady State, ‘Rational’ Exuberance 2005: - $21.7B, 2,939 deals

4 Hummer Winblad Active Investments SUCCESS METRICS

5 Software: The Real Boom is Now New Ira of Innovation Number of Uses Economic Value of Each New Use Case Architectures New Uses

6 Challenge for Founders Unfair Competitive Advantage Customer Understanding Team Software Economics Product and Technology

7 Starting your Software Business Plan 1.What is your IDEA? 2.Who are the CUSTOMERS? 3.What is the SECRET SAUCE? 4.Can you attract EXCELLENCE? 5.Do the NUMBERS make sense?

8 Hooked in 15 Minutes

9 1. What is the Business? “Voltage replaces Public Key Infrastructure (PKI) with identity based encryption” VS. “Voltage Secures Anytime, Anywhere business communications”

10 2. Do YOU understand the market? “It’s a billion dollar opportunity” UNMET CUSTOMER NEED + GROWTH

11 2. Is the Need Real? OR

12 Market Timing Defining the Market OR Jumping Hurdles Already in Place

13 2. Up and to the Right? YOUR COMPANY HERE!

14 2. Product or Company? COMPANIES Do not live only in the PRODUCTS Tab!

15 3. Will Customers Beg? “There is an unlimited demand for our unreleased product” vs.

16 3. What is the Secret Sauce? - Technology / IP - Business Process - Partners - Domain Knowledge

17 4. Engineering Roadmap Can the product be built in less than one year?

18 4. Can you Attract Excellence? VP Eng. Marketing Sales CFO CEO

19 4. Do you Know what you Don’t Know? ?

20 5. Do the #’s Reach Software Economics? 80/20 Gross Margin EBITDA Revenue - Are services a major fraction? Capitalization – Total < 15M ? COGS – Are COGS > 30% ? Sales & Marketing – Commissions and quotas in line? Engineering – Does the Eng. plan match the Op. plan? G & A – Is the G&A < 10%, is it outsourced? P & L – Q over Q growth? Revenue per employee? Model – Enterprise vs. Salesforce model Cash Flow – How long does the initial investment last?

21 5. The Market Bats Last Customers: -They believe in your product and team -They have a budget -There is a common problem -You know how to reach them Venture Investors will dive deep with your customers “I only swing at strikes” - Warren Buffet

22 What VC’s Bring to the Table 3 P’s: People, Partners, Process $

23 Business Plan? “Why should I write a business plan – nobody reads them anyways” Why should I write a plan? How long should it be? Who will read it? Do I need an NDA? Do I need an exec summary?

24 10 Slides to Cover the Basics 1.Executive Summary (Problem + Unfair Advantage) 2.Team 3.Market Analysis (Size, Position, Competitors) 4.Secret Sauce Overview/Background 5.Key Assumptions 6.Customers (Potential or Reference-able) 7.Product Plan 8.Engineering Plan 9.Sales Model and Marketing Outline 10.Business Model / Financials/ Cash Flow

25 Ann Winblad