technology start-up initial process · 12.05 pm to 12.10 pm beacon vp ‐introduction 12.45 pm to...
TRANSCRIPT
Technology Start-up Initial Process
From the idea to completion of the Business Plan
August 24, 2011
12.05 pm to 12.10 pmBeacon VP ‐ Introduction
12.45 pm to 1.00 pmFunding Overview
1.00 pm to 1.30 pmFuture Workshop
Q&A
12.15 pm to 12.45 pmTechnology Start‐Up Initial
Process
AGENDA
12.05 pm to 12.10 pmBeacon VP ‐ Introduction
1.00 pm to 1.30 pmNext Workshop @ MGH
Q&A
12.15 pm to 12.45 pmTechnology Start‐Up Initial
Process
OUR NETWORK PRINCIPLES
• Pursue purpose beyond profit
• Put people at the center
• Spread economic opportunity
• Be bold- be an agent of change
“Our lives begin to end the day we become silent about things that matter.”
- Martin Luther King Jr.
We believe in the positive impact of entrepreneurship
WE ARE A NETWORK ORGANIZATION
Technology StartTechnology Start--up up Initial ProcessInitial ProcessFrom the idea to completion of the Business Plan
© 2011 Ramin Abrishamian
Gain = Pain
“no pain, no gain”
What are the What are the ““GainsGains””??
Emotional/SpiritualControl over one’s professionCreating something from nothingSolving problemsCamaraderie and community buildingLearning new skills
FinancialBuilding equity
What are the What are the ““PainsPains””??
Emotional/SpiritualResponsibility for one’s professionResponsibility to investorsLiving with risk of failure – don’t have control over
everythingEach day brings a new problem Responsible for others’ incomeAll consuming
FinancialLack of stabilityHigh risk of loss
First Steps.. First Steps..
The FoundationThe Foundation
The DesireAre you OK with the Gain = Pain equation?
An IdeaBusiness concept, and/orTechnical gismo (hardware or software)
Initial Due DiligenceInitial Due Diligenceself check self check -- need complete clarity and honesty.need complete clarity and honesty.
How technically feasible is the idea?
What’s the actual or potential market? (Who is going to pay for/buy your idea)?
How large is the market in $’s? Anything less than a few $100’s of million real or projected might be too small.
Might need to hire consultants, use friends, colleagues and/or others to help out
How to organize?How to organize?
Need to IncorporateNeed to Incorporate
Protects against liability
Helpful for initial financing but is essential for receiving outside investment
LLC vs. ‘S’ Corp vs. ‘C’ Corp◦ LLC & S have tax benefits – C is structurally more robust
Which state?◦ Typically registered in Delaware, HQ’d in the state with
most employees
Initial Support TeamInitial Support Team
Lawyer – (sorry!)◦ Go with a reputable firm and negotiate on every
task’s costs
Accountant◦ Not necessary immediately but will need eventually◦ Hire as a contractor not employee
Existing –◦ Must agree on the following in writing – signed and
sealed
Relative ownership positionsResponsibilitiesAuthority (position on the org chart)
PartnersPartners
PartnersPartnersNew◦ Should you bring in a “partner”? ◦ Need to add to your initial skill set, e.g. you might
have great technical skills, but lack adequate business skills – or even some technical aspect that is critical to have when starting up the business◦ Partner vs. simple employee?
Partner is more willing to take risk – will take lower or no salary in lieu of ownership position – better at the early stagesMake sure that you like and get along with the partner –difficult to break up laterThe “rules” for existing partner apply to new partner.
Ready to goReady to go……..
Have the desire and the ideaWorked out the founders teamHave organized the company
Ready to goReady to go……..
Thoughts on Capital RaisingThoughts on Capital Raising
Capital raising is most efficient when done stage-wise◦ Basically earlier investment is higher risk and is at
lower valuation; later stage investment will be at lower risk and thus higher valuation
It’s best (ideal case) that the very first capital investment be from the founder (s) - obviouslyIf you have no money, look to friends and family and to your Uncle SamBest source of government money is research grants – most popular is the SBIR grants
Thoughts on Capital Raising Thoughts on Capital Raising –– cont.cont.
Government research grants such the SBIRs are great, but…◦ Unless you are already plugged into the system, it will
take 9 – 18+ months from start to actually receiving any money◦ It will take time to write grants and shepherd them
through government agencies◦ It takes great skill (not to mention luck) to ensure
that the objectives of the government and yours are aligned◦ There are many startups that become stuck in a
“grant loop” and don’t go commercial
Sources of CapitalSources of Capital
Friends & Family◦ Small amounts – many investors not necessarily
sophisticated◦ Better valuation – complicated/difficult investors
Angels and Angel Groups◦ Sophisticated high net worth investors◦ High risk tolerance – entrepreneur friendly◦ VC’s like these investors◦ Typically up to $2 – 3 million
Institutional Investors – VC’s◦ Needs a whole separate session
Sources of CapitalSources of Capital
Joys of Bootstrapping – Not!◦ Using personal savings account, maxing the credit
cards, tapping into the kids’ college fund, and the 401K◦ Advantages:
Reduces dilutionWill not waste time waiting for investorsFocuses and sharpens decision makingSome times is the only way to kick start a business
◦ DisadvantagesDistracts founders’ attentionFinancially riskyInhibits growth and expansion
The Business PlanThe Business PlanMust have one!
◦ Essential in helping you get your thoughts, ideas and plans analyzed and organized
◦ Investors need to understand your idea and assess its feasibility and value
“A great business plan starts with a great story and ends with rigorous math (well, at least arithmetic)”
How to Approach Writing the How to Approach Writing the Business PlanBusiness Plan◦ It should be cogent and pithy – please don’t write a
book!
◦ Best (and currently most popular) format is the PowerPoint slides– it forces you to be “cogent and pithy” (no more than 30 or so slides)
◦ It should stand by itself – i.e. one should be able to read it and understand it without your presence.
Content of the Business PlanContent of the Business Plan
Define the idea
Describe the business strategy/model (“elevator pitch”)◦ The main elements of developing the product◦ Accessing and selling to the market
Explain the investment opportunity (<3 slides)WHY SHOULD THE INVESTOR LISTEN TO THE
REST OF YOUR PRESENTATION – (can also be used as the Executive Summary)◦ A summary of everything in your plan!
The ideaThe benefits/advantages of the ideaDescription of the Market and why it’s so attractiveThe plan of how you can capture a significant segment of this marketThe special and unique skills/strengths that you are bringing for commercializing this business ideaWhat are the projected (pro forma) salesHow would the investor realize her/his return– IPO or Acquisition at what potential scale
Content of the Business PlanContent of the Business Plan
Content of the Business PlanContent of the Business PlanGive details of the background of the idea and its premiseExplain the market – give references as much
as possible w/o making it tediousGive the “size” of the market – again w/ references (so it is clear that you are not making this up)Why this idea and why you? (Strengths/ Advantages/Benefits)Resumes of the Founders (brief)Organization chartProduct development plan with key milestones
Content of the Business PlanContent of the Business PlanBrief marketing and sales planFinancial projections
Present assumptions and basisIf needed (depending on the type of business), add other tables breaking down the expenses and/or revenues in more details
Content of the Business PlanContent of the Business Plan
Key milestones and their schedule, including:
◦ Hiring of the key employees◦ Product development◦ Regulatory hurdles (if any)◦ Product development steps◦ Product testing and evaluation◦ Start of the sales process◦ Others that are relevant to the particular business
Content of the Business PlanContent of the Business Plan
Competition◦ Be thorough and honest in listing them◦ Err on the part of listing more of them than less◦ Only describe one or two in any detail
Competitive Advantages◦ How is your idea protected against competition◦ Why existing competition or any potential
competition is not a threat
Content of the Business PlanContent of the Business Plan
Describe the risks, e.g.:◦ Failure to overcome a critical technical problem◦ Potential for change in the market◦ New unexpected competition that isn’t on the scene
yet◦ Disruption of financial markets preventing you from
raising expansion capital◦ Costs of goods ending up being higher than projected◦ Changes in specific regulations and new adverse
regulations◦ Others..
Content of the Business PlanContent of the Business Plan
Explain what you are asking for:◦ Obviously money◦ How much and in how many tranches and when◦ How far this investment will take you and what is
your anticipation of future rounds of financing◦ Towards what general tasks (e.g. x towards product
development, y towards sales & marketing, z for administration, xx towards the purchase of a critical technology or equipment, etc.)
Content of the Business PlanContent of the Business Plan
Appendices
◦ Supporting information that you might need in your presentation and answer potentially critical questions
Before Formal PresentationBefore Formal PresentationHave it reviewed and critiqued by as many friends,
colleagues, family members as possible (don’t forget your mother-in-law!)
Then, present it to a “friendly” investor.
Don’t get offended by critical comments – remember that the goal is to communicate clearly and accurately the goals and benefits of your business idea. It doesn’t matter what you think – it matters what your audience takes away from your presentation.
Quick DoQuick Do’’s and Dons and Don’’tstsDon’t need to present or discuss valuation in your presentation (e.g. “ for $x million investment you we are giving up y% of the company”)Do prepare a detailed spreadsheet for your financials (“rigorous arithmetic”) and make sure it includes EVERYTHINGDon’t send or give this spreadsheet to potential investors until they have expressed serious interest in investing and are beginning their due diligence process
Quick DoQuick Do’’s and Dons and Don’’ts ts –– cont.cont.
Do identify potential senior hires and include them in the resumes section. You can keep their names out since they haven’t joined yet
Do be honest and forthright
Don’t BS
Remaining IssuesRemaining Issues…… (for another time.)(for another time.)
Valuation
How to answer questions from potential investors
How to negotiate with potentially interested investors and the termsheet
Board of Directors
Remaining IssuesRemaining Issues…… (for another time.)(for another time.)
Founder as CEO
Building the senior team
Maintaining control
Financial controls
Managing a start-up
FUNDING OVERVIEWStart-up Financing CycleDifferences between Angels & VCsRisks & return on each start-up stageOdds of ventures getting funded by VCs
Image from Wikipedia: http://en.wikipedia.org/wiki/Startup_company
DIFFERENCES BETWEEN ANGELS AND VENTURE CAPITALS (VCS)
Angel Investors Venture Capitals (VCs)
Money source Personal Others
Investment Involvement
Before seed & seed stage After seed stage
Investment Goals Internal rate of return; Personal; Community; Impact
Internal rate of return ONLY
Investment Risk High Less risky than angel investors
BUT…ONE THING IN COMMONBoth Angel Investors and VCs share risks and rewards
with start‐ups!
RISKS AND RETURN FOR EACH STARTUP STAGE
Stage Failure %Return On Investment
(ROI)5-Year Increase
Seed 66% 60% 10x +
Early 34% 40% 5X
Expansionary 20% 30% 4X
Later 20% 25% 3X
Sources:
ROI & 5 year increase- from Charles Sidman, Ph.D – MP of ECS Capital Partners, LLC
Failure % - from Ruhnka, J.C. Young, J.E. Journal of Business Venturing
ODDS OF VENTURES GETTING FUNDED BY VCS
Source: National Venture Capital Association (NVCA)
“Walking dead”
Next Workshop at MGH Next Workshop at MGH –– Date Date TBDTBD
How to develop an “Elevator Pitch”.
Q&A Session
Source: http://avid.deviantart.com/art/Optimist-Prime-178004809