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Sample Business Plan for Private Equity Operating Plan

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					  Executive Summary From A Fundraising
                Business Plan
(Confidential Information Has Been Deleted)
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I.        E XECUT IVE S UMMA RY

OVERVIEW
      FUND XXXX (“XXXX ”) is being formed by the Principals of YYYY (“YYYY”) as a
                              TM



private equity co-investment vehicle to invest in consumer-driven growth companies.
XXXX will benefit from three unique advantages as it seeks to increase investor value: (i)
access to the proprietary deal flow of YYYY; (ii) the operating experience of the Principals
of YYYY, WWWW and ZZZZ (the “Managing Directors”); and (iii) the investor-oriented
structure of the investment vehicle itself.

        XXXX is structured differently from a traditional private equity fund:

1.      There is no carried interest in XXXX. General Partners will participate in XXXX’s
        investment results in direct proportion to their investments in XXXX, on the same
        basis and along with the Limited Partners. Traditional private equity funds
        generally allocate a 20%-30% carried interest to the General Partners.

2.      The Principals of YYYY will contribute at least 10% of the total funds committed.
        Investing a significant portion of their personal assets is expected to focus the
        attention of the Managing Directors and to bring their incentives in line with those of
        the Limited Partners. In addition, the Principals of YYYY, in accordance with YYYY
        firm policy, limit their private equity investments within XXXX’s investment focus
        exclusively to opportunities that are offered to all XXXX Limited Partners.

3.      XXXX is offering only approximately $30 million (and a maximum of $50 million) of
        Interests. XXXX does not aim to become a traditional venture capital or private
        equity fund, but rather a vehicle for a number of focused investments in targeted
        growth sectors. The Managing Directors have no current interest in building a
        traditional venture capital or asset management business.


       XXXX will aim to deliver value both to its Limited Partners and to those companies
receiving an investment from XXXX. The General Partners do not seek a carried interest
or a fixed annual fee (typically 2.5% of the aggregate funds) from the Limited Partners,
but will require only that XXXX pay or reimburse the General Partners for direct
expenses which will be limited to legal, audit and administrative expenses. The General
Partners estimate that the annual direct expenses of XXXX should not exceed $100,000,
exclusive of organizational expenses.

      XXXX will benefit from the 40+ years of shared operating experience of its
Managing Directors. Together Messrs. WWWW and ZZZZ have served in senior
management roles and as members of the boards of 50+ companies in the food and
beverage, health and personal care, Internet and other related consumer-driven
industries. They have been helpful in aiding the growth of powerful consumer brands,
including Example 1, Example 2, Example 3, Example 4, Example 5, Example 6,
Example 7, Example 8 and Example 9 among others. XXXX will benefit from the
Managing Directors’ (i) substantial operational experience, (ii) significant financial
expertise specific to emerging and growth companies, (iii) proven track record of
investing in the consumer space, and (iv) wide network of contacts.



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      The Principals of YYYY have been responsible for over $?? million in private equity
investments since 1986. Of these investments, the eight that have produced realized
results to date have a combined annual internal rate of return of ??%.

      XXXX will benefit in several respects from its relationship with YYYY. XXXX is a
strategic and financial advisor to private and closely-held growth businesses (“Partner
Companies”). YYYY takes a hands-on role in providing the necessary means to fuel the
growth of its Partner Companies, and YYYY professionals maintain an on-going dialog
with Partner Companies in order to help business managers focus and speed the
process of growth. While candidates for investment from XXXX will be limited to YYYY
Partner Companies, not all Partner Companies will be appropriate investment targets for
XXXX.

      From its inception in 1986, XXXX has been constrained by the limited time of its
Principals, and as result, has adopted a highly selective approach to accepting new
Partner Companies. In general, YYYY Partner Companies either are or should be
growing businesses with sustainable competitive advantages in large market segments.
All Partner Companies are at their core driven by consumer behavior, although not all
Partner Companies are necessarily traditional consumer or retail businesses.

       YYYY avoids selecting Partner Companies with short product life cycles or long
cycle scientific research as well as those companies whose business is subject to
material impact from regulatory changes - “regulatory roulette”. Due to the nature of its
relationships with Partner Companies, YYYY generally limits its Partner Companies to
those headquartered in the Pacific Time Zone, or for a small minority of candidates,
Europe.

      YYYY receives an equity position and a modest monthly retainer from each of its
Partner Companies as compensation for providing strategic and business advice. YYYY
also typically receives compensation from Partner Companies for providing transaction-
oriented services which could include a fee for raising equity from XXXX. In view of the
absence of any carried interest or management fee payable by XXXX, these equity
positions, monthly retainers and transaction-oriented fees will be retained by YYYY and
not shared with XXXX.




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      YYYY has a history of partnering with companies in various stages of development
within specific industry sectors. Following is a selection of current and former Partner
Companies organized by industry sector:

Food & Beverage              Internet           Health & Beauty          Other




        YYYY is experienced and prepared to work with businesses in any stage of
development, from start-up to turnaround, provided there is a meaningful growth
opportunity. The Principals of YYYY intend to maintain an appropriate diversified balance
of Partner Companies across both industries and development stages. Following is a
sampling of current Partner Companies organized by development stage:

    Seed                 Start-up                Expansion              Sustained Growth




      Growth companies by definition almost always require capital, and YYYY Partner
Companies have raised more than $1 billion in equity and debt since 1986. While in
many cases the necessary capital was available from traditional institutional sources, in
a significant number of situations, the Principals of YYYY had opportunities to invest
equity in Partner Companies. In many cases the opportunities were early stage equity
investments, but they also included a number of “special situations” which can include
leveraged buyouts, turnarounds and other financing situations.


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SCOPE OF INVESTMENTS
      Venture capital investments across the United States reached an all-time record of
$14.3 billion in 1998, surpassing 1997’s previous record levels by $2.8 billion or 24%.
Information technology (“IT”) companies received nearly one-third of this funding, leaving
certain other sectors relatively under-served by the private equity community.
Investments in non-technology sectors actually dropped 18% during the first quarter of
1999.

      XXXX will seek to capitalize on value creation opportunities in a number of sectors
outside the IT nucleus:

1.      Health and Personal Care: According to the Health Insurance Association of
        America, healthcare is the largest single sector of the U.S. economy, consuming
        approximately $1 trillion annually, or 14% of the country’s GDP. Increasing
        concern over the rising cost of healthcare and the subsequent shift to managed
        care have led to rapid changes in health and personal care services. These
        changes, along with an aging population and a continuing stream of new
        technologies, have resulted in the creation of new business opportunities.
        Successful entrepreneurs in these industries will recognize and satisfy consumers
        who demand greater involvement in personal care decisions and are prepared to
        purchase privately (without insurance reimbursement) products and services that
        meet their needs.

        A number of traditional sectors of the healthcare industry now overlap important
        and high-growth businesses in the areas of beauty, wellness and personal care
        which recognized 1998 domestic sales of $13 billion, $11 billion and $24 billion,
        respectively. Growth in these areas continues to be driven by new technologies,
        new product introductions, changing fashion trends and consumer interest in
        physical and mental well-being.

        XXXX will seek investments in Partner Companies that satisfy consumer demand
        in high-growth areas with product and service offerings that are marketable,
        scalable and relatively shielded from the effects of regulatory change. Products
        and services of particular interest include the next generation of nutritional
        supplements, aesthetic medical devices, proprietary cosmetic procedures and
        opportunities to shift aesthetic practices to traditional healthcare distribution
        channels.


2.      Food and Beverage: While overall spending on food is relatively stable, high
        growth areas continue to emerge as consumer preferences and needs shift.
        Consumer trends rule the industry, and, generally speaking, Americans want their
        foods to be nutritious, safe, pure, convenient and cheap. Demand for branded
        specialty products has been fueled by trends towards healthier diets and the need
        for meal replacements and meals prepared out of the home. As the U.S. population
        becomes more diverse, companies are producing specialized products for ethnic
        populations and pitching ethnic products to all consumers.

        The U.S. market for natural foods now tops $11 billion, and that for healthy meal
        replacements totals $50 billion. Americans continue to spend over $100 billion



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        annually on quick-serve meals while demand for full-service dining is approaching
        $120 billion.

        XXXX will seek investments in Partner Companies whose products are known for
        their high quality, customer loyalty and long-term demand stability or whose
        services effectively aggregate a meaningful segment of the food value chain. Such
        potential Partner Companies might include gourmet producers of staple items,
        unique storefront concepts or disintermediation opportunities in food and meal
        distribution.


3.      Internet: There were approximately 51 million Web users in the United States at the
        end of 1998, and this number is expected to grow to approximately 135 million
        users by the end of 2002, making the Internet the fastest growing communications
        medium in history. As Internet accessibility, usage and functionality grow, the
        Internet is increasingly being used as a medium for direct communication as well
        as a rapidly growing sales and marketing channel. Worldwide business-to-
        consumer sales over the Internet are predicted to increase from approximately $15
        billion in 1998 to approximately $115 billion by 2002.

        The Internet enables advertisers to target very specific demographic groups,
        measure the effectiveness of advertising campaigns and revise them in response
        to real-time feedback. Similarly, the Internet offers online merchants the ability to
        reach a vast audience and operate with lower costs and greater scale economies,
        while offering consumers greater selection, lower prices and heightened
        convenience, compared to conventional retailing. Specialized portals are using
        brand awareness driven by high quality topical content and significant market
        resources to establish themselves as destinations for groups of users, and online
        communities have emerged that allow users with similar interests to engage in
        interactive activities.

        XXXX will seek investments in Partner Companies with valuable operating
        advantages such as subject-specific content providers, portals for highly
        concentrated user groups and businesses that take advantage of the demographic
        and behavioral data provided by the Internet.


4.      Other Consumer-Driven Businesses: A portion of XXXX’s investments will be in
        other industry segments. Such businesses, under the leadership of an
        entrepreneurial management team, will generally maintain a customer-focused
        model based on consumer branding.

       XXXX will invest in all stages of development as well as both online and offline
ventures. As recent market conditions have yielded a relative abundance of capital,
many venture capital funds have started to use a $5 million minimum size for their
investments. As a result, entrepreneurs looking for funding in the $500,000 - $2 million
range find their options diminished. XXXX will invest a portion of its funds toward such
early stage efforts. XXXX will also invest in offline companies that recognize the
opportunity to complement their bricks-and-mortar operations with an Internet-based
distribution strategy.



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     Investments are intended to be distributed approximately evenly among early-
stage, middle and later-stage privately-held growth companies. XXXX will invest
primarily in equity transactions, leveraged buyouts and recapitalizations.


INVESTMENT CRITERIA
       XXXX will evaluate each potential investment according to the following five
criteria:

1.      Consumer Driven: Businesses where a deep and thorough understanding of the
        consumer is the key success factor will be the primary screen used for all
        investments made by XXXX. A small number of XXXX investments may be made
        in businesses where consumer marketing remains a key success factor, which are
        not “traditional” consumer companies. Examples include marketing automation,
        outsourced telemarketing or interactive advertising solutions.

2.      Scalable: All investment opportunities will be screened for scalability. Investments
        will be evaluated based on how readily the concept can be brought to market, and
        careful attention will be paid to the capital requirements for each business to reach
        profitability.

3.      Sound Business Model: XXXX seeks to invest in strategically defensible proprietary
        or differentiated products and services buttressed by efficient systems operating in
        economically sound market segments. These “soundness variables” coupled with
        a dynamic management team and a highly scalable growth path will guide XXXX’s
        investment decisions.

4.      Quality Management: XXXX will actively seek to invest in businesses with the
        elements necessary to attract and retain a superior senior management team.
        XXXX will work with management to transform each enterprise, whether young or
        mature, into an entrepreneurial one. The Managing Directors will also draw from
        their wide network to complement the existing management team with passionate,
        visionary, team players.

5.      Ability to Add Value: Because XXXX has adopted partnership with the entrepreneur
        as one of its guiding principles, XXXX will invest in Partner Companies only if YYYY
        can provide superior value in guiding the strategic direction of the company. YYYY
        does not aim to become just another investor to the enterprise, but strives to
        actively engage in the success of the company.

      Potential investments in YYYY Partner Companies that fall outside the range of
these criteria will not be made by XXXX. However, YYYY and its Principals will not
participate in those investments (other than receipt by YYYY of an equity interest in
connection with its services to the Partner Company) without offering each Limited
Partner of XXXX the opportunity to invest alongside the Principals of XXXX on a deal-by-
deal basis. Neither the General Partners nor XXXX will seek any compensation for
making such opportunities available to the Limited Partners. Additionally, during XXXX’s
active new investment phase, the Managing Directors will not personally invest in any
private equity investment in which XXXX is not participating without offering each Limited
Partner of XXXX the opportunity to invest alongside the Managing Directors on a deal-



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by-deal basis. This restriction does not, however, apply to investments in real estate or
in investment funds managed by others.


INVESTMENT PROCESS
     XXXX will invest solely in companies that are YYYY Partner Companies at the time
of XXXX’s initial investment. Each investment or disposition undertaken will require
agreement by both Managing Directors.

       All prospective investment decisions will be evaluated on the basis of rigorous
financial analysis to determine the viability of the economic model. Further objective
criteria will be used to evaluate possible upside and downside scenarios.

       Investments will typically take the form of Preferred Stock with anti-dilution
protection and other terms customary in venture capital investments, although the
General Partners reserve the right to adopt a different structure if appropriate for any
individual investment. XXXX will not invest an amount (at cost) greater than 15% of the
total capital committed in any one company.


XXXX STRUCTURE
      The structure of XXXX is fundamentally different from traditional private equity and
venture capital funds. The proposed structure more tightly aligns the interests of the
General Partners with those of the Limited Partners. XXXX Limited Partners will not be
required to pay a management fee or carried interest to the General Partners. In
standard private equity funds management fees and carried interest compensation alone
can surpass 25-30% of the total capital committed.

     The Principals of YYYY will contribute at least 10% of the total funds committed to
XXXX. Unlike typical private equity funds, where the general partners often contribute
1% or less of the aggregate commitments, the Principals of YYYY will have a substantial
amount of invested capital at risk, the return of which will depend on the success of
XXXX.




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II.       S UMMA RY OF T ER MS

THE FUND
     FUND XXXX (“XXXX”) is a Delaware limited partnership formed to permit a limited
number of qualifying investors to participate in a limited number of private equity
investments in primarily consumer-driven growth companies that are XXXX Partner
Companies.


GENERAL PARTNERS
      Management and control of XXXX will be vested entirely in the General Partners,
WWWW Capital Management, Inc. and ZZZZ Capital Management, Inc., both California
Corporations. The Managing Directors will be WWWW and ZZZZ, who are the
controlling members of WWWW Capital Management and ZZZZ Capital Management,
respectively. Each investment or disposition decision undertaken will require agreement
by both Managing Directors. In the event that either of WWWW or ZZZZ ceases to be
actively involved in the management of XXXX, then a new Managing Director will be
elected within 90 days by at least 2/3 in interest of the Limited Partners. In the event that
a new Managing Director is not elected within this time period, XXXX will dissolve. The
General Partners both, but not separately, may be removed by a vote of 85% in interest
of the Limited Partners, after which a new General Partner may be added by a vote of at
least 2/3 in interest of the Limited Partners.

     The Principals of YYYY will make a capital commitment of at least 10% of the
aggregate capital commitments of XXXX.

      The General Partners and/or the Managing Directors may form additional
partnerships with similar investment objectives as XXXX provided that they do not form a
partnership with the same investment objective and strategy as XXXX until the earlier of
the investment of 75% of the aggregate capital commitments of XXXX or 24 months from
the closing of XXXX. Each of the General Partners or Managing Directors may invest in
and start new ventures, but during XXXX’s active new investment phase, the Managing
Directors will not personally invest in any private equity investment in which XXXX is not
participating without offering each Limited Partner of XXXX the opportunity to invest
alongside the Managing Directors on a deal-by-deal basis. This restriction does not,
however, apply to investments in real estate or in investment funds managed by others.


LIMITED PARTNERS
       Limited Partners shall include individuals, endowments and trusts, but will exclude
institutional investors except for a small number of institutions who in the past have co-
invested with the Managing Directors in Partner Companies. Limited Partner Interests in
XXXX will be offered to a limited number of accredited investors as defined in Regulation
D under the Securities Act of 1933. XXXX reserves the right to waive or impose
additional requirements for subscription by particular types of investors and investors
residing in certain jurisdictions and may decline to accept the subscription of any
prospective investor.




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III.      R I SK F ACTO RS AND P OTEN TIAL C O NFLICT S OF I NTERE ST

       An investment in XXXX involves a high degree of risk. There can be no
assurance that a Limited Partner will receive a return of or on its capital. In addition,
there will be occasions when the General Partners and Managing Directors may
encounter potential conflicts of interest in connection with XXXX. The following should
be carefully evaluated before investing in XXXX:

Illi qui d, L ong- Ter m Investme nts. Investment in XXXX requires a long-term
commitment, with no certainty of return. XXXX’s investments will be highly illiquid. There
is no assurance that XXXX will be able to realize on such investments in a timely
manner. Distributions in kind of illiquid securities may be made. Although certain
investments by XXXX may generate current income, the return of capital and the
realization of gains, if any, from an investment generally will occur upon the disposition of
such investment. While an investment may be sold at any time, this will occur typically a
number of years after the investment is made.

Ava ila bili ty o f Su ita ble In ve stmen ts. The venture capital investment industry in
which XXXX will be engaged is highly competitive. Some of XXXX’s competitors will
have greater resources than it does. There can be no assurance that XXXX will be able
to complete investments or realize upon their values or that XXXX will invest fully its
committed capital.

Li mited Nu mber o f Inve stme nts. XXXX may participate in a limited number of
investments and, as a consequence, the aggregate return of XXXX may be substantially
affected by the unfavorable performance of a single investment.

Re stri cti on s on Tr an sferab ili ty. The Interests have not been registered under the
Securities Act of 1933 or the securities laws of any state or other jurisdiction, and cannot
be resold unless they are subsequently registered thereunder unless an exemption from
registration is available. It is not contemplated that registration of the Interests will ever
be effected. There is no public market for the Interests and none is expected to develop.
A Limited Partner will not be permitted to assign its Interests without the prior written
consent of the General Partner. Limited Partners may not withdraw capital from XXXX.
Consequently, Limited Partners may not be able to liquidate their Interests prior to the
termination of XXXX and must be prepared to bear the risks of owning Interests for an
extended period of time.

No Ri gh t to Con trol Oper ation s. The Limited Partners will have no right or power
to participate in the management of XXXX. Limited Partners will be relying on the
management expertise of the Managing Directors in identifying/analyzing a potential
investment, negotiating and structuring the transaction and administering and disposing
of XXXX’s investments.

Lack o f O pera ti ng Hi stor y. Certain ventures in which XXXX will invest may be at
early stages of development, with minimal operating history and with a need for
substantial additional capital to set up infrastructure, hire management and personnel,
support expansion or achieve or maintain a competitive position. Such companies may
face intense competition, including competition from companies with greater financial
resources, more extensive development, marketing and service capabilities and a larger
number of qualified personnel.


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Inde mni fi ca tion . The General Partners, and the shareholders, directors, officers, and
affiliates thereof, will be entitled to indemnification from XXXX, except in certain
circumstances. The assets of XXXX will be available to satisfy these indemnification
obligations.

Lega l, Ta x a nd Reg ula tor y Ri sks. The regulatory considerations affecting the
ability of XXXX to achieve its investment objectives are complicated and subject to
change. Potential investors are urged to consult their tax, accounting and legal advisors
regarding an investment in XXXX.

Fee s. YYYY, and/or other Affiliates of the General Partners, will receive certain fees from
Partner Companies in connection with services otherwise provided to such Partner
Companies. Neither XXXX nor the Limited Partners will have any rights to, or interest in,
any such fees, the amounts of which shall be determined by YYYY and the Partner
Company paying such fees.

Oth er A ctivitie s. The General Partners and the Managing Directors will devote only
such time as they reasonably believe to be necessary to conduct the affairs of XXXX.
However, neither the General Partners nor the Managing Directors will be precluded
from conducting other investment activities unrelated to XXXX, except to the extent
expressly discussed herein.




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Description: Sample Business Plan for Private Equity Operating Plan document sample