JWI 575 New Business Ventures & Entrepreneurship, week6 summary, 8/11/13
I am grateful for another outstanding week of learning at JWMI. The lecture materials, case studies and DQ discussions continue to expand my thinking in exciting ways.
Financial projection, business pitch and investor selection
This week I learned more about the critical skills needed to succeed with entrepreneurship. I understand the importance of accurately projecting the financial needs of the firm ahead of time (JWI 575, W6L1) and attracting investors with a succinct pitch. I recognize the vital need for self-confidence in picking the right investor after taking into account the motivations of the parties concerned and the fit for the firm (JWI 575, W6L2).
Understanding and anticipating the "burn rate", the rate at which the capital will be depleted in the firm, is a critical first step. Ability to quickly communicate to the investors the unique value proposition in the business plan is the second step. The business plan must address the customer segment being targeted, the customer pain point being solved and the differentiation in products and services versus competition. Moreover, the business plan must highlight the amazing team that is collaborating and building the venture.
Finally, the investor must be selected carefully after due considerations. Some investors may be impatient and want to cash out quickly while others may be more patient and open to a longer term partnership. Beyond money, factors that venture capitalists (VCs) could bring such as domain expertise, connections to influential people and a track record of launching successful companies should be considered. Compatibility in working styles with the VCs is also crucial for successful cooperation in high pressure environments with well defined deliverables and deadlines.
These are valuable concepts that I will use in business ventures going forward. I will need to develop further my skill in pitching business ideas to investors and prospective employees and other stakeholders more effectively.
Dr DP
(I) Fund the venture (W6L1)
***************************
Determine burn rate and therefore start-up capital needed
(II) Attract the right equity investors with a tight pitch
******************************************************
For [customer portrait]
who [description of problem he or she faces],
we offer [solution],
which unlike [competitor/substitutions],
offers [unique selling proposition].
I’m building this venture with [amazing team].
[Here’s why you would make a great collaborator.]
Links to Business Pitch
************************
http://www.masschallenge.org/
http://www.alumni.hbs.edu/careers/pitch/
http://www.ted.com/talks/lang/eng/david_s_rose_on_pitching_to_vcs.html
http://faculty.babson.edu/academic/sye3/RocketPitch/Student/index.htm (Look for the link to Sample Rocket Pitches in the presentation.)
(III) Pick the right investor (W6L2)
*********************************
This is a critical partnership over a long time
Understand investor motivation: make money, derive value & satisfaction
What investor brings to the table:
(a) money
*********
aligned objectives immediate return to investors (short term cash) OR
build long term value, bold bet with huge long term payout
(b) non-monetary benefits
**************************
- domain expertise
- network of connections
- Adult supervision - keep you on your toes
- larger VCs - record of successful investments; introduce to other companies in portfolio - learn from, sell to
- compatible working styles
(IV) Framework used by Venture Capitalists to evaluate projects (Roberts & Barley, 2004):
*****************************************************************************************
(i) Opportunity
Is the idea exciting, interesting and unique? What is the value proposition?
Does it attempt to offer a solution to a customer pain point? What is the big A-ha (Welch, 2005), the differentiator that hooks customers and investors alike?
What is the time window for this opportunity?
(ii) Competitive Advantage
What is the moat that keeps competitors from taking away the business?
For example, is there a new technology? In order to create a barrier, the technology has to be hard to execute.
(iii) Prototype
Is there a working prototype to demonstrate the promised solution or is this just at the idea stage?
(iv) Market size and growth potential
Is the market big enough? Is the sector fast growing?
Explosive growth makes it difficult for rivals to catch up or incumbents to respond.
(v) Customer
Is there any proven customer engagement?
Interest from a customer who is willing to pay could strengthen the business case and make it more attractive to investors (Kaplan & Warren, 2010).
(vi) Team
Does the founder understand the business side and the technical side of the company?
Is the interest of the founder compatible with the interest of the VC firm?
If the founder wants to retain control as the CEO it may restrict the ability of the VC firm to extract financial gains from the investment in a timely manner.
Are the business functions appropriately staffed by talented and the best qualified people?
Do the team members have the desired qualities such as creative skills, drive to win and humility (JWI 575, W5L1)?
Who among the team are assets to the company? Who are likely to be liabilities and need to be replaced?
(vii) Risks vs. Reward
What are the technical, competitive and market risks? Can the technology become obsolete quickly?
How many competitors exist and how are their offerings differentiated?
Do the current economic environment and the global context support the market for this business case?
Can the company run out of funds before customer adoption ? (Steve Blank, 2009)
What is the financial return projected for the investment?
(viii) Business Model
What is the price point? What is the customer acquisition strategy? What is the revenue target?
What is the expense model? What is the cash flow needed to get to break even?
Rigorous business model analysis (Hamermesh et al, HBS 2002)
*****************************************************
How likely is the business to turn cash flow positive?
How much time is required to ramp-up the revenue in order to turn cash flow positive?
How large an investment is required to pursue the business model ?
What are the critical success factors and associated risks?
(ix) Financial analysis
What is the projected revenue over time for the company? What is the gross margin?
I am grateful for another outstanding week of learning at JWMI. The lecture materials, case studies and DQ discussions continue to expand my thinking in exciting ways.
Financial projection, business pitch and investor selection
This week I learned more about the critical skills needed to succeed with entrepreneurship. I understand the importance of accurately projecting the financial needs of the firm ahead of time (JWI 575, W6L1) and attracting investors with a succinct pitch. I recognize the vital need for self-confidence in picking the right investor after taking into account the motivations of the parties concerned and the fit for the firm (JWI 575, W6L2).
Understanding and anticipating the "burn rate", the rate at which the capital will be depleted in the firm, is a critical first step. Ability to quickly communicate to the investors the unique value proposition in the business plan is the second step. The business plan must address the customer segment being targeted, the customer pain point being solved and the differentiation in products and services versus competition. Moreover, the business plan must highlight the amazing team that is collaborating and building the venture.
Finally, the investor must be selected carefully after due considerations. Some investors may be impatient and want to cash out quickly while others may be more patient and open to a longer term partnership. Beyond money, factors that venture capitalists (VCs) could bring such as domain expertise, connections to influential people and a track record of launching successful companies should be considered. Compatibility in working styles with the VCs is also crucial for successful cooperation in high pressure environments with well defined deliverables and deadlines.
These are valuable concepts that I will use in business ventures going forward. I will need to develop further my skill in pitching business ideas to investors and prospective employees and other stakeholders more effectively.
Dr DP
(I) Fund the venture (W6L1)
***************************
Determine burn rate and therefore start-up capital needed
(II) Attract the right equity investors with a tight pitch
******************************************************
For [customer portrait]
who [description of problem he or she faces],
we offer [solution],
which unlike [competitor/substitutions],
offers [unique selling proposition].
I’m building this venture with [amazing team].
[Here’s why you would make a great collaborator.]
Links to Business Pitch
************************
http://www.masschallenge.org/
http://www.alumni.hbs.edu/careers/pitch/
http://www.ted.com/talks/lang/eng/david_s_rose_on_pitching_to_vcs.html
http://faculty.babson.edu/academic/sye3/RocketPitch/Student/index.htm (Look for the link to Sample Rocket Pitches in the presentation.)
(III) Pick the right investor (W6L2)
*********************************
This is a critical partnership over a long time
Understand investor motivation: make money, derive value & satisfaction
What investor brings to the table:
(a) money
*********
aligned objectives immediate return to investors (short term cash) OR
build long term value, bold bet with huge long term payout
(b) non-monetary benefits
**************************
- domain expertise
- network of connections
- Adult supervision - keep you on your toes
- larger VCs - record of successful investments; introduce to other companies in portfolio - learn from, sell to
- compatible working styles
(IV) Framework used by Venture Capitalists to evaluate projects (Roberts & Barley, 2004):
*****************************************************************************************
(i) Opportunity
Is the idea exciting, interesting and unique? What is the value proposition?
Does it attempt to offer a solution to a customer pain point? What is the big A-ha (Welch, 2005), the differentiator that hooks customers and investors alike?
What is the time window for this opportunity?
(ii) Competitive Advantage
What is the moat that keeps competitors from taking away the business?
For example, is there a new technology? In order to create a barrier, the technology has to be hard to execute.
(iii) Prototype
Is there a working prototype to demonstrate the promised solution or is this just at the idea stage?
(iv) Market size and growth potential
Is the market big enough? Is the sector fast growing?
Explosive growth makes it difficult for rivals to catch up or incumbents to respond.
(v) Customer
Is there any proven customer engagement?
Interest from a customer who is willing to pay could strengthen the business case and make it more attractive to investors (Kaplan & Warren, 2010).
(vi) Team
Does the founder understand the business side and the technical side of the company?
Is the interest of the founder compatible with the interest of the VC firm?
If the founder wants to retain control as the CEO it may restrict the ability of the VC firm to extract financial gains from the investment in a timely manner.
Are the business functions appropriately staffed by talented and the best qualified people?
Do the team members have the desired qualities such as creative skills, drive to win and humility (JWI 575, W5L1)?
Who among the team are assets to the company? Who are likely to be liabilities and need to be replaced?
(vii) Risks vs. Reward
What are the technical, competitive and market risks? Can the technology become obsolete quickly?
How many competitors exist and how are their offerings differentiated?
Do the current economic environment and the global context support the market for this business case?
Can the company run out of funds before customer adoption ? (Steve Blank, 2009)
What is the financial return projected for the investment?
(viii) Business Model
What is the price point? What is the customer acquisition strategy? What is the revenue target?
What is the expense model? What is the cash flow needed to get to break even?
Rigorous business model analysis (Hamermesh et al, HBS 2002)
*****************************************************
How likely is the business to turn cash flow positive?
How much time is required to ramp-up the revenue in order to turn cash flow positive?
How large an investment is required to pursue the business model ?
What are the critical success factors and associated risks?
(ix) Financial analysis
What is the projected revenue over time for the company? What is the gross margin?
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