The document provides guidance on developing a business model and financial projections for startups. It advises defining the product/service and customer segments, determining acquisition costs and monetization strategy, and building projections that estimate revenue drivers, expenses, funding needs, and profitability under different scenarios. Projections should be based on supportable assumptions and allow sensitizing key drivers to understand cash needs and long-term potential. The goal is to evaluate viability and determine optimal funding to reach valuation milestones.

1. Business Models for Startups October 2010 SoftBank Capital – Joe Medved

2. Overview Assessing Your Business Model Define your product or service What problem does it solve? Who will buy it and how will you reach them? Are the economics viable? Building Your Financial Projections Focus on core revenue and expense drivers Review cash need under various scenarios Determine your funding options SoftBank Capital – Joe Medved

3. What is your product or service? Develop a succinct definition Investors are often ADD, so keep it simple If available, a demo is the best description What problem are you solving? Is there a real market need? Solicit blunt advice from potential customers SoftBank Capital – Joe Medved

4. Who will buy it? Ali G’s Ice Cream Glove – Total Addressable Market People who has hands People who like ice cream SoftBank Capital – Joe Medved

5. How will you acquire customers? Determine your customer acquisition cost Drive users via advertising, marketing & PR “Viral” is typically icing, not a primary strategy Sell in person, over the phone, or self-serve? Consider cost of customer support and churn Maintaining existing customers should be cheaper than acquiring new ones SoftBank Capital – Joe Medved

6. How will you monetize? Who will pay for your product or service, your users or third parties targeting your users? How will you charge – pricing and structure? Consider long term pricing trends Due to network effects, supply costs, competition Determine average customer life SoftBank Capital – Joe Medved

7. What does it cost to run your business? How will you build, sell and support your product or service? Who will you hire and when? What are your infrastructure, services and other operating costs? Consider variable vs. fixed components SoftBank Capital – Joe Medved

8. Are you building a viable business? Review long term unit economics + fixed costs to gauge profitability Defining and implementing a monetization strategy day one may not be possible, but consider the potential options long term The world’s most beautiful product or service is useless if customers will never pay enough to cover costs You will get a better exit price if you’re not for sale. Build an independently sustainable business. SoftBank Capital – Joe Medved

9. Building Financial Projections SoftBank Capital – Joe Medved

10. Your Projections Will Be Wrong And that’s okay Nothing will go exactly to plan You just need guidelines, for understanding your near term cash needs, and long term potential value SoftBank Capital – Joe Medved

11. How far out should projections go? Different schools of thought, though most investors will expect 2-3 years, with more detail over first 12-18 months Investors want to know how far their funding will take the business. Early focus will be on expenses. Building a 5+ year plan is a hard ask, but you can guestimate your potential market penetration and resulting revenue at that point if necessary SoftBank Capital – Joe Medved

12. Basis for assumptions Base drivers on something you can reference Pricing based on target customer feedback, competitor rates, tangential services For compensation metrics, talk to recruiters or use online resources like CompStudy.com Interview service providers for real estate, IT, legal, accounting and HR cost estimates SoftBank Capital – Joe Medved

13. Build a Model From Your Core Drivers Allow yourself to easily sensitize the drivers Tie variable expenses to revenue where possible Add comments to row labels with basis for assumptions This is rarely seen but will lend credence to your estimates and make investor diligence easier Review the growth trends for each line item Are the trends rational? Margins in Year 2 probably shouldn’t exceed Google’s SoftBank Capital – Joe Medved

14. My Recommended Summary Tab SoftBank Capital – Joe Medved Display quarterly #’s for Year 1, annual for Years 2 & 3 Start with key dashboard metrics, such as # of users, paying customers, units sold or partners Show P&L, breaking out significant revenue and expense line items End with headcount for an expense barometer

15. Summary Tab - Sample SoftBank Capital – Joe Medved

16. Recommended Backup Tabs SoftBank Capital – Joe Medved P&L Top line revenue through detailed expense line items Revenue Total addressable customers and market penetration Incorporate avg. customer life and churn if applicable Have pricing assumptions that can be sensitized Tie revenue growth to corresponding increase in sales staff, channel partners, customer acquisition, etc. Personnel This is likely your biggest expense item Break out your hires with base, bonus, benefit and raise assumptions that can be sensitized

17. P&L Tab - Sample SoftBank Capital – Joe Medved

18. Revenue Tab - Sample SoftBank Capital – Joe Medved

19. Personnel Tab - Sample SoftBank Capital – Joe Medved

20. How much funding do you need? Sensitize your estimates to determine need What if revenue takes 6-12 months > expected? Optimize your return potential Consider how much outside capital required, if any, to reach significant valuation milestones Milestones vary by sector. Advisors with sector expertise can provide significant insight here. Target friends & family, angels, VCs, or bootstrap Raise capital from a source with aligned expectations Plenty of great companies have been bootstrapped SoftBank Capital – Joe Medved

21. Conclusion Scope out a killer product or service Assess whether it will yield a viable business Build a guideline model based on core drivers Raise capital from an appropriate source Build and exit your business Repeat SoftBank Capital – Joe Medved

22. www.SoftBank.com @joevc - www.twitter.com/joevc www.JoeMedved.com SoftBank Capital – Joe Medved