Management 160 Final
Historically, what was included in a business plan?
-Defined proposed strategy, -featured go-to market plan and operational models needed -includes financial forecasts, risks and invest plans
Executive summary: what it does, what it has in it, when it is written
-captures and presents the essence of a plan -must be interesting and capture attention -concept, finances, metrics -written last -highlights plan section by section
Private Equity
-late stage capital -large investments
History of VC
-startups used to only be funded by wealthy families or self -American Research and Development Corporation founded by Georged Doriot , june 6 1946. -Invested in Digital Equiptment -Raised $ through public equity offering -When ARD Liquidated its stake in 1972 it had 70000% return!
What is an IPO used for?
-to raise expansion capital, or monetize investments by early private investors
7 P's of Investor presentation guidelines
1. FIRST PITCH OF GAME Pitch "Who are they and why should I care? 2. LOOK TO TEAM HITTING People "Can this team deliver?" 3. BALL HITS PERSON IN FACE Pain "Is the problem truly painful for the customer? 4. ICE PACK- product "is there potentially a great product here?" 5. BACK TO GAME- Players "Who is your competition" 6. HOME RUN- Projections "Show me the money" 7. WHO WINS? "Whats the deal?" Proposition
Formulating a business plan benefits
1. TEST TUBE - test ideas and determine if there are viable business opportunities 2. GAVEL- foundation for debating and analyzing key assumptions, developing financial forecasts, and designing early experiments 3. MILESTONE- baseline that clarifies aspirational milestones 4. STOPWATCH- clear statement of metrics used to test assumptions and measure performance 5. OPEN MOUTH- approach to communicating with others about the business while raising $ to attract a team
Restrictions of S-corporations
1. The shareholders must be individuals, estates, or trusts that are US persons (cannot get investment from foreign person) 2.Corporation must have no more than one hundred shareholders 3. The corporation must have only one class of stock, athough all shareholders do not need to have the same voting rights
Questions traditional plans answer (path to home)
1. What is your strategic orientation? (walking down hill) 2. What is an opportunity? (turning at apartment) 3. What resources are necessary (key code) 4. What do I need to steal borrow or own? (opening door) 5. How do I manage the operation (mail boxes) 6. How and when do we harvest? (getting pay check)
What are the three why's of pitches, and what do they show?
1. Why this? 2. Why now? 3. Why this team? They show that the pain is real and that the solution is the right way to solve it.
Key Insights about what a business plan should do! (milk & honey)
1. fun and easy to read 2. tell a compelling story 3. not a mystery novel! (you should clearly indicate status of prototype) 4. Impress one of the judges 5. be credible or people stop reading 6. a market needs to exist 7. de-risk whenever possible
Three financial models
1.Bootstrapping, 2. Debt Financing, 3. Equity Financing
Four types of crowdfunding
1.Equity (StartEngine, under regulation plus) 2. Debt (aka lending based) 3. Rewards Based (like Kickstarter) 4. Donation Based (Like indiegogo)
What are the 3 factors influencing financial needs? (butt in underwear)
1.Underlying profitability (value of output vs. cost of input) 2. Asset Intensity (amount of assets tied into business: machinery and plants, working capital) 3. Pace of growth
6 major factors in choosing a business form
1.personal liability of business owner 2.taxation of both entity and its owners 3. complexity and cost in setting up 4. control of the business 5. continuity of the business 6. ability of the business to raise capital (Personal Taxes Cost Continuous Control And Ability)
When was silicon valley born
1959
Common Types of Plans (4)
2 for external stakeholders: -mini business plan (summary of essential parts) -traditional business plan 2 for internal stakeholders -go-to-market plans (descries unmet needs of customers and how their business provides solutions to that) -operating plans (key activities, resources, milestones)
Kickstarter Stats
2.3 billion raised, over 100k successful projects with 10 million backers
What is a Patent?
A government protected monopoly to manufacture, distribute, or sell in the USA, for 20 years. In exchange, the inventor must teach the innovation. A patent is property that can be sold, assigned, licensed and inherited.
What is Y Combinator an example of?
A recent accelerator
Important part of financial plan
ASSUMPTIONS : be compelling and concise. Most important one is sales volume. Useful to provide multiple sets of assumptions (conservative, likely, optimistic)
Sole Proprietorship advantages and disadvantages
Advantage: secrecy, unique tax advantages, owner doesn't have to share profits, freedom of action and control, easiest and simplest form. Disadvantages: limited capital, difficulty in obtaining credit, inadequate management, limited life b/c of business and owner are legally the same
Partnership advantages and disadvantages
Advantages: easy to form, division of labor, can use multiple people's ideas, specialized skills available, can raise more capital since good credit may be available, financial resources from more than one person. Disadvantages: limited life, unlimited liability for both partners, an impasse may develop between partners, death of any partner terminates partnership, partner cannot obtain protection against acts of other partners
What is working capital
Current assets- Current liabilities
5 reasons to get a patent
Establishes technical credentials, prevents others from infringing on your activities, can have liquidation value, has PR value, establishes some barrier to entry
What are the benefits of a corporation strategic investment to a startup?
Exposure to key partner, higher valuation, ROI is not as critical an element
What are the motivations of a corporations strategic investment?
Exposure to new technology, pipeline of new products, blocking mechanism, access to new markets
What are some exceptions to copyright?
Fair use, summary/abstract/critique, government works
Seed and Early Stage Investors
Friends & Family, Angel Investors, Super Angels, Incubators, Accelerators, Crowdfunding
Most successful kickstarter categories ($)
Games, Tech or Design, Food or Film
What is a copyright?
Gives exclusive rights to creators of tangible works, lasts for the life of the author plus 70 years, only protects the tangible expression, not the concept or idea.
What is double taxation?
In C-corps, they company pays tax, then the shareholders pay additional tax
Limited Liability Company
LLC Operating Agreement that details management structure and decision making process, profit division, etc. More complex than corporations. Some angels will only invest in regular corps.
Debt Financing
Lend a fixed amount or money for a specific period of time at a given interest rate. Plus: it is bounded. Minus: loss of principle, so investors will only invest to less risky ones
Convertible Note: what, when, pros & cons- when does it convert to share?
Looks like a debt or a loan, usually occurs with seed rounds. pros: quick, easy, no negotiation of valuation. cons: accumulation of interest rates, startups show large debts on books, reaches maturity may bankrupt startup) Converts to shares on 1st round of funding
Super Angels
Micro VC firms that invest their own funds and limited partners
Most popular kickstarter categories
Music, Film, Publishing, Food
3 Patentability Tests
Novelty (must not be known or used by others, patented, or described in printed publication), Non-obviousness (must not be easily deducible from the current body of knowledge), Usefulness (must have a legal and moral use, must have utility)
Types of Intellectual Property
Patent, Copyright, Trademark, Trade Secret
Angel Investors
Pro: connection to customers, industry knowledge, can be advisors, do not require a board seat. Con: distracting to keep them informed and happy
What is a trade secret?
Provides legal protection and remedies-- prevents others (including employees) from stealing and using information, does not prevent against reverse engineering, dont have to wait as long as patents, inexpensive
Convertible Equity
Removes interest provisions and repayment at maturity
What are the rights granted to a copyright holder?
Reproduction, Distribution, Public display or performance, Electronic transmission, Manufacture of derivative works
What is pay through taxation?
S-corps, and LLCs can get this, where the earnings of the business are distributed to the business owners and those owners pay individual tax on the earnings
High Growth Venture Life Cycle
Seed, Startup, 1st Round, 2nd Round, 3rd Round, Expansion, MGMT Buyout, Work out
How do you get a copyright?
Simply reduce work to a tangible form. Registration is only needed if you want to sue or prevent importation, you have to buy one
What is a Provisional Patent?
Since 1995, a 1 year placeholder which preceded the utility patent, not examined by USPTO, commonly used by universitied. Minimal filing and expense, no claims.
Business plan outline
TTEGP, MOM, SFA-- table of contents, exec summary, general company descripton, product and services, marketing plan, operational plan, management and organization, structure and capitalization, financial plan, appendix
At what stage does the private equity or IPO come at?
The expansion -- work-out stage
What was the role of traditional plans?
They provided major characteristics of a firm, helped establish EXTERNAL legitimacy, and INTERNAL understanding (internal knowledge of business purposes and operations)
Classical view Business plan pyramid
Top-bottom: vision (10 words), Mission (20-50 words), Elevator Pitch (60-100 words), Executive summary (250-500 words), Business plan (40 pages)
What is copyrightable?
Writing, software, music, plays, paintings, movies, architectural works
What does VC control include
a seat on the board, being able to prevent major undertakings, replace CEO
Categories of VCs pro-forma
categories of outcome, projected value at exit, dollar invested, share owned, # of investments, total $ invested, return
Business model
describes the rational of how a company creates delivers and captures value
Business plan
document that articulates model and provides a lot of detail
When was the boom of vc firms
from a few dozen in 1980 to over 650 by the end of the 80's
Current investors ownership
investment amount/post-money valuation
Accelerators
like Y Combinator, involve a boot camp with coaching and networking, end in a demo day. Often for-profit. Caused by the reduced cost in experimentation now
Elevator pitch
one paragraph description of a new business opportunity
previous investors ownership
pre-money amount/post-money valuation
Business pitch
presentation that is used to communicate model. targets include investors, partners, advisors, employees, etc.
Pro's and Con's of a corporation
pro: limited liability for shareholders!! ease of raising large amounts of capital, relatively permanent con: tax issues (c corp v s corp), shareholders have claim to all value AFTER creditors , incorporating and governing (costs money, pay per year), powers limited to those stated in charters
Incubators
provide office space, access to funding and basic business needs, can be non-profit.
What is title 2- jobs act
says that companies can use the internet to advertise their security offerings, but only to accredited investors. BUT then Title 5 (Regulation aplus) allowed for nonaccredited investors as well.
Parts of a Corporation
shareholders, guide the board of directors, who guide the corporate officers, who guide the employees
Why do VC's need control
they need to show returns to their investors, past returns impact raising new investment funds
Goal of business pitches and elevator pitches
to deliver a compelling story
Why does private equity invest?
to support a mature companys growth, to support restructuring of the company, to support merging with other companies
Bootstrapping
utilizing quick cash flow and personal resources. You retain full ownership, but growth can be slower, and there can be excess spending or chasing of too many ideas
Equity investors
vc's and angel investors. They receive long term ownership. Minus: loss of investment Plus: gain is unbounded. Companies with uncertainty must rely on this
What is an IPO
when a company transitions from private to piblic, and shares of the company are sold to institutional investors
5 Concerns of getting a patent
you are disclosing and may not get the patent, it takes time and money, your opponents may have more lawyers, getting the parent may take longer than selling the product, what if courts invalidate an issued patent?
