Seminar #4 – The Business Plan
Hello everyone–it’s Victoria here live-blogging from the seminar. I’m grabbing relevant points, so once again if it’s not a complete sentence, please excuse. Today’s speaker is Mike Volker of the SFU University/Industry Liaison Office.
Mike is discussing the market right now and how it’s a good time to invest. What’s new? Companies are valued lower, there are more investors at smaller amounts, business structuring is getting more attention and it’s all about an exit strategy, politics. Mike stresses the fact that you need an exit plan.
What are the instructions to the jury? Pick the most likely to be viable and have the greatest value. What about scale? Do you want to be a hundred million dollar company or a lifestyle business?
Getting Started:What type of business are you? Proprietorship, partnership, LLP or Corporation. He says you should incorporate federally for a few hundred dollars. Structure of company: who owns it? Who runs it?
What’s the difference between early stage or start up? ES: team, products, business plan, customers, VCs maybe.
Start Up: one or two people ideas talk to mentors. Next: you have to sell your story. You have to convince yourself, others, employees, etc.
So what do angel investors want? Angels invest their own money. (VC’s invest others’ money, so they want to make money.) They also look for any amount to invest in.They want to have fun, coach, a willing protégé, make money, 10-100X their money made back.
Mike now talks about important characteristics for entrepreneurs:3 I’s: Intensity, Integrity, Immediacy, 3 G’s: Goodness, Greatness, Greed
It’s all about P&L: profit and loss. The Elevator Pitch: It’s easy. Just fill in the blanks: We, (company) ––––are (doing) ––––– for (who?)–––––– who need (address what pain?)–––––––that unlike (existing solutions)–––––– will (do what?)–––––––– unlike –––––––(competitors).
ROI? How do you calculate?
Eg: 2.6X in 3.5 years (ROI=28%) or 5X in 5 years=38%
He also advises us of having a cap table. It calculates or tables the cap in each round for your investment. Basically if you’re asking for $250K, you can keep 75% of your company and this is in the angel round. I asked if you should calculate on the higher side of the amount that you’ll need. Mike said yes. And then I asked if that will decrease your chances of getting the money. He said yes! It’s a gamble, a dating game.
The Terms Sheet? Mike goes over the sheet and discusses investment options. Some elements of the terms sheet are offering, valuation, vesting, capital and structure, governance, shareholders and agreement. Goes over Shareholders’ Agreement. He says we need to be thinking of this at the start:
Protect your project
How do you bring in new shareholders
How to buy and sell shares
Ask: What’s the worst that can happen to me?
Caution: Don’t go with boilerplate.
Now he goes over Round #2 requirements: (5 pages) on Web sites
Product, property, technology, status of business plan, market, distribution, competition, team and financial projections. Mike says the most important question to address is the market. He says don’t say you are selling into the overall general billion dollar industry. Who will buy it? Why? Potential? Can you make money? He examples with Apple computers. He says they own the Apple/Mac market. 100%. Lastly, about the money. It always comes down to this. He says to go to his web site and see the cash flow. Annual revenue is the easiest way to evaluate of a company?
Email him at mikevolker.com