This
document answers some Frequently Asked Questions
(FAQs) about new product and venture investing.
We welcome
all relevant feedback.
All
businesses start from ideas about a product and a market.
Some basic questions to ask yourself about your new business
are:
1. What is the product or service you will create and sell?
2. How is this product better than any the competition?
3. What is your target market? Target customer?
4. How will you market this product?
5. How you will deliver this product or service?
6. Can the price and sales volume of this product support
the infrastructure required to build, market, and deliver
it?
7. How will you finance this company?
8. Is this something you really want to do?
Although
business plans submitted to Downing Venture are held
in confidence, business plans sent to any institutional
investment firms will not.
Downing
Venture considers all investment ideas to be confidential
and proprietary and we do everything reasonable to regard
them as such. However, due to the high volume of business
plans we may be exposed to, we are unable to sign a Non
Disclosure Agreement (NDA) during the initial stages
of discussion. It is our belief that entrepreneurs should
have a high level of trust in their venture partners
and have an idea that can be easily differentiated and
possibly patentable as we move the product closer to
production.
We
recommend the full business plan will cover the following:
1.
Company background
a. Short description of company's business
b. Mission statement
c. Executive Summary
2. Summary of the Opportunity
a. What is the problem solved?
b. Will people pay money to solve this problem?
c. What is the size of the company that can be built?
3. Market Opportunity
a. Historic and projected size
b. Market trends
c. Related projections
4. Product Offering
a. Product description
b. Current development status and projections
c. Differentiation
d. Value proposition
e. Go-to-market strategy
f. Revenue generation
g. Patent Protection
5. Competition
a. Direct and indirect competitors
b. Key competitors
c. Perceived competitors
d. Barriers to entry
e. Technology and market defensibility
6. Distribution
a. Key customers
b. Sales channels
c. Partnerships
7. Management Team
a. Team background
b. Board composition
8. Financials
a. Current balance sheet
b. Projected cash flow (first two years by quarters)
c. Projected head count by functional area (G & A, Sales, Marketing,
Product Development /Engineering)
d. 5 Year financial plan
9. The Deal
a. Amount to be raised
b. Valuation desired / comparable valuations
c. Use of proceeds
10. Exit Strategy
The
business plan should be in both text and MS Powerpoint
forms.
Contact BizPlans@DowningVC.com if
you need templates or examples of the above.
Remember
that most VCs are not technologists.
Market. The
market should be a large (<$1 billion) and growing
Product. Product
needs to be deliverable and something that solves a
unique problem.
Customers. Who
are/will be your customers? When? How much will they
pay?
Competition. Can
a (large) competitior make this product? When? At
what price?
Technology. Is
the technology viable over the life of the business? Can
it be protected?
Timing. Is
your product too early? Too late?
Management
Team. People should have experience in
the market/industry
Board
Members. . The ability to recruit a strong
board of directors and/or advisory board is a good
indicator of the management team's leadership skills.
Exit
Plan. When can the investors get out of
this investment? At what return?
Less
that you expect. The valuation will have a lot to do with
how much progress you have made in bringing your idea to
market. A ballpark estimate of the valuation should be:
Unprofitable,
Idea only – Investors will take over 80+% of the company
Unprofitable,
Beta product – 60-85% of company
Unprofitable,
Shipping product to 1-2 reference customers – 40-70%
Unprofitable,
3+ Customer References, professional management team in
place – 20-40%
Profitable,
10+ customers, well-oiled machine ready for IPO – 10-30%
An
ideal venture investor is one that is knowledgeable about
your product/industry, one that has a track record in your
space, and one that has offices close to your organization’s
offices.
Your
company location is very important. It should be in an
area that can support the rapid growth of your company,
both in office and personnel. For younger companies, it
must be close to your venture investors (so they can easily
map your progress to plan.
Bonus
FAQ: I don't like some of the answers in this FAQ. What's
wrong?
This
FAQ takes a very realistic view about venture investment,
so if you are not into reality, please click this link
to hear the sounds
of unrealistic investment.
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