etpl business model canvas workshop oct 2016

October 2016

2016 Business model canvas workshop What do investors look for in a business plan?

Douglas Abrams Workshop organized by ETPL’ Investment and Spin-off Management Division

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About the facilitator

• Wharton MBA

• JP Morgan – Vice President - IB Technology, Global Markets Internet Marketing

• Parallax Capital Management – Co-founder and MD - Venture Capital

• Extream Ventures – Co-founder and MD - S$20 million VC fund

• Expara – Founder and MD - IDM Ventures Incubator, fund, advisory, training

• NUS – Adjunct Associate Professor, Business School, Entrepreneurship

• Sasin – Visiting Professor, Venture Capital

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Business model canvas workshop

12:00 PM Key elements for success - value proposition and innovation

1:30 PM Break

1:45 PM Key elements for success - competitive analysis and strategy

3:15 PM Break

3:30 PM Fund raising and financial plan

5:30 PM End

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From Idea to Investment

• Key elements for success

• Financial plan and fundraising

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Key elements for success

• Develop an innovative product – Innovation

• Solve a problem for customers – Value proposition

• Identify your customers – Market identification and analysis

• Reach your customers – Marketing strategy

• Compete when others enter - Sustainable competitive advantage

• Make money – Business model and financial plan

• Team – A team or B team

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Problem Solution

Key Metrics

Cost drivers Revenue model

Value proposition and innovation

Sustainable competitive advantage

Channels

Customer segments

Market size

Customer archetype

High concept

Existing solutions

Top 1-3 customer problems

How are these problems solved today?

Your solutions to customer problems

Key numbers that tell if you are succeeding

What is innovative about your solution? Why are you better than existing solutions?

One sentence that says it all

How will you create barriers to entry for followers?

How will you get your product to customers?

Who are your target customers?

How big is your market and how fast is it growing?

Characteristics of your key customers

How do you generate revenue?

What are your key cost drivers?

Expara Business Model Canvas

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Why is biotech unlike any other?

• Lean startup does not apply to biotech

• Can’t develop new drug, biologic or medical device, market it immediately to the public, and later make small adjustments

• Most highly regulated industry

• Development to fundraising can take three to 10 years

• For companies that succeed, the revenues and profits far exceeds other sectors

• Immensely gratifying

• You have to sell the science

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Key differences between tech and biomed plans

Value of IP

Regulatory approval

Marketing strategy

Time to market

Business model

Valuation model

Exit strategy

Risk

Scale of financing

Factors Bio-tech Med-tech Product Tool

How different is it from tech plans?

Low Somewhat High

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Questions to answer

• Innovation

• Value proposition

• Market identification and analysis

• Marketing strategy

• Sustainable competitive advantage

• Financials

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Don’t go too early or too late

Measure of performance

Measure of effort invested

The technology adoption S curve

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Value proposition and innovation

1. What is the painful problem you are solving for customers? How painful is that problem (cancer vs flu)?

2. What is your product and what is innovative about it?

3. What are the shortfalls of the current solutions?

4. How do you solve this problem and can you quantify your benefit?

5. How does your innovation enable you to accomplish this?

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Diamond Rio versus iPod

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Disruptive business model or disruptive tech

• Diamond is the first mover in portable MP3 in 1998

• Apple enters in 2003 and captures 90% of the market

• Business model innovation – hardware + software + service

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Business model innovation: Gillette to Google

• Gillette – razor and blade

• Southwest Airlines – budget airlines

• Dell Computer – mass customization

• Charles Schwab – on-line broker

• Amazon – ecommerce

• eBay – peer to peer marketplace

• Google – search-based advertising

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Market identification and analysis

1. Who is your customer?

2. How big is your market and how fast is it growing? – Top-down approach – Bottom-up approach

3. What trends in your market are favourable for you? – Technological, social, demographic, regulatory

4. Who are your direct and indirect competitors?

5. How is your market segmented?

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Top-down revenue projections

Total addressable market

Target market

Target segment

Market share

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Bottom-up revenue forecasts

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Marketing strategy

1. How is your product differentiated from your competitors’ product? Use a comparison matrix to illustrate.

2. What is your position in the market? Use a positioning map or Blue Ocean Strategy canvas to illustrate

3. What are your price, place, product, promotion and initial sales plans

4. What is your tagline?

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Comparison matrix

Competitor 1

Competitor 2

Competitor 3

Competitor4

Your company

Benefit 1

Benefit 2

Benefit 3

Benefit 4

Benefit 5

Benefit 6

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Positioning map

Portability

Value

Competitor 2

Your company

Competitor 1

Competitor 3

Competitor 4

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Blue Ocean strategy canvas

www.blueoceanstrategy.com

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iPod strategy map

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Sales and distribution

• Great sales and distribution vs great product

• Best sales is hidden

• Products don’t sell themselves

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Metrics for effective distribution

• CLV: total net profit earned over the course of relationship with customer

• CAC: cost to acquire a new customer

• CLV>CAC

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Sustainable competitive advantage

1. How will you compete with small followers?

2. How will you compete with large companies who decide to move into your space?

3. What is your IP strategy?

4. What are your competitive strategies to create barriers to entry?

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First-mover advantages and disadvantages

• Reputation

• Preempting positioning

• Switching costs/Lock-in/Network effects

• Unique channel access

• Move down learning curve

• Favorable access to inputs

• Definition of standards

• Institutional barriers – IP protection

Advantages

• Pioneering costs

• Demand uncertainty

• Changes in buyer needs

• Specificity of investments to early generations

• Technological discontinuities

• Low-cost imitation

Disadvantages

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Established company strengths and weaknesses

• Learning curve

• Reputation effect

• Cash flow

• Economies of scale

• Complementary assets

Advantages

• Difficult to innovate

• They need to satisfy existing customers, partners and supply chain

• Existing organizational structure is appropriate to current tasks

• Risk aversion

Weaknesses

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Opportunities that favor new firms

• Existing firms frozen in the headlights

• Disruptive technologies and business models

• Uncertainty: existing firms’ advantages in market research are neutralized; risk propensity

• Technologies: Discrete versus systemic technologies, based on human capital, general purpose rather than specific

• Bad customers: Enter market that is unattractive to existing competitors due to established cost structure

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Regulatory approval for drug development

Drug discovery and pre-clinical

Phase I Phase II Phase III NDA/BLA

3.5 years 1 year 2 years 3 years 1-2 years

Success rates: 30% 70% 70% 80%

Financing required: $250K to $1.5M

$2M to $20M $20M to $100M

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From Idea to Investment

• Key elements for success

• Financial plan and fundraising

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In the financial section of the business plan

1. Business model – Revenue model – Cost structure

2. Financial projections

3. Valuation

4. Funding required and equity offered

5. Use of Proceeds

6. Exit Strategy and ROI

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Elements of a business model

• Revenue models

• Cost structures

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Differences in business models

Biotech Tool platform

Hybrid Product - virtual

Med tech Similar to tech

Revenue drivers and cost drivers

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Biotech- product business model

Product One- product

Platform

Drug discovery Licensing

Commercialization In-house

Partner

Pricing & positioning Alternative

Generics Discount

Premium

Research & manufacturing

In-house

Virtual

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Biotech business models

Advantages Disadvantages

Tool platform

Generate revenues early Lower returns

No need for regulatory approval

Hybrid (best of both worlds?

Balance of risk and return

Spread of resources thinly

Generate revenues early Lack of strategic focus

Product High returns Scale of financing

No revenue generation High risk

Time to commercialization/time to exit?

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Differences in valuation models

Biotech

Product: Simulation (incorporate DCF)/real

option valuation

Hybrid: DCF and simulation (incorporate

DCF)/real option valuation)

Tool Platform: Simulation (incorporate DCF)/real

option valuation

Med tech

Similar to tech valuation models

Discounted Cash flow (DCF)

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Calculate investor’s ROI including dilution

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Stages and sources of funds

Founder’s Capital

Seed/Angel

Series A, B, C

Mezzanine Pre-Exit Exit

VC hurdle rates 60-100% 40-60% 20%

OM F,F&F

Incubators corporations government

Customers, suppliers, strategic partnersVCs, Banks for VC loans

R&D Establishment GTM/Rollout Accelerated Expansion MaturityEnablement growth

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Value inflection points in biotech- product

Early – Clearly articulated strategy – Team – The key IP – Initial proof-of-concept

Later – IND-enabling studies – Clinical safety – Clinical proof-of-concept – Phase 3 – Market validation

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Differences in exit strategy for biotech - product

• Biotech companies can exit via IPO without revenues

• Tesaro, Kythera and Intercept are companies that hit the public market during their phase III program in 2012

• Tetraphase also exited via a $75 million IPO in 2013

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Cap table

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Key elements of a term sheet

• Board of directors

• Protective provisions

• Drag-along agreement

• Conversion

Control

• Price-per-share

• Valuation

• Amount of financing

• Liquidation preference

• Vesting

• Options pool

• Anti-dilution

• Pay-to-play

Economics

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Contact us

• Douglas Abrams

• Expara Pte. Ltd.

• [email protected]

• www.expara.com

• 65-6323-3084, 65-9780-5381 (hp)

• Block 71 Ayer Rajah Crescent, #02-10/11 Singapore 139951

http://www.expara.com/