Entrepreneurship & Innovation: Funding Strategies

Entrepreneurship & Innovation - Financial Planning & Funding

• This presentation covers financial planning and funding for entrepreneurship and innovation.
• The instructor is Prof. Dr. Mahmoud Al-Kilani.
• The agenda includes financial planning and funding.

Learning Objectives

• Gather project financial data and input into a planning tool.
• Apply key financial instruments.
• Critically assess a business's financial position.
• Analyze and select appropriate funding options.
• Plan how to access funding for a project.

Goals of Financial Part of Business Plan

• The business plan's financial section details the business idea and its implementation for 3 to 5 years, using quantifiable data.
• It shows profitability and liquidity projections under realistic assumptions.
• It explains how much equity or external funding will be needed and when.

7-Key Model for Business Model Development

• Includes customer analysis, market analysis, competition analysis, the founder's view of themselves, products/services, and resources.
• The factors for each are further detailed below.

Financial Planning

• A crucial part of the business plan, outlining the business idea over 3-5 years and its numerical representation.

Revenues: 1. Volume

• Define the selling units (pieces, hours, clients, subscriptions).
• Estimate sales volume transparently.
• Provide evidence for the realistic sales estimates, linking to market research.

Revenues: 2. Pricing

• Pricing must be higher than costs.
• Competitive pricing is necessary.
• Pricing should be profitable but lower than the customer's perceived value. To ensure pricing is within the acceptable market range, consider a variety of factors like pricing policy scope, customers perception, competitor pricing and a marketing strategy.

Revenues: Cost Pricing

• Prices should cover all direct and indirect costs and include a profit margin (markup).

Revenues: Market-Based Pricing

• Matching competitors' prices, aligning with market positioning.

Revenues: Value-Based Pricing

• Pricing slightly below customer perceived value.

Costs: Salaries

• Salaries are a significant cost factor, so careful planning is crucial.
• Determine the required staff of different categories for the next 3-5 years, basing the estimation on the predicted production or service volume.
• Calculate salary expenses, including salaries for owners and social security contributions (approximately 15%).

Costs: All Other Costs

• List every other cost, thoroughly and transparently for the next 3-5 years.
• Justify cost estimates, for example by obtaining supplier quotes or by checking online resources.
• Investments should not be considered costs but rather depreciation is a cost.
• Allocate a 5% reserve for unexpected expenses.

Income Statements Forecast

• Generate projections for income statements for the next 3-5 years, perhaps using monthly or quarterly breakdowns for the first year, based on revenue and cost projections.

Investments

• List initial and subsequent investments, estimating their lifespan.
• Include depreciation in income statement forecasts, and investments within cash flow statements.

Financing Activities / Cash Flow Statements

• Project easily calculated seed capital needs using cash flow statements for the next 3-5 years.
• Aim for positive cash balances at the end of each period and include a liquidity reserve for unexpected events.

Financing / Seed Capital

• Derive needed capital from the cash flow statement.
• Maintain positive liquidity, (i.e., cash at the end of each period). Build in reserves to handle unforeseen circumstances, referencing the beginning cash position of each period within the cash flow statement.
• Clearly define how capital requirements are met.

Balance Sheets

• Prepare balance sheet forecasts using the previously calculated information.
• Obtain additional data points such as average debtor time, creditor time, and storage time.

Scenarios

• Vary assumptions (e.g. sales) to understand potential outcomes and pitfalls of the business plan.
• Report different scenario outcomes (best case, worst case, and realistic case).

Sensitivity Analysis

• Alter one variable at a time to study impact on the business, to see how susceptible the business is to change.

Leaving the "Valley of Death"

• Depicts the startup journey, showing profit/loss trends from product launch through development and commercialization to reaching the break-even point.

Break-Even Analysis

• Determine the sales or client count needed to reach profitability.
• Use specific examples, like calculating restaurant guest counts per day, platform subscriptions, consulting days for billing, or daily turnover for a fashion shop.

Break-Even Analysis (Graph)

• Illustrates revenue, total costs (variable and fixed), and fixed costs, graphically presenting break-even point.

Funding - First Steps

• Follow resources like websites or guides like www.gruenden.ch or Swiss Venture Guide.
• Actively seek help from experienced entrepreneurs and industry experts.
• Apply for relevant entrepreneurship programs, courses, or challenges.
• Create a complete business plan and have it verified.
• Understand financial needs and realistic pricing.
• Develop short and long pitches.

Funding Process

• Funding process is time-consuming and requires long preparation and application periods.
• Invested time must not be wasted on other activities unrelated to customer acquisition/product development.

What You Need

• Essential elements required for the validation process of any business plan.
• A functional, industrial, or mock-up prototype of the business's product or service.
• A detailed business plan.
• A team with significant participation from managerial positions like CEO, CTO, and marketing or sales.
• Proof and verification of the company being founded, or close to foundation.
• Short, medium, and longer elevator pitches (10 seconds, 30 seconds, 1 minute, and 90 seconds).
• A one-page summary.
• 10-slide investor presentation.
• Comprehensive business plans (using either Word or Powerpoint).
• Term Sheet and Shareholder Agreement.

Valuation Based on Negotiation

• Valuate businesses without a market price using data points like the track record (turnover, new customers, costs), the team, the prototype of the business model, the company's scalability, any potential paybacks; and its exit potential.

Appendix Funding Players

• (A listing of relevant funding players with details.)

Awards and Competitions (AC)

• Receiving feedback from experts through media presence and/or participation in competitions.
• Competitive benefits to consideration.
• Importance to distinguish winning many competitions versus just participating in some.

AC: Swiss Challenge Wettbewerbe

• Breakdown of the competition format.
• Detail of funding amounts, the sponsors, and the size of the jury to gauge competition size and impact.

AC: Venture (www.venture.ch)

• Participation details, including training sessions, seed and start-up phases, and the networking platform (Apéros).
• Details about the competitions: business ideas, business plans, and the criteria for the winners and the involvement of various companies.

AC: VentureKick

• A breakdown of the competition, including rounds, amounts awarded, involved foundations, and size of the jury.

AC: De Vigier

• Competition details, including company foundation type, start-up phases, prizes awarded, event type, partnerships, and advice on media relations.

AC: ZKB Pionierpreis Technopark

• Details on the competition, the sponsor, award amount, associated event, and the ideal participant.

AC: More Awards

• Presentation of awards for various categories, including national and regional awards and a detailed breakdown of the award conditions.

Foundations

• Details on foundations primarily for public welfare or social benefit, few regulations, totaling about $30 billion in assets.
• Additional details on donations for innovation projects, showing many examples of projects with funding amounts.

Startup Invest

• Details on this NPO (originally CTI Invest, Swiss Startup Invest) that provides networking, matchmaking, and events (such as Startup Days or Venture Days) for startups.
• Funding information for the events.

Match-Making – Web-Basierte Plattform

• A large number of small investors contribute amounts that add up; emotional connection may facilitate investment.
• Can create substantial funding for a project but requires many small contributions.
• Many investors are likely not to require or wish to be involved in the day-to-day business.
• Important to understand the agency fees associated with investments

M&A Consultants / Match Makers

• Focus on helping with finding investors and negotiating appropriate terms.
• Fees vary but are sometimes transactional or hourly, and payment types/amounts are important.

M&A Companies

• Company focus in helping to sell businesses, and frequently operate in specific industries, frequently involving hourly and transaction-based fees.
• Require minimum transaction values, which can be high.

Swiss National Science Foundation (SNSF)

• Focuses on applied research.
• A considerable funding source.
• Provides funding for all disciplines, from philosophy and biology to nanoscience and medicine.
• Their funding priorities and their budget.

The Innovation Promotion: Innosuisse (ex CTI)

• Focuses on applied research.
• A crucial source of funding for early stages.
• Assists start-ups.
• Their total budget and available programs.

Credic Insurance & Surety Associations (CISAS)

• Provide security to banks for loans, helpful for start-up businesses.
• Governed and insured by the government of Switzerland.

European Financial Instruments

• Access to funding programs across Europe.
• A library of links with details are provided.

This quiz explores financial planning and funding strategies essential for entrepreneurship and innovation. Designed to help you gather financial data, assess business positions, and select the best funding options, it is a vital tool for aspiring entrepreneurs. Learn how to create a robust financial plan that supports your business goals.