IVMF Business Plan Lab | Your Team and Deal Structure

Hello, this is John Torrens from the Whitman
School of Management and today we’re going to be going over session 8: Your Team and
the Deal Structure. So, in terms of an overview of both of those,
the team and the deal structure, just like in all of our other sections we’ll talk about
why they’re important. We’ll talk about how to handle them in the
written plan, and we’re going to touch on the four major components–which are your
management team, boards (both boards of directors and advisory boards)–talk about
your HR needs, and we’ll talk about the specific offer itself, and then finally just generally
using nuts and bolts as a guide for sections 8 and 12 of your written plan. So this particular session, it’s not going
to be as numerically intense as our last one. It’ll be a little bit shorter–which I know
you’ll appreciate because you’re all busy–but it
is a really critical component of the plan itself and the pitch. Especially when it comes down to the team,
because at the end of the day a lot of these things are decided based on the capabilities
of the team. So you could have the best idea ever, and
a great market, and some good market validation, and
you can even be capitalized properly but just need a little bit more to get over the hump
and start making some sales, but if the investor–or in this situation, that business plan competition
judge–doesn’t feel like the team is capable of pulling it off, that’s going to be a major
problem. So at the end of the day, it generally comes
down to the team and a lot of it’s like a beauty contest. Not a visually aesthetic beauty, but in terms
of how good you look in terms of being able to actually pull this off. That’s why the team is really important. So section 8: The Management Team–again,
this is a two page part of the submission itself, so not a lot of real estate,
but a lot of very important information. These are the main bullet points that you’ll
have to cover. They start with your key personnel and a lot
of times it may just be you, and it’s really important to highlight your background and
capability, and “why you?”–“Why this, why are you are capable of pulling this off?” Compensation and ownership–again, you don’t
need to spend a lot of time on this, but explain who owns the company, how they’re compensated,
and just go from there. If you have other investors already in the
mix just acknowledge that and explain how much they’re in for, and then move on. Employment agreements, comp plans–you don’t
have to get into a lot of detail, and as a matter of fact if you already have an employment
agreement or compensation plan with the key personnel, just allude to it, reference it,
and then stick the the actual body of the agreement or the plan in the appendix so you
don’t have to take a lot of room in the body of the plan. So the board of directors and advisory board–this
is actually very important, and it may seem like a throwaway section, but
it’s pretty critical. The value of the board, either director or
advisory board–so real quick, the difference: a Board of
Directors has a little bit more fiduciary responsibility. So a board of directors actually can be on
the line in litigation and a lot of times they get paid. They have some real responsibility. They’re very common in nonprofits,
and obviously public companies–even S Corps or C Corps that aren’t publicly listed. Boards of directors are there, but they get
paid for their time and they have responsibilities and some liability. Advisory board members, on the other hand,
are there just to give advice. They’re not on the hook for anything, they
have less responsibility. They’re really just kind
of a sounding board. So as a start-up, you may have a hard time
getting a board of directors, you may be more able to get an advisory board, because most
people will agree to dispense advice. They don’t get paid, but they’re there for
you to help you focus, and strategize, and grow. So the advisory board members are really important
because they add the talent, the knowledge, and the skills, that are missing on the team. So if it’s just you as the team for the startup,
then it’s very reasonable to expect that there are some holes. You can’t possibly be good at everything,
you can’t possibly know how to do everything, you just can’t. You don’t have time to do that, so you round
out the team and you add the talent that you can’t bring to the table yourself–either
through you or your associates–and you put them on an advisory board. So one of the best practices for an advisory
board is in your pitch deck, if you’re going to be pitching, just grab a face shot of them
from LinkedIn or something and put a quick bio up–name, title,
organization, and a little bio. And in the business plan itself, you could
certainly put a headshot of the board, but make sure you include where they work, what
their credentials are, what their title is, and what they’re actually bringing to your
team, what hole their filling. So they could be somebody who’s really important
somewhere in your value chain–so maybe they represent a group of suppliers, or maybe they
have access to the customer base that you need to sell into, maybe they’re an angel
investor, whatever. It could be somebody really important. I would avoid having your advisory board team
full of bankers and lawyers and insurance people because that’s in the next group. So your advisory board should be something
in the industry or market chain that’s really going to help you. And again, it rounds out the talent that you
don’t have on your team currently. Then you’ve got your other professional advisers. You’ve got your banking, your insurance, your
legal, and basically they’re paid people. They’re not on your advisory board, but you
pay them for a service–either to help you set up your accounts,
do your legal work, help insure you, that kind of thing. That’s what these guys are. It’s usually not a deal breaker, it’s usually
just enough to show that you thought of it, and you have people there. Alright, next slide: Proposed Company Offering. So, in
the offering where we’re not expecting you to do a formal valuation. Now, in the spreadsheet that went along with
last week’s session on the financials, you’ll see a tab in there that shows evaluation. And the evaluation is basically an attempt
to put a value on the company, so if you were pitching for investment capital you would
know how much of your company or what percentage of your company
you are giving up in exchange for the money you’re raising. So if your company’s worth a million dollars
based on your discounted cash flow valuation and you’re raising a $100,000 then that’s
kind of the negotiation point–is it worth 10%, is it worth more because of what the
investors bringing, and could you start it without the investment, and so on. We’re not expecting you to do that here because
in this competition you’re not offering equity in exchange for the proceeds. This is a competition, you’re just getting
the money. So, what’s
really more important is that you can show that this money is going to be meaningful
to you, because generally in business plan competitions they don’t want to award an amount
of money that’s not going to put a dent in the need and you’re not going to be able to
leverage it do something with it. So even if you actually need $100,000 to start
your company, you have to show how, you know, $5,000 in potential winnings, for example,
could get you to the next level. So what are you
going to do with it? So telling overall what you need to get your
company up and going and desired financing, that’s critical because that shows that you
know what you need and you kind of detail what you’re going to do with it. Then you talk about capitalization and use
of funds. So how you capitalize right now–and for most
of us, it’s going to be owner savings: “Hey, I bootstrapped it, I put in this amount of
money on my own, I’m out this much of my credit card and maybe I got a little friends and
family or maybe another investor.” You would detail that, show how much money
you’ve gotten from those activities. Okay, so use of funds: talk about how you’re
going to leverage the amount of money you win to get you to the point where it’s going
to make a meaningful difference. So what? Are you going to make a prototype of your
product, are you gonna invest in marketing to generate a lot of users, because that’s
important. What is it, right? The thing you don’t want to do is say, “well,
you know, I’m gonna use the money to pay a few bills and pay myself
or to buy a new car or something like that.” Generally the use of funds should go towards
something that’s either going to generate revenue or be proximal to that and help you
generate revenue–so either building up your inventory, finishing up some R&D, putting
it into marketing, hiring a sales force, something like that. Don’t put it into just basic fixed costs that
don’t easily turn into revenue. That’s usually a red flag. And again, this is just a page or two, you
don’t need to get into a lot of detail. And if you have spreadsheets and charts you
can just stick a picture in there, or if there’s a lot more than that refer to it and
put it in the appendix. So investors return: and this is actually
kind of a misnomer–obviously, there’s no investor–again it’s the idea of how you are
going to leverage this, and what does this money really mean to you. Because nobody’s buying equity in your company
with this funding, but the general sense needs to be that this is actually meaningful, that
this is going to get the person to a point or it’s actually helping them either grow
or start or it’s something useful and that’s kind of the key. Use of the proceeds, how you do it, how you
leverage it–not towards fixed expenses, not towards your own salary, but towards something
meaningful to get the business going. Alright, so in terms of reminders for this
session: use your advisory board to add the needed talent
to your team, and just please trust me what I say that this is really, important because
you can’t be expected to know everything and you can’t be expected to have connections
up and down and across your value chain like you need to, so your advisory board really
adds that. Very helpful. And then second in reminders: be able to explain
how you’ll use any proceeds in a way that will grow the business. That’s really critical, they want to see the
thought that through and that the money that gets injected is meaningful. Next week is session nine, so the executive
summary. And the executive summary will be relatively
short, kind of like today’s session, and congratulations to everybody for sticking with it for this
long. We’re all very proud of you and we’re really
looking forward to watching this progress and to see you compete. So we will get back together next week when
we talk about our executive summary and then we will be
done with the tutorials and you’ll be ready to go.

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