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slide1

How to Write a Business Plan

Seth Yakatan

Katan Associates

March 2, 2011

Calit2 Auditorium

disclaimer
Disclaimer
  • My opinion
our business
Our Business
  • Strategic Consulting
  • Mergers and Acquisitions
  • Business Development and Partnering and Other
  • Government and Industry Advisory
our team associates and partners
Our Team – Associates and Partners

Europe

Peter Kalinka, PhD

China

Jack Zhen

Transworld Capital Group

North America

Marvin Collin

John Tucker, PhD

Japan

Tsutomu Mori

Biocomm2

Israel

Alf Fischbein, MD

Taiwan

Hun Chi Lin, PhD

ITRI

India

BioEnterprise Asia

Gurinder Shahi

Meeta Patnaik, MD

Brazil

Fundaçäo Biominas

Eduardo Soares

Australia

Andy Gearing, PhD

Biocomm2

seth yakatan
Seth Yakatan
  • In excess of 20 years experience as a corporate finance professional
  • In excess of 4 years on a direct investment basis as a venture capitalist
  • In excess of 6 years as a merchant banker; part of a group with over $5 billion under management at Union Bank of California, N.A.
  • Founded Katan eight years ago, completed:
    • Sale of assets of 9 biotechnology companies; transaction value > $150.0 million
    • Advised on 4 successfully completed, early-stage, partnering assignments, with value generated for clients in excess of $410.0 million
    • For the past seven years, Mr. Yakatan has served as a faculty member for the BIO Annual Meeting Executive Workshop Series
  • Mr. Yakatan holds a BS in History and Public Affairs from the University of Denver and a MBA from the University of California, Irvine, Graduate School of Management.
seth yakatan track record page 1

Company

Description

Vintage

Role

Status

R2 Medical Systems, Inc.

Ventana Growth Funds Investment

91 - 93

Analyst

Acquired by Cardiotronic Systems in 1994

BioCryst Pharmaceuticals, Inc.

Venture Growth Funds Investment

91 - 93

Analyst

IPO in 1994

ANEW, Inc

Sureste Ventures Investment

93 - 95

Associate

Acquired by PEMEX in 1996

Triton Cellular

UBOC Private Equity Investment

96 -97

Assistant VP

Acquired by RCC, Inc, in 2001for $1.2 billion

Triton PCS

UBOC Private Equity Investment

96 - 97

Assistant VP

Operates as SunCom; $1.1 billion market cap

LBI Holdings II

UBOC Sub-Debt Investment

97 -98

Negotiated, Advised Company on terms

Largest Private Hispanic Media Firm in USA

Ancora Management

UBOC Private Equity Investment

98 - 99

Assistant VP

Acquired by Pitney Bowes in 2004

Heritage Marketing Group

UBOC Private Equity Investment

98 - 99

Sourced, VP

Acquired by Rock-Tenn Co. in 2002

Helicon Cable

UBOC Sub-Debt Investment

98 - 99

Sourced, VP

Acquired by Charter Communications in 2000

Sol PCS

UBOC Private Equity Investment

99 -00

Sourced, VP

Acquired by VoiceStream in 2001 for $300.0 million, 13.3x return 1100% IRR

R&R Media, Inc.

UBOC Equity Sponsor Transaction

99- 00

Managed Transaction

Arranged financing for Private Equity Firm’s acquisition of this asset

Classic Cable, Inc.

Sell Side M&A

99 -00

Co-Led Transaction

Divested Tower Communication Portfolio for $225.0 million

Cygnus Business Media

UBOC Equity Sponsor Transaction

00 -01

Managed Transaction

Arranged financing for Private Equity Firm’s acquisition of this asset

Korea Times

UBOC Equity Sponsor Transaction

00 -01

Managed Transaction

Arranged financing for Private Equity Firm’s acquisition of this asset

Seth Yakatan Track Record page #1
seth yakatan track record page 2

Company

Description

Vintage

Role

Status

Inovio, Inc.

Katan Sell-Side Mandate

01- 02

Sourced, Managed Transaction

Acquired by Harvard Bioscience, Inc.

CPG, Inc.

Katan Sell-Side Mandate

01- 02

Managed Transaction

Acquired by Milipore for 4.1x revenues

Stressgen, Inc.

$203.0 million partnership with Roche

01 - 02

Advisor

On-going

MTI, Inc.

$40.0 million partnership with Aventis

02 - 03

Advisor

Terminated post Sanofi Merger

Biocomm

Regional Venture Capital Fund

02 -03

Advisor

Created 4 portfolio companies

DermaTrends

Pharmaceutical Partnership

03 -04

Negotiated, Advised Company on terms

On-going

Stressgen Reagents

Katan M&A Advisory

04 -05

M&A Advisor

Acquired by Assay Designs in 2005

DCI USA

Business Development Company

04 -

External BOD

On going

Nventa Pharmaceuticals

Restructuring

04 -07

Advisor

Assisted CEO in broad restructuring of company

Premiere US Institution

Company formation

04 -

Advisor

Assist in new company formation process

XL Tech Group

Debt Facility

05 -06

Managed Transaction

Arranged $35. 0 million financing

Seth Yakatan Track Record page #2
agenda
Agenda
  • Risk & Milestones
  • How I Do It
  • Business Plan 101
  • Specific Criteria
  • A Few More Tips
  • Q&A
slide10

Risks & Milestones

Seth Yakatan

Katan Associates

March 2, 2010

Calit2 Auditorium

slide12
Risk

Commercialization

Most new technologies go through a long maturity-this

can take up to 20 years development cycle before

they reach commercialization

”Debugging”

”Early

Hype”

Value

Risk

”Dissapointments

and disillusion”

Time

milestones of development

IP Creation

Invention:

Functional

Business

Validation

New Firm

or Program

Viable

Business

Basic Research

Proof of

Concept

Early-Stage

Technology

Development

Product

Development

Production /

Marketing

Angels

Corporations

Technology Labs

SBIR Phase II

NSF, NIH

Corporate Research

SBIR Phase I

Equity

Debt

Capital Markets

VC

Taken from “Between Invention and Innovation An Analysis of Funding for Early-Stage Technology Development”

Prepared for NIST Economic Assessment Office November 2002, page 33

Milestones of Development
why are milestones important
Why are Milestones Important?
  • Achievement of them de-risks projects
  • Lower risk, higher value
are you ready to start today
Are you ready to start today ?
  • What do you have?
  • Why is it novel?
  • What is the market?
  • At what stage of development is it?
  • Can one technology support the formation of an entire company?
  • Who can help ?
  • Where do I get $$$$$$$ ?
dp s issues
DP’s Issues
  • Inability to tell the story properly
  • Failure to meet or respect the time frame
  • Failure to explain the value proposition
  • Failure to disclose issues up-front
  • Lack of knowledge of the competitive landscape
it is a tough road
It IS a Tough Road
  • There is a high failure rate in new ventures
    • Approximately 20% are successful in obtaining more than 1 round of capital
  • VC’s strive for failure rates of 80% on investments
    • 5 in 10 investments fail
    • 3 in 10 investments breakeven
    • 2 in 10 investments succeed
  • A 2009 report by PriceWaterhouseCoopers indicates that only 10% to 30% of venture capital funds produce profit-generating firms
slide23

How I Do It

Seth Yakatan

Katan Associates

March 2, 2010

Calit2 Auditorium

our criteria k i s s
Our Criteria – K. I. S. S.
  • Do we believe that the people involved can get the job done?
  • Does the product/technology/company have a sustainable competitive advantage?
  • Do we share similar expectations of value and outcomes?
  • Can we add value to the company/process given our involvement?
4 easy steps
4 Easy Steps
  • Elevator Pitch
  • Presentation
  • Executive Summary
  • Plan
    • Executive Summary
    • Products or Services
    • Market Need (Marketing ??)
    • Market Potential
    • Competitive Advantage
    • Management
    • Financial Overview
the elevator pitch
The Elevator Pitch
  • Do we know what this is ???
  • An elevator pitch (or elevator speech) is a brief overview of an idea for a product, service, or project.
  • The pitch is so called because it can be delivered in the time span of an elevator ride (say, thirty seconds or 100-150 words).
  • Part Mission Statement
  • Part Positioning Statement
presentation
Presentation
  • Use as a high level outline for the business plan
    • Executive Summary
    • Products or Services
    • Market Need
    • Market Potential
    • Competitive Advantage
    • Management
    • Financial Overview
executive summary
Executive Summary
  • Most important piece of the Plan
  • Begin with the Elevator Pitch
  • Talk about product / service
  • Highlight Market
  • Promote Management
  • Use of Proceeds
  • Ask for the $$$
  • What is the value ?
business plan
Business Plan
  • Executive Summary
  • Products or Services
  • Market Need
  • Market Potential
  • Competitive Advantage
  • Management
  • Financial Overview
slide30

Business Plan 101

Seth Yakatan

Katan Associates

March 2, 2010

Calit2 Auditorium

what is a business plan
What is a Business Plan ??
  • A business plan is any plan that works for a business to look ahead, allocate resources, focus on key points, and prepare for problems and opportunities
  • Plans don't sell new business ideas to investors. People do. Investors invest in people, not ideas. The plan, though necessary, is only a way to present information
purpose
Purpose
  • Business planning is about results
  • You need to make the contents of your plan match your purpose
  • Don't accept a standard outline just because it's there
key factors
Key Factors
  • Simplicity
  • Believability
  • Focus
  • Management
  • Milestones
key mistakes
Key Mistakes
  • Management
  • Competition
  • Idea / Technology inflation
  • Belief in the market
  • Valuation or Lack of Valuation
  • Answering questions
  • Lack of milestones
slide35

ABRAHAM LINCOLN

  • 1831 Failed in Business
  • 1832 Lost bid for Illinois State Legislature
  • 1834 Failed in Business
  • 1835 Fiancé died
  • 1836 Suffered a nervous breakdown
  • 1843 Ran for Congress and Lost
  • 1848 Tried again for Congress and Lost
  • 1855 Ran for US Senate and Lost
  • 1856 Tried for Vice President and Lost
  • 1859 Lost bid for Senate again
  • 1860 Became 16th President of the US
slide36

Specific Criteria

Seth Yakatan

Katan Associates

March 2, 2010

Calit2 Auditorium

business plan1
Katan’s Concepts

Executive Summary

Products or Services

Market Need

Market Potential

Competitive Advantage

Management

Financial Overview

Development pathway

IP

Technology overview

BOD

AB

Competition Requirements

Executive Summary

Products or Services

Market Need

Market Potential

Competitive Advantage

Management

Financials

Business Plan
some things to consider
Some things to consider…
  • Does the plan explore an opportunity that is realistic?
  • Is the business model well thought out and have the potential to be effective?
  • Are there past benchmarks set that the plan can be measured against?
  • Is a significant initial investment required?
  • What is the length of the implementation process?
  • Does the business have the necessary tools to become a market leader?
  • Has a clear target customer been established?
  • Does the management team have the skills to succeed?
  • What are the projections for the venture to achieve profitability?
  • Is the plan concise and well written?
  • What will allow this business plan to have sustained success?
executive summary1
Executive Summary
  • What problem are you solving?
  • What is your business proposition for solving the problem?
  • Who are your customers?
  • Who are your competitors?
  • How viable is your business?
  • How do you make money?
  • Executive Summary is clear & effective as a stand-alone document
products or services what
Products or Services – What ?
  • What is the product or service?
  • What are its attributes?
  • Advantages and potential drawbacks?
  • Why/how is your product/service more compelling than existing ones or the competition? What is the stage of development?
  • Do you have a proprietary position or intellectual property protection planned or in place?)
market need why
Market Need – Why ?
  • What specific conditions in the market have created the problem you are solving?
  • How will your product/service take advantage of the opportunity?
  • Who are your customers and what are their attributes?
  • Clearly define your potential customers and why they will pay for your product or service
market potential why
Market Potential – Why ??
  • What are the characteristics of the market for your product or service?
  • How will you reach the market?
  • How big is the market opportunity: number of potential customers & annual sales?
  • Can you narrow the market to a manageable segment?
  • How will you dominate the market? e.g. through pricing, quality, geography, etc?
  • Is there a market niche where you will have competitive advantage?
competitive advantage how
Competitive Advantage – How ?
  • Competitive Matrix: Who are your competitors?
  • Their strengths & weaknesses?
  • Your strengths & weaknesses?
  • How will you close the gap?
  • How easily can competition close gap?
management who
Management – Who ?
  • Who are key team members and their respective roles?
  • What are their relevant experiences and accomplishments?
  • What other areas of expertise are you lacking?
  • When will you need additional team members?
financials
Financials
  • Income Statement
  • Balance Sheet
  • Funds Required & Uses
  • Key Assumptions
  • Financial Model
slide46

A Few More Tips…

Seth Yakatan

Katan Associates

March 2, 2010

Calit2 Auditorium

clayton christensen disruptive technologies
Clayton Christensen: Disruptive Technologies
  • The term disruptive technology was coined by Clayton M. Christensen and described in his 1997 book The Innovator's Dilemma.
clayton christensen disruptive technologies1
Clayton Christensen: Disruptive Technologies
  • Main Principals
    • 1. Companies listen to their customers, and strive to bring to the market the products their customers ask for.
    • 2. Small Markets Don’t Solve the Growth Needs of Large Companies.
    • 3. Markets that don’t exist can’t be analyzed: Get close to your customers, learn their needs.
    • 4. Technology Supply May Not Equal Market demand.
slide52

Valuation

„Trying to assess basic research by its practicality is like trying to judge Mozart by how much money the Salzburg Festival brings in each year.“

Konrad Lorenz

slide53

Valuation

“Of the 300-odd public companies

in the biotechnology business,

8 have meaningful earnings from

selling products. The rest trade on

the strength (or weakness)

of their ideas. ”

M. Gianturco in Forbes

definitions

Pre Money Valuation = notional amount of equity value prior to any equity investments

Pre Money Valuation + Invested Capital = Post Money Valuation

Price per share = Pre Money Valuation / Pre-Money Shares

Definitions

$5 million

pre-money

$10 million

post money &

50% ownership

+ $5 million =

Taken from “Understanding Valuation: a venture Investor’s perspective”

Callow, etal, Boston Millenia Partners White Paper

series a valuations revealed
Series A Valuations  - Revealed
  • Series A valuations are usually based on percentages - as in, how much of the company does the venture capital fund want to own
  • Most established venture funds have an established strategy of owning a particular percentage of a company after a Series A investment
  • A typical, good fund will look to own 20% to 33% of a company after the initial investment
  • During a normal two-VC, syndicated Series A investment the startup sells around half the company to the VC
  • Raising $4 million? Pre-money of $4 million
  • Raising $6 million? Pre-money of $6 million
summary

Equity multiples

(PE)

Enterprise multiples

(Sales,EBIT,EBITDA)

Tech. value

DCF

Leveraged value

Type of valuation

What it gives you

Common equity value only

Easy to calculate and understand

Firm value which can be split into equity value after deducting net debt

Avoids distortions due to accounting policies (D&A etc)

Value of products or platform over and above cash

Easy to calculate and understand

Fundamental value of a company based on cash flows

Dependent on business plan not distorted by market sentiment

How much debt a company can support

To estimate how much a financial buyer can pay

How much a company can be acquired for and possible routes of finance

Assesses impact on shareholders

Why people use it

However, life science companies are often loss making and not forecast to be profitable over a 2-4 year time horizon

Summary
valuation football field example

Valuation range

Valuation – football field example

Valuation overview

This leads to a core valuation range

slide58
Data

Taken from “Understanding Valuation: a venture Investor’s perspective”

Callow, etal, Boston Millenia Partners White Paper

the exit
The Exit
  • It there one ?
  • How realistic is it ?
  • What happens if there is none ?
  • Is that okay ?
key lessons for success
Key Lessons for Success
  • Products must have large and near-term markets
  • Compatible corporate team
  • Level of funding sufficient to meet goals
  • Observant – follow market – don’t discard anything
  • Confidence in common sense
  • Be prepared for competition – new product pipeline
  • Need luck and smart friends
slide61

Q & A

Seth Yakatan

Katan Associates

March 2, 2010

Calit2 Auditorium