?? Unlock the Secrets of Entrepreneurial Success: TiE Institute's Mini MBA in Entrepreneurship Unveiled! ?? - Naeem Zafar, R. Paul Singh

Earlier this year I had the opportunity to audit a fantastic mini-MBA program organized by the TIE Institute - Technology, Innovation & Entrepreneurship and spearheaded by one of the most experienced startup and venture specialists Silicon Valley's serial entrepreneurs and esteemed UC Berkeley and Northeastern University professors Naeem Zafar and R. Paul Singh came together to create a transformative 6-week experience, and the results are nothing short of extraordinary! Ready to skyrocket your entrepreneurial journey? Dive into the groundbreaking insights from our recent Mini MBA in Entrepreneurship program at TiE Institute, the educational powerhouse of TiE Silicon Valley.

Stay tuned for future opportunities to embark on your entrepreneurial voyage with TiE Institute!

Meanwhile here are a few detailed insights on the session hosted by Naeem Zafar CEO, Coach and Startup Advisor, on Being Investor-ready and creating a solid financial model for your startup.

Being Investor-Ready

Embarking on the journey from a groundbreaking idea to securing investment is both exhilarating and challenging in the dynamic realm of entrepreneurship. Investors play a pivotal role, offering the crucial capital needed to transform innovative concepts into reality. When it comes to being investor-ready, there are some key strategies and tactics that can help you get there?

Before Approaching Investors

As the entrepreneurial landscape continues to evolve, mastering the art of being investor-ready becomes a non-negotiable skill for startups seeking to thrive in a competitive environment. Aspiring entrepreneurs are often confronted with the challenge of crafting an approach that resonates with potential backers. The art lies in avoiding common pitfalls and presenting an authentic preparedness that stands out. So, before approaching investors, it's essential for entrepreneurs to finely tune their strategies and presentations to captivate potential backers

Crafting an Irresistible Elevator Pitch

The first and paramount step in the pursuit of investment is formulating a compelling elevator pitch. This succinct yet powerful pitch should have both a 10-second and 30-second version. The emphasis lies in commencing with the problem your startup solves and for whom, rather than delving into personal backgrounds. This initial engagement is vital for making potential investors care about your venture. Distill your narrative into a concise, compelling exposition. Focus on clear problem-solving and identification of beneficiaries to leave a lasting impression.

The Executive Summary: A Gateway to Interest

Moving beyond the elevator pitch, the significance of the executive summary takes center stage. This one to two-page document serves as a teaser, aiming not to close the deal but to pique the interest of potential investors. It should generate enough intrigue to prompt the question: "I need to meet this company."

Pitch Decks in Various Lengths: Tailoring to Your Audience

Investor meetings come in diverse formats, from casual coffee shop conversations to formal presentations. To accommodate this diversity, having different versions of pitch decks is recommended. These include a one-slide version for a quick overview, a three to five-slide teaser deck, and a more comprehensive 15-slide version for face-to-face meetings. Cover fundamental aspects such as the problem being solved, the target market, the unique solution offered, team qualifications, and why the startup is uniquely positioned to succeed.

Breaking the Ice: A Key to Memorable Conversations

It’s important to also pay attention to the ice-breakers when meeting potential investors. Conducting a brief Google search to gather information about the investor's background and interests can provide valuable conversation starters. This personal touch can set the stage for a memorable interaction, differentiating your engagement from others.

In essence, becoming investor-ready requires a deep understanding of the problem you're solving, identifying the target audience, and crafting a compelling story. All these elements combined contribute to a startup's readiness to engage with potential investors.

The DOs and DON’Ts?

The Power of Clarity and Engagement

Effective communication starts with clarity. Entrepreneurs should sidestep unnecessary secrecy, opting instead for a straightforward articulation of their narrative. Long-winded explanations are out; concise, engaging communication is the key.

A Strategic Approach

True investor readiness begins with a compelling vision, underpinned by unwavering conviction and supported by meticulous data. Entrepreneurs must conduct thorough market research, mastering key metrics such as unit economics and market size to present a comprehensive strategy.

Unit Economics: Decoding Business Viability

At the core of a business's viability is unit economics—an analytical approach that demands precision. Entrepreneurs must articulate costs and revenues per unit with clarity. Whether it's revenue per bed in hospitals or per square foot in retail, understanding these metrics is essential for creating a business that scales sensibly.

What constitutes a compelling investor pitch??

A compelling investor pitch is a strategic and engaging presentation that effectively communicates the value proposition of your startup to potential investors. It goes beyond just the product or service; it tells a persuasive story about the problem you're solving, the market opportunity, and why your team is uniquely positioned to succeed. Let's break it down.

1. Introduction:

• Start with a brief overview of your team. Highlight not only the founders but also advisors or board members who contribute to your collective expertise.

2. Unmet Need:

• Dive into the problem you're solving and how you discovered it. A personal connection or a unique perspective can add relevance and authenticity.

3. Alternatives and Competitors:

• Discuss the current alternatives available to users. Frame your competitors and illustrate the white space your solution fills.

4. Solution:

• Introduce your solution. Make sure to set the context by emphasizing the problem first. Build anticipation for your innovation.

5. Market Strategy:

• Detail your go-to-market strategy. Discuss pricing, sales channels, and any potential partnerships that could enhance your reach.

6. Revenue Model:

• Clearly articulate how you plan to make money. Whether it's through subscriptions, advertising, or product sales, define your business model.

7. Progress and Milestones:

• Share the progress your company has made in recent months and outline milestones for the next 18 months. This demonstrates your clarity and strategic planning.

8. Financial Projections:

• Present your financial projections, showing a clear path to profitability. Discuss assumptions made and justify “the ask” in terms of de-risking the company.

9. The Ask:

• Specify how much funding you are seeking and explain what this investment will achieve. Convey a clear understanding of how you plan to use the funds to move the company forward.

10. Slide Zero:

• This is the most important slide in your deck. The first slide.. Use it to introduce your company name, logo, and slogan. Let it serve as a mental segue into your pitch. So, slide zero is the very first slide with nothing there but your company name, logo and your slogan, so people can begin to absorb the words that are going to come out of your mouth. Never rush through that.?

Remember, your pitch should be tailored to your unique circumstances and audience. Engage your investors by blending storytelling with strategic insights, keeping them hooked from slide zero to the final ask.

The Entrepreneurial Voyage to Investor Island

Imagine your startup as a sturdy ship, and you, the entrepreneur, are its skilled captain. The journey ahead is to cross the vast, unpredictable ocean to reach a coveted destination: Investor Island. This island is where the resources to transform your innovative ideas into reality are found – the capital provided by investors.

1. Preparing the Ship (Before Approaching Investors): Before you set sail, your ship must be seaworthy. This means fine-tuning your strategies and presentations, much like ensuring your vessel is robust and well-equipped for the journey. Your ship’s blueprint – the business plan – must be solid, the crew – your team – skilled and ready, and your navigation tools – market research and pitch decks – precise and adaptable.

2. Charting the Course (Crafting an Elevator Pitch and Executive Summary): As you embark, you plot your course with an irresistible elevator pitch and a compelling executive summary. These are your map and compass, guiding you through the initial choppy waters, where you must catch the attention of distant ships – potential investors – with a clear signal of your destination and purpose.

3. Sailing Through Diverse Waters (Pitch Decks for Different Audiences): Your voyage takes you through various climates and seas. Similarly, you adapt your pitch decks for different audiences, from a one-slide overview for brief encounters to a detailed presentation for more formal meetings. Each version is like adjusting your sails to the wind, ensuring you navigate effectively through every situation.

4. Making Connections (Breaking the Ice with Investors): Along the way, you might encounter other ships. Breaking the ice with potential investors is akin to hailing these ships, using knowledge of their journey and interests to establish a connection. This personal touch sets the stage for a memorable interaction, differentiating your voyage from others.

5. The Art of Navigation (DOs and DON’Ts): Navigating these waters requires skill and knowledge. Clarity in communication, strategic vision, understanding unit economics, and presenting a compelling pitch are all part of steering your ship through the entrepreneurial seas. Avoiding the pitfalls of secrecy or overcomplication is like avoiding treacherous waters that could sink your venture.

6. Reaching the Destination (Securing Investment): Finally, as you approach Investor Island, your preparation, skill, and persistence pay off. You’ve navigated the challenges, adapted to different scenarios, and made meaningful connections. The investors on the island, impressed by your journey and preparation, are ready to provide the resources you need to turn your vision into reality.

What do VCs hear?

When presenting your business to potential investors, they are essentially looking for answers to three critical questions:

Is there money to be made?

• Understand the unmet need: Clearly define the problem, market size, and competitive landscape.?
• Demonstrate the financial opportunity: Showcase the potential for returns by addressing the market demand.

Are these people who can make me money?

• Highlight the team: Emphasize the expertise and capabilities of your team.
• Define the business model: Clearly articulate how your approach will lead to profitability.

How much money can I make?

• Present financial assumptions: Lay out a clear path to profitability and show how the investment aligns with growth.

Understanding the investor's perspective is key. They want to see a compelling story that addresses these key elements. Also, keep in mind that the timing of capital and the sources you approach depend on the stage of your company and the amount you're seeking. Friends and family might be appropriate for initial rounds, while VCs come into play as you scale.

The structure of the executive summary

The executive summary serves as a concise overview, focusing on the first five critical topics: what problem exists and who has it, what alternatives they have and what are the shortcomings, what's your solution and your unfair advantage, which market segment are you targeting and how big is it, and who makes your team? All this should fit into one page. Now, if you really want to go beyond that, then the next five topics can be mentioned: positioning vis-a-vie other competitors, business modes, G2M strategy, timeline of progress and milestones, financial projections and your ask.

Think of this as the hook that intrigues investors to delve deeper into your presentation. As you move through the full presentation, touch on all ten elements, keeping in mind the investor's primary concerns.

Sample of an email to gauge interest?

When composing an email to a potential investor, it's crucial to start with a familiar name, someone they know, to grab their attention. This increases the chances of your email being read. Following this, the structure of the email should be concise and directly address key points. Begin by stating the value proposition in the first person, explaining what you do. Cover essential aspects such as market size, traction, and credibility in a succinct manner. Most importantly, clearly articulate your ask.

Remember, investors receive numerous emails, so make it easy for them to find information about you. Include comprehensive contact details, such as your name, phone number, Twitter handle, and LinkedIn link. This way, you're facilitating their research process and increasing the likelihood of them engaging with your proposal. The key is to present a focused and to-the-point email that addresses what investors care about: your value proposition, market size, traction, credibility, and your specific ask.

Sample:

Dear Tom,

Joe Wyatt at Wilmer Hale mentioned that you may be interested in our startup.

We are reducing the waste & spoilage of food using wireless sensors & Al software. This is an $8B opportunity and growing more as organics are being consumed.

We have already deployed two large farms in California and have a team of six. [ex. MSFT and Google]. I am a 2X CEO with a successful exit.

I would like to see if this is an area of interest if I may stop by and walk you through our pitch deck.

Farhan Sinhu | 408-555-1212 | @Sinha | Linkedin-Link

The Pitch?

When crafting a pitch for investors, think of it as telling a compelling story. Begin by highlighting an unusual background or unique insight that led to a well-researched thesis, identifying a white space in the market. Emphasize that you've assembled the right resources, conducted thorough market research, and identified customer needs and competition.

The pitch follows a narrative structure: discovering a problem, developing a solution, and seeking funding to progress from one stage to another. Your slides should support this story with data, diagrams, and visuals. Avoid overloading slides with text and focus on engaging storytelling.

Start with slide zero, showcasing the company name and tagline. Spend a brief moment here, and then transition to discussing your team. Clearly convey your understanding of the market's unmet needs, providing real-world use cases to illustrate why your solution is essential.

Define your target market through effective segmentation and explain the market dynamics, regulations, trends, competition, and alternatives. Introduce your solution after setting the stage, emphasizing how it alleviates the identified pain points.

Create a sense of urgency, keeping in mind that investors will closely examine your progress. Avoid over-explaining obvious points; focus on presenting what sets you apart. Consider your positioning on specific axes that make your startup unique and attractive to customers.

Detail your business model, addressing gross margins, unit economics, scalability, and the parties involved in transactions. Outline your go-to-market strategy, covering product pricing, distribution channels, and potential partnerships. Provide financial projections using spreadsheets.

Highlight the progress made in the last six months and outline upcoming milestones for the next 18 months. Conclude with a clear ask, specifying the amount you're seeking, the type of investment (e.g., SAFE), and how it will propel the company forward. Ensure your ask aligns with achievable milestones that demonstrate your strategic use of the funds.

How venture capitalists fund you

VCs fund startups by providing capital in exchange for ownership shares in the company. If a VC invests $1 million, the number of shares they receive depends on the valuation of the company. The valuation is crucial, and when VCs invest, they typically get preferred shares, which come with special rights giving them control and priority during liquidation events.

For example, if a company is valued at $3 million before investment (pre-money valuation) and a VC puts in $2 million, the post-money valuation becomes $5 million. The VC's ownership is then calculated as their investment divided by the post-money valuation, in this case, 40%.

It's important not to fixate on a predetermined valuation when approaching VCs. Instead, let them propose a valuation based on their assessment of your company's potential exit value. Investors evaluate how much they could make if the company succeeds, and this guides their valuation calculation. If you have multiple offers, you can compare them to determine the most attractive deal.

Keep in mind that without multiple offers, your validation is limited. Investors assess how much money they can make from the investment and use that to determine what percentage of ownership they need, factoring in potential dilution from future funding rounds.?

How VCs make money

VCs source their funds from limited partners (LPs), which are large entities like Harvard University Endowment Fund or the State of California Pension Fund. These entities have substantial amounts of money to invest across various asset classes to diversify their portfolio. Among these, a portion is allocated to venture capital.

When LPs invest in a VC fund, they become limited partners. The general partners (GPs), who are the VCs themselves, are responsible for deploying these funds into promising startups over a ten-year period. The primary goal is to generate returns by investing in companies that have the potential for significant growth.

To sustain their operations and efforts in finding, investing in, and managing these startups, VCs charge a management fee. This fee is typically 2% of the total fund size. Additionally, when the companies within the portfolio exit (through acquisitions or IPOs) and generate profits, the VCs take a share of those gains. This share is usually 20% and is referred to as "carry" or "carried interest."

This compensation structure, often denoted as the "2/20 model," with a 2% management fee and a 20% carried interest on gains, is how VCs make money. The remaining 80% of the gains goes back to the limited partners, who initially invested in the fund.

The Conclusion

Let’s break down the key points on getting investor-ready and the funding process:

Understanding the Odds:

• A typical venture capitalist (VC) reviews about 1,000 business plans annually.
• They closely examine around 100 and perform due diligence on about 20.
• Finally, they may invest in only two per year.

Investor Readiness:

• Given the high competition, entrepreneurs must be well-prepared with knowledge, insights, and clarity.
• Research potential investors to understand their preferences and areas of interest.
• Seek introductions rather than cold approaches, enhancing the chances of making a positive impression.

Engaging with Investors:

• After an introduction, send an executive summary to gauge interest.
• Request a face-to-face meeting to intrigue and build comfort.
• The process takes three to six months, emphasizing the need for financial preparedness during fundraising.

Pitching to VCs:

• Create a compelling one-page pitch.
• Pitch to multiple investors, often repeating the presentation numerous times.
• The process can be lengthy, requiring patience and persistence.

Demonstrating Key Points:

• Illustrate a large and growing market.
• Emphasize unique qualifications to develop a solution.
• Showcase traction and outline the next steps clearly.
• Specify the funding amount needed and the milestones achievable.

Funding Process Steps:

• Due diligence follows a positive response to the pitch.
• If successful, a term sheet outlining investment terms is provided.
• Legal diligence ensures company details are accurate.
• The closing involves receiving the invested funds.

Key Takeaways

• Successful pitching involves selling a believable story with confidence, data, and market research.
• Build trust by showcasing knowledge, clarity, and determination.
• The road to being "fundable" requires continuous pitching, preparation, and refinement.

Pitching as Storytelling:

• Pitching is essentially telling a story with confidence and compelling data.
• Demonstrating trustworthiness and clarity makes the story believable and exciting for?

potential investors.

Being Investor Ready:

• Being prepared increases the likelihood of success when an opportunity arises.
• Investor readiness involves thorough preparation, including repeated pitching, self-timing, and continuous improvement.

In essence, becoming "fundable" is a challenging but achievable goal, requiring persistence, preparation, and the ability to effectively communicate your story to potential investors.

The Financial Model

Basic Terms

Understanding the distinction between cost and price is crucial for entrepreneurs. Cost refers to the expenses incurred in creating a product, while price is what customers pay. Revenue comes from the price set for your product or service.

In the context of COGs (Cost of Goods Sold), it's not limited to physical products; even services have associated costs. These can include server fees, hotline support, and more. Even for software companies, this could be anywhere from 10% to 18% of revenue.?

Gross margin is gross profit divided by revenue. Gross profit is calculated as revenue minus COGs

For instance, if you manufacture a product for $50 and sell it for $200, the gross margin is 75%.(Gross profit is 200-50= 150 so Gross margin is 150/200=0.75=75%)

It's crucial to understand that gross margin is expressed as a percentage and should never surpass 99.99%. If you sell a product for three times the cost, the gross margin is 66%, two times the cost is a 50% gross margin, and selling at four times the cost results in a 75% gross margin. Always be accurate in your calculations, especially when communicating with investors, as claiming a gross margin exceeding 100% is incorrect. For example, selling something at ten times the production cost corresponds to a 90% gross margin. Mastering these concepts is essential for effective communication in financial discussions.

Operational expenses are divided into variable and fixed. Variable expenses are directly tied to unit sales, while fixed expenses remain constant regardless of units sold (marketing budget, rent, etc.). Differentiating between these is vital for accurate financial planning because variable costs are what goes into your COGs; while fixed costs go into your OPEX (operating expenses).

Keep in mind that when you’re analyzing financials, obtaining information about publicly traded companies is accessible. Websites like Yahoo Finance provide detailed financial reports, and company websites often have an Investor Relations section with comprehensive details.

Unit Economics

Unit economics is a vital concept, especially when presenting to investors. It involves understanding how much money is made per unit, allowing for a clear assessment of a business's sustainability. To illustrate, consider the example of selling a cup of coffee:

Ingredients and Labor Costs:

• The cost to produce a cup of coffee includes beans, cup, sugar, milk, etc., totaling $0.90.
• Labor costs are variable; for an hourly employee making ten cups per hour at $14 per hour, the average cost per cup is $1.40.

Total Cost per Unit:

• Adding ingredient and labor costs, each cup of coffee costs $2.30 to produce.

Revenue and Gross Profit:

• If the selling price per cup is $4, the cost of goods sold (COGS) is $2.30, resulting in a gross profit of $1.70.

Operating Expenses:

• Fixed costs like rent, marketing, and CEO salary are considered operating expenses.
• For illustration, assume total fixed expenses are $1 million annually.

• With a million cups sold, the operating expenses per cup become $1, reflecting a dollar in operating expenses per cup.

Net Profit and Scaling:

• Subtracting the operating expenses from the gross profit yields a net profit of $0.70 per cup.
• This understanding of unit economics allows for projections on scaling, envisioning the profit potential when selling millions of units.

The key takeaways here are the importance of separating variable costs from fixed costs, comprehending gross profit and net profit, and applying these concepts to evaluate the profitability of each unit. This knowledge is fundamental for entrepreneurs to make informed decisions and effectively communicate their business model to investors.

Building a P & L Statement (Profit and Loss)

Creating a comprehensive income statement is crucial for startups, regardless of size. The income statement typically consists of the following key components:

• Revenue: This includes all sources of income for the business.
• Cost of Revenue: The cost directly associated with delivering the product or service, deducted from the revenue to calculate gross profit.
• Gross Profit: Revenue minus cost of revenue?
• Operating Expenses. Divided into three categories:

1. Research and Development: Expenses to create and develop the product.
2. Sales and Marketing: Expenses related to selling the product.
3. General and Administrative: Miscellaneous operational expenses.

• Income from Operations: Obtained by subtracting total operating expenses from gross profit.

This represents earnings before accounting for complex financial elements, providing a clear financial snapshot. Investors often focus on EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).?

Entrepreneurs are advised to keep their financial modeling simple and avoid unnecessary complexities. It's crucial to understand that diving into intricate details like depreciation and taxes may lead to inaccuracies. EBITDA simplifies the financial picture, and for most investors, this is the level of detail they seek.

An income statement serves as a critical tool for entrepreneurs for several compelling reasons:

• Fundraising Evaluation: Helps entrepreneurs determine the amount of funding required for their business. By forecasting expenses and revenue, it provides clarity on the capital needed to achieve business goals.
• Workforce Planning:Assists in assessing how many people a company can afford to hire. Understanding the financial implications of expanding the team is vital for effective human resource planning.
• Runway Analysis: Enables entrepreneurs to project when they might run out of resources, commonly referred to as "runway." This analysis helps in planning for fundraising rounds and ensuring ongoing operations.
• Scenario Planning: Allows for the exploration of "what if" scenarios. Entrepreneurs can model various situations, such as a doubling of costs or a competitive price reduction, to anticipate the impact on financials and make informed decisions.
• Risk Mitigation: Identifies potential financial risks and challenges. By understanding the financial landscape, entrepreneurs can proactively address and mitigate risks, ensuring the sustainability of their business.
• Decision-Making Support: Provides a structured approach to decision-making. Financial models help entrepreneurs assess the consequences of different choices and make strategic decisions aligned with their business objectives.
• Communication with Stakeholders: Acts as a communication tool for conveying the financial health and viability of the business to stakeholders, including investors, potential partners, and team members

Ninja Tricks to Help You Build Your Financial Model

Ninja Trick #1: The Strike Zone in Venture Capital

Imagine you're watching a baseball game. Can you see the strike zone on TV? It's not visible, but you know it's there. Well, venture capital has a similar strike zone. VCs won't be interested unless your fifth-year revenue falls within a specific range – let's call it the strike zone – typically between $50 million and $100 million. If you're in this range, you appear normal, healthy, and optimistic.

Is it a guaranteed outcome? No, but successful companies often find themselves within this zone. If you present a VC with a projection of, say, $11 million after five years, you might not be attractive. Why? Because the risk, effort, and competition might not yield a substantial return for the investor.

So, what's the trick? You pick a number within this strike zone, say $62 million, and consider it a stake in the ground. You've computed the numbers leading to this point, and you've created a curve. You then extrapolate the figures for years three, four, and five based on this stake. Yes, it involves making some assumptions, but guess what? We do that every day in our lives. When planning a vacation, you pick a destination and figure out the details later.

For instance, in a software industry, if each salesperson has a quota of $2 million, you'd need around 31 salespeople by the start of year five to meet the $62 million target. You make strategic assumptions about your focus on product development, market entry, and growth to support these numbers.

The key is to be more conservative in your projections for the first two years. Investors are watching, and it's better to exceed conservative estimates than to fall short of aggressive ones.

Remember, you're playing the long game. Investors want to see if you're tracking as promised. So, pick a realistic number within that strike zone, put a stake in the ground, and then figure out how to make it happen.

Ninja Trick Number Two: Expense Estimation

Alright, let's dive into the second ninja trick for estimating expenses. Many people struggle with predicting costs like rent, travel, coffee, medical insurance, and taxes. Here's the trick: after studying 10,000 companies, it was found that if you multiply the number of salaries by 35%, you'll be in the ballpark. This percentage includes payroll taxes (7.6%), medical insurance premium (about 12%), rent (about 3%), and travel (2-3%), covering most overhead. While these percentages may vary in different regions, using 35% is a good starting point.

Now, let's look at hiring expenses. The trick here is to calculate Full-Time Equivalents (FTEs). Some roles may be fractional or part-time. For example, you might need a part-time accountant at 0.1 FTE. By calculating FTEs, you add up your workforce in terms of full-time roles, accounting for part-time and outsourced positions.

Here's the process:

• List the roles you need, their annual salary, and the monthly equivalent.
• Plan when you need to hire each person. You won't need everyone right away.
• Use the FTE concept to account for part-time and outsourced roles.
• Multiply FTEs by the monthly equivalent, factoring in the overhead percentage (35%).

This method allows you to estimate your monthly expenses for R&D, General & Administrative (G&A), and Sales & Marketing for the first two years.?

Ninja Trick Number Three: Zone of Reason

Now, let's explore the third ninja trick: the Zone of Reason. By looking at other companies in your industry, you can observe what percentage of revenue they allocate to R&D, Sales & Marketing, and General & Administrative (G&A) functions. This information is readily available on the internet.

For instance, you might find that one company spends 15% on R&D, 46% on Sales & Marketing, and 11% on G&A. Another company might allocate 25% to R&D, 35% to Sales & Marketing, and 16% to G&A. This pattern emerges across various companies in the same sector.

Companies, like life forms, tend to fall into categories. For businesses, these categories might be software, systems, services, or hardware. After studying five to ten companies similar to yours, you can identify a "Zone of Reason" — a typical range for spending on these categories.

Here's the trick: Pick a number from this zone that aligns with your company's characteristics. This way, when investors scrutinize your spending percentages in year five, you'll fall within the expected range, making your financial projections seem normal and reasonable. This method provides a reasonable guesstimate, helping you build a financial model even when you don't have all the specifics.

References:

https://hub.tie.org/e/mini-mba-in-entrepreneurship-march2023

https://www.dhirubhai.net/posts/naeemzafar_tiesiliconvalley-minimbainentrepreneurship-activity-7064686706800660480-SHOs?utm_source=share&utm_medium=member_desktop