NationalLabsEntrepreneurshipAcademy

DAY1

MakingtheLeapAndrewHargadonFacultyDirector

LearningObjectives

Beabletoanswerthefollowingquestions:• HowdoIknowthisideaisworthpursuing?

• WhatdoIdofirst?

• WhatdoIdonext?

Overview

• Movingforwardwiththeidea

• Yourventureasanexperiment• Duediligence

• Yourfirst$5experiment

• Practiceapplyingwhatyoulearned

Refertothe“MakingtheLeap” portionofyourcoursebook.

DevelopmentGrants

(e.g.SBIR)

AppliedResearch

BasicResearch Stages ofventuredevelopment

NetCashFlow

StagesofventurefundingResearchGrants

#ofNewVentures

ValleyofDeath

LifeCycleofaNewVenture(onepath)CliffofCommitment

Good

ideais…

Bad

Bad Good

idealooks…

duh

typeIIerrorsRejectingagoodideabecauseitlookedbadatfirstglance

typeIerrorsInvestingtimeandenergyinabadideathatlooked

goodatfirstglance

everyone’sagenius

theinventor’scurse

theMBA’scurse

IsTheIdeaAnyGood?

LifecycleofaNewVenture

DevelopmentGrants

(e.g.SBIR)

Friends,Family,&Founders($5-$50k)

AngelInvestors

($50-$500k)

EarlyStageVentureCapital

($500k-$2M+)

VentureCapital

($2M-$50M)

PrivateEquity,ProjectFinancing

($2M-$50M)

AppliedResearch

ProofofConcept

TargetMarket

BusinessPlan

WorkingPrototypes

FoundingTeam

EngineeringPrototypes

SupplierContracts

ProductionPrototypes

DistributionContracts

ProductIntroduction

BasicResearch

IPO,Merger,orAcquisition($2M-$50M)

RevenueGrowth

NetCashFlow

ValleyofDeath

#ofNewVentures Funding

ResearchGrants

Gen11st3-9Months

Gen2(startup)

Gen3(transition)

Gen4(business)

Manageforuncertaintyandcommitment

Manageforbuildingthecompany

Manageformarket,product

&processdevelopment

Manageforgrowing

thebusiness

ACaseStudy

ReadtheCase

• Wouldyouinvest?

• Forthistowork,whatwouldhavetobetrue?

• Writedown5uncertaintiesyouwouldwanttoresolvebeforecommitting.

• Inteamsof4,compareyourquestions.Whatarethe3mostimportantonestoanswerfirst?

Movingforwardmeansreducingyouruncertainty

1

Commitment = Vision x Validation

Developmentoftheidea(ortime)

Curren

tWorth

Uncertainty

Value

thechallenge

Successisthenumberofexperimentsyoucanfitinto24hours.

— ThomasEdison

TheChallenge

Commitment = Vision x Validation

Developmentoftheidea(ortime)

Curren

tWorth

Uncertainty

Value

thinking doing thinking doing thinking doing thinking

Anewventureisaseriesofexperiments**Designedtoreduceuncertaintyinordertoenablegreatercommitmentfromyouandothers.

2

ManagingtheNewVentureProcess

Identifyandresolvethecriticaluncertaintiesquicklyandcheaply.

$5,$50,$500,$5,000…

Reducethemostuncertaintywiththeleasttime,energy,

andmoneyinvested

TheObjective(@thestart)

Bettertobespecificallywrongthanvaguelyright.

TheMindset

MarketIsitfeasible?Isitdesirable?Isitviable?

BusinessIsitfeasible?Isitdesirable?Isitviable?

TechnologyIsitfeasible?Isitdesirable?Isitviable?

YourVenture

TheFramework

Theslidedeckisyourfirst$5experiment

3

Day2 Day3Day1

TheProblem(and Solution)

TechnologyHypotheses

MarketHypotheses

BusinessHypotheses

TheDeliverables

TheTeam

TheMilestones

TheInvestment

TheSummary&NextSteps

TheIdea(asapitch)

TheExperiments

10-slidedeck

Thebiggestuncertaintiesyouneedtoanswerto

gettothenextcommitment

Assumption/Hypothesis $5 $50 $500 $5,000

SettingEarlyStageDeliverables

RefertoEarlyStageMilestonesWorksheet

Forthistowork,whatwouldhavetobetrue?

Assumption/Hypothesis $5 $50 $500 $5,000

SettingEarlyStageDeliverables

Assumption/Hypothesis $5 $50 $500 $5,000

Gen11st3-9Months

Gen2(startup)

Gen3(transition)

Gen4(business)

Bettertobespecificallywrongthanvaguelyright.

TheMindset

Day2 Day3Day1

TheProblem(and Solution)

TechnologyHypotheses

MarketHypotheses

BusinessHypotheses

TheDeliverables

TheTeam

TheMilestones

TheInvestment

TheSummary&NextSteps

TheIdea(asapitch)

TheExperiments

AcademyScheduleMeetsCurriculum

Your(bestguess)vision Howyouwillvalidateit

FundamentalPremisesofthePitchDeck

1. Theslidedeckisthefirstcomprehensiveprototypeofanewventure,andsoshouldbecreated,shared,andinotherwaystreatedasaworkinprogress(andslidesareeasiertoreviseorabandonthanalengthywrittendocument).

2. It'scriticaltodescribeallaspectsoftheventure(andnotjusttheonesyouknowaboutorareexcitedby),asbothaprototypeandawaytocommunicatetoanymentorsorinvestors;

3. Presentingthebusinessrequiresprovidingtherightinformationintherightorder,andthustheorderoftheslidesiscritical.

ABusinessPlanin10Slides

TheTemplate§Thistemplatehasbeendesigned(andtested)tohelpyoubothdefineyourventureandhoneyourpresentation.

§Itsthegeneraloutlinethatanswersmostofthequestionsthatinvestorswillhaveaboutyourbusiness,andintheordertheywillaskthem.

§Thepurposeofthistemplateistoquicklycommunicateyourventureto,andquicklylearnfrom,youraudience.Beconcisebutalsocomprehensive.

§Inreality,thisisactuallytwotemplates.Usetheslidetemplatetocreateaslidedeckthatyouwillpresentfrom.Thisdeckshouldnothavetoomanywords—youwilladdthoseinyourtalk.

§Next,copytheslidesandpastethemagainontheend(orcreateanewfile)thathasmoreexplanationandservesasthenotesand/orsomethingthatyoucanleavebehindorsendtosomeone.Thisseconddeckshouldbeself-explanatory.

§Trytouseimageswherepossibletoconveyyourmessage.

§Keepitsimple.

Slides0.TitleSlide1.Introduction(elevatorpitch)2.Problem&Solution3.TheMarket

a.4P’sb.CompetitiveMatrixc.UserScenarios

4.BusinessModelandPricing5.Technology6.Competition7.Milestones8.Team9.FinancialProjections10.Summary&NextSteps

YourCompany(orProject)Here

Page § 27

Yourcompanynameandcontactinformationhere

Includeallnames/emails/phoneofthefoundingteam•Includecompanywebsite(ifestablished)

TheIntroduction– ElevatorPitch

Page § 28

Inapproximately140charactersorless,describewhatthecompanydoes,forwhom,andwhyit’simportant (i.e.,valuabletothatcustomer).

Youcanalsoverybriefly mentionanysignificantaccomplishments/milestonesreachedsofar,e.g.havelicensetopatent,proofofconceptcompleted,prototypecompleted,testedwithnamebrandcustomers,etc.Thiscanattractinterestfortheremainderofthepresentation.

Problem,Solution&ValueProposition

Onthisslide,youwanttodefinethreethings:

1.Theproblem yourventurewilladdress,usingasclearandcompellinglanguageaspossible.Besuretoclearlyidentifywhohastheproblem(consumerorcustomer)andhowbadly.

2.Yoursolution shouldbedescribedintermsofthewayitsolvestheproblemyou’veidentifiedfortheconsumerand/orcustomer(avoiddescribingthetechnicalfeaturesofyoursolutionhere).

3.Thevalueproposition,whichreferstothemostimportantbenefitfortheuser.Explainhowyouwouldmeasureit’svalue.Whatarethecosts(e.g.buying,installing,andoperatingyoursolution)relativetowhattheycurrentlyuse)?Beasspecific(andifpossible,quantitative)asyoucanabouttherelativevalueofyoursolution.

TheMarket

Describetheparticularmarketsegmentyouarepursuing.1. Clearlyidentifywhoyourcustomerisandhowmanyofthem

thereare.2. Identifyhowmuchtheywillpayandhowmanytheywillbuy.3. Statehowyouwillreachthem.

OptionalSlides

Todevelopyourconceptfurther,youmaychoose toincludetheaccompanyingslidesto:1. Describethe4Ps:product,price,promotion,andplace ofyour

marketingplan.2. Describethecurrentandemergingcompetition,usethe

accompanyingCompetitiveLandscapeMatrix todefinethecriticalfeaturesthatyourcustomerscareabout,andthedifferences(basedonthesefeatures)betweenyourofferingandthecompetition’s.

3. YoumayalsowanttoaddaUserScenario slidetodescribethetypicalcustomer,theirpreferences,andhowtheywouldusethisproduct.

Theslidesareoptional andshouldonlybeincludediftheywillhelpyoudevelopyourconcept.

(Optional)Product,Price,Promotion,Place

“P” Description

ProductWhatistheproduct (tangible)orservice(intangible)orcombinationthatyouareoffering.Ifthereisaproductmix,describethedifferencesamongthemix.

Price Whatistheprice thecustomerwillpayfortheproduct/service?Whatistheperceivedvaluepropositionthatjustifiesthatprice?

Promotion

Whatisthepromotion plan?Whatarethemethodsofcommunicatingtherelevantinformationabouttheproducttoeachofmanydifferentparties(includingcustomer,distributors,etc.):advertising,directmail,word-of-mouth,publicrelations,coupons?

PlaceWhatisyourplace?Placedescribesyourdistributionstrategy:wherewillcustomersgetaccesstoyourproducts/services?Howwillyoudistributeyourproductstotheselocations?

(Optional)CompetitiveLandscape

Feature3

Feature5

Feature1

Feature2

Feature4

FeatureN

üYourCompany/Project

Competitor1

Competitor2

Competitor3

Competitor4

CompetitorN

ü ü ü ü ü

üü ü

ü ü

üü ü ü

ü ü ü

üü ü▪ Listanydirectcompetitorsaswellascompetingalternatives(includingthestatusquo).Doyourresearchhere.Whoarethey?

Listthem.Whatmakesyoudifferent?Describeit!Whatgivesthecompanyanadvantage?Describeittoo!▪ Dependingontheproductandcompetitorsitissometimeseasiertodepictthecompetitivelandscapeintermsofspecific

featuresthataddsubstantialvaluecomparedtoyourcompetitors.Thiscanbeshowneasilybycarefulconsiderationtotherowandcolumnheadingsintheillustratedtable.

(Optional)UserScenario(s)

AUserScenario describesatypicalcustomer(or2or3),theirdemographics,andwhattheyarelookingtodowithyoursolution(i.e.,whatistheirproblemandhowyoursolutionwillsolveit?)

Thesedescriptionsarenarratives,notbullets,anddemonstratethatyouunderstandthetypicalcustomerandtheirneeds(betterthananyoneelsedoes).

Technology

Describehowyoursolutionworks.Answerthefollowingquestionsinyourdescription.1.Whatisyourtechnology?

1. Whatdoesitdo?Howdoesitdoit?2.Willitwork(andwhen)?3.Canwemakeit(atscale)?

1. Whatdoesitcost?2. Describethesupplychain:whowillprovideanycriticalelements

ofyourcoretechnology?4.Whatmakesthissolutioneffective,unique,and/ordefensiblefromcompetitors?

1. DescribeanyIP(patents,provisionalpatents,ortradesecrets)2. Describeanydistinguishing(orinimitable)valueofyour

technologyovercompetingsolution.

RevenueandPricing

Describehowyourcompanywillmakemoneysolvingthecustomer’sproblem.Makesuretoanswerthefollowingquestions:

1.Howwillyoumakemoney?(Seetherevenuemodelalternativestoanswerthis:areyoumakingmoneybytheunitsold,byasubscription,transactionfee,advertising,etc.)

2.Howmuchwillyoumake?(Seefinancialprojections)

3.Howmuchwillitcost?Inatable,showhowmuchyouexpecttogetpaidforeachunityousell,howmuchitwillcosttomake,andhowmanyyouwillsell.

4.Whenwillithappen?Whenthebusinessisupandrunning,howmanyunits,subscriptions,etc.doyouexpecttosellinagivenyearandatwhatprice?Yourexpectedsales=pricexquantity.

MarketIsitfeasible?Isitdesirable?Isitviable?

BusinessIsitfeasible?Isitdesirable?Isitviable?

TechnologyIsitfeasible?Isitdesirable?Isitviable?

YourVenture

TheFramework

FinancialProjections

Year1 Year2 Year3 Year4 Year5

Revenue($000) $60 $120 $240 $480 $960

Expenses $ 85 $150 $ 180 $240 $400

Customers 5 10 20 40 80

Netincome $ -25 $-30 $60 $ 240 $560

Provideasimpletablethatsetsoutyourbestguessofthefinancialperformanceoftheventureoverthenextfiveyears.Don’tworryaboutbeingright—thisisyourbestguess.Includethefollowing:1.Whatyoubelievewillbetherevenue,expenses,andnetincomeoftheventure.2.Tobemoreaccurateinyourthinking,includewhatyouthinkwillbethemainpredictorsofyourrevenue(e.g.,,#ofcustomers,price(ifitchangesovertime),numberofsalesrepresentatives)andofyourexpenses(e.g.,#ofemployees,costsofgoodssold(COGS),orcommissions)3.Theprimaryroleofthistableistoreflecthowmuchmoneythecompanywillneed,howmuchitwillmake,andhowotherkeymetrics(likecustomersoremployees)lineupwiththefinancials.Thenumbersshouldbeyourbestguess.Don’ttrytoplayit“conservative” anddon’texaggerate—neitherwillhelpyoufindmistakes,ormakefriends.

Milestones

Yourmilestonesrepresentthemostimportantobjectivesofyourbusinessyourfirst9-12months.

Atthisstage,eachofyourmilestonesshouldbedesignedtoincreasethevalueofthecompanybyreducingtheuncertaintysurroundingyourassumptions.

Notethatforeachmilestone,you’llneedtherightcapabilitiesandinvestment.ThusthemilestonesshouldbeconnectedtotheTeamandSummaryslides.

Typicalmilestonesmightbe:•Completingatechnicalprototype•Gettingafirstcustomer•Shippingyourfirstproduct(orgettingyourfirst10,000users)•CashflowbreakevenDon’tcovereverymilestone,justthemajoronesyouwillaccomplishinthisinitialroundandanyother(major)milestonesthatyou’llneedtoeventuallymeetbeforegettingtomarket(i.e.,regulatoryapproval,patentsawarded,etc.).

TheTeam

TheAdvisoryBoard

Picture Name(orTBD) Relevantskillsandexperiences

Picture Name(orTBD) Relevantskills&experiences

Describeyourcurrentandplannedmanagementteam.NOTE:Don’tputsomeoneonyourteamjusttofillaspot.Listonlythepeoplewhoaremovingforwardwithyourventure.OtherwiselistTBDandbepreparedtoexplainwhatkindofpersonyouneed.

Describeyourcurrentadvisors.Don’tlistadvisors youhavenotgottenpermissiontolist.Instead,ifyou’remissingkeyadvisors,listthebackgroundsandexperiencesyouthinkwillbevaluable.

Foreachofthefoundersandadvisors,describetheskillsandexperiencesthataremeaningfultotheventure

Foreachofthefoundersandadvisors,describetheskillsandexperiencesthataremeaningfultotheventure

SummaryandNextSteps

Summarizeyourventureandstatusonthisslide• Beclearinwhatyouareplanningtodo…

inboththelongrunandtheshortrun.

• Beclearinwhatyouareaskingforfromthisaudience.Ifyouarepitchinginternalexecutives(oroutsideinvestors),tellthemwhatfundingyouneedandwhatyouwilldowithit.Ifyouarepitchingtopotentialadvisorsoremployees–beclearaboutwhatyou’reaskingofthem.

Includeyourcontactinformation

ApplyingWhatYou’veLearned

Startwritingdownyourideas—bespecific—andbesensitivetowhat’sholdingyouback.

Downloadthepresentationtemplate:

http://gsm.ucdavis.edu/faea17