11/27/12  

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Finance  Econ  138,  UCSC  

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1.  Announcement  &  news  2.  Assignment  3.  Business  plan  4.  Financial  model  5.  Funding  

Finance  

Agenda  

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Assignment  8  PresentaEon  

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•  Create  a  PowerPoint  presentaEon  showing  your  business  model  •  10  slides  (max.)  •  3  minutes  (max.)  •  All  required  informaEon  should  be  on  the  slides  or  in  the  ppt  notes,  so  that  we  can  verify  completeness  outside  of  class  

•  Give  presentaEon  in  secEon  •  Get  the  TA’s  sign  off  

•  PracEce  your  presentaEon  •  Email  me  your  slides  by  6  a.m.  on  Monday,  12/3  •  Hand  in  a  paper  copy  before  you  present  

Assig

nmen

t  8  

Create  and  give  presentation  

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1.  Title  Logo,  company  name,  your  names  2.  Team  Names,  relevant  background    3.  Original  business  model  Problem  and  soluEon  4.  Market  validaEon  Interview  &  landing  page  results  5.  Revised  business  model  Problem  and  soluEon  6.  Revenue  model  Main  revenue  stream,  pricing  7.  Market  size  Target  customer,  TAM  8.  MarkeEng  plan  Channels,  engine  of  growth  9.  CompeEEon  CompeEtors  &  comp.  advantages  10.  Thank  you  Logo,  name,  email,  your  names  

Assig

nmen

t  8  

Presentation  deck  

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Criterion   Weight  

Content   75%  

Has  Etle  and  team  slide   5%  

Problem  and  and  iniEal  soluEon  well  explained   10%  

Lessons  learned  from  interviews  and  landing  page  clearly  explained   10%  

Revised  problem  and  soluEon  reflect  lessons  learned  and  well  explained   10%  

Revenue  model  and  pricing  reasonable  and  well  explained   10%  

Target  customer  defined  and  market  size  esEmated   10%  

Channels  &  customer  acquisiEon  strategy  reasonable  and  well  explained   10%  

All  compeEtors  idenEfied  and  key  differenEators  well  explained   10%  

Presenta2on   25%  

Professional  looking  slides  with  correct  grammar  and  spelling   15%  

PresenEng  without  looking  at  slides   10%  

Finish  on  Eme  (-­‐5%  for  every  10  sec.  past  3  min.)   0%  

PresentaEon  emailed  on  Eme  (-­‐10%)   0%  

Handed  in  paper  copy  (-­‐10%)   0%  

Assig

nmen

t  8  

Presentation  criteria  

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Business  plan  Finance  

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Business  plan  

• Wriden  descripEon  of  what  a  new  business  plans  to  accomplish  • Dual-­‐use  •  Helps  employees  operate  in  sync  

•  Argues  that  firm  is  good  investment  

Busin

ess  p

lan  

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1.  Cover  page  2.  Company  purpose  3.  Problem  4.  SoluEon  5.  Why  now  6.  Market  size  7.  CompeEEon  8.  Product  9.  Business  model  10.  Team  11.  Financials  Bu

siness  p

lan  

Sequoia  Capital:  WriEng  a  business  plan  

Outline  of  Business  Plan  (12-­‐20  slides)  

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Do  you  need  a  business  plan?  

•  You  don’t  need  a  40-­‐page  Word  document  •  Most  business  plans  don’t  survive  

the  first  customer  contact  •  A  plan  is  staEc,  a  model  is  

dynamic  •  You  need  a  12-­‐page  PowerPoint  presentaEon  for  •  hiring  first  employees  •  gehng  early  customers  •  raising  money  

•  You  need  a  financial  model  •  Shows  you’ve  done  your  

homework  and  your  assumpEons  •  Use  for  fundraising  and  internal  

monitoring  and  prioriEzaEon  

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Steve  Blank:  Love/Hate  Business  Plan  CompeEEons;  Mark  Suster:  Are  Business  Plans  SEll  Necessary?;  Vivek  Wadhwa:  Ditch  the  Biz  Plan,  Buy  a  Lodery  Ticket  

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Financial  model  Finance  

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“Pro%it  in  a  business  is  like  gas  in  a  car.  You  don't  want  to  run  out  of  gas,  but  neither  do  you  want  to  think  that  your  road  trip  is  a  tour  of  gas  stations.”  

Mod

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Tim  O'Reilly    

hdps://plus.google.com/107033731246200681024/posts/iZvW7pgcy6m     18  

Financial  planning  

•  Sales  forecast  •  Random  for  startups  •  Assume  0  for  1st  year  

•  Forecast  of  costs  •  Project  headcount  and  other  expenses  

•  Determine  burn  rate  and  length  of  runway  

Mod

el  

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Financial  model  

• Monthly  plan  for  the  first  24  months,  annual  plan  for  year  3,  4  and  5  •  Revenue  •  How  big  the  market  is  •  What  share  you’ll  get  •  AssumpEons  

•  Costs  •  COGS  •  Customer  acquisiEon  costs  M

odel  

Mark  Suster:  Are  Business  Plans  SEll  Necessary?   20  

Funding  Finance  

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Bootstrapping  •  Low  growth  •  Unproven  management  

Debt  •  Strong  cash  flow  •  Good  management  

Equity  •  High  growth  •  Proven  management  

Fund

ing  

How  to  fund  your  business  

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Fund

ing  

Kauffman  FoundaEon:  Money  Game  (3:34)  

Where  do  entrepreneurs  get  their  money?  

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Sources  of  funds  

Owner  Equity  46%  

Owner  Debt  19%  Insider  

Equity  3%  

Insider  Debt  7%  

Outside  Equity  3%  

Outside  Debt  22%  

%  of  firms  

40,536  

15,765  

44,956  

47,873  

354,540  

128,706  

0   200,000  400,000  

Owner  Equity  

Owner  Debt  

Insider  Equity  

Insider  Debt  

Outside  Equity  

Outside  Debt  

Average  amount  ($)  

Fund

ing  

Kauffman  Firm  Survey:  hdp://www.nber.org/papers/w16272     25  

Sources  of  funds  for  high-­‐growth  Jirms  

Fund

ing  

hdp://www.1000ventures.com/venture_Funding/business_angels.html    

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Fund

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hdp://en.franceangels.org/Business-­‐Angels/The-­‐Funding-­‐cycle    

Typical  amount  raised  for  high-­‐growth  Jirms  

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“Bootstrapping  has  forced  us  to  focus  on  what  works,  and  on  gaining  traction.  The  right  time  to  take  money  is  when  you  have  something  that  works  and  you  want  to  blow  it  out  of  the  water  with  explosive  growth.”  

Fund

ing  

Pointabout  team  

Vivek  Wadha:  Advice  From  Founders  Who  Bootstrapped  Their  Way  to  Success  

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How  to  bootstrap  

•  Founders  &  employees  •  Minimize  personal  expenses  •  Crowdsource  &  outsource  •  Hire  interns  •  Pay  with  stock  

•  Customers  •  Charge  them  •  Obtain  payments  in  advance  

•  Rent  •  Work  from  home  •  Share  office  space  

•  Equipment  •  Save  on  furniture  •  Buy  used,  not  new  equipment  •  Pool  funds  and  buy  bulk  food  •  Get  whatever  you  can  for  free  •  NegoEate  everything  •  Lease  instead  of  buying  Fu

nding  

Maple  Buder:  10  bootstrapping  /  startup-­‐life-­‐hacks  we’ve  learned  (so  far)   30  

Sources  of  debt  Jinancing  

•  Leasing  • Credit  Cards  •  Friends  and  family  • Peer-­‐to-­‐Peer  lending  • Commercial  banks  •  SBA  guaranteed  loans  •  Strategic  partners  

Fund

ing  

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Peer-­‐to-­‐Peer  lending  networks  

Fund

ing  

www.prosper.com,  www.lendingclub.com      

Prosper   Lending  Club  

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Small  Business  Administration  (SBA)  guaranteed  loan  program  •  Apply  for  a  SBA-­‐backed  loan  at  your  local  bank  •  SBA  guarantees  repayment  •  50%  of  US  banks  parEcipate  •  You  qualify  only  if  you  are  not  able  to  get  credit  elsewhere  

•  Size  and  types  of  loans    •  SBA  guarantees  up  to  85%  on  loans  up  to  $150,000  and  75%  on  loans  over  $150,000  

•  Loan  can  be  used  for  almost  any  business  purpose  

Fund

ing  

U.S.  Small  Business  AdministraEon  

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Strategic  partnerships  

•  Share  the  costs  of  product  or  service  development  • Gain  access  to  parEcular  resources  •  Facilitate  speed  to  market  

Fund

ing  

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FFF   Crowdfunding   Incubators  

Business  Angels   Venture  Capital   IPO  

Fund

ing  

Sources  of  equity  Jinancing  

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Crowdfunding  

•  Online  pooling  of  money  to  support  efforts  started  by  others  

•  House  passed  bill  on  11/3/2011      •  Exempt  companies  raising  up  to  $2  million  from  SEC  registraEon.    

•  No  individual  can  put  up  more  than  $10,000  or  10  percent  of  annual  income,  whichever  is  less  

•  Investors  will  not  count  toward  the  500-­‐shareholder  cap  

Fund

ing  

Kent  Hoover:  House  Passes  Crowdfunding  Bill   36  

Incubators  and  accelerators  

Fund

ing  

Wikipedia:  Business  incubator  

• Programs  designed  to  accelerate  development  of  startups  •  Access  to  mentors,  angels  &  VCs  

•  Business  training  •  Constant  feedback  •  Deadlines  

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Fund

ing  

www.accelerato.rs    

One  form  to  rule  them  all  

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Fund

ing  

hdp://www.incubatorincubator.com/    

Incubator  of  incubators  

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•  hdp://www.startupchile.org/  •  Accelerator  program  created  by  the  Chilean  government  •  US$40k  of  equity-­‐free  seed  capital  •  Live  in  Chile  for  6  months  •  ApplicaEon  deadlines  •  Round  1:  Scheduled  for  March,  2012  •  Round  2:  TentaEvely  scheduled  for  July  2012  •  Round  3:  TentaEvely  scheduled  for  October  2012  

Fund

ing  

Start-­‐Up  Chile  

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Fund

ing  

hdp://www.techstars.com/  (3:33)    

TechStars  

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Business  angels  

•  Individuals  who  invest  their  personal  capital  in  start-­‐ups  •  $10,000  -­‐  $500,000  per  deal  • Provide  contacts  and  advice  

Fund

ing  

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Fund

ing  

What’s  The  Real  Deal  With  AngelList?  

AngelList  

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Fund

ing  

Ron  Conway  &  Mike  Maples  :  What  Does  an  Angel  Investor  Do?  (2:35)  

What  does  an  angel  investor  do?  

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Venture  capital  

• Money  invested  by  venture-­‐capital  firms  in  start-­‐ups  with  great  growth  potenEal  •  650  VC  firms  fund  about  2,600  firms  per  year  •  Limited  partnership  •  $75-­‐  $200  million  per  fund  •  Invests  in  20  -­‐  30  companies  over  3-­‐5  years  

Fund

ing  

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VC  terms  

•  Term  sheet  • Cap  table  •  Series  A/B/C  • Pre-­‐money  &  post-­‐money  valuaEon  

Fund

ing  

The  500  Group:  Glossary  of  venture  capital  terms;  VERI:  Understanding  term  sheets   47  

Fund

ing  

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How  much  VC  money  should  you  aim  for?  

Fund

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Mark  Suster:  What  is  the  Right  Amount  of  Money  to  Raise  at  a  Startup?,  Do  You  Really  Even  Need  VC?;    Vivek  Wadhwa:  Startups:  Poverty  is  Underrated.  Be  Glad  That  You’re  Not  Rich;  Paul  Graham:  How  to  fund  a  startup  

Probably  nothing   But  if  you  do  •  “When  someone’s  passing  you  the  hors  d’oeuvres  tray  always  take  two.    But  don’t  take  the  whole  tray.”  

•  Raise  12-­‐18  months’  cash,  but  not  24    

•  Add  a  buffer  

•  VCs  want  big  outcomes  •  Preserve  your  opEons  •  Pressure  to  bring  in  “grown  up”  supervision  

•  You  lose  control  •  You  spend  less  Eme  thinking  about  customers  and  more  about  your  board  

•  VCs  get  their  investment  back  first  in  any  sale  

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You  won’t  get  angel  or  VC  money  anyway  

• Venture  Economics  database  •  <5%  of  venture  capital  goes  to  startup/seed-­‐stage  companies  

•  Survey  of  549  successful  companies  •  Only  9.2%  had  received  angel  funding  

•  Only  10.8%  raised  venture  capital  at  any  stage  Fu

nding  

Vivek  Wadhwa:  Ditch  the  Biz  Plan,  Buy  a  Lodery  Ticket;  PricewaterhouseCoopers  MoneyTree  report,  Q3  2011    

$  (million)  

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Fund

ing  

www.thefunded.com  

But  if  you  do,  pick  the  right  VC  

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Fund

ing  

Foundry  Group:  I’m  a  VC  (5:56)  

I’m  a  VC  

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Initial  Public  Offering  (IPO)  

• Raise  equity  capital  • Raise  firm’s  public  profile  •  Lets  investors  cash  out  • Creates  currency  for  M&A  

Fund

ing  

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Fund

ing  

Guy  Kawasaki:  Funding  Choices  (1:42)  

Funding  choices