Net Market Makers, a hub for business-to-business e-commerce and a company recently brought into the Jupiter Communications fold, held a Back to Basics e-commerce seminar in Chicago yesterday.
Writing a business plan is like studying for a test. It allows you to consolidate your thoughts, think through ideas and decide what you need to do and what you may be lacking.
Geoff Baum, VP of marketing, garage.com
The conference focused on various e-commerce topics, including what is e-business, where is it going and some technology issues the industry is currently grappling with. However, one of the sessions that stood out was that of venture capital (VC) funding.
An interactive discussion involving both the audience and a specialist industry panel highlighted the different phases of VC funding, do`s and don`ts when approaching a VC firm and advice on writing business plans.
The phases
Izhar Armony, who is a principal at Charles River Ventures, a US-based VC firm, broke down VC funding into three phases. The first, "jungle mode", consists of "a few guys in a garage running around with a lot of energy, some technology, no customers, product or revenue and not much structure".
He calls the second phase "dirt road". "You may have some initial customers, you`re selling different things to different customers, you`re growing like crazy, you may have an incomplete management team and anything between 20 and a 100 people."
The final phase is the "highway". "The company has found a market, knows what it is selling and still grows like crazy. Often this is the time when it goes public. There are more than 100 people in the company, sales processes are in place, a predictable revenue stream is on the horizon and maybe earnings are starting to emerge."
The plan
Geoff Baum, VP of marketing at garage.com, a VC investment bank, offered this advice regarding business plans: "Writing a business plan is like studying for a test. It allows you to consolidate your thoughts, think through ideas and decide what you need to do and what you may be lacking.
"A one to two page executive summary, a 20 to 30 page PowerPoint presentation, and a three to seven page summary of the financials and metrics associated with building the business are fine. That is impressive to a VC."
Peter Zapf, CEO of Asia Commerce, a VC firm specialising in the Asian markets, added: "It is important for a company to have a well thought-out business plan that does more than say `we are going to be the number one player in a particular market segment`.
"Key points to include are: what is the existing problem that you aim to help resolve, how do you aim to resolve it, why are you well positioned to provide a solution, how will you get customers to use your solution, which other competitors are trying to provide a solution to this problem, and how does this make money."
How to act
Highland Capital Partners, another US-based VC firm, has the following pointers for entrepreneurs when making presentations: "Remember, you are not selling your products, technology or assets. What you are selling is your stock and the opportunity for us to join you in a business partnership. To accomplish this you need to demonstrate not how great your product is, but how great your team is, and how well it`s suited to the project you are undertaking.
"The first meeting with a venture firm generally lasts one-and-a-half hours. Your presentation should take about 30 minutes to deliver without questions. The rest of the meeting should consist of questions and discussion. The biggest mistake you can make is to try to force an overly detailed and lengthy slideshow down an investor`s throat. Begin the presentation by asking the participants what they would like emphasized. Bring key members of your team, but never more than four people.
"The presentation portion of the meeting should cover management, market, product and finance. Begin by giving the backgrounds of key management members. Discuss the market size quantitatively, but more importantly describe the customer need. The product presentation should not dominate the discussion. A demo should be presented as an option as an appendix to the meeting. Conclude with a brief presentation of your financial performance, projections and capital needs."
Timothy Klein, senior research analyst at Piper Jaffray, part of US Bancorp, concluded that investors are looking for leaders. They are looking for companies that can deliver on their promises and have a clear path to profitability. He gives a four to six quarter timeframe for companies to start making money.
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