Why Write a Business Plan

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Why Write a Business Plan?

• Forces you to organize and think things through.
• Always Selling Who is the Customer at this
  stage?
• Approaching Investors
• Exec Summary must haves.
• Inside the investors mind
• Odds of getting funded.
• Why Market Sizing Matters
• Implications for Entrepreneurs

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Always Selling Take Customer Perspective

• Business plan changes over time and with
  audience
• First customer is investor
• Why should I invest?
• Then communicate with employees/potential
  employees
• Why should I work here? What do I do to help?
• Later, product customer is target
• Why should I buy?
• Over time, business plans are developed to fund
  and advance new products or business units.
• Build product, marketing, sales, operations plans
  from seeds.

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Investors as Customer What to address

• Must get an intro to VCs or angels unsolicited
  plans dont work.
• Who is right partner at right firm?
• Crisp Exec Summary a must to get looked at
• Stellar Team Who are you and what have you done?
• Disruptive Technology Product idea and customer
  pain solved.
• Large Market characterization, sizing, and
  access competition.
• Capital Efficient Financials (How much? When?
  When CFP, profitable, exits?)
• Begin with end in mind What is the exit? When?
• What are IRR requirements of stage and firm?

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Milestones Risk/Reward Profiles

• Start with a solid team and a great idea is
  there a market?
• Seed Funding
• P(success) 30 Reqd IRR 100
• Exit Market Validation There is a big market
  and heres why we win.
• RD Capital
• P(success) 40 Reqd IRR 70
• Exit Technology Validation Our product solves
  the customer pain and has a protected advantage.
• Go-to-market Capitalization
• P(success) 50 Reqd IRR 50
• Exit Customer Validation Market Validation,
  Part 2 Customers are buying and are references.
• Expansion Stage Funding
• P(success) 80 Reqd IRR 30
• Exit IPO or MA event
• Always assessing Team (remember step 1?) for gaps
  in requirements at each stage.
• Are these the right people, in the right roles,
  with the right skills and tools for us to be
  successful?
• Assess Financial Risk and Metrics at each stage
• Capital efficiency, cash on hand, burn rate, when
  cash flow positive (CFP)?, margins (gross and
  profit).
• Risk/Return figures courtesy of Vinod Kholsa _at_KPCB

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Rough Odds of Getting Funded

• 1/10,000 plans that get looked at have meetings
• 1/200 that are referred
• 1/100 meetings get a second, partners and due
  diligence
• 100x more plans than first meetings.
• 1/10 get funded
• 10x more meetings, etc. 1000x more plans than
  fundings.
• Bottom Line YOU MUST BE PASSIONATE ABOUT YOUR
  COMPANY.
• Returns
• 1/10 are a big hit.
• 3-4/10 are moderate or breakeven.
• Rest are a loss.

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Go to Market Why Size is important

• VCs need 10x wins on their winners, to make up
  for losers.
• Average 10M pre-money valuation implies required
  100M exit (10x).
• 100M exit valuation implies 100M annual sales.
• Market Apple, HP, AMD, Palm trading at 1x
  revenues.
• 100M annual sales _at_10 market share implies 1B
  market.
• Without potential 1B market, hard for VC to get
  10x return
• You can fix teams, not markets (Don Valentine)

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Implications for Entrepreneurs

• Bootstrap, customer financing, get to cash flow
  break even ASAP.
• Keep burn rate down, be cheap, when in doubt
  dont spend.
• Watch cash balance, know where all cash goes.
  When it is gone, it is over!
• Outsource what you can.
• Focus on sales!!!
• Dont count on VC financing, raise as little as
  you have to.
• Keep your personal financial expectations
  appropriate to market
• Salaries are coming down.
• Win may be 2-5M for CEO, much less for others
• You may be working for a salary, you just dont
  know it!
• Get out of Series C companies and into new
  Series A deals.
• Lot of great people took years off now coming
  back and getting involved.

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Bill TobinManaging Director

• Emerging Company Services 408.817.3788Email
  bill.tobin_at_us.pwc.com