1C21 - April 21, 2008
Business 54 - Introduction to eCommerce
Spring 2008
2C21 - April 21, 2008
Class Game Plan
The Startup Game I.
Question and Answer.
Lab Time.
3C21 - April 21, 2008
The defining document for your eCommerce business.
Also applicable for corporate eCommerce initiatives.
Usually averages about 40 pages in length with tables-charts.
Consolidates-unifies your Business Strategy, Business Model and Revenue Model.
Your calling card for investors and corporate decision-makers / approvers.
Key Sections of the Business Plan include:• Executive Summary• Market Demographics• Marketing and Product Strategy• Staffing-Management Team• Historical and Prospective Financial Statements and Investment Returns
The Business Plan
4C21 - April 21, 2008
Business & Revenue Model Re-CapBusiness Models Business to Consumer.
Business to Business.
Peer to Peer.
Communities.
Exchanges-Marketplaces.
Coercive-Governmental.
Revenue Models Banner-Advertising.
Subscription.
Transactional.
‘Begging’-Donations.
Middlemen.
Taxation.
5C21 - April 21, 2008
Three Year Financials Financials provide the ‘Burn Curve’.
The Business Plan must contain at least three years of revenue cost projections; most investors prefer 5 years.
Financials also provide the timing and size of the Return On Investment (ROI).
Old Rules of the Game • Spend, Spend, and Spend some more!!!!!!!!!!• No interest in making a profit• Additional investment always available
New Rules of the Game / New “Burn Curve’:For eCommerce businesses For Fortune 1000 initiates
• Year One Lose $ Incur costs; See no benefits• Year Two Break even Benefits begin to flow• Year Three Start to make a profit Positive Net Present
Value /ROI
6C21 - April 21, 2008
Raising the Money Also called the Money Chase.
Will consume the company and senior management until you achieve cash neutrality.
The single, most important job for Founder/CEO at this stage of company development.
The Money Chase has a number of progression steps and funding levels:• Sweat Equity• Friends and Family• Dumb Money• Angels• Smart Money / Strategic Partners• Venture Capitalists• IPO
May not pass thru all levels. May skip some steps-levels.
Need to balance debt and equity fundraising.
Week Four
7C21 - April 21, 2008
Dilution A natural consequence, albeit a disappointing part, of the Startup game.
Basically trading off ownership and control for investment dollars.
Typical Dilution Timeline:Ownership 100 95 85 55 33 20%
Control 1 BoD 2 BoD 3-5 BoDSeat Seats Seats
Investment Sweat F&F Angel VC VC IPOLevel Equity Round Round 1 Round 2
Company $0 $1mm $3-5mm $9-12mm $20-24mm $50mm+Valuation
Your Value $0 $.95mm $2.6mm $4.9mm $6.7mm $10mm+
8C21 - April 21, 2008
‘Sweat Equity’
How you get started with an eCommerce business == self-funding
Sources of funding:• Bank Account / Savings• Credit Cards• Free Labor (you, your CFO, CTO and CMO)
Most important thing is Vision and Passion!
Don’t forget to keep your day job!
Remember to place a value on your own time ($50/hr) and be critical of your time investment.
9C21 - April 21, 2008
Friends & Family
Best described as the Bank of Mom & Dad.
Generally Unsophisticated Investors.
Also, Emotional Investors.
May not be interested in a return on their investment (or even the repayment of the original investment).
Usually funds in the $50k to $100k range.
10C21 - April 21, 2008
‘Dumb’ Money Also called D & D Money.
Investors Only bring cash to the company.
No Connections, Introductions or Management Expertise.
Each Individual Investor puts in $25K or less.
Lots of work for very little investment
Need a Subscription Agreement --- Must be Accredited Investors.
Bragging Rights / Ego is key to this class of investor.
11C21 - April 21, 2008
Angel Investors Semi-formal association of sophisticated High Net Worth investors who
invest as a group.
Like early stage companies / ideas, especially in technology.
Like to cash out early.
Usually regionally based (e.g., Bay Area Angels) and only fund ‘local’ companies.
Sponsor dinners / presentations / conferences.
Normal Investment ranges from $500k to $1.5mm.
12C21 - April 21, 2008
‘Smart Money’ & Strategic Partners Investment by Non-Financial Companies:
• EMC• IBM• Sun• Microsoft
Intent is to further basic technical research or to gain early access to breakthrough products.
Investment specifically targeted to Large Company’s own interests:• Sun = Server & Chip Technology• EMC = Disk Technology & Software
Investment usually takes the form of Vendor Financing (Debt, not Equity) for the startup to purchase the Investor’s products and services.
13C21 - April 21, 2008
Can be useful to gain access to large potential Fortune 1000 Customers and/or utilize the Partner's Sales Force/Reseller Channel.
Startup can be easily acquired at a poor valuation or as a debt restructuring by the Investor.
‘Smart Money’ & Strategic Partners
14C21 - April 21, 2008
The last round of investors before going public. Investment ranges from $5mm to the sky.
VC’s provide much more than money:• Board of Directors memberships on competing or aligned firms.• Executive level guidance and coaching.• Promotion-Publicity.• Promise of Addition / add on rounds.
BUT CAN BE VERY DEMANDING!!!!!!!!!!!!!!!!!!!!!!!!!!
They only invest in companies which meet their thresholds• $100mm revenue potential within three years.• Projected net income before taxes = 20% of revenues.• Disruptive ideas or technology.
Venture Capitalists
15C21 - April 21, 2008
% of Revenues.• Disruptive ideas or technology.
Set performance targets, which if not met result in:• Claw Back• Cram Down• New Management Team
Some ‘Big Name firms’ are:• Kleiner Perkins (SFO)• Benchmark Partners (Palo Alto)• Flatiron / Chase Capital Partners (NYC)• Accel Partners (Palo Alto)
Venture Capitalists
16C21 - April 21, 2008
Exit Strategies Today there are three preferable exit strategies:
• IPO• Sale-Merger at a good valuation• Annuity-Family Business
Return-wise, IPO is best.
Two bad exit strategies:• Bankruptcy --- Chapters 7 or 11• Sale-Merger at a bad valuation
More and more eCommerce companies are turning into annuities-family businesses:• Today’s company valuations are poor.• Less fundraising needed.• Less pressure to succeed / Fewer penalties for missing targets.• Founder can remain with the company / retain or pass control.
17C21 - April 21, 2008C17 - April 7, 2008
Questions……
(and maybe some) Answers
18C21 - April 21, 2008C17 - April 7, 2008
Lab Time
Visit GoBig http://www.gobignetwork.com/small-business-funding/?gclid=CMmu6MDh6pICFRwqagodXTy14Q Look for investors or be an investor and look for companies /
ideas.
Visit Accel partners. http://www.accel.com Check out a traditional VC in Silicon Valley.
Which seems to be the better route to financing your idea?