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October 2016
2016 Business model canvas workshop What do investors look for in a business plan?
Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
About the facilitator
• Wharton MBA
• JP Morgan – Vice President - IB Technology, Global Markets Internet Marketing
• Parallax Capital Management – Co-founder and MD - Venture Capital
• Extream Ventures – Co-founder and MD - S$20 million VC fund
• Expara – Founder and MD - IDM Ventures Incubator, fund, advisory, training
• NUS – Adjunct Associate Professor, Business School, Entrepreneurship
• Sasin – Visiting Professor, Venture Capital
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Business model canvas workshop
12:00 PM Key elements for success - value proposition and innovation
1:30 PM Break
1:45 PM Key elements for success - competitive analysis and strategy
3:15 PM Break
3:30 PM Fund raising and financial plan
5:30 PM End
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
From Idea to Investment
• Key elements for success
• Financial plan and fundraising
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Key elements for success
• Develop an innovative product – Innovation
• Solve a problem for customers – Value proposition
• Identify your customers – Market identification and analysis
• Reach your customers – Marketing strategy
• Compete when others enter - Sustainable competitive advantage
• Make money – Business model and financial plan
• Team – A team or B team
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Problem Solution
Key Metrics
Cost drivers Revenue model
Value proposition and innovation
Sustainable competitive advantage
Channels
Customer segments
Market size
Customer archetype
High concept
Existing solutions
Top 1-3 customer problems
How are these problems solved today?
Your solutions to customer problems
Key numbers that tell if you are succeeding
What is innovative about your solution? Why are you better than existing solutions?
One sentence that says it all
How will you create barriers to entry for followers?
How will you get your product to customers?
Who are your target customers?
How big is your market and how fast is it growing?
Characteristics of your key customers
How do you generate revenue?
What are your key cost drivers?
Expara Business Model Canvas
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Why is biotech unlike any other?
• Lean startup does not apply to biotech
• Can’t develop new drug, biologic or medical device, market it immediately to the public, and later make small adjustments
• Most highly regulated industry
• Development to fundraising can take three to 10 years
• For companies that succeed, the revenues and profits far exceeds other sectors
• Immensely gratifying
• You have to sell the science
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Key differences between tech and biomed plans
Value of IP
Regulatory approval
Marketing strategy
Time to market
Business model
Valuation model
Exit strategy
Risk
Scale of financing
Factors Bio-tech Med-tech Product Tool
How different is it from tech plans?
Low Somewhat High
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Questions to answer
• Innovation
• Value proposition
• Market identification and analysis
• Marketing strategy
• Sustainable competitive advantage
• Financials
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Don’t go too early or too late
Measure of performance
Measure of effort invested
The technology adoption S curve
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Value proposition and innovation
1. What is the painful problem you are solving for customers? How painful is that problem (cancer vs flu)?
2. What is your product and what is innovative about it?
3. What are the shortfalls of the current solutions?
4. How do you solve this problem and can you quantify your benefit?
5. How does your innovation enable you to accomplish this?
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Diamond Rio versus iPod
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Disruptive business model or disruptive tech
• Diamond is the first mover in portable MP3 in 1998
• Apple enters in 2003 and captures 90% of the market
• Business model innovation – hardware + software + service
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Business model innovation: Gillette to Google
• Gillette – razor and blade
• Southwest Airlines – budget airlines
• Dell Computer – mass customization
• Charles Schwab – on-line broker
• Amazon – ecommerce
• eBay – peer to peer marketplace
• Google – search-based advertising
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Market identification and analysis
1. Who is your customer?
2. How big is your market and how fast is it growing? – Top-down approach – Bottom-up approach
3. What trends in your market are favourable for you? – Technological, social, demographic, regulatory
4. Who are your direct and indirect competitors?
5. How is your market segmented?
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Top-down revenue projections
Total addressable market
Target market
Target segment
Market share
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Bottom-up revenue forecasts
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Marketing strategy
1. How is your product differentiated from your competitors’ product? Use a comparison matrix to illustrate.
2. What is your position in the market? Use a positioning map or Blue Ocean Strategy canvas to illustrate
3. What are your price, place, product, promotion and initial sales plans
4. What is your tagline?
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Comparison matrix
Competitor 1
Competitor 2
Competitor 3
Competitor4
Your company
Benefit 1
Benefit 2
Benefit 3
Benefit 4
Benefit 5
Benefit 6
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Positioning map
Portability
Value
Competitor 2
Your company
Competitor 1
Competitor 3
Competitor 4
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Blue Ocean strategy canvas
www.blueoceanstrategy.com
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
iPod strategy map
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Sales and distribution
• Great sales and distribution vs great product
• Best sales is hidden
• Products don’t sell themselves
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Metrics for effective distribution
• CLV: total net profit earned over the course of relationship with customer
• CAC: cost to acquire a new customer
• CLV>CAC
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Sustainable competitive advantage
1. How will you compete with small followers?
2. How will you compete with large companies who decide to move into your space?
3. What is your IP strategy?
4. What are your competitive strategies to create barriers to entry?
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
First-mover advantages and disadvantages
• Reputation
• Preempting positioning
• Switching costs/Lock-in/Network effects
• Unique channel access
• Move down learning curve
• Favorable access to inputs
• Definition of standards
• Institutional barriers – IP protection
Advantages
• Pioneering costs
• Demand uncertainty
• Changes in buyer needs
• Specificity of investments to early generations
• Technological discontinuities
• Low-cost imitation
Disadvantages
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Established company strengths and weaknesses
• Learning curve
• Reputation effect
• Cash flow
• Economies of scale
• Complementary assets
Advantages
• Difficult to innovate
• They need to satisfy existing customers, partners and supply chain
• Existing organizational structure is appropriate to current tasks
• Risk aversion
Weaknesses
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Opportunities that favor new firms
• Existing firms frozen in the headlights
• Disruptive technologies and business models
• Uncertainty: existing firms’ advantages in market research are neutralized; risk propensity
• Technologies: Discrete versus systemic technologies, based on human capital, general purpose rather than specific
• Bad customers: Enter market that is unattractive to existing competitors due to established cost structure
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Regulatory approval for drug development
Drug discovery and pre-clinical
Phase I Phase II Phase III NDA/BLA
3.5 years 1 year 2 years 3 years 1-2 years
Success rates: 30% 70% 70% 80%
Financing required: $250K to $1.5M
$2M to $20M $20M to $100M
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
From Idea to Investment
• Key elements for success
• Financial plan and fundraising
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
In the financial section of the business plan
1. Business model – Revenue model – Cost structure
2. Financial projections
3. Valuation
4. Funding required and equity offered
5. Use of Proceeds
6. Exit Strategy and ROI
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Elements of a business model
• Revenue models
• Cost structures
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Differences in business models
Biotech Tool platform
Hybrid Product - virtual
Med tech Similar to tech
Revenue drivers and cost drivers
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Biotech- product business model
Product One- product
Platform
Drug discovery Licensing
Commercialization In-house
Partner
Pricing & positioning Alternative
Generics Discount
Premium
Research & manufacturing
In-house
Virtual
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Biotech business models
Advantages Disadvantages
Tool platform
Generate revenues early Lower returns
No need for regulatory approval
Hybrid (best of both worlds?
Balance of risk and return
Spread of resources thinly
Generate revenues early Lack of strategic focus
Product High returns Scale of financing
No revenue generation High risk
Time to commercialization/time to exit?
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Differences in valuation models
Biotech
Product: Simulation (incorporate DCF)/real
option valuation
Hybrid: DCF and simulation (incorporate
DCF)/real option valuation)
Tool Platform: Simulation (incorporate DCF)/real
option valuation
Med tech
Similar to tech valuation models
Discounted Cash flow (DCF)
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Calculate investor’s ROI including dilution
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Stages and sources of funds
Founder’s Capital
Seed/Angel
Series A, B, C
Mezzanine Pre-Exit Exit
VC hurdle rates 60-100% 40-60% 20%
OM F,F&F
Incubators corporations government
Customers, suppliers, strategic partnersVCs, Banks for VC loans
R&D Establishment GTM/Rollout Accelerated Expansion MaturityEnablement growth
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Value inflection points in biotech- product
Early – Clearly articulated strategy – Team – The key IP – Initial proof-of-concept
Later – IND-enabling studies – Clinical safety – Clinical proof-of-concept – Phase 3 – Market validation
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Differences in exit strategy for biotech - product
• Biotech companies can exit via IPO without revenues
• Tesaro, Kythera and Intercept are companies that hit the public market during their phase III program in 2012
• Tetraphase also exited via a $75 million IPO in 2013
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Cap table
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Key elements of a term sheet
• Board of directors
• Protective provisions
• Drag-along agreement
• Conversion
Control
• Price-per-share
• Valuation
• Amount of financing
• Liquidation preference
• Vesting
• Options pool
• Anti-dilution
• Pay-to-play
Economics
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Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division
Contact us
• Douglas Abrams
• Expara Pte. Ltd.
• www.expara.com
• 65-6323-3084, 65-9780-5381 (hp)
• Block 71 Ayer Rajah Crescent, #02-10/11 Singapore 139951