2007 Edward L. Kaplan New Venture Challenge

How to Write a Feasibility Summary Workshop

Linda DarraghEllen Rudnick

January 10, 2007

Proudly Sponsored by:

EDWARD L. KAPLAN, '70Chairman and CEOZebra Technologies Corp.

GUY P. NOHRA, ‘89

AGENDA

• Review of Timeline

• Key Elements of a Feasibility Summary

• Dos and Don’ts

• Q&A

2007 New Venture Challenge Timeline

Jan. 10 Guidelines for writing Executive Summaries

Feb. 5 Phase I Summaries due

Feb. 26 Teams advancing to Phase II announced

Mar. 5 Orientation Meeting in Hyde Park 6 – 9 pm

Mar. 26 Bus. 34104, Developing a New Venture, Begins

Apr. 27 Full Business Plans due

May 21 Finalists announced

May 24 Finals at Hyde Park Center, all day

Key Elements of a Feasibility Summary

• Company Mission or Objective• Technology or Proprietary Aspects of the Product/Service (if

appropriate)• Market Information• Competitive Landscape• Revenue Model• Operation Issues• Management Team• Financial Information (if available)• Business Risks

Key Elements for a Feasibility Summary

Mission (objective) of the business

• What are you selling?

• What business problem are you solving?

• How big is this problem?

• Why should an investor read any further? What is different?

Which is better?

Example 1: The company has developed the SalivaSac™, a proprietary semi-

permeable membrane that enables the collection in saliva of biochemical markers below 12 kilodaltons. The company will focus on finding those applications which meet this criteria and where there is an advantage to collecting a non invasive sample.

Example 2: The Company’s objective is to develop non invasive medical diagnostic tests. The first application is for using a proprietary saliva collection device to measure glucose levels in diabetics.

Key Elements for a Feasibility Summary

Technology• Describe technology if it is a key differentiator / element of plan.• Is it proprietary? Are there patents?• Are there key milestones in terms of development or product

testing?• What are the technology risks?

Key Elements for a Feasibility Summary

Market Information

• How do you define the market?• Who is the customer? • What is the potential size of the market? • How many customers? How much do they buy?

$ 2.8 Billion art supply industry

Surfaces: 21% or $558 Million

Paint

Brushes

Frames

75% market is price

sensitive

25% Prof artists or

$147Million

Key Elements for a Feasibility Summary

Competitive Landscape -- Why will you win?• Who are current players in the market? • Who could be your competition in the future?• What are your competitive advantages / disadvantages

• What barriers to entry will protect you? • IP• Customer• Development process

• How are you positioned with respect to the competition?

Firms

kCura (Relativity) In-house ● ● ● ● ● ○

CT Summation Both ○ ● ◑ ● ○ NA

Concordance *Both ○ ● ◑ ● ○ ●

iConnect *Both ○ ● ◑ ● ○ ○

Ringtail Both ● ● ● ○ ○ NA

Attenex Both ● ● ● ○ ○ ◑

Differentiation √ √ √ √

Nat

ive

Doc

ume

nt

Web

-bas

ed

Sea

rch

Tra

ckin

g

Red

actio

n

Hos

ting

/ In

-hou

se

*In-house, allow third party hosting

Analysis -

Main Competitors Feature Comparison

Rep

ortin

g

       Functionality

       Database Integration

       Integration w/other Tech

       Implementation Time

       Portability

       Ease of Use

       Price

       Criteria/Metrics

IV Smart PumpCPOEBarcode scannersPDA solutionOnline calcStd Calcxxx

Evaluation of Competitive AdvantagesEvaluation of Competitive Advantages

Best

Key Elements for a Feasibility SummaryOperations Issues:

• How will you deliver this product or service? - Make internally or use external resources?

• Do the costs of providing this product or service provide a sufficient profit?• Are there execution risks?

Revenue Model / Go to Market Strategy?• How will you make money?• Why will the customer buy your product?• What will the customer pay?

- Why are you sure the customer will pay this?- Have you spoken to customers?

• How will you get to the customer? i.e., distribution channel.• How many customers will you get?

Basic Channel Segmentation

InternetInternet

TelemarketingTelemarketing

Retail OutletRetail Outlet

DistributorsDistributors

Value-Added Partners

Value-Added Partners

Sales ForceSales ForceV

alue

-Add

of

Sal

e

Cost Per Transaction

High

High

Low

Low

Source: Friedman and Furey, The Channel Advantage

Key Elements for a Feasibility Summary

Management Team/Advisors/Partners• Who are they?• Why are they relevant for this business?• Do you have any holes in the management team?• How do you plan on filling these gaps?

e.g. Frank Smith, our CTO, has extensive experience in managing and building data warehouses. He previously served as Vice President in charge of Thompson Financial’s database management systems, and worked as a consulting manager with IBM for organizations building data warehouses. Frank received a B.S. in computer science from MIT and an MBA from the Chicago GSB with a concentration in operations.

e.g. We currently are looking for a Director of Sales. We have identified several individuals in data/information companies also selling to the Fortune 500 companies, consulting and investment firms that would be interested once we have secured our financing.

Key Elements for a Feasibility Summary

Financial Information (if available)• What are your economics? (use unit model analysis if appropriate)• What are your key assumptions?• Why will you eventually make money / go cash flow positive?

- When will this happen?• How much money do you think you will need?• How big will you get?• Eventually, this section will need to get very detailed.

Business Risks• What are you worried about / unsure of?• What do you plan to do about it?

8%

11%

11%

19%

13%

38%

Unit Economics

Sales & Marketing

Customer Service

Sensors, Gateways and Other Technology

Maintenance, Insurance and Overhead

Transaction Processing and Wireless Data

Operating Profit

% o

f C

om

pan

y A

BC

Rev

enu

e

Financial Projections

Cash flow positive in Q4Y2

Revenue$17 M

Expenses

Net Income and

Cash Flow$4.1 M

($1 M)

$1 M

$3 M

$5 M

$7 M

$9 M

$11 M

$13 M

$15 M

$17 M

Year 1 Year 2 Year 3 Year 4

Management

Contracts: 3 45 135 267

Markets: SF LA Seattle Houston

Financials

2005 2006 2007 2008 2009Revenue $122,500 $612,500 $1,000,000 $1,643,750 $2,000,000Cost of Goods Sold $73,500 $312,500 $555,000 $848,750 $1,037,500Gross Income $49,000 $300,000 $445,000 $795,000 $962,500Operating Expenses $223,900 $283,100 $374,000 $529,375 $622,300Net Income (Loss) ($186,100) $3,300 $47,600 $208,297 $203,808

Gross Margin 40.00% 48.98% 44.50% 48.37% 48.13%EBITDA ($174,900) $16,900 $71,000 $265,625 $340,200IRR N/A N/A -27.87% 34.85% 58.38%Owner Interest $75,000 73.00%Angel Investment $200,000 27.00%

Assumptions

Revenue:• Sales cycle: 6 months• Installation: 50% at contract signing, 30% mid-term, 20% upon

completion• Annual subscription fee: $xx per seat• 2 contracts signed by x/x/0x; 4 by x/x/0x, …..

Expenses• Payroll: see attached table of payroll and benefits for founders,

new hires and independent contractors• Work virtually until x/x/ox, then move into incubator• Marketing plan for ‘0x includes 2 trade shows in Feb and Sept.,

new trade booth purchased in January, development of collateral material, ……..

Comparables

Are there comparables in the industry or other industries that validate your business model?

• Who are they and why have they been successful? • How are they valued and how did they get funded?• Have there been successful exits? Multiples• Also look for the ‘corpses’. Have similar businesses failed?

Why?

Dos and Don’ts

Clichés to Avoid:• We have no competition.• We are the low cost provider.• We only need a 5% market share.• Our numbers are conservative.• We have the first mover advantage.

Avoid Acronyms (or at least explain them)• Don’t assume everyone reading plan has your knowledge base

Make sure the car has a driver.• Someone should be the current CEO. OK to say you will find a

permanent / better one later.

Dos and Don’ts

Be Clear and Brief

• Yes: Middleware for wireless networks• No: Develops and delivers an integrated suite of packaged

applications for web and wireless deployment. Global enterprises use these applications to become more competitive and profitable by establishing and sustaining high-yield interactions and transactions with customers, suppliers, and employees.

Be Realistic

• Avoid the hockey stick effect unless you have assumptions to back it up

Dos and Don’ts

Capture the reader’s attention – fast• Typical VC will not read past the first page• Should answer the following questions in the first page

- What is the opportunity?- Why does anyone care?- How will it be achieved?- What is your unique differentiator?

Provide tangible examples / experiences wherever possible: • Reference customers,

- Actual customers best. Potential customers next best.- TALK TO CUSTOMERS. Describe what you discovered.- There is nothing more important than a customer! Focus

on how you are going to get that first customer.• Credible partners, suppliers, advisors, etc.• Identify comparable businesses or business models

Questions?