FINAL BUSINESS PLAN OCTOBER 2005

FINAL BUSINESS PLAN OCTOBER 2005

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Creation of a comprehensive training and capacity building support

service for entrepreneurs on how to deal with different investors,

including a quality check of their business plan –

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INVEST ACADEMY

-Members of the group

- Guy Michel Hustinx Optrion SA, Belgium - Kevin Corti, Pixel Learning, UK

- Gzegorz Gromada, Wroclaw Centre for Technology Transfer, Poland - Dominique LeRoux, Centrale Start-up, France

- Mike Matfin, University of the Arts, UK - Nikos Pantelelis, Synthesites SA, Greece

With the support of the following members: - Martin Carr, Exemplas, UK

- Erki Molder, Quattromed, Estonia - Jan Bohl, Ableton, Germany - Pierre-Paul Jobert, DGTec, France - Nigel Wild, Biolink project, UK

Project coordinator: Violaine Menant

European Federation of High Tech SMEs 2 Rue du Faubourg Poissonière

F-75010 Paris, France T +33 1 45 23 09 39

[email protected]

www.hitech-sme.com

Working group coordinator Claire Munck

European Association of Development Agencies Avenue des Arts 12, Bte 7

B-1210 Brussels T +32 2 218 43 13

[email protected] www.eurada.org

Executive Summary

The service is designed to train entrepreneurs to understand sources of financing for their company by building their knowledge of financial sources. Helping them to refine their business proposition and business plan to attract funding from investors and/or lenders.

This will be done through a 3-phase service where a panel composed of different types of financiers and representatives from business organisations will help the entrepreneur understand that all money is not the same. Grants, loans and equity all entail different investing conditions. Entrepreneurs will also benefit from generic information and advisory services throughout the programme.

There is a direct benefit for the entrepreneurs who will access finance more efficiently and swiftly and for investors who will benefit from stronger business plans.

The Invest Academy Programme was made by entrepreneurs for entrepreneurs, with the support of hands-on service providers.

Contents

Background……….p.3

Objectives of the service ……….p.3

Main Features of the service………...p.4 Target group and recruitment of entrepreneurs ………...………p.7 Organisation and content of the programme………...………..p.7 Performance indicators………...………..p.9 Communication and marketing.………..p.10 Sustainability – Financial considerations………..p.10 Degree of innovativeness of the service proposed……….p.11 European value added of the service………...……….p.12 Next steps………..p.12 Preparation of a pilot………...……….p.12

Background

The idea of the service emerged after the following process:

- One meeting of our Task Force in London (September 2004) to identify the problems faced by entrepreneurs in the field of access to finance and investment readiness.

- One meeting of the Task Force in Vienna (October 2004) to identify potential solutions to tackle the problems identified in London. Identification of a new service to be created.

- An exchange of ideas between members of the Task Force (Sun&Sup), a research on good practices existing in Europe, the US, Canada and Israel.

- One meeting in Barcelona where the Task Force Manager presented the first ideas for the creation of a service, and the next steps for the realisation of this business plan.

The service emerges from the identified needs of the start-ups and seeks to respond to their problems by involving the SUN in each part of the elaboration of the business plan for the service.

Issues at stake for entrepreneurs:

• Inability to produce convincing business plans

• Lack of knowledge about appropriate funding sources

• Lack of experience on how to deal with financiers

• Lack of understanding of what an investor looks for in an investment proposition

• Conflict between the needs of the financiers and the perceived needs of the business.

• Plethora of support services

• Understanding the world of equity financing

• Reluctance to share control and give away company shares against equity (perception of loss of control of the company)

• Difficulty to identify and exploit exit routes

Issues at stake for investors:

• Monitoring costs, which are not proportionate to the size of the investment

• Due diligence costs which do not rise in proportion to the size of the investment and which may not be justified by the potential returns on small investments

• Search costs for investors since information on small unquoted companies is more limited than on large publicly quoted firms.

• Difficulty in sourcing companies looking for investment

• Difficulty of exiting: no ready market for shares. General problem of the availability and size of the capital market.

• Transaction costs: Cost of due diligence are proportionally higher for small amounts of Equity compared with larger amounts.

• Perception of risk and reward: underestimation of returns on small investments.

• Lack of good business proposals: many entrepreneurs are un-prepared and present poor and unrealistic business proposals and also present them badly.

Objectives of the service For entrepreneurs:

• The main objective of the service is to advise the entrepreneur concerning the quality of his/her business proposition, business plan, its attractiveness to potential investors and lenders

• Educate him/her on the different financial sources available for his business (and therefore the different ways to present his/her project) and to do this in a way that suits entrepreneurs.

• To provide active, personal and tailor-made coaching to the entrepreneur

• Build the skills and the confidence of the entrepreneur

• De-mystify equity finance for entrepreneurs (particularly the perception of loss of control of the company)

• Stimulation of entrepreneur’s objectivity

• Help entrepreneurs to understand where they can find finance

• To accelerate the process of financing and how to access it

• Introduce objectivity on the part of the entrepreneur

For investors:

• Enhance the quality of propositions available to them

• Saving time by not meeting un-prepared entrepreneur

Other considerations:

• The service aims to bring entrepreneurs and investors together.

• Introducing the entrepreneur to the language/attitudes/values/requirements of the investors to help the two parties communicate more effectively.

It is not an objective of the service to provide financing to the companies. However it may occur that the panellists take interest in the business opportunities proposed to them.

Main features of the service

The service-provider must be able to demonstrate that it can involve competent and successful professionals, with a proven track record, working in the business world.

Organiser/Host

The service provider must have the following competence/expertise:

1. Be familiar with both the supply and the demand side of the problem

2. To bring added value to the business plan of the entrepreneur who will benefit from the concrete experience in entrepreneurship and management of the service provider

3. To be active at the local/regional/national level and therefore be in touch with the needs of local entrepreneurs

4. Have good contacts and working relationships with business angel investors 5. General awareness of range of financial products available

6. To provide the service in a sustainable manner both financially and over time.

7. Avoid conflict of interest for the entities receiving some form of public financial support for the delivery of the service.

The following entities may fulfil these criteria:

- Business angel networks

- Business Schools

- Universities

- Incubators

- Sciences Parks

- Consultancies

Graph 1:Illustration of the matrix to evaluate the potential service providers

Criteria Organisation

Business angel network

Business Schools

Universities Incubators Science Parks

Consultancies Other (EIC, IRC…) Be familiar both the supply and

the demand side of the problem To bring value added to the business plan of the

entrepreneur who will benefit from the concrete experience in entrepreneurship and

management of the service provider

To be active at the

local/regional/national level and therefore be in touch with the needs of local entrepreneurs Have good contacts and working relationships with business angel investors

General awareness of range of financial products available To provide the service in a sustainable manner both financially and over time. Avoid conflict of interest for the entities receiving some form of public financial support for the delivery of the service . Level of implementation

The service can be delivered as part of a national framework, with implementation at local/regional level, to take into account economic, social, cultural and political needs between regions or

Target group and recruitment of entrepreneurs

• All entrepreneurs in the development / growth phase looking for finance with an open mind as to what the best source of finance for his/her company is.

• High potential SMEs

• Innovative start-ups.

The service should be provided only to start-ups / potential founders with an idea of a business plan that has been reviewed by a business expert. Only a few, well selected number of businesses should have the right to present their business case/plan at the final stage of the service.

The entrepreneurs will be recruited through:

- Entrepreneurs contacting the service directly

- The portfolio companies of the business angel network

- Upon recommendation from the panellists

- Upon recommendation from local business agencies and service support providers

- Through universities promoting enterprise during courses and after course.

- Active promotion and advertising Organisation and content of the programme

The programme is tailor-made to respond to the needs of the entrepreneur using the service, and in accordance with the timing of the entrepreneur. Some generic information may be available such as

teasers and templates on:

- Typical contracts between investors and entrepreneurs

- Confidentiality agreement

- Shareholders agreement

- Valuation

- Share types

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Creation of an online tool:

- To prepare for the program

- To disseminate the program

- To source new entrepreneurs The online tool would:

-Describe the idea of the program -Which entrepreneurs are targeted?

-How they can prepare for the panel (testimonies from other investee companies having gone though the panel, and how this program helped them secure some sort of financing, studies…)

-Provide information on entrepreneur support schemes at regional level

-Link to all relevant information sources such as self-assessment tools, business plan evaluations -Constant rating of website by entrepreneurs

Curriculum: The curriculum is organised in 3 phases:

NB: A selection phase will be carried out by the service provider in order to make a first screening of the entrepreneurs ready to go through the Invest Academy Programme. Only entrepreneurs with a valuable business idea should be able to go on the programme. Only a few, well selected number of future founders should have the right to present their business case/plan.

Phase I: Generic Programme

The programme will include a presentation from panellists on:

- The complete process of fund raising including debt finance

- The due diligence process

- How do investors think and how do they make their investment decision

- How to value an enterprise

- The importance of the exit for the investors

- What investors expect: management team/capacity, board seats, liquidity, registration rights, and non-compete agreements, reporting periods…

- Some advice on do’s and don’ts

- The relationship between the investors and the entrepreneurs

- What Lenders look for in a proposition

- Soft skills (presentational skills…)

Phase 2: Adjustment period

Time period: flexibility allowed for the entrepreneur to measure the time to draft his business plan or refine his business plan according to the comments made by the panel.

1. The entrepreneur takes the advice from phase one, refines his business plan and prepares for his presentation;

2. A coaching team will be available for limited amount of time.

The coaching team should be able to indicate to the entrepreneur where he/she could find a better management team, for instance part-time managers if this is the weakness of the project.

The coaching team will decide with the entrepreneur when the business plan is ready and can go through to Phase 3.

Phase 3: Pitch

1. Presentation by the entrepreneur: short presentation (15 minutes), which should enable the panel to make a skills gap analysis and a presentational analysis.

2. The service provider can choose to refer the entrepreneur back to phase 2 to refine his business plan.

3. The panellists make final recommendations to the entrepreneur, both in terms of presentational skills and quality of the business plan and proposition.

4. The service provider must be able to recommend the entrepreneur to other support services that exist locally according to the needs of the entrepreneur, or at least to indicate a contact point.

Length of the program:

The programme necessitates 2 days in the form of workshops. One day for phase 1 and the second day for phase 3. Between phase 1 and 3, a tailored coaching is given to the beneficiaries of the service.

The entrepreneur should be able to take advantage of the knowledge of the service providers until he/she feels it is not needed anymore, most likely until the enterprise is financed. This continuous support is likely to take the form of emails or telephone support service. A separate fee will be charged to this.

Choice of the panellists:

The panellists will be chosen from: 1. Business Angel

2. Banker

3. Venture capitalist 4. Institutional investor 5. Grant-funding bodies

6. Other relevant experts (Sectoral expertise, first-time seed investors, advisors to start-up and growth stage companies, business and economic development professionals)

There should be an appropriate balance of expertise in the panel. The focus is on small-cap investors. A panellist database should be set up with the following information:

- Contact details of the financiers

- Organisation

- Type of financing available

- Sectoral expertise (industrial sector)

- Evaluation rate from entrepreneurs. The panellists will be selected according to their:

- Availability and commitment to the programme (participation in the 3 phases).

- Sectoral expertise and/or cross-sectoral expertise

- Relevant experience and last practice.

It is important for the project that the panellists allow rotation among them, in order to inject some freshness into the programme.

Preparation of the panellists:

The panellists should also be prepared for their work. It is essential that they grasp the objective of the programme and the motivation of the entrepreneurs for attending.

The service provider should prepare for the scheme and for the meetings with individual entrepreneurs. This will involve studying their business plan.

How to ensure the commitment and interest from the panellists:

- Gain exposure

- Career advancement

- New investment

- Find new clients

- Opportunity cost

- Link to other financial sources

- A willingness to give back to the community

- Invest in quality deals

- Payment of a fee

The names of the organisations participating can be included in a booklet to be published to promote the service (see marketing and communication).

Generic Information

Panel Presentation

Adjustment period

Pitch to panel

Final advice

€

DIALOGUE

Generic Information

Panel Presentation

Generic Information

Panel Presentation

Adjustment period

Pitch to panel

Final advice

€

DIALOGUE

Adjustment period

Pitch to panel

Final advice

€

DIALOGUE

There are a number of performance indicators that can be used to assess the effectiveness of the program. We can divide the performance indicators into two categories:

Qualitative indicators:

1. Customer satisfaction

2. Advice received by the entrepreneurs and leading to the improvement of the business plan 3. Networking benefits for the entrepreneur

4. Level and quality of after-care services.

5. Degree to which the panel team adapts to the evolving needs of the enterprise at different stages

6. Panellist satisfaction

Quantitative indicators:

1. Number of enterprises having gone through the programme annually 2. Volume of finance raised by entrepreneurs involved in the project

3. Number of projects having received funding in the following months (Number of deals) 4. Time that it takes for the deal to go through

5. For service providers receiving public funding: ratio of private money leveraged by public money.

Communication and marketing

There are two aspects to the communication organised around the service: one organised for the entrepreneurs and one for the participants in the provision of the service.

One important aspect of the creation, implementation and success of the Invest Academy is the ability to communicate its existence and purpose to the community of entrepreneurs and potential entrepreneurs at the local level.

Foreseen involvement of:

- Local government offices

- Regional development agencies

- Entreprise centres, entrepreneurs’ associations (business links, Chambers of commerce…)

- Incubators, universities, science parks

- Business Plan Competition Programmes

- Grant providers

- Local information points

- Employment offices

We anticipate the involvement of local stakeholders to observe of the program, to learn from the entrepreneur’s experience and how it presents investors.

The second aspect of the marketing strategy is the communication towards the members of the panel. Bankers, VCs, angels, institutional investors…

A booklet will be prepared for each Invest Academy Programme: it will present the objectives of the programme, testimonies from entrepreneurs having gone through the programme, names of the organisations involved, reasons for participating, performance indicators/satisfaction surveys… This booklet should be distributed to all relevant stakeholders at the regional level, and updated regularly. The booklet will be produce in the national language.

The online tool for entrepreneurs will also be used as a marketing tool to attract new entrepreneurs and panellists.

Sustainability - Financial considerations

There is an equity funding gap and knowledge gap that is increasingly acknowledged by public national and regional authorities in Europe. Public funding is needed to bridge this gap to grow SMEs and encourage innovative businesses.

It is therefore clear that in order to implement the proposed service, service providers will generally have to receive some form of public support.

National and regional authorities should provide co-funding opportunities to support the Invest Academy Programme.

The sustainability of the service should come ultimately from its dependence on either entrepreneur fee and/sponsorship.

Expected cost of the provision of the service:

The estimated cost of running the service is between 350.000 to 500.000 euros per year for a target of approximately 100 companies.

Entrepreneurs cannot be charged the full cost of the service therefore public support will be needed. The price of the service should be reasonable, as start-ups do not generally have the financial means to participate in this type of programme.

However, the after-care service could be chargeable. A fee could be charged per number of hours spent counselling the enterprise.

It is important for the process that the entrepreneurs make a reasonable contribution to the cost of the service so that they feel that they are taking part and to ensure that they are committed to following carefully the programme.

Organisation for the public support:

- Call for tender with clear objectives for the programme and clear performance indicators

- The submission should come with an agreement signed between appropriate bodies e.g. the representative of the service provider, with the regional development agency, local business support agencies, university, incubator, science park…. This should ensure first that the information about the service has been disseminated, and that the local stakeholders agree to cooperate to make the service work.

- The approval for the creation of the service should be relatively quick and administrative burden should be avoided.

The support will be of course linked to performance indicators and satisfaction surveys.

The funding could be awarded for a period of 3 years and subject to satisfactory performance to be renewed.

The financial support will be dedicated entirely to the delivery of the Invest Academy Programme.

Degree of innovativeness of the service proposed

This innovative new programme has been developed from an examination of existing schemes and is unlike any other because it is developed according to the needs of the entrepreneurs. It is demand driven and not offer led. This guarantees a fresh approach to the issue of capacity building and BP improvement.

Between the two meetings of the task forces and the general meeting in Barcelona, a research was conducted on existing “best practices” existing in relation to this service. This research concerned European countries but also possible good practices in Israel, Canada and the United States. As a reminder, the Sun&Sup network aims to either improve an existing service or create a new one. There are two main programmes that were looked at as “good practice” and as potential sources of inspiration for the programme of our service.

a) Fit4Finance Programme (UK) b) Swing for the Fences (US)

After a thorough examination of both services, it was agreed by the members of the Task Force and subsequently by the SUN&SUP network in the general meeting that these two services did not fully correspond to the need expressed here by our start-ups.

Some of the entrepreneurs had experienced various services relating to the business plan or in establishing what financial sources were available to them, some had tested investment readiness programme but none of the entrepreneurs had had an ideal experience of this type of programme. This is true in terms of content of the programme (need to address the business plan issue and the knowledge of financial sources), as well as in terms of the length of the program, the qualification of the panellists, the performance indicators…

- Coordination of the performance indicators and benchmarking exercises

Ideally, there could be 2 annual information sessions where people having done it and entrepreneurs having gone through it could explain how it works. We could envisage also doing this on a cross-regional or trans-national basis.

One session could be devoted to sharing best practices between European elevator programs. This would enable to learn from each other’s experiences.

The other session could be a benchmarking of worldwide practices (Canada, US, Israel, Japan…) in order to find new ideas and to innovate.

The Sun&Sup network should help develop this service that could be transferable across Europe. While it is clear that all countries and regions differ, and that entrepreneurs’ needs are different, provided that a new service is developed it can be applied in several countries with variations, with the help of the local service providers, and a benchmark could be made on the experiences of these programmes.

Next Steps

Presentation of the service – PAXIS workshop

Presentation of the service – General meeting

Final meeting of the Sun&Sup network Meeting of

the TF

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Consultation

Septembe

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Octob

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Octob

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Jun

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Preparation of a pilot

The view of both the service providers and the start-ups is that the viability and efficiency of this service can only be measured through a pilot.

Today we can see three outcomes to the work of this group.

1. Although not entirely suited to the needs expressed by the Sun&Sup Network the Fit4Finance programme is a good basis to add on the innovative aspects of the elevator programme. 2. Introducing this item into the “vocational training program” of the Ecole Centrale de Paris

School. This would be a programme linked to the Centrale Start-up program, which seeks to develop and support entrepreneurship from Centrale alumni.

3. Entreprise Centre of the University of Arts based in London may be interested to pilot the Invest Academy Programme with creative projects.

The representatives of these entities must confirm this interest.

The pilot should involve companies from very diverse sectors and be tested in different entrepreneurial environments in order to evaluate if the programme is effective for all types of companies.

New entrepreneurs, and entrepreneurs from the Task Force would evaluate the pilot and as the latter have been involved in the design and preparation of the service. The SUN and SUP network would be invited to participate in a pilot test session in order to evaluate also the quality of the service.