Chapter 12 Assignment IT’S JUST A MATTER OF TIME Pedro Santini has been a comput
ID: 346127 • Letter: C
Question
Chapter 12 Assignment
IT’S JUST A MATTER OF TIME
Pedro Santini has been a computer analyst for five years. In his spare time, he has developed a word processing software program that is more comprehensive and powerful than any on the market. Because he does not have a great deal of money, Pedro believes that the first step in producing and marketing this product should be to obtain the necessary venture capital.
The software program has been written and trial-tested by Pedro and a handful of friends to whom he gave the material. Two of these friends are computer word processors who told him that the program is faster and easier to use than anything on the market. Pedro believes that these kinds of testimonials point out the profit potential of the product. However, he still needs to get financial support.
One of Pedro’s friends has suggested a meeting with a venture capitalist. “These guys have all sorts of money to invest for new ventures,” the friend told Pedro. “All you have to do is explain your ideas and sell them on giving you the money. They are always looking to back a profitable idea, and yours is certain to be one of the best they have seen in a long time.”
Pedro agrees with his friend but believes he should not discuss the matter with a venture capitalist until he has thought through answers to the various types of questions likely to be asked. In particular, Pedro believes he should be able to provide the venture capitalist with projected sales for the first three years and be able to explain the types of expenses that would be incurred. Once he has done this, Pedro feels that he will be ready to talk to the individual. “Right now,” he tells his friend, “it’s just a matter of time. I think that, within seven to ten days, I’ll be ready to present my ideas and discuss financial needs.”
QUESTIONS
1. In addition to financial questions, what other questions is the venture capitalist likely to ask Pedro?
2. Would a business plan be of any value to Pedro? Why or why not?
3. How would you recommend Pedro get ready for his meeting with the venture capitalist? Be complete in your answer.
Explanation / Answer
Why does Pedro think the product is best in the market? On what metrics? How are these metrics derived and why these metrics?
What is the team structure? Currently Pedro is a one man army, and he hasn’t built team around him. What is his plan for building a team, what are the skill sets he going to hire and why?
Knowing your customer – Who is target market? Friends feedback (even though working in same industry) cannot be construed as true market feedback. Why customers will need this product?
Plans – What are short term, medium term and long term plans and potential.
IP: What intellectual property can be derived from this product which can be patented?
Marketing – How is Pedro planning to scale up visibility for the product?
Funding - How much funding is required and what are areas where funds will be used.
Business plan will be of immense value for Pedro if he is planning to scale it up and meet the demand requirement. Business plan will capture investments required, growth projections, costs (manpower, production, marketing and other overheads) to analyze the profitability of the product and venture.Without business case for this product, Pedro will not be able to think and discuss about funding equired, payback period/profitabilty and market potential
In addition to product related aspects, Pedro should be prepared on other business aspects like marketing, organizational issues, copyright protection, differentiation vs competitor products, pricing structure, distribution/sales etc.
Once a business plan is prepared stating what is the potential, what are the costs involved and what will be revenue and profit realization, then Pedro’s product will have good probability of funding. Along with potential, venture capitalists will look for exit options, like listing on stock exchange(IPO), selling to potential buyers and selling to other PE firms. Thus Pedro should think about what future he sees for the product and how he will provide monetization options for the venture capitalist.
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