Business Plan Development

Krishna Srinivasan

Fundable Business Plans –

A VC’s Perspective?

Selling Stock versus Selling Product

• To investors versus To customers

• ROI for investors versus Economic sense for customers

• Pricing based on risk/reward ratio versus Pricing based on value

• Timing – Just wait for next time to buy stock versus Fit with IT priorities

Selling Stock – Remember S3 (#1)

• A STEAL: Cheap stock – It is a steal!!– Now is the best time in history to buy it– Traditional revenue based metrics do not adequately capture all the

de-risking of the project– Company at a critical inflection point – knee of “some” hockey stick

• A STEP-UP: Stock value will rise before you raise money again– That is why you have to buy NOW!– Will achieve key measurable metrics like revenues, design wins,

management upgrades, partners risk…– Can see path towards a “step up” for next round

Selling Stock – Remember S3 (#2)

• SIGNIFICANT financial upside– Large markets will enable building large company– Cash required to achieve eventual outcome is reasonable– Attractive business model – margins, scalability– Host of acquirers – strategic to many of them– Exit values as a multiple of total cash needed is > 5X

• “Cash efficient” practices– Generate cash from lots of sources – NRE, partners, customer funded

projects– Spending efficiency – use of lower cost labor pools, license cost

deferrals, lower salaries– JDA with customers/partners– Partner leverage – sales, deployment

Business Plan Ingredients

Business Plan Elements

• Company Profile– Market Opportunity– Product / Service Offering– Product & Technology– Customer Validation and Traction– Strategic Partners– Competition & Differentiators– Revenue Model– Financials

• Management Team – Detailed Bios

• Investment sought– Milestones– Cap tables

Market Opportunity• Current Customer (and customer’s customer) Pain Points

• Why is it so compelling TODAY?

• Specific Market Size• (top down versus bottoms up)

• Problem Scope(narrow initially, eventually broad)

Product/Service Offering• Definition

• Impact on Pain described earlier

• What is the “CLEVER TRICK”?

• Competitive Advantages

• Product Positioning

• Pricing & Margins

Product & Technology Details• Architectural Description

• Proof of Concept (models, FPGA,…)

• Road Map

• Intellectual Property – Patents filed

• Development Schedules

• Scalability

Customer Traction/Validation

• Empirical proof of impact on customer– Customer ROI– Top line versus bottom line impact– Validation of revenue model

• Details of Customer Traction– Qualitative Validation– Alpha/Beta– “Actual” Customers

• Highlights of Customer Pipeline

Strategic Partners• Where do they provide leverage?

– Validation– Development– Sales– Support– Buzz Creation

• Why did the company pick• each of these partners?• Opportunistic versus Optimal

• Existing/ Planned

Competition• Landscape

• Differentiation - today versus tomorrow

• Barriers to entry

Financials• Current # employees

• Current Burn ($/employee)

• Financials– Pro-forma Income Statement

– Y1 monthly– Y2-3 quarterly– Y4-5 annually

– Sales Projections– Cash flow projections w/assumptions– Specific performance objectives

Investment Sought• Current funding needed

• Future funding needs

• Cap tables

• Milestones

• Resources required

Management Team

• Detailed Bios

• Domain Expertise

• “Been there done that”?

• Key accomplishments

– Note: References & background checks will be important

Venture Backed Semiconductor Startup Milestones• Series A

– $6 to $10MM - Take the company to a “proof of concept” – FPGA?– Theoretical demonstration of high system level value/impact– Strong development team and strong development leader– IP creation very very important– Get to key product demo on this round

• Series B– $10 to $14MM – Take the company to product samples and design wins– Execution oriented management in place– Business model understood in theory– Requires prove out of system level value for customers

• Series C– $10 to $15 MM – Take the company to cash flow break even– Proven ability to create value for customers– Strong pipeline– Proven ability to build an attractive business model

• Exit $$ - Start of with a $200MM exit assumption

Business Plans – some common mistakes• Not thinking through impact of your product on customer or

customer’s customer– ROI– Architectural fit– Scalability vs. features

• Underestimating competitive response, especially from the big guys

• Optimism over rate of adoption of a new proprietary standard• Weak management team with no acknowledgement of need

for additions• Market Sizing at the chip level and not at the systems level• Capital intensity to get to key milestones

Questions