International Business Administration SIB560 Lecture Notes - Lecture 1: Venture Capital, Pro Forma, Financial Statement

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Business Plan
At the end of the first year of business, the executive team is scheduled to present a 1-
year business plan to venture capitalists that also serve as their Board of Directors. The
executives (your team) will make a pitch to me and other venture capitalists for outside
capital.
The financial request should include the number of shares of stock offered for sale and
the proposed stock price. Even if your team does not ask for money, the venture
capitalist is on your board of directors and has the right to review the business plan. The
presentation format will be a venture capital fair, during which each team will make a
20-minute presentation.
In order to acquire additional investment money, the teams have to prepare a
business plan and pro forma financial statements. The simulation is structured so that
the teams will require venture capital to invest in R&D, new sales offices, and plant
capacity.
You will want to negotiate the size of the investment, number of shares to be
purchased, and the stock price depending upon their (and your) assessment of team
performance to date, the soundness of the business plan, and the firm's profit potential.
The maximum amount a firm can accept from the venture capital community is
4,000,000.
You have to provide a detailed business plan through quarter 6. Your team should also
have cash flow projections and pro forma income statements and balance sheets
through quarter 6.
The executive teams should know their market. They should know which segments
they best serve, which geographic markets are the largest by segment and what it will
take in new product technology to capture their target markets. They should have also
figured out what their competition is likely to do and have developed a plan that takes
advantage of their weaknesses and protects them against the competitors' strengths.
The executive teams should also know their financial requirements and projected
profits. They should have pro forma financial statements for the next 4
quarters, and based upon these financial projections, they should be able to
estimate how much capital they require in terms of debt and equity. They should
also be able to estimate the venture capitalist’s return on investment should they decide
to invest your company.
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