the essentials of a business plan Eric Engineer Sevin Rosen Funds eengineer@srfunds.com what are investors looking for? Special Team Large Opportunity Clear Advantage Market Traction • Founders w/ unique vision and passion • Startup / industry experience • Ability to recruit others: employees, angels, advisors • How big? $20M, $100M, $1B? Depends on size of investor • Big today or tomorrow? Market timing matters! • IPO potential and/or large number of potential acquirers • Unique value proposition and market positioning • Advantage that improves over time [virtuous-cycle] • Evidence of product/market fit • Data points supporting business model assumptions your fundraising toolbox Executive Summary 1-2 page doc Slide Deck 10 slides + detailed appendix Product Demo Live or video Financial Model Simple spreadsheet w/ clear assumptions CONCISE & CONSISTENT get it down to less than 15 slides Slide 0 Slide 7 Slide 1 Slide 8 Slide 2 Slide 9 Title + intros + back story 10,000 foot view problem definition Slide 3 how you uniquely solve the problem Slide 4 product demo / case study Slide 5 market analysis + sizing Slide 6 competition + sustainable advantage market traction + GTM plan team bios unit economics + financial projections Slide 10 company status + funding needs/uses Slide 11 exit potential Slide 12 summary + next steps Appendix lots of back-up slides 0: title + intros + back story Build credibility and rapport in the first five minutes by providing context and finding common ground: – Do homework on the investor (past investments, common contacts, past employers, familiarity with space) – Start with a reminder on how you met or why/how you were introduced – Provide quick bios of your founding team; focus on experiences that are relevant to your startup – The “founding story” is often a good segue into the slide presentation 1: the 10,000 foot view • “Tweet” pitch: summary of your summary • Problem you solve and for whom • Market positioning / advantage / opportunity • Top 1-2 accomplishments to date • Initial strategy as part of a long-term vision • How much you are raising 2: the problem definition • What problem do you solve? And for whom? • How do you know it’s a real problem? • How are customers handling problem today? • Do you speak your customer’s language? • Is there adoption friction? – Aware of the problem? – Urgency? Feeling pain? Medicine or Vitamin? – Willingness to pay? Existing or new budget? 3: how you uniquely solve the problem • How does your offering solve the problem? • Offering = product + go-to-market strategy • What’s your secret sauce? • How much better/unique/different? • What evidence do you have? 4: product demo / case study • Demo is NOT a features and functions walk through • Illustrate the customer problem and your unique solution to that problem o Build your demo around a “case study” o Provide context before starting o Focus on 1-2 core “use cases” that create value and differentiate your product • PRACTICE, PRACTICE, PRACTICE • Consider a video if you are not good at demos 5: market analysis + sizing • Big picture description of market dynamics o Why now? Why a startup? o Graphics are useful • Define and segment your market o Identify low-hanging fruit o Short-term vs. long-term • Market size estimates o o o o SAM vs. TAM Bottoms-up vs. tops-down Consider changes over time “sanity check” 6: competition + sustainable advantage • No competition = no market • “doing nothing” / “good enough” substitutes • What is the basis of competition? • How does your advantage grow over time? o o o o o o Economies of scale Network effects Data scale Brand Distribution Virtuous cycles • Patents are nice to have but not enough 7: market traction + GTM plan • Evidence of “product/market fit” o B2B: adopters, customers, partners, press/analyst o B2C: users, virality, engagement, monetization • Go-to-market plan o Product Definition + Positioning o Marketing + Distribution + Sales Plan o Business Model + Pricing 8: team bios • Why are you the best team to capture this big opportunity? • Focus on relevant experiences • Don’t exaggerate or be too verbose • Be open and honest about your gaps and weaknesses; have a plan to address them • Avoid title inflation; think of the future • Recruit advisors to build credibility 9: unit economics + financial projections • Demonstrate unit economics of business model – Pricing, acquisition costs, churn, lifetime value – Data points supporting your assumptions • 3-5 year financial forecast – bookings, revenues, gross margin, key operating expenses, cash needs • Overlay with key stages, milestones, metrics – # customers, product releases, new channels, cash-flow break even, financing rounds, etc • Nobody will believe your numbers! – – – – – Mechanics and key assumptions are what matters Clearly identify key assumptions and why you feel confident in them What drive revenues, margin, and expenses? Is it consistent w/ market sizing and GTM plan If you’re taking a SWAG be up-front about it and explain how you will learn more over time 10: company status + funding needs/uses • Think of financing as a series of experiments where you learn more at each stage reduces risk + increases value of your company • Each stage should have clear value-creating milestones • How are you going to use the funding in this stage? In future stages? • How much money do you need to get to cashflow breakeven? • Do you have enough buffer if things don’t go according to plan? 11: exit potential • Where is sustainable value being created? • • • • • Customer base / traffic / engagement Partner / distribution network Data / content / “real estate” Unique technology / capability Revenues / EBITDA • Who are the likely acquirers and why? • Are there analogs from the past? 12: summary + next steps • Similar to “10,000 foot view” slide but more focus on momentum, potential, & fundraising schedule • Do not leave meeting without defining some clear “next steps” : – Setting up next meeting (i.e. visit to your offices to meet other team members, meeting with other members of the firm, more in-depth product demo, meet after key milestone completed, etc) – Sending due diligence materials – If “too early”, then define what investor would need to see to consider investing in the future – Understand the VC firm’s “process” and make sure you’re talking to the right person in the firm • Add investor to “status update” emails to “friends of the company” (no more than one per quarter) Appendix • Don’t be afraid to include several more slides with lots of detail • Group and label Appendix slides based on topic areas (product, market, financials, etc) • Use these slides to answer questions that come up during/after the presentation • Create a second version without appendix (or with subset of appendix) for “emailing” and “printing” CONCISE & CONSISTENT Q&A