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2007 Edward L. Kaplan New Venture Challenge
How to Write a Feasibility Summary Workshop
Linda DarraghEllen Rudnick
January 10, 2007
Proudly Sponsored by:
EDWARD L. KAPLAN, '70Chairman and CEOZebra Technologies Corp.
GUY P. NOHRA, ‘89
AGENDA
• Review of Timeline
• Key Elements of a Feasibility Summary
• Dos and Don’ts
• Q&A
2007 New Venture Challenge Timeline
Jan. 10 Guidelines for writing Executive Summaries
Feb. 5 Phase I Summaries due
Feb. 26 Teams advancing to Phase II announced
Mar. 5 Orientation Meeting in Hyde Park 6 – 9 pm
Mar. 26 Bus. 34104, Developing a New Venture, Begins
Apr. 27 Full Business Plans due
May 21 Finalists announced
May 24 Finals at Hyde Park Center, all day
Key Elements of a Feasibility Summary
• Company Mission or Objective• Technology or Proprietary Aspects of the Product/Service (if
appropriate)• Market Information• Competitive Landscape• Revenue Model• Operation Issues• Management Team• Financial Information (if available)• Business Risks
Key Elements for a Feasibility Summary
Mission (objective) of the business
• What are you selling?
• What business problem are you solving?
• How big is this problem?
• Why should an investor read any further? What is different?
Which is better?
Example 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.
Example 2: The Company’s 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.
Key Elements for a Feasibility Summary
Technology• Describe technology if it 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?
Key Elements for a Feasibility Summary
Market Information
• How do you define the market?• Who is the customer? • What is the potential size of the market? • How many customers? How much do they buy?
$ 2.8 Billion art supply industry
Surfaces: 21% or $558 Million
Paint
Brushes
Frames
75% market is price
sensitive
25% Prof artists or
$147Million
Key Elements for a Feasibility Summary
Competitive Landscape -- Why will you win?• Who are current players in the market? • Who could be your competition in the future?• What are your competitive advantages / disadvantages
• What barriers to entry will protect you? • IP• Customer• Development process
• How are you positioned with respect to the competition?
Firms
kCura (Relativity) In-house ● ● ● ● ● ○
CT Summation Both ○ ● ◑ ● ○ NA
Concordance *Both ○ ● ◑ ● ○ ●
iConnect *Both ○ ● ◑ ● ○ ○
Ringtail Both ● ● ● ○ ○ NA
Attenex Both ● ● ● ○ ○ ◑
Differentiation √ √ √ √
Nat
ive
Doc
ume
nt
Web
-bas
ed
Sea
rch
Tra
ckin
g
Red
actio
n
Hos
ting
/ In
-hou
se
*In-house, allow third party hosting
Analysis -
Main Competitors Feature Comparison
Rep
ortin
g
Functionality
Database Integration
Integration w/other Tech
Implementation Time
Portability
Ease of Use
Price
Criteria/Metrics
IV Smart PumpCPOEBarcode scannersPDA solutionOnline calcStd Calcxxx
Evaluation of Competitive AdvantagesEvaluation of Competitive Advantages
Best
Key Elements for a Feasibility SummaryOperations Issues:
• How will you deliver this product or service? - Make internally or use external resources?
• Do the costs of providing this product or service provide a sufficient profit?• Are there execution risks?
Revenue Model / Go to Market Strategy?• How will you make money?• Why will the customer buy your product?• What will the customer pay?
- Why are you sure the customer will pay this?- Have you spoken to customers?
• How will you get to the customer? i.e., distribution channel.• How many customers will you get?
Basic Channel Segmentation
InternetInternet
TelemarketingTelemarketing
Retail OutletRetail Outlet
DistributorsDistributors
Value-Added Partners
Value-Added Partners
Sales ForceSales ForceV
alue
-Add
of
Sal
e
Cost Per Transaction
High
High
Low
Low
Source: Friedman and Furey, The Channel Advantage
Key Elements for a Feasibility Summary
Management Team/Advisors/Partners• Who are they?• Why are they relevant for this business?• Do you have any holes in the management team?• How do you plan on filling these gaps?
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 Financial’s 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 the Chicago GSB 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.
Key Elements for a Feasibility Summary
Financial Information (if available)• What are your economics? (use unit model analysis if appropriate)• What are your key assumptions?• Why will you eventually make money / go cash flow positive?
- When will this happen?• How much money do you think you will need?• How big will you get?• Eventually, this section will need to get very detailed.
Business Risks• What are you worried about / unsure of?• What do you plan to do about it?
8%
11%
11%
19%
13%
38%
Unit Economics
Sales & Marketing
Customer Service
Sensors, Gateways and Other Technology
Maintenance, Insurance and Overhead
Transaction Processing and Wireless Data
Operating Profit
% o
f C
om
pan
y A
BC
Rev
enu
e
Financial Projections
Cash flow positive in Q4Y2
Revenue$17 M
Expenses
Net Income and
Cash Flow$4.1 M
($1 M)
$1 M
$3 M
$5 M
$7 M
$9 M
$11 M
$13 M
$15 M
$17 M
Year 1 Year 2 Year 3 Year 4
Management
Contracts: 3 45 135 267
Markets: SF LA Seattle Houston
Financials
2005 2006 2007 2008 2009Revenue $122,500 $612,500 $1,000,000 $1,643,750 $2,000,000Cost of Goods Sold $73,500 $312,500 $555,000 $848,750 $1,037,500Gross Income $49,000 $300,000 $445,000 $795,000 $962,500Operating Expenses $223,900 $283,100 $374,000 $529,375 $622,300Net Income (Loss) ($186,100) $3,300 $47,600 $208,297 $203,808
Gross Margin 40.00% 48.98% 44.50% 48.37% 48.13%EBITDA ($174,900) $16,900 $71,000 $265,625 $340,200IRR N/A N/A -27.87% 34.85% 58.38%Owner Interest $75,000 73.00%Angel Investment $200,000 27.00%
Assumptions
Revenue:• Sales cycle: 6 months• Installation: 50% at contract signing, 30% mid-term, 20% upon
completion• Annual subscription fee: $xx per seat• 2 contracts signed by x/x/0x; 4 by x/x/0x, …..
Expenses• Payroll: see attached table of payroll and benefits for founders,
new hires and independent contractors• Work virtually until x/x/ox, then move into incubator• Marketing plan for ‘0x includes 2 trade shows in Feb and Sept.,
new trade booth purchased in January, development of collateral material, ……..
Comparables
Are there comparables in the industry or other industries that validate your business model?
• Who are they and why have they been successful? • How are they valued and how did they get funded?• Have there been successful exits? Multiples• Also look for the ‘corpses’. Have similar businesses failed?
Why?
Dos and Don’ts
Clichés to Avoid:• We have no competition.• We are the low cost provider.• We only need a 5% market share.• Our numbers are conservative.• We have the first mover advantage.
Avoid Acronyms (or at least explain them)• Don’t assume everyone reading plan has your knowledge base
Make sure the car has a driver.• Someone should be the current CEO. OK to say you will find a
permanent / better one later.
Dos and Don’ts
Be Clear and 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.
Be Realistic
• Avoid the hockey stick effect unless you have assumptions to back it up
Dos and Don’ts
Capture the reader’s attention – fast• 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?
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
Questions?