FEASIBILITY SUMMARY

HOW TO WRITE A

The 16th Annual Edward L. Kaplan, 71 New Venture Challenge 2011-12

Steve Kaplan Ellen Rudnick

AGENDA
PRESENTATION
REVIEW NVC TIMELINE FEASIBILITY SUMMARY: KEY ELEMENTS OUTSIDE - IMPACTS DOS & DONTS Q&A

WORKSHOP

AFTERWARDS
FAST PITCH CASUAL NETWORKING

TIMELINE
TODAY

NEW VENTURE CHALLENGE

Mar 26 Developing a New Venture (Bus 34104) begins April 27 Full Business Plans Due

Feb 6 Phase 1 Feasibility Summaries Due Feb 23

Phase 11 Teams Announced

Feb 28 Phase II Orientation Harper Center

May 21 Finalists Announced

May 24
NVC Finals Harper Center

JANUARY
Phase I

FEBRUARY

MARCH

APRIL
Phase II

MAY
Finals

DEADLINE
TODAY
Polsky Center Coffee Hour WEDNESDAY, JAN 11 4:30-5:30PM Creating an MVP for the NVC (Avi Stopper) TUESDAY, JAN 17 12:00-1:00PM Polsky Center Coffee Hour WEDNESDAY, JAN 18 4:30-5:30PM EVC Feasibility Summary Working Session TUESDAY, JAN 24 4:45-6:15PM Polsky Center Coffee Hour WEDNESDAY, JAN 25 4:30-5:30PM Polsky Center Coffee Hour WEDNESDAY, FEB 1 4:30-5:30PM

BETWEEN NOW & THE

Feb 6 Phase 1 Feasibility Summaries Due

JANUARY
Phase I

FEB

KEY ELEMENTS
COMPANY MISSION

FEASIBILITY SUMMARY

MANAGEMENT TEAM FINANCIAL INFORMATION

MARKET INFORMATION
PROPRIETARY ASPECTS REVENUE MODEL OPERATIONS MODEL

PROGRESS TO DATE
BUSINESS RISKS

MISSION
What are you selling? What problem are you solving? How big is the problem? Why should an investor read any further?

KEY ELEMENTS

MISSION EXAMPLES
ex 1
The company has developed the SalivaSac, a proprietary semipermeable 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.

KEY ELEMENTS

ex 2
The Companys 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.

MARKET INFO
How do you define your market? Who is the customer? What is the potential market size? How much do costumers buy?

KEY ELEMENTS

MARKET SIZING
$2.8B Art supply industry
Paint Brushes

KEY ELEMENTS

$558M (21%) Surfaces

Frames

75% market is price sensitive

$147M (25%) Prof artists

COMPETITION
How will you win?
Who are current players in the market? Who could be your competition in the future? What are your competitive (dis)advantages? How are you positioned with respect to competition? What barriers to entry will protect you?
o IP, Customer development process, etc.?

KEY ELEMENTS

TECHNOLOGY
Describe technology if there is a key differentiator / element of plan
Is it proprietary? Are there patents?

KEY ELEMENTS

Are there key milestones in terms of development or product testing?

What are the technology risks?

GO TO MARKET
What is your revenue model & go to market strategy?
How will you make money? Why will the customer buy your product/service? How will you get to the customer? What will the customer pay?
o Why are you sure the customer will pay this? o Have you spoken to customers?

KEY ELEMENTS

How many customers will you get?

OPERATION MODELS
How will you deliver this product/service?
Outsourced vs. in-house resources?

KEY ELEMENTS

Do the costs of providing this product/service provide a sufficient profit?

Are there execution risks?

MANAGEMENT TEAM
Who makes up your team? Advisors? Partners?
Who are they?

KEY ELEMENTS

Why are they relevant for this business?

How do you plan on filling these gaps?

KEY ELEMENTS

MANAGEMENT TEAM
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 Financials 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 Chicago Booth 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.

PROGRESS UP-TO-DATE
Milestones that have been achieved Patents, trademarks that have been filed Testing your business assumptions: Prototypes, MVPs, websites, focus groups, beta customers, etc.

KEY ELEMENTS

BUSINESS RISKS
What are you worried about?

KEY ELEMENTS

What do you plan to do about it?

COMPARABLES
Are there comparables in the industry or other industries that validate your business model?
Who are they and have they been successful?

KEY ELEMENTS

How are they valued and how did they get funded?
Have there been successful exits? Multiples? Have similar businesses failed? Why? (look for corpses)

EVALUATING A BUSINESS PLAN

STEVE KAPLAN

A FRAMEWORK FOR

How Will Angels and VCs Evaluate a Business Plan or Opportunity?

When I look at an opportunity, I use the following framework:

OUTSIDE- IMPACTS

OUTSIDE -IMPACTS

Opportunity, Uncertainty, Team, Strategy, Investment, Deal, Exit.

OUTSIDE-IMPACTS
(O) Opportunity: Is this a positive present value opportunity? (Does it have IMPACTS?)
(I) What is the idea / industry?
(M) Is the target market large enough to support substantial growth/valuation? (P) Why does the opportunity generate a positive present value? What is unique? (A) Acceptance: Will customers in that market accept / buy this new product / service? (C) Why won't the value be competed away? (T) Why is this a good time to enter? (S) Speed? How quickly can this be implemented?

OUTSIDE-IMPACTS
(O) Opportunity: Is this a positive present value opportunity? (Does it have IMPACTS?)
(I) What is the idea / industry?

Explain the idea / opportunity clearly and succinctly What problem does it solve? What is the pain point

(M) Is the target market large enough to support substantial growth/valuation?

How large is the overall market? How large is the market segment you are targeting? Who are the key customers? How many are there? What will they spend? Provide solid support for your analysis. Are there additional opportunities?

OUTSIDE-IMPACTS
(O) Opportunity: Is this a positive present value opportunity? (Does it have IMPACTS?)
(P) Why does the opportunity generate a positive present value? What is unique? What is differentiating?

The answer to this should be implicit in other parts of OUTSIDE-IMPACTS. But, doesnt hurt to be explicit. Why will you make money? How will you make money? What is your edge? First-mover advantage? Network effect Switching costs Execution Technology? Advantage? Defensible?

OUTSIDE-IMPACTS
Is this a positive present value opportunity? (Does it have IMPACTS?)
(A) Acceptance: Will customers in that market accept / buy this new product / service?

Who is the customer in the target segment? Put yourself in shoes of a customer. How does the customer spend the day Why will they buy your product / service? What do they buy now? Why do they buy what they do now? Why will they switch from their current product? How will you get to the customers? Direct Salesforce? Resellers? Distributors? How much of each? How quickly? Advertising How much will it cost? Common to underestimate time / cost How will you keep customers? How much will it cost?

OUTSIDE-IMPACTS
Is this a positive present value opportunity? (Does it have IMPACTS?)
(C) CUSTOMERS, CUSTOMERS, CUSTOMERS

Get beta sites, beta customers, etc. VC pitches Kathryn Gould

OUTSIDE-IMPACTS
(C) Why won't the value be competed away? What will existing competitors do? What will other new entrants do? How will you respond? (T) Why is this a good time to enter? Why hasn't the opportunity been taken already? (S) Speed? How quickly can this be implemented?

Good opportunities have positive IMPACTS.

If the opportunity does not have IMPACTS, then it should not be pursued.

OUTSIDE-IMPACTS
(U) Uncertainties: What are major uncertainties? Possible uncertainties: Market size Customer acceptance Customer approach Competition Management team Potential real options Which uncertainties can be managed so that outcome is more likely to be favorable? Choice of initial customers? Choice of investors? How do the answers affect the opportunity?

OUTSIDE-IMPACTS
(T) Team Can management team implement opportunity? How does previous experience relate to opportunity? How hungry is the management team? If management pieces are missing: What pieces are missing? What type of person will you look for to fill them? How will you find that person? For VCs, a good team and a good opportunity are necessities. (S) Strategy Is strategy consistent with opportunity, uncertainty, team, and exit?

OUTSIDE-IMPACTS
(I) Investment Requirements Forecasts and cash flow requirements Forecasts: What do investors look for? Possibility of 10x return Credible forecasts Growth, margins, exit value Analogs What do investors do? Cut forecasts in , by 2/3 Push out forecasts What should you do? Plausible best-case scenario

OUTSIDE-IMPACTS
(D) Deal Does deal structure provide appropriate incentives? Is the deal priced attractively? Do key individuals have incentives to do deal? Do key individuals have incentives to make deal work? Does deal structure provide / ensure appropriate governance? Does deal structure help manage the uncertainties?

(E) Exit

Can investors exit the deal? How? Is the deal priced attractively?

If an investment does not pass the OUTSIDE tests, leave it outside.

GrubHub.com
a website for finding and ordering from restaurants that deliver. have to call every restaurant in city to get menu / ask if and where they deliver. Info is hard to collect. M - Not a huge market, but large enough. Make money off on-line ordering. AUseful for consumers. Key issue is whether you can get them economically. Restaurants follow once consumers are engaged. PFirst-mover advantage / network effect for consumers. Costly and time intensive to get menu / delivery info. Consumers have no reason to switch because restaurants pay.

Bump
iPhone App to exchange contact info. Uses unique identification of two phones from: GPS Synchronicity of Bump AConsumers liked it / found it useful Huge piece of luck when billionth iPhone App PNetwork effect But what is M? I? How do you make money?

DOS AND

DONTS

AVOID CLICHS

DOS & DONTS

We have no competition.
We are the low cost provider.

We only need a 5% market share.

Our numbers are conservative.

AVOID ACRONYMS

DOS & DONTS

Dont assume everyone reading plan

has your knowledge base

When you use an acronym, explain it

TFT (the first time)

NO AUTOPILOT

DOS & DONTS

Make sure the car has a driver. Someone should be the current CEO. OK to say you will find a permanent / better one later.

BE CLEAR & BRIEF

Yes:
Middleware for wireless networks

DOS & DONTS

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.

CAPTURE ATTENTION

DOS & DONTS

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?

EXAMPLES & EXPERIENCES

Provide tangible examples / experiences wherever possible: Reference customers
o Actual customers best. Potential customers next best. o TALK TO CUSTOMERS. Describe what you discovered. o There is nothing more important than a customer! Focus on how you are going to get that first customer.

DOS & DONTS

Credible partners, suppliers, advisors, etc. Identify comparable businesses or business models

IN CLOSING

NEXT STEPS

CHICAGONVC.COM
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Link to online team building site where people can post ideas and team openings

RESOURCES

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FAST PITCH & NETWORKING

Get food, come back 30 mins of pitches
o Around the room, 45 sec per pitch

TONIGHT

Casual Networking

FAST PITCH & NETWORKING

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TONIGHT