Financing the On-Line
Business
Bretttrout.com
Copyright 2001 Brett J. Trout
Information Technology
professionals are notoriously
bad at creating a business
plan.
Copyright 2001 Brett J. Trout
What is a Business
Plan?
A blueprint
A living document
Constantly evolving
Copyright 2001 Brett J. Trout
What goes into a business
plan?
Articulate your vision
Agree on company goals, objectives,
methods
Be honest
Get Advice!
Copyright 2001 Brett J. Trout
Business Plan
Components
Executive summary
Company overview
Business environment
Company description
Company strategy
Financial review
Action plan
Copyright 2001 Brett J. Trout
Executive Summary
Business concept
Long and short term goals
Define main market
Customers
Describe company’s vision and market
Summarize current financial position
Copyright 2001 Brett J. Trout
Company Overview
Written for the lay person
Mission statement
Objectives, values and vision
Copyright 2001 Brett J. Trout
Business Environment
Market analysis
Marketing and sales activities
Products and services
Operations
Copyright 2001 Brett J. Trout
Company Description
Type of business
Distinction
Management team
Copyright 2001 Brett J. Trout
Strategy
Product development
Product support
Pricing
Marketing
Distribution
Capital requirements
Deployment
Copyright 2001 Brett J. Trout
Financial Review
Historical data
Prospective revenue projections
Income statements
Cash flow projections
Pro Forma valuation
Financial opportunity
Risk
Timing
Copyright 2001 Brett J. Trout
Proposal for Implementing
Business Plan
New required skill sets
Employee motivation
Policy procedures
Copyright 2001 Brett J. Trout
Business Plan Priorities
Management team
Market analysis
Sales model
Description of technology
Infrastructure
Financial projections
Copyright 2001 Brett J. Trout
Management Team
Most critical component
Complimentary skill sets
Shared vision
Copyright 2001 Brett J. Trout
Market Analysis
Define target
Understand market dynamics
Identify vulnerable niches
Understand your competition
Copyright 2001 Brett J. Trout
Sales Model
Develop sales strategy
Examine why customer buys
Pinpoint decision makers
Identify sales cycle
Enlist experienced salesperson
Copyright 2001 Brett J. Trout
Technology
Merely a piece of the pie
Protect proprietary aspects
Patents
Trademarks
Copyrights
Trade Secrets
Investigate scalability
Copyright 2001 Brett J. Trout
Infrastructure
Corporate structure
C Corp
S Corp
LLC
Sole Proprietorship
Copyright 2001 Brett J. Trout
Infrastructure
Management structure
Identify advisors
Define board of directors
Develop financial projections – monthly,
first year, quarterly thereafter
Copyright 2001 Brett J. Trout
Tweak business plan to
capitalize on:
Market vulnerability
Customer needs.
Copyright 2001 Brett J. Trout
Financing the On-
Line Business
Copyright 2001 Brett J. Trout
Chronology
Type of financing depends on present
position of company
Stages
Development
Start-up
Growth
Copyright 2001 Brett J. Trout
Development stage
Personal time
Personal resources
Capital
Equipment
Space
Technology
Copyright 2001 Brett J. Trout
Start-up Stage
FFA (Friends, family and associates)
Bank loans
Collateralize
Small Business Administration
Government assistance – Grants
Iowa Department of Economic Development
Iowa Finance Authority
• Incubator
Copyright 2001 Brett J. Trout
Growth Stage
Business management
Private (Angel) investors
Venture capital
Copyright 2001 Brett J. Trout
Personal Resources and
Time
Pros: Cons:
Fastest Potentially the most
Most efficient devastating
Immediately Always limited
available
Copyright 2001 Brett J. Trout
Friends, Family and
Associates
Pros: Cons:
Fast Could possibly
Simple jeopardize
relationships
Define expectations in writing
Copyright 2001 Brett J. Trout
Collateralized Bank Loan
Pros: Cons:
Relatively quick Requires collateral
Reliable May use existing
Won’t jeopardize contracts or
friendships accounts
Standardized criteria receivable
Copyright 2001 Brett J. Trout
SBA Loans
Pros: Cons:
Relatively fast Typically < $100,000
Simple $50,000 for one page
applications
Restrictions on use
Cannot use to pay
owners
Cannot use to
purchase business
from direct
Copyright 2001 Brett J. Trout
descendant
Manage Business Options
Accelerate receipts
Minimize work in progress
Minimize inventory
Establish early pay benefit with creditors
Avoid late charges
No downside
Copyright 2001 Brett J. Trout
Angel Investors
Pros: Cons:
Financing Typically requires 15-
Option for smaller 25 percent of
companies company
May bring expertise Typically expects 25-
in addition to money 35 percent return,
compound in 3 to 5
years
Desire exit at 5 years
Copyright 2001 Brett J. Trout
Institutional Investors
Pros: Cons:
Largest fund Very strict managers
potential May take over
Option to obtain management of
second and third company
trench funding from
the same source
Copyright 2001 Brett J. Trout
Angels and Institutions
Typically require 15-25 percent of
company
Typically expect 25-35 percent return,
compound in 3-5 years
Expect exit at 5 years
Copyright 2001 Brett J. Trout
Incubator
Pros: Cons:
Provides dozens of Typically requires 15-
minor services 25 percent of
Turnkey company company
rife with consultants Assumes exit and
and managers growth in 2-4 years
Can provide contacts
with money streams
Copyright 2001 Brett J. Trout
Unique Opportunities in
Iowa
Emerging Growth Group
Incubator
Separate investment fund arm
SITI
Angel investor forms
Copyright 2001 Brett J. Trout
Unique Opportunities in
Iowa
Papajohn Capital Resources
ISU Business Development
Center
The Council for Regional Equity
Copyright 2001 Brett J. Trout
Do not take their
money unless they
bring something else
to the table.
Copyright 2001 Brett J. Trout
What Investors Want to
Know
How much money do you want?
How is the money going to be spent?
How is their money going to be
recouped?
Copyright 2001 Brett J. Trout
What Investors Want to See
Solid business plan
Incredible management team
Written terms and conditions to protect
investment
Infusion of their expertise
Regular updates
Exit strategy
Copyright 2001 Brett J. Trout
Business Plan
Flaws
Copyright 2001 Brett J. Trout
Forcing investors to sign a
non-disclosure agreement
Have two business plan formats
Confidential
Non-Confidential
Show confidential business plan and
detail technology only after signing NDA
Copyright 2001 Brett J. Trout
Tailoring the business
plan to one investor
The most vocal investor is typically not
the wisest
Do not incorporate into business plan
unless without consensus
Copyright 2001 Brett J. Trout
First to Market
Better to be fast
Best to be only
Emphasize
Speed to market
Barriers to entry
Copyright 2001 Brett J. Trout
Over-Reliance on High-
Profile Partners
Customer
K-Mart
Burdensome
Vendor
AOL
Failure to deliver
Copyright 2001 Brett J. Trout
Ignoring Management
Team’s Growth Skills
Outline team’s start-up experience
Detail their transition expertise
Balance their future contribution
Note their exit strategy experience
Copyright 2001 Brett J. Trout
Understating the Market
Be honest about competitors
Shows consumer need
Demonstrates profit potential
Copyright 2001 Brett J. Trout
Overstating the Market
Options
U.S. Worldwide prescription drug
market
U.S. prescription analgesic market
Investors see through the ruse and
discount the remainder of the plan
Copyright 2001 Brett J. Trout
Emphasizing The Future
Define Milestones
Show past ability to meet goals
Copyright 2001 Brett J. Trout
Unrealistic Financials
Not to High
Not to Low
Copyright 2001 Brett J. Trout
Focus on Technology
Instead, focus on
Management team
Financials
Marketing
Consumer need
Barriers to entry
Return on investment
Copyright 2001 Brett J. Trout
Resources
Emerging Growth Group
Infrastructure
Capital
SITI
Business plan development
Introductions
Copyright 2001 Brett J. Trout
Network
Ask around (network) to find the
best:
Service providers
Investors
Management team
Strategic alliances
Copyright 2001 Brett J. Trout
Thank You
Copyright 2001 Brett J. Trout