1. Business Plan Preparation
Frank Moyes Leeds College of Business
University of Colorado Boulder, Colorado
Funding, Management, Competitive Advantage

2. Funding, Management, Competitive Advantage
Today’s Agenda
Management Plan
Competitive Advantage
Funding Plan
In the Fire
Operations Plan
Development Plan
Team Meetings
Hand-in:
Preliminary 5 year Income Statement
Funding, Management, Competitive Advantage

3. Funding, Management, Competitive Advantage
Two Weeks
Publishing your plan
Investor presentations
Executive Summary
Hand-in
Management Plan
Financial Plan (4 statements)
Income Statement
Balance Sheet
Cash Flow
Assumptions
Dec 6 & 7 workshop on investor presentations
Funding, Management, Competitive Advantage

4. Funding, Management, Competitive Advantage
Management Plan
Funding, Management, Competitive Advantage

5. Company Organization I
Describe how your company will be organized
Prepare an organization chart
Will you have a board of directors?  
Will you have a board of advisors?
Funding, Management, Competitive Advantage

6. Company Organization II
What is the ownership structure of your company?
What percent of the company do each of the founders own?
Do you plan to have a stock option plan? Incentive plan?
Funding, Management, Competitive Advantage

7. Funding, Management, Competitive Advantage
Management Team
Describe the founders and principal managers who will run your firm.
Write a short paragraph on each of the key managers?  (Include resumes in the Appendix)
What will be their duties and responsibilities?
What unique skills do they bring to the venture?
How will they be compensated?
Is there a significant “hole” in the team? How do you propose to fill it?
Funding, Management, Competitive Advantage

8. Competitive Advantage
Funding, Management, Competitive Advantage

9. Identify Your Resources
Human: social, employee knowledge, experience, accumulated wisdom, labor cost and skills, etc.
Intangible: patents, trade secrets, know-how, copyrights, databases, etc.
Organizational: culture, contacts, policies, Boards of Directors & Advisors, suppliers, service providers, etc.
Financial: access to capital (equity & debt), cash reserves, government grants, etc.
Physical assets: plant & equipment, raw materials, location, working capital, etc.
Funding, Management, Competitive Advantage

10. Identify Your Capabilities
Network - well developed, high-quality, accessible contacts that take years to build
Marketing - differentiation, branding, positioning
Product/service - design features & benefits
Sales & distribution - rep organization
Total operational approach - Dell, Wal-Mart
Supply chain management - Asia contacts
Relationships - regulators, politicians, investors
Funding, Management, Competitive Advantage

11. Barriers You Can Establish
Intellectual property
Switching costs to your target customer
Customer loyalty
Agreements with customers, suppliers, strategic partners
Control of the distribution channel
Funding, Management, Competitive Advantage

12. Funding, Management, Competitive Advantage
Funding Plan
Funding, Management, Competitive Advantage

13. Funding, Management, Competitive Advantage
Funding Plan
Determine requirements
Prepare Sources & Uses
Offering
Valuation
Funding, Management, Competitive Advantage

14. Funding, Management, Competitive Advantage
Funding Requirement
Look at Cash Flow from
Operating Activities +
Investing 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, Management, Competitive Advantage

15. Funding, Management, Competitive Advantage

16. Funding, Management, Competitive Advantage

17. Funding, Management, Competitive Advantage
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, Management, Competitive Advantage

18. Hecho en Casa Sources & Uses Statement
Financing
Amount
Ownership
Uses of Funds
Round A (June 2005)
$315,000
41.0%
Salaries $221,800
Inventories $ 60,100
Working Capital $ 16,400
Capex $ 15,000
Other $ 1,700
Round B (Oct. 2006)
$310,000
15.5%
Salaries $197,100
Inventories $ 79,200
Capex $ 30,000
Other $ 3,700
Round C (Q3 2007)
$170,000
4.0%
Salaries $122,000
Inventories $ 41,700
Capex $ 6,300
Funding, Management, Competitive Advantage

19. Funding, Management, Competitive Advantage
Financial Dynamics
Who does the financial projections?
Should my projections be optimistic or pessimistic?
Investor questions
Questions
Why does GP increase from 45% to 52% in yr 2?
If we reduce the investment in year 3 from $3KK to $1KK?
OR, increase from $3KK to $5KK?
Optimism vs Pessimism
Investors
VC's want size
Angels want to be involved & a return
Friends and Family want you to succeed
Hostage to fortune
VIDEO show
Funding, Management, Competitive Advantage

20. Funding, Management, Competitive Advantage
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, Management, Competitive Advantage

21. Advantages & Disadvantages
Advantages & Disadvantages
Equity
Debt
Grants
Non-traditional
Equity
Benefit: permanent capital
no later impact on cash flow
Expensive
Issues of control and decision making
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, Management, Competitive Advantage

22. Sources of Equity Funding
Sources of Equity Funding
Bootstrapping
F, F (and F)
Angels
Venture Capital
Guido
Funding, Management, Competitive Advantage

23. Funding, Management, Competitive Advantage
Valuation
Why do valuations?
Dilution: division of ownership between Investors and Founder
How does investor get a return?
Art - not a science
Funding, Management, Competitive Advantage

24. Methods for Determining Valuation
Methods for Determining Valuation
Discounted cash flow
Multiples
Earnings
10 x Net Income
6 x EBITDA
Revenue
Tangible book value
Venture Capital method
Funding, Management, Competitive Advantage

25. Valuation in the Financial Model
Uses your projections of income
Assumes a liquidity event in 5th year
How much do you need. Multiple rounds?
Investor IRR
Val-1
Val-2
Funding, Management, Competitive Advantage

26. Required Rates of Return
Required Rates of Return
5 yr.
Increase
ROI
Seed %+
Start-Up %
Early Stage %
Second Stage 40%
Exit %
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 customers
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, Management, Competitive Advantage