Topics A Definition of Entrepreneurship Sample Business Plan Outline The VC Pitch

A Definition of Entrepreneurship
The concept of entrepreneurship has a wide range of meanings. On the one extreme an entrepreneur is a person of er! high aptitude who pioneers change" possessing characteristics found in onl! a er! small fraction of the population. On the other extreme of definitions" an!one who wants to wor# for himself or herself is considered to $e an entrepreneur. The word entrepreneur originates from the %rench word" entreprendre" which means &to underta#e.& 'n a $usiness context" it means to start a $usiness. The (erriam)*e$ster Dictionar! presents the definition of an entrepreneur as one who organi+es" manages" and assumes the ris#s of a $usiness or enterprise.

Schumpeter's View of Entrepreneurship Austrian economist ,oseph Schumpeter -s definition of entrepreneurship placed an emphasis on inno ation" such as.

new products new production methods new mar#ets new forms of organi+ation

*ealth is created when such inno ation results in new demand. %rom this iewpoint" one can define the function of the entrepreneur as one of com$ining arious input factors in an inno ati e manner to generate alue to the customer

with the hope that this alue will exceed the cost of the input factors" thus generating superior returns that result in the creation of wealth.

Entrepreneurship vs. Small Business (an! people use the terms &entrepreneur& and &small $usiness owner& s!non!mousl!. *hile the! ma! ha e much in common" there are significant differences $etween the entrepreneurial enture and the small $usiness. Entrepreneurial entures differ from small $usinesses in these wa!s. /. Amount of wealth creation ) rather than simpl! generating an income stream that replaces traditional emplo!ment" a successful entrepreneurial enture creates su$stantial wealth" t!picall! in excess of se eral million dollars of profit. 0. Speed of wealth creation ) while a successful small $usiness can generate se eral million dollars of profit o er a lifetime" entrepreneurial wealth creation often is rapid1 for example" within 2 !ears. 3. Risk ) the ris# of an entrepreneurial enture must $e high1 otherwise" with the incenti e of sure profits man! entrepreneurs would $e pursuing the idea and the opportunit! no longer would exist. 4. Innovation ) entrepreneurship often in ol es su$stantial inno ation $e!ond what a small $usiness might exhi$it. This inno ation gi es the enture the competiti e ad antage that results in wealth creation. The inno ation ma! $e in the product or ser ice itself" or in the $usiness processes used to deli er it.

Sample Business Plan Outline

Title Pa e 5ame of compan!" date" contact information" etc. Ta!le of "ontents E#ecutive Summar$ /. 0. 3. 4. 2. 6. :. Business Concept Compan! (ar#et Potential (anagement Team Distinct Competencies 7e8uired %unding and its 9se Exit Strateg!

%ain Sections I. "ompan$ &escription

(ission Statement Summar! of Acti it! to Date Current Stage of De elopment Competencies Product or Ser ice o Description o Benefits to customer o Differences from current offerings O$;ecti es <e!s to Success =ocation and %acilities

II. Industr$ Anal$sis Entr! Barriers Suppl! and Distri$ution Technological %actors Seasonalit! Economic 'nfluences 7egulator! 'ssues

III. %arket Anal$sis Definition of O erall (ar#et (ar#et Si+e and >rowth (ar#et Trends (ar#et Segments Targeted Segments Customer Characteristics Customer 5eeds Purchasing Decision Process Product Positioning IV. "ompetition Profiles of Primar! Competitors Competitors- Products?Ser ices @ (ar#et Share Competiti e E aluation of Product o Distinct Competiti e Ad antage o Competiti e *ea#nesses %uture Competitors V. %arketin and Sales Products Offered Pricing Distri$ution Promotion o Ad ertising and Pu$licit! o Trade Shows o Partnerships o Discounts and 'ncenti es Sales %orce Sales %orecasts VI. 'perations Product De elopment o De elopment Team o De elopment Costs o De elopment 7is#s (anufacturing Aif applica$leB o Production Processes o Production E8uipment o Cualit! Assurance o Administration

<e! Suppliers Product ? Ser ice Deli er! Customer Ser ice and Support Duman 7esource Plan %acilities

VII. %ana ement and 'r ani(ation (anagement Team Open Positions Board of Directors <e! Personnel Organi+ational Chart VIII. "apitali(ation and Structure =egal Structure of Compan! Present E8uit! Positions Deal Structure Exit Strateg! I). &evelopment and %ilestones Time ma! $e specified on a relati e scale rather than specific calendar dates. (ilestones ma! include some or all of the following.

%inancing Commitments Product De elopment (ilestones o Protot!pe o Testing o =aunch Signing of Significant Contracts Achie ment of Brea#)e en Performance Expansion Additional %unding An! other significant milestones

). Risks and "ontin encies Some common ris#s include.

'ncreased competition =oss of a #e! emplo!ee Suppliers- failure to meet deadlines

7egulator! changes Change in $usiness conditions

)I. *inancial Pro+ections Assumptions AStart date" commissions" tax rates" a erage in entor!" sales forecasts" etc.B %inancial Statements ABalance Sheet" 'ncome Statement" Cash %low StatementB Brea# E en Anal!sis <e! 7atio Pro;ections A8uic# ratio" current ratio" D?E" D?A" 7OE" 7OA" wor#ing capitalB %inancial 7esources %inancial Strateg! )II. Summar$ and "onclusions Appendices (a! include.

(anagement 7esumes Competiti e Anal!sis Sales Pro;ections An! other supporting documents

The VC Pitch
Some Tips for Success

Ac8uiring enture capital funding can consume a large amount of alua$le time and effort. Dere are a few tips that can help !ou secure funding and get on with the process of $uilding !our compan!. "hoose the Ri ht V" Carefull! research !our potential in estors. =earn a$out their focus areas and their philosoph!. Then" go to enture capitalists who ha e financed firms similar to !our own1 the! will understand what !ou are sa!ing. Some VC-s are er! hands)off" whereas others regularl! $ecome 8uite in ol ed with the operations of their portfolio companies. Be sure to tal# to those that more closel! match !our needs. Once !ou ha e identified a good match" $e sure to tal# to the right person within the firm. %or example" if !our idea is in the realm of medical technolog!" $e sure that !ou are spea#ing to those people in the VC firm. Business Plan A VC li#el! will spend onl! a few minutes loo#ing through !our $usiness plan. 'llustrate concepts using diagrams so that one does not ha e to read the plan to figure it out. Assume that the VC will not read the entire plan" $ecause he?she pro$a$l! won-t read it. A full $usiness plan ma! ha e 2E pages or more" $ut the VC pro$a$l! will not $e interested in that le el of detail during the initial re iew. As such" it is a good idea to ha e an executi e summar! of no more than /E or 0E pages. Build "redi!ilit$ %ocus on the results of !our team" showing an! demonstrations at the $eginning of !our presentation. An initial demo helps to eliminate an! 8uestions that ma! otherwise linger throughout the presentation and distract from !our pitch. (an! start)ups originate from a team of students" $ut it is wise to recogni+e that !ou will need a $roader team with more experience and contacts" so it is not a good idea to list a team of onl! students. A team that alread! has wor#ed together has a $etter chance of securing funding. 'n this context" wor#ing together means ha ing done a similar $usiness pro;ect together. 'f !ou ha e no team" !ou ma! do $etter $! see#ing an incu$ator1 a ma;or ;o$ of incu$ators is to help !ou $uild a team. *hile enture capitalists ma! spend time helping their portfolio companies

to recruit" VC-s do not want to $e !our D7 person. Partner *irms 9se the logos of !our partners and potential partners on the opening page of !our presentation. 9se $ig names if possi$le. VC-s are clu$$ish and would li#e to $e a$le to associate with !our high)profile partners. Dowe er" if a potential partnering firm alread! has decided not to wor# with !ou" $e sure to remo e it from the list. "ompetitors *hen listing potential competitors" it is not a good idea to mention giants li#e Cisco S!stems or (icrosoft" or an! other competitors that are hea il! funded. E en if the! currentl! are far $ehind" the! ha e the resources to 8uic#l! ta#e the lead. Don-t forget how (icrosoft o ertoo# 5etscape-s huge lead in the $rowser mar#et. Revenue %odel Be sure that !ou are prepared to clearl! articulate how !ou will ma#e mone!. VC-s li#e pro en models" for example" one that signs up customers and automaticall! hits their credit card each month for a certain amount. Such a model often is considered superior to one that re8uires !ou constantl! to ha e to encourage people to use !our ser ice. "ustomer Ac,uisition "osts Fou should ha e an estimate of !our customer ac8uisition costs. 'f !ou ha e a we$ site" #now how man! people will isit the site per dollar spent to get them there. 'f !ou do not #now this num$er" ta#e the time to come up with a rough estimate $ecause !ou li#el! will $e as#ed. Valuation The entrepreneur instinct usuall! is to gi e up as little e8uit! as possi$le in exchange for funding. As a result" entrepreneurs all too often will arri e a pre) mone! aluation that is grossl! unreasona$le. 'f !ou insist that !our start)up is worth G/2E million pre)mone!" !ou will lose credi$ilit!. 9nless otherwise indicated" the assumption will $e that !ou ha e onl! an idea. A'f !ou alread! ha e 0EEE man)hours in software de elopment" $e sure to mention it in the pitch.B

Seed funding often assumes a G/ million to G0 million aluation. The first round ma! $e in the G2 million to G/E million range. Fou ma! consider omitting the pre) mone! aluation from the pitch altogether" or gi ing a genuinel! conser ati e num$er to $uild credi$ilit!. Presentation St$le VC-s want to see isionaries who are passionate a$out their idea. As such" !ou should $e a$le to tal# without using notes or loo#ing at the pro;ector screen. The VC is in esting in ision and passion" so show it. Four st!le is important $ecause !ou ha e to a$le to sell. E en if !ou secure the first round of financing" if !our compan! is going to go pu$lic !ou will need additional rounds. Fou ha e to $e a$le to sell to in estors" partners" and customers. *hen !ou are gi ing the pitch" pro;ect confidence $! not spea#ing too 8uic#l!. Show preparedness $! including answers to expected 8uestions in the presentation. %inall!" pro;ect the image that the train is lea ing" and if the VC-s do not get on now the! will miss out.