Business Plan For A Technology Investment Company Contact Information: 3500 Spur Avenue Columbus, OH 42874 Tel# (513) 555-4345 firstname.lastname@example.org This document contains confidential information. It is disclosed to you for informational purposes only. Its contents shall remain the property of Business Plan For A Technology Investment Company and shall be returned to Business Plan For A Technology Investment Company when requested. This is a business plan and does not imply an offering of securities. Table of Contents 1. Executive Summary Business Opportunity Product/Service Description 2. Company Background Business Description Company History Current Position and Business 3. Business Plan For A Technology Investment Company 1 3 5 4. Services 6 5. The Industry, Competition, and Market Market Definition Primary Competitors Customer Profile 6. Marketing Plan 7 10 7. Financial Plan Investment Plan Break-even Analysis Liquidity Plan Earnings Plan Risk Analysis 8. Conclusion 12 19 Business Plan For A Technology Investment Company 1 1. Executive Summary The company plans to connect new and innovative technology companies and bank and financial companies to fund businesses. High demand for this business will come from China and Asia. The expected growth rates of the business show a positive dynamic between 200% to 300%. These are growth rates for comparable companies with an average trading volume of $100 million. The goal of this start-up is the operation of a technology investment company. Businesses can describe their projects and products to find a worldwide investment community. Additional services will increase revenues by about 25%. 1.1 Business Opportunity Internal research estimates that in the United States alone, technology investments will grow from $109 billion in 2003 to $1.6 trillion in 2007. The considered market is projected to remain a fast growing segment of the financial market over the next five to ten years. A significant portion of these investments will involve the development of new technology goods and services, which includes information technology and telecommunications equipment, office equipment and supplies, professional services, and a wide variety of other items. The company will become a leading business platform that links investment companies and technology firms that need new capital. The company's objective is to create a leading global investment broker that operates in international, regional, and industry-specific markets. The market environment for the service is marked by rapid technological change, frequent new service introductions and internet-related technology enhancements, uncertain product life cycles, changes in customer demands, and evolving industry standards. The company will expand the business into international markets both independently and through joint ventures with third parties that will provide expertise in local markets and financial resources to the joint ventures. The company expects to begin operations in the United States through a joint venture. Each of the joint ventures will hire its own management and other personnel and will establish relationships with local distribution providers. However, the company cannot assure that it will be successful in the efforts to expand internationally. The revenues and profitability will grow rapidly and significantly in the following years. For the first year of business the company expects a before-tax profit margin of about 15.5%. The combination of the company’s high level of conversion of profit to cash and relatively limited capital expenditure enables a significant proportion of its cash flow to be available to market its brand and business, invest in customer acquisition, systems, technology and resources, and make strategic investments. Business Plan For A Technology Investment Company 2 1.2 Product/Service Description The processes of the company are designed to provide a centralized service to enable technology companies to find new investment partners to help investment companies to find new investment opportunities. The company starts to offer investment opportunities with more than $10 million. The core market are the United States and Asia. The Asian market especially shows strong growth rates and many new technology companies that require new funding. Figure 1.1 shows the distribution of revenues. The service segment refers to the fee for business and investment services. Business Plan For A Technology Investment Company 3 2. Company Background The company is a leading provider of investment and financial solutions that link potential investment companies and technology companies that require new capital. The company trains and assists financial managers in promoting, selling, deploying, extending and supporting their funding requirements. The objective of this strategy is to establish close relationships directly with the customers and to motivate financial managers to use the platform for their business. The principal investment requirements are for working capital, principally to develop and implement an expanded marketing plan, research and development and for the administrative infrastructure. The company believes that the net proceeds from the sale of services will be sufficient to meet the anticipated cash requirements for the operations for at least 12 months. 2.1 Business Description The company has a strong management team with significant experience in the financial and investment industry. The senior management team is responsible for executing the strategies and developing the business. This team averages more than 10 years of industry experience, and has a demonstrated track record of acquiring, integrating and operating companies in this industry. 2.2 Company History The company was incorporated in 2004 and through 2006, it was engaged principally in research and development. The company begins commercial distribution of the services in the fourth quarter of 2006. The net revenue will increase from $0.1 million in 2005 to $1.1 million in 2006. The company plans to have 20 employees in the first business year. Competition for qualified sales, marketing, and technical personnel is intense as these employees are in limited supply, and the company might not be able to hire and retain sufficient numbers of such personnel to grow the business. The company plans to substantially expand the sales operations and marketing efforts, both domestically and internationally, in order to increase market awareness and sales of services and products. The company will also need to increase technical staff. Figure 2.1 shows the current distribution of labor costs for each segment. Business Plan For A Technology Investment Company 4 2.3 Current Position and Business The ability to successfully offer financial and investment services and implement the business plan in a rapidly evolving market requires an effective planning and management process. Future expansion efforts could be expensive and require additional resources. The company plans to continue to increase the scope of the operations at a rapid rate. To manage future growth effectively, the company must maintain and enhance the financial and accounting systems and controls, integrate new personnel and manage expanded operations. The success depends upon the ability to accurately determine the features and functionality required by customers and to design and implement investment products that meet these requirements in a timely and efficient manner. The company also has to monitor and find new trends in this business segment. The company intends to continue to expand the sales team to broaden the customer reach on a global basis. Particularly, it intends to achieve significant growth in key countries. The company expects that such geographic expansion provides significant potential for additional long-term growth for the company. Business Plan For A Technology Investment Company 5 3. Business Plan For A Technology Investment Company The solution is designed to enable investment companies to use the platform technology to access a global network of investment opportunities. The focus is placed on the technology and media sector. The focus on technology has enabled the company to successfully manage the rapid growth of its business and to build scalable systems to meet its growth requirements. Unlike many of its competitors, the company owns and operates its own proprietary investment software, which gives it improved operating margins and more control over its platform in order to respond to competitive challenges. The return for each investment is planned to be between 15% and 20%. This is well within the range of comparable companies. To successfully sell the company's products and services, it generally must educate potential customers regarding the use and benefit of the products and services, which can require significant time and resources. Many of the potential customers are large enterprises that generally take longer to make significant contributions. Business Plan For A Technology Investment Company 6 4. Services In competitive markets, such as the financial and investment industry, delivering a high level of customer service is critical to attracting new customers. The company seeks innovative ways to improve further its customer service as it considers its infrastructure to be a competitive advantage that cannot easily be replicated by its competitors. The company expects that customer service is a key factor to increase the customer basis. The company will establish effective telecommunications, e-mail and customer relationship management systems. The customer and transaction service departments work in three shifts to ensure customer queries are quickly and efficiently resolved. The customer and transaction service departments operate a comprehensive technology system. The company considers branding an important aspect of its distribution arrangements and seeks distribution relationships where its brand is promoted. The company will also enter into distribution and financial content relationships with a number of major online service companies on the internet. Business Plan For A Technology Investment Company 7 5. The Industry, Competition, and Market A careful analysis of the market and competitive forces in this industry is a key element in assessing the business potential of the project. This analysis will provide marketing and sales data that are indispensable to optimally develop the business potential. Market is defined as the market where the company plans to operate in the next four years. 5.1 Market Definition Currently, about 75% of the technology investments and venture capital services are provided by 40 companies. The marketing of the company targets this growth segment of the financial sector. Strong growth of investment requirements in newly industrialized Asian countries has corresponded with strong GDP growth in these countries. About one third of the world technology investment is made by companies in these countries. In the short term the key trends affecting the demand for technology investment is driven by new communication and internet products and services as well as new computers and software systems. The financial industry is a growing market. As might be expected in such a favorable environment, investment business industry expands very fast, resulting in an increase of 31% in 2003. Most recently, from 2004 to 2005, industry-wide demand increases by 33%. These positive overall industry fundamentals follow increases in the technology investment segment. The management believes that the company should benefit significantly from a growing number of technology companies. The company expects also to benefit from the continuing improvement in communication and internet technology. In addition, since the company expects the greatest continuing improvements in demand to occur in the business segment, the company intends to focus its acquisition activities primarily on business services. The global market for technology investment transactions was estimated at $106.1 billion in 2004, which corresponds to an increase of 47% in comparison with 2003. Figure 5.1 shows average growth figures in revenues of all available companies in the specified market during the past five years. Business Plan For A Technology Investment Company 8 5.2 Primary Competitors The primary criteria for determining competitiveness within the rapid sector are service, cost structure, ease of use, speed, accuracy, and flexibility. For each of these criteria it is important to identify competitors. The company faces formidable competition in every aspect of the business, and particularly from other companies that seek to provide people with investment opportunities and technology funds. The market for specific financial business services is at an early stage in its development, and the company has a few direct competitors in this product area. Currently, the company considers the primary competitors to be large financial companies. The company also faces competition from other fund providers, including companies that are not yet known to the market. The company competes with business companies, particularly in the areas of investment and business services. Competition might come from the use of existing investment platforms and technologies and also from the development of new services. However, any new service and brand has to find acceptance in the market. To further examine the competitive environment it is necessary to define the players in that environment. Figure 5.3 shows the size of businesses in this market segment. The numbers are based on average revenues of companies that have run their business more than five years. Business Plan For A Technology Investment Company 9 5.3 Customer Profile The initial platform consists of several business services that target business customers as well as professional investment brokers who prefer a full financial service. The company is actively seeking to exploit the market leading position by developing and marketing products and services that will allow the customers to take advantage of new technologies. This requires finding customers with a strong position in their individual segment. Figure 5.2 shows the demand for the described services. Numbers are based on average revenues per customer of a particular group multiplied by the number of customers in the respective group. This gives total demand share per group. Business Plan For A Technology Investment Company 10 6. Marketing Plan Effective marketing together with consistent promotion are the keys to success online. The company focuses on a comprehensive web marketing and classical marketing strategy designed to attract new customers, convert leads into sales, and maximize the revenue. In the start-up phase it is a central task of the marketing concept to establish name recognition and its own trade mark. Several marketing and sales promotion strategies are available in the online industry. Figure 6.1 shows different marketing elements and their use in marketing strategies as well as their estimated potential success factor. Later on the strategy will primarily be targeted to gain new customers and create customer loyalty of repeat customers. The figure can serve as a direction for the planning of a marketing and sales promotion strategy. The numbers are based on comparable businesses. Online marketing There is a broad range of online marketing opportunities. Successful online marketing depends largely on the ability to identify marketing services that provide the best opportunity to reach customers in a cost effective manner. Search engine marketing and banner marketing are the most widely used method of attracting visitors to a website. The company constantly monitors the effectiveness of the e-marketing campaign to optimize the value of the marketing strategy. Print advertising Newspapers, magazines and published information targets a large potential customer group but at a relatively high cost. The first step of this marketing strategy is to identify newspapers and magazines that target the right customer group. The campaign itself will continue for about six to eight months. Marketing cooperation Marketing and distribution alliances with other electronic businesses to generate cost savings and increase efficiency will also be used. The company expects to find about 5 strategic investment and financial service partners. Sales promotion Sales promotion strategies have temporary effects only. Sales promotion will be used for a limited time to increase the number of customers. Direct marketing The company uses direct marketing campaigns with e-mail and mailing lists as well as newsletters. This strategy will be used to increase the revenue per customer. Business Plan For A Technology Investment Company 11 Business Plan For A Technology Investment Company 12 7. Financial Plan The financial plan is the key factor for the success of a business start-up. Investors and banks will base their funding decision on the information given in this plan. Besides a plan of the financial needs, this plan must insure that the business is always liquid and ultimately profitable. Since the sales and earnings projections in the business plan are based on expectations, the financial plan has to be revised and refined on a constant basis so that discrepancies can be uncovered and solved instantly. The inputs for this financial plan are based on other companies that serve as a group of comparable firms as well as the company's own estimates based on the planned business environment. Revenue estimates are conservative and expense projections include a cushion for unforeseen contingencies. All figures are refined by statistical simulations. The most important features of the financial plan and the financial strategy can be summarized by the following points. The initial capital requirement is estimated to be $300,000 to $350,000. This is comparable to other businesses in the segment. Cash used in investing activities for the next year will be constant. There will be further capital requirements in the following years. The ability to make new investments will depend on the ability to generate cash in the future. Capital expenditures for the following years will include higher spending on technology and licenses as the company continues to develop new functionalities. Accordingly, neither the company nor its management can give any assurance that the projected investment requirements will not be exceeded or otherwise varied. The company expects to invest in new technology in a variety of ways, including: software technology upgrades in the form of product updates and replacements and the installation of new investment systems. The growth rates of the whole company are expected to be very strong in the first three years of the business. Revenue and profitability for the company is reliant on, among other things, the level of acceptance of the company’s products in international markets. The estimates for all revenues and costs are based on the historical experience, as well as current facts and circumstances. The company uses third-party specialists to assist management in financial estimations. Different estimates could result in different amounts of cost, profit and revenue over different time periods. Based on the business plan, the company currently projects that cash provided by operations will be adequate to meet foreseeable operational liquidity needs for the next 12 months. The gross margin is high for all four years while the net margin will decrease. The sales margin is expected to be 50% to 55%. The net profitability is driven by the ability to control fixed operating expenses, which have not significantly declined in past years. Depending on the initial investment sum cost and revenue estimates vary. Figure 7.1 shows the expected relationship of cost and revenues. As can be seen the relationship is not linear everywhere but costs decrease relative to sales. This effect is due to the better utilization of Business Plan For A Technology Investment Company capacities in personnel at rising revenues at constant cost. The details of the financial plan are laid out in more detail as follows: 13 Section 7.1 gives an investment schedule. This includes all investments necessary during the start-up phase. Section 7.2 gives a break-even analysis that shows revenues at the break-even point. Every additional sales dollar adds to profit and vice versa. Section 7.3 gives a liquidity plan. This plan is based on current cost and revenue estimates from Section 7.2. Liquidity must always be positive. Section 7.4 contains a long-term profit projection for the first four years of business. The projection shows that the critical amount of revenues at which the business is profitable and how profit develops over time. Section 7.5 provides a risk analysis. The risk analysis contains critical factors that may impact the financial numbers presented in this plan. 7.1 Investment Plan The investment plan comprises primary capital needs for the foundation and operation of the business. The plan also includes initial marketing and sales promotion expenses. The figures are based on comparable businesses. Business Plan For A Technology Investment Company 14 7.2 Break-even Analysis The break-even analysis shows how earnings rise as a function of sales. The break-even point is the point at which revenues from sales cover total costs (fixed costs and variable costs rising with sales). This analysis is important for the development of the liquidity plan and the pricing policy. If the break-even point is not achieved in the long run, the business loses liquidity and may become insolvent. This requires that a critical amount of revenues must be generated. At a sales revenue of $1,100,000 and given total costs the business will begin to generate a profit. Fixed costs of this business are estimated at $700,000 to $800,000 and variable costs are estimated at $300,000. In this case, fixed costs are expenses that do not vary with sales volume. These costs have to be paid regardless of sales. Variable costs vary directly with the sales volume. At an estimated revenue of about $1,900,000 after two to three years profits are expected to rise to $190,000. This represents a revenue margin of about 10%. These estimates are realistic in this market segment and comparable to similar businesses. Business Plan For A Technology Investment Company 15 Increasing sales volume will increase pre-tax earnings margins but this development reverses when administrative costs begin to rise sharply. Up to a sales volume of $3,000,000 earnings margins rise to 12.5% after which the margin decreases to a constant 10.5%. Figure 7.2 shows at which critical sales volume the business generates a profit. This serves as a base for a business and pricing strategy. Additionally the graph shows the amount of sales at which a marketing campaign can be run profitably. 7.3 Liquidity Plan The liquidity plan shows the amount of finances necessary to assure permanent liquidity of the complete business. The liquidity plan is based on four representative months of a typical business. Revenue estimates and costs are simulated from a standard normal distribution. Cash is constant at $1,000 for every month. Business Plan For A Technology Investment Company 16 7.4 Earnings Plan The earnings plan shows the results from ordinary operations. The plan is based on the first four years of business. Revenue estimates are drawn from a normal distribution with a strong estimated growth rate. Figure 7.3 shows net income. Business Plan For A Technology Investment Company 17 7.5 Risk Analysis The risk analysis considers critical factors that may lead to a failure of the business concept. Such factors can involve failures during the implementation phase as well as during operations. Such potential factors are ordered according to the probability at which they can arise. Shown are the key factors that can lead to the failure. Data is drawn from surveys from 12 businesses with different services as well as revenue and cost structures. 1. The company might lose liquidity if its credit rating falls, it experiences sudden unexpected cash outflows, or some other event causes counterparties to avoid lending to the company. Thus, one common reason for bankruptcy is insufficient liquidity. In that case it is possible that all liquid funds are used to cover losses or that liquidity needs were planned too tight. To be able to flexibly react to changing liquidity needs, it is important that sufficient funds be planned even during the start-up phase, thus 5% to 10% of the investment sum should be held as liquidity reserve permanently. Approximately 15% of insolvent businesses reported liquidity as the reason for bankruptcy. Over-indebtedness: Many businesses are run on a small equity base. The majority of 2. Business Plan For A Technology Investment Company 18 investments are funded by debt. If the business becomes unprofitable, debt obligations cannot be covered. Little more over 12% of insolvent firms reported over-indebtedness as the reason for going bankrupt. It is therefore important that a share of earnings is retained for debt service. 3. A change of the business process could result in increased expenses or delays in commercialization and therefore could delay revenues and adversely affect our future operating results. Many of the competitors have similar services that have already been approved or are in development. Wrong Business Decisions: Often wrong business decisions and difficult situations go unnoticed for some period and can lead to a failure of the business. A critical and independent reflection of a decision is a critical factor to determine the value of a management decision and evaluate the business' profitability. Studies have shown that many businesses fail in their start-up phase because of management’s inability to make sound business decisions . Once a business is settled, such mistakes are very rare. A critical management instrument is the ability to detect potential failures and problems. Certain key figures can help measure this ability and allow to objectively determine a decision's chance for success. Small businesses should use such indicator ratios to assess their business outlooks. The company has never generated positive annual cash flow from the core operating activities, and it may not generate nor sustain positive cash flows from operations in the future. The ability to generate sufficient cash flow will depend on the ability to successfully develop new services and to sell these services. Insufficient demand and customer loyalty: This frequently leads to business failure. This includes permanently low demand as well as a temporary collapse in demand. Often demand estimates were too optimistic at the outset. Such failures might also come from external factors instead of operating deficiencies. Approximately 25% of businesses with insufficient demand go bankrupt. Since the expected frequency of business demand during the start-up phase are still low, a critical success factor is to focus promotional effort so as to generate customer loyalty early on, which will help minimize the effects of demand fluctuations. This is also important for the future development of the business. The future success of the company will also depend in large part on the ability to attract and retain highly qualified service and management personnel. The company faces competition for personnel from other companies, academic institutions, government entities and other organizations. Behavior of Competition: Due to low entry barriers additional businesses can enter the market at low cost. Approximately 16% of insolvent businesses were driven out of the market by that competition. A better service concept, innovative ideas and concentration on core businesses are an easy means for an entrant to gain a competitive edge. 4. 5. 6. 7. 8. 9. Business Plan For A Technology Investment Company 19 8. Conclusion The investment and venture capital business is a growing segment. Business-to-business investments provide a lot of opportunities for companies. The expected growth rates show a positive dynamic between 40% to 50% for the next few years depending on the demand of new business customers. The modest investment requirements and costs are a favorable argument since external funds from banks become more difficult since the risk aversion to finance such ventures has risen. The average investment of comparable companies in this segment are between $250,000 and $750,000. A professional investment platform with the newest technology is essential. This is the chance for new businesses with innovative ideas and new offerings to secure a large customer basis. Service and technology are factors that can earn a competitive edge. For a successful operation of a technology investment company 5 factors are critical and central to the business strategy: The investment basis is a core factor for a successful business. The initial fund should be between $5 million and $10 million with a growth rate of about 50% per year. This will provide constant revenues. Investment brokers have to use various technologies and approaches to find the best investment opportunities, and respond effectively to customers’ needs. Cost management is a critical success factor for businesses in industries where margins are low. Computer aided planning and controlling are an integral part of cost management. This is especially the case for financial businesses. Service is very important. This will secure customer loyalty and optimize profitability in a market that is very competitive. The expected costs for additional service activities are between 5% to 10%. On the other hand the expected additional growth rates due to new service activities are between 8% and 12%. Research and development is of critical importance to provide new services for the customers. The costs for this sector should be between 3% and 5%.
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