Planning & Pitching for Financing:

Transcription

1 Planning & Pitching for Financing: A Playbook for Building Business Plans & Investment Pitches That Will Make Sure You Can Finance Your Diversification Plan

2 Civil-Military Innovation Institute, Inc. Planning & Pitching for Financing: A Playbook for Building Business Plans & Investment Pitches That Will Make Sure You Can Finance Your Diversification Plan June 2018 PATRICK ESPOSITO, MARTLET STRATEGIES SHELLEY LOMBARDO, EVERGREEN ADVISORS This Planning & Pitching for Financing Guide was prepared under contract with the National Security Technology Acceleration Support and Economic Diversification Efforts for the State of Mississippi, with financial support from the Office of Economic Adjustment, Department of Defense. The content reflects the views of the National Security Technology Acceleration Support and Economic Diversification Efforts for the State of Mississippi and does not necessarily reflect the views of the Office of Economic Adjustment.

3 Introduction So, you ve decided to make the transition! Diversifying from defense contracting to focusing on civil-military ventures with dual focuses on commercial and military markets, as you may have read in our Diversification 101 briefing, takes some analysis, some planning, some investment, and lots of hard work. Assuming that you have found some assets to leverage that might prove valuable in commercial markets, the next step is to harness your experience with managing a defense contracting business and plot your course to your new diversified business, as you: Build Your Diversification Business Plan; Develop Your Diversification Financial Projections; and Perfect Your Diversification Pitch.

4 Build Your Diversification Business Plan As you prepare to advance your diversification activities, developing a strong plan to support your diversification activities is critical. One of the first questions to answer about your diversification plan is whether you are going to pursue the diversification strategy inside of your business or outside of your business through a spin-off of a new company or a licensing arrangement with another entity. Whether your plan involves diversifying your current business or creating a new one, you will need to make some strategic implementation plans for your future diversified marketing, sales, infrastructure capacity, personnel development, and financing requirements. There are many great open resources for developing business plans available on the Internet (and we will not attempt to replicate those resources here). Instead, we will provide some commentary on points that you might want to raise in your diversification business plan that most of the best general business plan resources might not mention. Your diversification business plan should likely include the following 10 elements: Overview articulating the high points of your diversification business plan in areas 2 through 10 below, including how your experience managing a defense contracting business will position your new diversification business model for success Problem clearly defining the problem that you solve in the commercial sector (and that you may already be solving for the military sector) Solution detailing that the solution you offer (or plan to offer) and how it solves the problem, including current client feedback (if available) and your approach to managing customer engagement to ensure that your solution meets the market need Target Market analyzing the market opportunity, utilizing all available public market estimates and your own bottom-up analysis

5 Business / Revenue Model discussing the approach to the business centralized diversification or a commercially-focused spin-off and how revenue will be created from the commercial sector (and be maintained in the military sector) Competitive Analysis assessing the competitive landscape, including both present and potential future competition (and, remember, competition is not bad, it shows that there may be a real market opportunity) Management Team providing background on the management team and emphasizing why this team can succeed at its diversification plan given its successes in the defense contracting sector Your Path to Success describing how your team and your solution can seize the opportunity, beat the competition, and deliver value to investors Financial Projections detailing the projected income and costs for the diversification business model (and make sure to show attainable growth) (NOTE: We will discuss this element more in the next section of this document.) Use of Funds and Investment proposing how you would utilize investment funding to support the diversification plan and how it would help meet the outcomes you seek

6 Develop Your Diversification Financial Projections Any diversification approach will require financial investments, as even scenarios with more limited costs, such as licensing options, would require resources to pursue licensing partners or to develop and negotiate licensing agreements. Scenarios that might call for more pronounced financial needs internal diversification or the creation of a spin-off require far more detailed financial planning and analysis to support the diversification business plan. Like business plan resources, there are many great open resources for developing financial projections available on the Internet (and, again, we will not attempt to replicate those resources here). Again, instead, we will provide some commentary on points that you might want to raise in your diversification financial projections that most of the best general business financial projection resources might not mention. Your diversification financial projections should likely include the following elements: Sales Forecast a revenue & sales forecast projection with assumptions, including product sales, services revenue, consulting revenue, and other types of income (and you will want to make sure to emphasize how existing defense contracting activities can contribute to the diversification financing requirements and, in many instances, support commercial product development) Expense Projections a schedule of anticipated and projected expenses, including labor, benefits, consulting, infrastructure costs, equipment costs, taxes, product costs, and other costs (and remember to consider Federal Acquisitions Regulation FAR and Defense Federal Acquisition Regulation Supplement DFARS implications on allowability of commercial sales activities)

7 Income Statement a projected income statement can be derived from the revenue projections, expense projections, and assumptions, that allows you to calculate costs of goods sold, profits and losses for the business, and costs by business team (and it is important to consider if you are diversifying your business as a single entity if you want two separate cost centers one for defense contracting and a separate one for commercial activities or a single cost center for all of your products and services delivery activities, as there are pros and cons to each approach) Cash Flows Projections a projected cash flows statement leveraging your projections and assumptions to assess your financing needs and associated timing (and remember to model your defense contracting payment timing based upon experience and your commercial payment timing based upon realistic views of payment cycles) Balance Sheet Projection a projected balance sheet that demonstrates the assets, liabilities, and equity in your diversified business plan to demonstrate the anticipated increase in the value of your diversified business model From this process, you have ideally created a realistic and defensible model that provides guidance on the full extent of your financing needs and the incremental timing for placements that can be used with investors and financial institutions to support investment analysis and additional business planning.

8 Perfect Your Diversification Pitch With your great work on creating your business plan and financial model, obtaining the financing you need whether debt or equity should be easy, right? Unfortunately, this is usually not the case. Success in obtaining financing comes from having a strong business plan and financial model, but, perhaps, most importantly from being able to deliver the pitch in a convincing manner. Our five keys to a successful diversification financing pitch are: Excitement Convey the enthusiasm that you have for delivering on your diversification plan and try to make that excitement contagious for your potential funders Reflective To the extent possible, do research on your potential financiers so that you can understand their goals (and fears) and speak to those needs and concerns Clear & Concise Practice your pitch so that you can convincingly make your diversification plan pitch in as little as 30 seconds and as long as 15 minutes Knowledge Know your diversification business plans and financial models in deep detail Authentic Be you (and since you are a successful defense contracting executive, you will already look and sound that part of an executive that can lead a diversified business) Conclusion The path to creating a business plan, financial projections, and a financing pitch to make your defense diversification vision a reality requires analysis, planning, investment, and lots of hard work, but, in the end, it will benefit your business and your country. us at info@cmi2.org to allow us to help you get started on the path to defense diversification and the creation of civil-military ventures.