financing the online business

Copyright 2001 Brett J. TroutCopyright 2001 Brett J. Trout

Financing the On-Line Financing the On-Line BusinessBusiness

Bretttrout.comBretttrout.com


Information Technology Information Technology professionals are notoriously professionals are notoriously bad at creating a business bad at creating a business plan.plan.


What is a Business What is a Business Plan?Plan?A blueprintA blueprintA living documentA living documentConstantly evolvingConstantly evolving


What goes into a What goes into a business plan?business plan?

Articulate your visionArticulate your vision Agree on company goals, objectives, Agree on company goals, objectives,

methodsmethods Be honestBe honest Get Advice!Get Advice!


Business Plan Business Plan ComponentsComponents

Executive summaryExecutive summary Company overviewCompany overview Business environmentBusiness environment Company descriptionCompany description Company strategyCompany strategy Financial reviewFinancial review Action planAction plan


Executive SummaryExecutive Summary

Business conceptBusiness concept Long and short term goalsLong and short term goals Define main marketDefine main market Customers Customers Describe company’s vision and marketDescribe company’s vision and market Summarize current financial positionSummarize current financial position


Company OverviewCompany Overview

Written for the lay personWritten for the lay person Mission statementMission statement Objectives, values and visionObjectives, values and vision


Business EnvironmentBusiness Environment

Market analysisMarket analysis Marketing and sales activitiesMarketing and sales activities Products and servicesProducts and services OperationsOperations


Company DescriptionCompany Description

Type of businessType of business DistinctionDistinction Management teamManagement team


StrategyStrategy

Product developmentProduct development Product supportProduct support PricingPricing MarketingMarketing DistributionDistribution Capital requirementsCapital requirements DeploymentDeployment


Financial ReviewFinancial Review

Historical dataHistorical data Prospective revenue projectionsProspective revenue projections Income statementsIncome statements Cash flow projectionsCash flow projections Pro Forma valuationPro Forma valuation Financial opportunityFinancial opportunity RiskRisk TimingTiming


Proposal for Proposal for Implementing Business Implementing Business PlanPlan

New required skill setsNew required skill sets Employee motivationEmployee motivation Policy proceduresPolicy procedures


Business Plan PrioritiesBusiness Plan Priorities

Management teamManagement team Market analysisMarket analysis Sales modelSales model Description of technologyDescription of technology InfrastructureInfrastructure Financial projectionsFinancial projections


Management TeamManagement Team

Most critical componentMost critical component Complimentary skill setsComplimentary skill sets Shared visionShared vision


Market AnalysisMarket Analysis

Define targetDefine target Understand market dynamicsUnderstand market dynamics Identify vulnerable nichesIdentify vulnerable niches Understand your competitionUnderstand your competition


Sales ModelSales Model

Develop sales strategyDevelop sales strategy Examine why customer buysExamine why customer buys Pinpoint decision makersPinpoint decision makers Identify sales cycleIdentify sales cycle Enlist experienced salespersonEnlist experienced salesperson


TechnologyTechnology

Merely a piece of the pieMerely a piece of the pie Protect proprietary aspectsProtect proprietary aspects

PatentsPatents

TrademarksTrademarks

CopyrightsCopyrights

Trade SecretsTrade Secrets Investigate scalabilityInvestigate scalability


InfrastructureInfrastructure

Corporate structureCorporate structure C CorpC Corp S CorpS Corp LLCLLC Sole ProprietorshipSole Proprietorship


InfrastructureInfrastructure

Management structureManagement structure Identify advisorsIdentify advisors Define board of directorsDefine board of directors Develop financial projections – monthly, Develop financial projections – monthly,

first year, quarterly thereafterfirst year, quarterly thereafter


Tweak business plan to Tweak business plan to capitalize on:capitalize on:

Market vulnerabilityMarket vulnerability

Customer needs.Customer needs.


Financing the On-Financing the On-Line BusinessLine Business


ChronologyChronology

Type of financing depends on present Type of financing depends on present position of companyposition of company

StagesStages DevelopmentDevelopment Start-upStart-up GrowthGrowth


Development stageDevelopment stage

Personal time Personal time Personal resourcesPersonal resources

CapitalCapital EquipmentEquipment SpaceSpace TechnologyTechnology


Start-up StageStart-up Stage

FFA (Friends, family and associates)FFA (Friends, family and associates) Bank loansBank loans

CollateralizeCollateralize Small Business AdministrationSmall Business Administration Government assistance – GrantsGovernment assistance – Grants Iowa Department of Economic DevelopmentIowa Department of Economic Development Iowa Finance AuthorityIowa Finance Authority

• IncubatorIncubator


Growth StageGrowth Stage

Business managementBusiness management Private (Angel) investorsPrivate (Angel) investors Venture capitalVenture capital


Personal Resources and Personal Resources and TimeTime

Pros:Pros: FastestFastest Most efficientMost efficient Immediately Immediately

availableavailable

Cons:Cons: Potentially the most Potentially the most

devastatingdevastating Always limitedAlways limited


Friends, Family and Friends, Family and AssociatesAssociates

Pros:Pros: FastFast SimpleSimple

Cons:Cons: Could possibly Could possibly

jeopardize jeopardize relationshipsrelationships

Define expectations in writing


Collateralized Bank LoanCollateralized Bank Loan

Pros:Pros: Relatively quickRelatively quick ReliableReliable Won’t jeopardize Won’t jeopardize

friendshipsfriendships Standardized criteriaStandardized criteria

Cons:Cons: Requires collateralRequires collateral

May use existing May use existing contracts or contracts or accounts accounts receivablereceivable


SBA LoansSBA Loans

Pros:Pros: Relatively fastRelatively fast SimpleSimple

Cons:Cons: Typically < $100,000Typically < $100,000 $50,000 for one page $50,000 for one page

applicationsapplications Restrictions on useRestrictions on use

Cannot use to pay Cannot use to pay ownersowners

Cannot use to Cannot use to purchase business purchase business from direct descendantfrom direct descendant


Manage Business OptionsManage Business Options

Accelerate receiptsAccelerate receipts Minimize work in progressMinimize work in progress Minimize inventoryMinimize inventory Establish early pay benefit with creditorsEstablish early pay benefit with creditors Avoid late chargesAvoid late charges No downsideNo downside


Angel InvestorsAngel Investors

Pros:Pros: FinancingFinancing Option for smaller Option for smaller

companiescompanies May bring expertise May bring expertise

in addition to moneyin addition to money

Cons:Cons: Typically requires 15-Typically requires 15-

25 percent of 25 percent of companycompany

Typically expects 25-Typically expects 25-35 percent return, 35 percent return, compound in 3 to 5 compound in 3 to 5 yearsyears

Desire exit at 5 yearsDesire exit at 5 years


Institutional InvestorsInstitutional Investors

Pros:Pros: Largest fund Largest fund

potentialpotential Option to obtain Option to obtain

second and third second and third trench funding from trench funding from the same sourcethe same source

Cons:Cons: Very strict managersVery strict managers May take over May take over

management of management of companycompany


Angels and InstitutionsAngels and Institutions

Typically require 15-25 percent of Typically require 15-25 percent of companycompany

Typically expect 25-35 percent return, Typically expect 25-35 percent return, compound in 3-5 yearscompound in 3-5 years

Expect exit at 5 yearsExpect exit at 5 years


IncubatorIncubator

Pros:Pros: Provides dozens of Provides dozens of

minor servicesminor services Turnkey company Turnkey company

rife with consultants rife with consultants and managersand managers

Can provide contacts Can provide contacts with money streamswith money streams

Cons:Cons: Typically requires 15-Typically requires 15-

25 percent of 25 percent of companycompany

Assumes exit and Assumes exit and growth in 2-4 yearsgrowth in 2-4 years


Unique Opportunities in Unique Opportunities in IowaIowa

Emerging Growth GroupEmerging Growth Group

IncubatorIncubator

Separate investment fund Separate investment fund armarm

SITISITI

Angel investor formsAngel investor forms


Unique Opportunities in Unique Opportunities in IowaIowa

Papajohn Capital ResourcesPapajohn Capital Resources ISU Business Development ISU Business Development

CenterCenter The Council for Regional EquityThe Council for Regional Equity


Do not take their Do not take their money unless they money unless they bring something else bring something else to the table.to the table.


What Investors Want to What Investors Want to KnowKnow

How much money do you want?How much money do you want? How is the money going to be spent?How is the money going to be spent? How is their money going to be How is their money going to be

recouped?recouped?


What Investors Want to SeeWhat Investors Want to See

Solid business planSolid business plan Incredible management teamIncredible management team Written terms and conditions to protect Written terms and conditions to protect

investmentinvestment Infusion of their expertiseInfusion of their expertise Regular updatesRegular updates Exit strategyExit strategy


Business Plan Business Plan FlawsFlaws


Forcing investors to sign a Forcing investors to sign a non-disclosure agreementnon-disclosure agreement

Have two business plan formatsHave two business plan formats ConfidentialConfidential Non-ConfidentialNon-Confidential

Show confidential business plan and Show confidential business plan and detail technology only after signing NDAdetail technology only after signing NDA


Tailoring the business Tailoring the business plan to one investorplan to one investor

The most vocal investor is typically not The most vocal investor is typically not the wisestthe wisest

Do not incorporate into business plan Do not incorporate into business plan unless without consensusunless without consensus


First to MarketFirst to Market

Better to be fastBetter to be fast Best to be onlyBest to be only

Emphasize Emphasize Speed to market Speed to market Barriers to entryBarriers to entry


Over-Reliance on High-Over-Reliance on High-Profile PartnersProfile Partners

Customer Customer K-Mart K-Mart BurdensomeBurdensome

Vendor Vendor AOL AOL Failure to deliverFailure to deliver


Ignoring Management Ignoring Management Team’s Growth SkillsTeam’s Growth Skills

Outline team’s start-up experienceOutline team’s start-up experience Detail their transition expertiseDetail their transition expertise Balance their future contributionBalance their future contribution Note their exit strategy experienceNote their exit strategy experience


Understating the MarketUnderstating the Market

Be honest about competitorsBe honest about competitors Shows consumer needShows consumer need Demonstrates profit potentialDemonstrates profit potential


Overstating the MarketOverstating the Market

OptionsOptions U.S. Worldwide prescription drug U.S. Worldwide prescription drug

marketmarket U.S. prescription analgesic marketU.S. prescription analgesic market

Investors see through the ruse and Investors see through the ruse and discount the remainder of the plandiscount the remainder of the plan


Emphasizing The FutureEmphasizing The Future

Define MilestonesDefine Milestones Show past ability to meet goalsShow past ability to meet goals


Unrealistic FinancialsUnrealistic Financials

Not to HighNot to High Not to LowNot to Low


Focus on TechnologyFocus on Technology

Instead, focus onInstead, focus on Management teamManagement team FinancialsFinancials Marketing Marketing Consumer needConsumer need Barriers to entryBarriers to entry Return on investmentReturn on investment


ResourcesResources

Emerging Growth Group Emerging Growth Group InfrastructureInfrastructure CapitalCapital

SITI SITI Business plan developmentBusiness plan development IntroductionsIntroductions


NetworkNetwork

Ask around (network) to find the Ask around (network) to find the best:best: Service providersService providers InvestorsInvestors Management teamManagement team Strategic alliancesStrategic alliances


Thank YouThank You

financing the online business

Documents

online business

business options

tweak business plan

business plan flaws

management of company

percent of company

company goals

money cons