APPRAISAL/ EVALUATION OF BUSINESS PLAN

OUTSIDE – IMPACTS

  1. ¨ (O) Opportunity: Is this a positive present value
  2. ¨opportunity? (Does it have IMPACTS?)
  3. ¨– (I) What is the idea / industry?
  4. ¨» Explain the idea / opportunity clearly and succinctly.
  5. ¨– (M) Is the target market large enough to support substantial growth / valuation?
  6. ¨» How large is the overall market?
  7. ¨» How large is the market segment you are targeting?
  8. ¨ Provide solid support for your analysis.
  9. ¨» Are there additional opportunities?
  10. ¨– (P) Why does the opportunity generate a positive present value? What is unique?
  11. ¨» The answer to this should be implicit in other parts of OUTSIDE-IMPACTS. But, doesn’t hurt to be explicit.
  12. ¨» Why will you make money? 
  13. » How will you make money?

(A) Acceptance:

  1. Will customers in that market accept / buy
  2. this new product / service?
  3.  Who is the customer in the target segment? Put
  4. yourself in shoes of a customer.
  5. How does the customer spend the day.
  6.  Why will they buy your product / service?
  7.  What do they buy now?
  8. Why do they buy what they do now?
  9.  Why will they switch from their current product?
  10.  How will you get to the customers? Sales force? Ads?
  11.  How much will it cost?
  12. How will you keep customers? Sales force?
  13.  How much will it cost?

(C)

  1. Why won’t the value be competed away?
  2. What will existing competitors do?
  3. What will other new entrants do? How will you respond?

(T)

  1. Why is this a good time to enter?
  2.  Why hasn’t the opportunity been taken already?

(S) Speed?

  1. How quickly can this be implemented?
  2. Good opportunities have positive IMPACTS.
  3.  If the opportunity does not have IMPACTS, then it
  4. ¨should not be pursued.

(U) Uncertainties:

  1. What are major uncertainties?
  2.  Possible uncertainties:
  3.  Market size.
  4.  Customer acceptance.
  5.  Customer approach.
  6.  Competition.
  7.  Management team.
  8.  Potential real options.
  9.  Which uncertainties can be managed so that outcome is
  10. more likely to be favorable?
  11.  Choice of initial customers? Choice of investors?
  12.  How do the answers affect the opportunity?

(T) Team.

  1.  Can management team implement opportunity?
  2. How does previous experience relate to opportunity?
  3. How “hungry” is the management team?
  4.  If management pieces are missing:
  5.  What pieces are missing?
  6.  What type of person will you look for to fill them?
  7.  How will you find that person?

For VCs, a good team and a good opportunity arenecessities.

(S) Strategy.

  1. Is strategy consistent with opportunity, uncertainty, team, and exit?

(I) Investment requirements / cash flows.

  1.  Is the amount of money required reasonable?
  2.  Do the cash flows / forecasts make sense?
  3.  Bottom-up.
  4.  Top-down.

(D) Deal.

  1.  Does deal structure provide appropriate incentives?
  2.  Is the deal priced attractively?
  3.  Do key individuals have incentives to do deal?
  4.  Do key individuals have incentives to make deal work?
  5.  Does deal structure provide / ensure appropriate governance?
  6.  Does deal structure help manage the uncertainties?

(E) Exit.

  1. Is the deal exitable? How?

¨If an investment does not pass the OUTSIDE tests, leave it

¨outside

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