HOW TO WRITE A

1
HOW TO WRITE A
FEASIBILITY SUMMARY
The 16th Annual Edward L. Kaplan, 71 New
Venture Challenge 2011-12
Steve Kaplan Ellen Rudnick
2
WORKSHOP
AGENDA
PRESENTATION

• REVIEW NVC TIMELINE
• FEASIBILITY SUMMARY KEY ELEMENTS
• OUTSIDE - IMPACTS
• DOS DONTS
• QA

AFTERWARDS

• FAST PITCH
• CASUAL NETWORKING

3
NEW VENTURE CHALLENGE
TIMELINE
Mar 26
TODAY
Developing a New Venture (Bus 34104) begins
Feb 6
Phase 1 Feasibility Summaries Due
April 27
Feb 23
Full Business Plans Due
Phase 11 Teams Announced
May 21
Finalists Announced
Feb 28
Phase II Orientation Harper Center
May 24
NVC Finals Harper Center
JANUARY
FEBRUARY
MARCH
APRIL
MAY
Phase I
Phase II
Finals
4
BETWEEN NOW THE
DEADLINE
Feb 6
Polsky Center Coffee Hour
TODAY
Phase 1 Feasibility Summaries Due
WEDNESDAY, JAN 11 430-530PM
Creating an MVP for the NVC (Avi Stopper)
TUESDAY, JAN 17 1200-100PM
Polsky Center Coffee Hour
WEDNESDAY, JAN 18 430-530PM
EVC Feasibility Summary Working Session
TUESDAY, JAN 24 445-615PM
Polsky Center Coffee Hour
WEDNESDAY, JAN 25 430-530PM
Polsky Center Coffee Hour
WEDNESDAY, FEB 1 430-530PM
JANUARY
FEB
Phase I
5
FEASIBILITY SUMMARY
KEY ELEMENTS

• MANAGEMENT TEAM
• FINANCIAL INFORMATION
• PROGRESS TO DATE
• BUSINESS RISKS

• COMPANY MISSION
• MARKET INFORMATION
• PROPRIETARY ASPECTS
• REVENUE MODEL
• OPERATIONS MODEL

6
KEY ELEMENTS
MISSION
What are you selling?
What problem are you solving?
How big is the problem?
Why should an investor read any further?
7
The company has developed the SalivaSac, a
proprietary semi-permeable 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.
KEY ELEMENTS
MISSION EXAMPLES
ex 1
The company has developed the SalivaSac, a
proprietary semi-permeable 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.
ex 2
The Companys 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.
8
KEY ELEMENTS
MARKET INFO
How do you define your market?
Who is the customer?
What is the potential market size?
How much do costumers buy?
9
KEY ELEMENTS
MARKET SIZING
10
KEY ELEMENTS
COMPETITION
How will you win?

• Who are current players in the market?

• Who could be your competition in the future?

• What are your competitive (dis)advantages?

• How are you positioned with respect to
  competition?

• What barriers to entry will protect you?

• IP, Customer development process, etc.?

11
KEY ELEMENTS
TECHNOLOGY
Describe technology if there 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?

12
KEY ELEMENTS
GO TO MARKET
What is your revenue model go to market
strategy?

• How will you make money?

• Why will the customer buy your product/service?

• How will you get to the customer?

• What will the customer pay?

• Why are you sure the customer will pay this?

• Have you spoken to customers?

• How many customers will you get?

13
KEY ELEMENTS
OPERATION MODELS
How will you deliver this product/service?

• Outsourced vs. in-house resources?

Do the costs of providing this product/service
provide a sufficient profit?
Are there execution risks?
14
KEY ELEMENTS
MANAGEMENT TEAM
Who makes up your team? Advisors? Partners?

• Who are they?

• Why are they relevant for this business?

• How do you plan on filling these gaps?

15
KEY ELEMENTS
MANAGEMENT TEAM
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 Financials
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.
16
KEY ELEMENTS
PROGRESS UP-TO-DATE
Milestones that have been achieved
Patents, trademarks that have been filed
Testing your business assumptions

• Prototypes, MVPs, websites, focus groups, beta
  customers, etc.

17
KEY ELEMENTS
BUSINESS RISKS
What are you worried about?
What do you plan to do about it?
18
KEY ELEMENTS
COMPARABLES
Are there comparables in the industry or other
industries that validate your business model?

• Who are they and have they been successful?

• How are they valued and how did they get funded?

• Have there been successful exits? Multiples?

• Have similar businesses failed? Why? (look for
  corpses)

19
A FRAMEWORK FOR
EVALUATING A BUSINESS PLAN
STEVE KAPLAN
20


How Will Angels and VCs Evaluate a Business Plan
or Opportunity?
When I look at an opportunity, I use the
following framework
OUTSIDE- IMPACTS
21
Opportunity, Uncertainty, Team, Strategy,
Investment, Deal, Exit.
OUTSIDE -IMPACTS
22
OUTSIDE-IMPACTS
(O) Opportunity Is this a positive present value
opportunity? (Does it have IMPACTS?) (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?
23
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?

24
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, doesnt 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?

25
OUTSIDE-IMPACTS

• Is this a positive present value opportunity?
  (Does it have 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?

26
OUTSIDE-IMPACTS

• Is this a positive present value opportunity?
  (Does it have IMPACTS?)
• (C) CUSTOMERS, CUSTOMERS, CUSTOMERS
• Get beta sites, beta customers, etc.
• VC pitches
• Kathryn Gould

27
OUTSIDE-IMPACTS

• (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.
28
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?

29
OUTSIDE-IMPACTS

• (T) Team
• 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?

30
OUTSIDE-IMPACTS

• (I) Investment Requirements
• Forecasts and cash flow requirements
• Forecasts
• What do investors look for?
• Possibility of 10x return
• Credible forecasts
• Growth, margins, exit value
• Analogs
• What do investors do?
• Cut forecasts in ½, by 2/3
• Push out forecasts
• What should you do?
• Plausible best-case scenario

31
OUTSIDE-IMPACTS

• (D) Deal
• 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?
• Is the deal priced attractively?
• If an investment does not pass the OUTSIDE tests,
  leave it outside.

32
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.
33
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?
34
DOS AND
DONTS
35
DOS DONTS
AVOID CLICHÉS

• We have no competition.
• We are the low cost provider.
• We only need a 5 market share.
• Our numbers are conservative.

36
DOS DONTS
AVOID ACRONYMS

• Dont assume everyone reading plan has your
  knowledge base
• When you use an acronym, explain it TFT (the
  first time)

37
DOS DONTS
NO AUTOPILOT

• Make sure the car has a driver. Someone should
  be the current CEO. OK to say you will find a
  permanent / better one later.

38
DOS DONTS
BE CLEAR 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.
39
DOS DONTS
CAPTURE ATTENTION

• 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?

40
DOS DONTS
EXAMPLES EXPERIENCES

• 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

41
IN CLOSING
NEXT STEPS
42
RESOURCES
CHICAGONVC.COM

• Link to online team building site where people
  can post ideas and team openings

• Link to key dates, deadlines, and events for the
  2011-1\2 New Venture Challenge

• 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

43
RESOURCES
LINKD.IN/NVCIDEAS
Get feedback on a new business idea!
Find team members for your NVC Entry!
Share your resume expertise to let other
students find you!
44
TONIGHT
FAST PITCH NETWORKING

• Get food, come back

• 30 mins of pitches

• Around the room, 45 sec per pitch

• Casual Networking

45
TONIGHT
FAST PITCH NETWORKING
In 45 seconds, say

• Your Name
• Company name
• Short Description 
• Needs 

John Smith Banana Hats We make hats for
monkeys Finance Guru, Developer