Landing a Job in VC - The University of Chicago Booth School of

Report
15th Annual Edward L. Kaplan New Venture Challenge
How to write a Feasibility Summary
Workshop
Thursday, January 6, 2011
Charles M. Harper Center, Room C25
University of Chicago Booth School of Business
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
AGENDA
• Review of Timeline
• Key Elements of a Feasibility Summary
• Outside-Impacts (A framework for evaluating a
business plan)
• Dos and Don’ts
• Q&A
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
2011 New Venture Challenge Timeline
Jan. 6
Guidelines for writing Feasibility Summaries
Feb. 7
Phase I Summaries due
Feb. 24
Teams advancing to Phase II announced
Feb. 28
Orientation Meeting at Harper Center 6 – 9 pm
Mar. 28
Bus. 34104, Developing a New Venture, Begins
April 29
Full Business Plans due
May 23
Finalists announced
May 26
Finals at Charles M. Harper Center
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
Key Elements of a Feasibility Summary
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Company Mission or Objective
Market Information
Competitive Landscape
Technology or Proprietary Aspects of the Product/Service
(if appropriate)
Revenue Model
Operations Model
Management Team
Financial Information (if available)
Progress to Date
Business Risks
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
Key Elements for a Feasibility Summary

Mission (objective) of the business
• What are you selling?
• What business problem are you solving?
• How big is this problem?
•
Why should an investor read any further? What is different?
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
Which is better?
Example 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.
Example 2:
The Company’s 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.
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
Key Elements for a Feasibility Summary

Market Information
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•
•
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How do you define the market?
Who is the customer?
What is the potential size of the market?
How many customers? How much do they buy?
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
$ 2.8 Billion art supply
industry
Paint
Frames
Surfaces: 21% or $558
Million
Brushes
75% market
is price
sensitive
25% Prof
artists or
$147Million
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
Key Elements for a Feasibility Summary
Competitive Landscape -- Why will you win?
• Who are current players in the market?
• Who could be your competition in the future?
• What are your competitive advantages / disadvantages
•
What barriers to entry will protect you?
• IP
• Customer
• Development process
•
How are you positioned with respect to the competition?
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
Key Elements for a Feasibility Summary
Technology
• Describe technology if it is a key differentiator / element of plan.
• Is it proprietary? Are there patents?
• Are there key milestones in terms of development or product
testing?
• What are the technology risks?
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
Key Elements for a Feasibility Summary
Key Elements for a Feasibility Summary
Revenue Model / Go to Market Strategy?
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•
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How will you make money?
Why will the customer buy your product?
What will the customer pay?
- Why are you sure the customer will pay this?
- Have you spoken to customers?
How will you get to the customer? i.e., distribution channel.
How many customers will you get?
Operations Model:
•
•
•
How will you deliver this product or service?
- Make internally or use external resources?
Do the costs of providing this product or service provide a sufficient profit?
Are there execution risks?
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
Key Elements for a Feasibility Summary
Management Team/Advisors/Partners
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•
•
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Who are they?
Why are they relevant for this business?
Do you have any holes in the management team?
How do you plan on filling these gaps?
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 Financial’s
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.
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
Key Elements for a Feasibility Summary
Key Elements for a Feasibility Summary
Financial Information (if available)
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What are your economics? (use unit model analysis if appropriate)
What are your key assumptions?
Why will you eventually make money / go cash flow positive?
- When will this happen?
How much money do you think you will need?
How big will you get?
Eventually, this section will need to get very detailed.
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
Key Elements for a Feasibility Summary
Progress to Date


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Milestones that have been achieved
Patents, trademarks that have been filed
Prototypes, websites, focus groups, beta customer, etc.
Business Risks
 What are you worried about?
 What do you plan to do about it?
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
Comparables
Are there comparables in the industry or other industries that validate
your business model?
•
•
•
•
Who are they and why have they been successful?
How are they valued and how did they get funded?
Have there been successful exits? Multiples
Also look for the ‘corpses’. Have similar businesses failed? Why?
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
A Framework For
Evaluating a Business Plan
Steven Kaplan
University of Chicago Booth School of Business
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
How Will Angels and VCs Evaluate a
Business Plan / Opportunity?


When I look at an opportunity, I use the following
framework.
OUTSIDE- IMPACTS Approach.
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
OUTSIDE - IMPACTS
Opportunity, Uncertainty, Team,
Strategy, Investment, Deal, Exit.

(O) Opportunity: Is this a positive present value opportunity?
(Does it have IMPACTS?)



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


(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?
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
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?
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
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, doesn’t 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?
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
OUTSIDE - 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?

Customers, customers, customers.

Get beta sites, beta customers, etc.

VC pitches.

Kathryn Gould.
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
OUTSIDE - IMPACTS
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(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.
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
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?
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
OUTSIDE - IMPACTS

(T) Team.
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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?
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

What do investors do?


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Possibility of 10 X return.
Credible forecasts.
 Growth, margins, exit value.
 Analogs
Cut forecasts “in ½,” “by 2/3,”
Push out forecasts.
What should you do?

Plausible best-case scenario.

Cash flow requirements.

CIMITYM

Use as little cash as possible.


Be very careful about growing SGA ahead of sales.
 Particularly hiring sales people.
M*
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
OUTSIDE - IMPACTS

(D) Deal.

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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?
If an investment does not pass the OUTSIDE
tests, leave it outside.
Example

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.
 A Useful for consumers.
 Key issue is whether you can get them economically.
 Restaurants follow once consumers are engaged.
 P First-mover advantage / network effect for consumers.
 Costly and time intensive to get menu / delivery info.
 Consumers have no reason to switch because restaurants pay.
Example

Bump
 iPhone App to exchange contact info.
 Uses unique identification of two phones from:
 GPS
 Synchronicity of Bump.
 A
 Consumers liked it / found it useful.
 Huge piece of luck when billionth iPhone App.
 P
 Network effect.

But what is M? I? How do you make money?
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
Dos and Don’ts
Clichés to Avoid:
• We have no competition.
• We are the low cost provider.
• We only need a 5% market share.
• Our numbers are conservative.
Avoid Acronyms (or at least explain them)
• Don’t assume everyone reading plan has your knowledge base
Make sure the car has a driver.
• Someone should be the current CEO. OK to say you will find a
permanent / better one later.
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
Dos and Don’ts
Be Clear and Brief
•
•
Yes: Middleware for wireless networks
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.
Be optimistic but believable
•
Avoid the hockey stick effect unless you have assumptions to back it up
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
Dos and Don’ts
Capture the reader’s attention – fast
• 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?
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
Dos and Don’ts
Provide tangible examples / experiences wherever possible:
•
Reference customers,

- Actual customers best. Potential customers next best.

- TALK TO CUSTOMERS. Describe what you discovered.

- There is nothing more important than a customer! Focus
on how you are going to get that first customer.
•
Credible partners, suppliers, advisors, etc.
•
Identify comparable businesses or business models
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
• Link to key dates,
deadlines, and
events for the
2010-11 New
Venture Challenge
• Link to online
team building
site where
people can post
ideas and team
openings
• Link to
sample
business
plans, NVC
class
workshops,
sample equity
agreement
• Link to official
rules and
regulations,
sample
feasibility
summaries
• Check here for
the latest news on
current & former
NVC Companies
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
Fast Pitch Event
TO FOLLOW THIS PRESENTATION
Event is for students interested in:
1
Pitches have been
pre-scheduled, but
please talk to
Jonathan Allan if
you are not
already signed up
2
3
Finding a team or team members
Giving a 60 sec Pitch of your idea
and receive feedback
Wanting to mix, mingle, and
brainstorm
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
Team Formation and Networking
http://linkd.in/NVC2010
Get feedback
on a new
business idea!
Find team
members for
your NVC Entry!
Share your resume &
expertise to let other
students find you!
15th Annual Edward L. Kaplan New Venture Challenge
Feasibility Summary Workshop
Questions?

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