Business Plan Preparation

1
Business Plan Preparation

• Frank MoyesLeeds School of BusinessUniversity
  of ColoradoBoulder, Colorado

2
Required Return on Investment
0
5 yr. Increase
IRR

• 19x
• 10x
• 8x
• 5x
• 4x
• 3x

• Seed 80
• Start-Up 60
• Early Stage 50
• Second Stage 40
• Third Stage 30
• Bridge 25

Bygraves Zacharakis
3
Venture Capital Method Key Assumptions

• Net Profit
• Valuation Multiple
• Price/Earnings
• Price/Revenue
• Price/EBITDA
• Price/Sellers Discretionary Earnings
• Investor IRR

4
Venture Capital MethodMountain Unicycles

• Investment 1 million
• Exit year 5th year
• Revenue 20 million
• Net profit (10) 2 million

5
Venture Capital MethodMountain Unicycles

• Investment 1 million
• Exit year 5th year
• Revenue 20 million
• Net profit (10) 2 million
• Growth Rate 20
• P/E multiple 15x
• Company value ?

6
Venture Capital MethodMountain Unicycles

• Investment 1 million
• Exit year 5th year
• Revenue 20 million
• Net profit (10) 2 million
• Growth Rate 20
• P/E multiple 15x
• Company value 30 million

7
Venture Capital MethodMountain Unicycles

• Investment 1 million
• Exit year 5th year
• Revenue 20 million
• Net profit (10) 2 million
• Growth Rate 20
• P/E multiple 15x
• Company Value 30 million
• Required IRR ?
• Required Increase
• Required value

8
Venture Capital MethodMountain Unicycles

• Investment 1 million
• Exit year 5th year
• Revenue 20 million
• Net profit (10) 2 million
• Growth Rate 20
• P/E multiple 15x
• Company value 30 million
• Required IRR 60
• Required Increase ?
• Required value

9
Venture Capital MethodMountain Unicycles

• Investment 1 million
• Exit year 5th year
• Revenue 20 million
• Net profit (10) 2 million
• Growth Rate 20
• P/E multiple 15x
• Company value 30 million
• Required IRR 60
• Required Increase 10x
• Required value ?

10
Venture Capital MethodMountain Unicycles

• Investment 1 million
• Exit year 5th year
• Revenue 20 million
• Net profit (10) 2 million
• Growth Rate 20
• P/E multiple 15x
• Company value 30 million
• Required IRR 60
• Required Increase 10x
• Required value 10 million
• of company required ?

11
Venture Capital MethodMountain Unicycles

• Investment 1 million
• Exit year 5th year
• Revenue 20 million
• Net profit (10) 2 million
• Growth Rate 20
• P/E multiple 15x
• Company value 30 million
• Required IRR 60
• Required Increase 10x
• Required value 10 million
• of company required 33
• Pre-money valuation ?
• Post-money valuation ?

12
Venture Capital MethodMountain Unicycles

• Investment 1 million
• Exit year 5th year
• Revenue 20 million
• Net profit (10) 2 million
• Growth Rate 20
• P/E multiple 15x
• Company value 30 million
• Required IRR 60
• Required Increase 10x
• Required value 10 million
• of company required 33
• Pre-money valuation 2 million
• Post-money valuation 3 million

13
Venture Capital MethodMountain Unicycles

• Investment 1 million 1 million
• Exit year 5th year 5th year
• Revenue 20 million 20 million
• Net profit (10) 2 million 2 million
• Growth Rate 20 30
• P/E multiple 15x ?
• Company value 30 million ?
• Required IRR 60 ?
• Required Increase 10x ?
• Required value 10 million ?
• of company required 33 ?
• Pre-money valuation 2 million ?
• Post-money valuation 3 million ?

14
Venture Capital MethodMountain Unicycles

• Investment 1 million 1 million
• Exit year 5th year 5th year
• Revenue 20 million 20 million
• Net profit (10) 2 million 2 million
• Growth Rate 20 30
• P/E multiple 15x 20x
• Company value 30 million ?
• Required IRR 60 ?
• Required Increase 10x ?
• Required value 10 million
• of company required 33
• Pre-money valuation 2 million
• Post-money valuation 3 million

15
Venture Capital MethodMountain Unicycles

• Investment 1 million 1 million
• Exit year 5th year 5th year
• Revenue 20 million 20 million
• Net profit (10) 2 million 2 million
• Growth Rate 20 30
• P/E multiple 15x 20x
• Company value 30 million 40 million
• Required IRR 60 ?
• Required Increase 10x ?
• Required value 10 million ?
• of company required 33 ?
• Pre-money valuation 2 million
• Post-money valuation 3 million

16
Venture Capital MethodMountain Unicycles

• Investment 1 million 1 million
• Exit year 5th year 5th year
• Revenue 20 million 20 million
• Net profit (10) 2 million 2 million
• Growth Rate 20 30
• P/E multiple 15x 20x
• Company value 30 million 40 million
• Required IRR 60 60
• Required Increase 10x 10x
• Required value 10 million 10 million
• of company required 33 25
• Pre-money valuation 2 million ?
• Post-money valuation 3 million ?

17
Venture Capital MethodMountain Unicycles

• Investment 1 million 1 million
• Exit year 5th year 5th year
• Revenue 20 million 20 million
• Net profit (10) 2 million 2 million
• Growth Rate 20 30
• P/E multiple 15x 20x
• Company value 30 million 40 million
• Required IRR 60 60
• Required Increase 10x 10x
• Required value 10 million 10 million
• of company required 33 25
• Pre-money valuation 2 million 3 million
• Post-money valuation 3 million 4 million

18
Venture Capital MethodMountain Unicycles

• Investment 1 million 1 million
• Exit year 5th year 5th year
• Revenue 20 million 20 million
• Net profit (10) 2 million 1 million
• Growth Rate 20 10
• P/E multiple 15x ?
• Company value 30 million
• Required IRR 60
• Required Increase 10x
• Required value 10 million
• of company required 33
• Pre-money valuation 2 million
• Post-money valuation 3 million

19
Venture Capital MethodMountain Unicycles

• Investment 1 million 1 million
• Exit year 5th year 5th year
• Revenue 20 million 20 million
• Net profit (10) 2 million 1 million
• Growth Rate 20 10
• P/E multiple 15x 10x
• Company value 30 million ?
• Required IRR 60
• Required Increase 10x
• Required value 10 million
• of company required 33
• Pre-money valuation 2 million
• Post-money valuation 3 million

20
Venture Capital MethodMountain Unicycles

• Investment 1 million 1 million
• Exit year 5th year 5th year
• Revenue 20 million 20 million
• Net profit (10) 2 million 1 million
• Growth Rate 20 10
• P/E multiple 15x 10x
• Company value 30 million 10 million
• Required IRR 60 ?
• Required Increase 10x ?
• Required value 10 million ?
• of company required 33
• Pre-money valuation 2 million
• Post-money valuation 3 million

21
Venture Capital MethodMountain Unicycles

• Investment 1 million 1 million
• Exit year 5th year 5th year
• Revenue 20 million 20 million
• Net profit (10) 2 million 1 million
• Growth Rate 20 10
• P/E multiple 15x 10x
• Company value 30 million 10 million
• Required IRR 60 60
• Required Increase 10x 10x
• Required value 10 million 10 million
• of company required 33 ?
• Pre-money valuation 2 million ?
• Post-money valuation 3 million ?

22
Venture Capital MethodMountain Unicycles

• Investment 1 million 1 million
• Exit year 5th year 5th year
• Revenue 20 million 20 million
• Net profit (10) 2 million 1 million
• Growth Rate 20 10
• P/E multiple 15x 10x
• Company value 30 million 10 million
• Required IRR 60 60
• Required Increase 10x 10x
• Required value 10 million 10 million
• of company required 33 100
• Pre-money valuation 2 million ?!
• Post-money valuation 3 million ?!

23
Venture Capital Method Key Assumptions

• Net Profit
• P/E Multiple
• Investor IRR