Chapter 6 Group Project: How to Finance Our Venture

Problem Summary:

Using at least three tools/concepts in the Quantitative Analysis and Finance Chapter, decide how are you going to fund your start up and why.
 
Spend at least 30 minutes in your group, come to an agreement, upload 250-1000 words of your plan (mention the concepts/tools) to your learning journal. It is fine for each one to upload the same text, but variation and your own ideas are encouraged.



Further Definition of Company to Answer this Challenge:
(1) Company type
s corp. because we will not be responsible for double taxes, but we will have the liability insulation of incorporation. We may use stock to engage participants in our business, but we can reincorporate as a c-corp when we grow to a size that warrants that company type.

(2) Do we need to write a business plan to raise fund?
Revenue generating activities:
- Annual fees and expenses from certification and recertification:
reference ISO 9001 cert http://the9000store.com/ISO-9000-Tips-How-Much-Does-it-cost.aspx

- Consulting fees to address specific problems areas of members and applicants
- Referral fees for brokering new business deals with member businesses

Primary expenses to support revenue model:
- Marketing (brand building, lead pre-qualification, public relations): $200k/yr
- Staff (Experts, Administrators, Other): 5 founders + 1 FTE equivalent @ $80k/yr = $480k/yr


Questions:
- Do we need office space, or can we conduct business in other ways to streamline?
We will use executive office suites or meet at the client site for approximately $6k/year




- How should we approach launching the business? Begin with single industry, focused region, high-probability clients (such as those recovering from a recent negative PR hit).

(3a) How much will we charge for our services.  $5,000-$50,000 (plus expenses) depending on the tier and complexity of certification. Paid annually for recertification.

(3b) How much funding will be needed for our venture “Society Trust”
Cost: Executive office suite (office space): USD 500 dollars average/month = $6K pa
Salaries: Staffs (5 founders + 1 accounting/MISC) average at 80K USD; So the total cost per year is 480K
Marketing costs: $200k for the first year
Contingency fund @ 5% = $34k
Total budgeted expenses: $720k 

(4) How do we raise funds and who are our fundraising targets?

(4a) Obtain bank loan: see foundation grants -- PRIs include loans
 
(4c) Issue stocks: looking for angel investors and venture investors. Internal stock structure; If we look for venture investment, VC will look for higher return from the company. We will need to have a 15 or more clients paying full price to break even, venture capital seems unlikely due to relatively low potential for jackpot returns. Best option is to look for angel investment from an investor who has a particular interest/commitment to the social good that Society Trust does by certifying adherence to a triple bottom line standard.
 
(4e) Foundation grants:
http://grantspace.org/Tools/Knowledge-Base/Individual-Grantseekers/For-Profit-Enterprises/Business-funding [PRIs program related investments]
 
(4f) Donations? High profile/celebrity donors could have double impact of fund raising and testimonial marketing.
 
(4g) Lobby government to implement legislation that requires businesses to obtain a certification like (or explicitly) ours. Good business model like “Energy Efficient Mark” for most of the appliances. The certification company is a private company but the company work with government to gain public conscense.
 
(4h) Give the first few customers stock grants to engage them and build participation in our certification program. We can also provide free certification (and sell consulting service to get them up to certification level) to strategic partners that will help establish the brand and generate addition early adopter business.

(5) Which tools/concepts  we choose to do number (4) funding our venture:

(a) Cash flow analysis: Investment, revenue, cost, and total cash flow

(b) Net Present value(NPV): our certification process creates an annual revenue stream from each participant, NPV allows us to calculate the current value of those income streams. Furthermore, using the probability of those clients maintaining participation in the program will allow us to calculate a weighted NPV and thereby establish a current valuation for the company.

(c) Using FRICTO to balance our risk/reward on an ongoing basis. Flexibility, Risk, Income, Control, Timing, Other.

(d) Regression analysis for forecasting/projections - we could identify relevant variables for the analysis once we get going.

(e) Strategic mergers and stock purchase/sales with other related businesses to form and solidify partnerships.