Some Suggestions for Writing Business Plans that Raise Money

Notes for discussion

Kenneth P. Morse Senior Lecturer and Managing Director MIT Entrepreneurship Center
55 Hayward Street, E39-115 phone: +1-617-253-8653 e-mail: kenmorse@mit.edu Cambridge, MA 02142 USA fax: +1-617-253-8633 http://entrepreneurship.mit.edu

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2002 Massachusetts Institute of Technology

it was the winter of despair. it was the epoch of belief. the period was so far like the present period. it was the worst of times. we were all going direct to Heaven. it was the age of wisdom. it was the spring of hope. Tale of Two Cities. for good or for evil. it was the season of Light. Charles Dickens 2 © 2002 Massachusetts Institute of Technology . we had nothing before us. we were all going direct the other way. it was the season of Darkness. it was the epoch of incredulity.in short. we had everything before us. in the superlative degree of comparison only. that some of its noisiest authorities insisted on its being received. it was the age of foolishness.Current Scene: B2B = Back to Basics  The Laws of Gravity Were Never Repealed  Entrepreneurs need to have outstanding:  Team  Technology  Value Proposition  Market  Customers  Applies to Corporate VCs as well« IT WAS the best of times.

Recruiting top talent is easier. Office space is available. angels. and VCs are quietly and carefully moving forward.ppt is no longer enough.Future Outlook: After the Shakeout  The superficial VC gamblers are dying or dead. This is a great time to be starting a company Expectations and time horizons are realistic.  Serious entrepreneurs. at more reasonable prices. 3 © 2002 Massachusetts Institute of Technology . DAD >> MBB  The number of MIT spin-offs and $50K teams have not decreased significantly.  A line of bull + .

PROVEABLE. soon « YOUR VALUE PROPOSITION MUST BE COMPELLING. REFERENCEABLE. QUANTIFIABLE. AND EASILY EXPLAINABLE« 4 © 2002 Massachusetts Institute of Technology .Our Message to Entrepreneurs: Building Your Company  Need an ³A´ Team ± ³3K´ experience  Serious Technology ± sustainable advantage Solve an important. valuable problem« For clients who have money « Who want to pay well« With a short sales cycle« And will buy more.

Our Message to Entrepreneurs: Selecting Your Financial Partners  Seek True Value Added ± ³Blue´ Money Operating Experience Rolodex/Network Awesome Portfolio (in your space) Cool Limiteds (in your space) Deep pockets / courage to stay the course  Keep Realistic Expectations Time to Market Revenue growth Valuations 5 © 2002 Massachusetts Institute of Technology .

Entrepreneurs¶ Funding: Many Options  Your Personal Funds  ³3F´ ± Friends. and Fools  Personal Credit Cards and Other Borrowings  Business Angels  Venture Capital  Corporate Direct Investment  Venture Leasing ©  Mezzanine Financing  Merger and Acquisition  Initial Public Offering  Secondary/Follow-on Public Offering  Private Placements ± Debt & Equity  Buyout/Acquisition Financing  Corporate Debt 6 2002 Massachusetts Institute of Technology . Family.

Trends in Startups  Need an ³A´ Team ± 3K experience  Honest Bankruptcy is no shame Babe Ruth: home runs and strike outs  Serious Technology ± sustainable advantage Solve an Important. Valuable Problem« For clients who have money « Who want to pay well« With a short sales cycle« And will buy more. soon « 7 © 2002 Massachusetts Institute of Technology .

but realistic  Know your competition¶s numbers  Be brief  Advisors:  Get good people with gray hair (or no hair) involved early  Understand that investors will call them  Focus on how and why prospective customers will buy from you.  Focus on milestones (more than calendar dates) 8 © 2002 Massachusetts Institute of Technology . and pay you money.Business Plan Suggestions (1/2)  Executive Summary:  Name your first ten customers  Be brief  Business Plan:  Be optimistic.

you are ready to speak to VCs.Business Plan Suggestions (2/2)  Plan how to build your company without any outside investment (bootstrap).  Realize that this business plan competition is an educational process. Then.* *It does not matter ³that you won or lost.  Most business plan judges focus on  Customer needs  Value proposition  Sustainability  Team  Your investors should bring you both customers and management talent (Akamai case). but how you played the game . It does not particularly matter if you win.´ (Grantland Rice) 9 © 2002 Massachusetts Institute of Technology . maybe.

not winner (1998) ³Value-add. First round: angel investors  First customers  Network deployment * Special thanks to Jonathan Seelig. 2. Co-founder. $50K finalist. not valuation´ philosophy of funding Financing brings:  Credibility  Customer/partner introductions  Management expertise  Faster growth  Cash 4. and frequent guest lecturer at MIT Sloan School 10 © 2002 Massachusetts Institute of Technology .Akamai: Financing Strategy (1/2)* 1. 3.

Second round: VCs  Build operations & management  Battery Ventures & Polaris 6. IPO:  Serious company  ³Currency´ for growth + acquisitions 11 © 2002 Massachusetts Institute of Technology . Cisco. standards. Fourth round:  Industry leadership.Akamai: Financing Strategy (2/2) 5. Third round:  Broadband & International  Baker Communications 7. & cachet  Apple. Microsoft 8.

Entrepreneurial Career Paths High School High School University University Practical Experience Management Training Well Managed. High Growth Firm Big Company Startup Venture Another Startup? Retire Venture Capital or Angel Investor Never really retire 12 © 2002 Massachusetts Institute of Technology .Traditional vs.

Be willing to be Unusual/Unconventional. 2. 6. Gain practical. and possibly failure. Live in a society that sees the above as normal. Agree to Embrace Risk. 4. not a strange exception. 13 © 2002 Massachusetts Institute of Technology . during and after university studies. 3. 5. real world experience before. Want to leave a large Company. Believe that Startup Ventures can Succeed:  Parent(s) who are entrepreneurs  Early contact with successful entrepreneurs  Exposure to success stories and case studies.Some Critical Success Factors in Entrepreneurship 1.

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