Strictly Confidential BioCAP – Business Plan 29.05.2009
Business Plan
Corinne Centonze
Jean-François Coleille
Maksim Gorbachev
Bernadette Kolbe
Gregoire Mastrangelo
Jaroslaw Miklosik
Prof. Hans Crijns
Prof. Miguel Meulemann
Executive Summary
Consumers are increasingly demanding food that is functionalized to contain supplementary health additives delivered in the body in a natural and safe manner. BioCAP is a high-end solution provider addressing this challenge faced by food ingredient companies.
BioCAP is a Swiss manufacturing company producing glucan, a natural encapsulating agent derived from brewer’s yeast. Glucan is the major component of the yeast cell wall, which serves as a carrier for sensitive ingredients such as vitamins and flavours in food products. Glucan protects and delivers an ingredient more effectively than other encapsulating agents thanks to its superior physical properties such as stability and higher loading capacity.
A patented scalable technology, comparatively low CAPEX and production costs and strong partnerships with brewer Carlsberg, science and technology university ETH-Zurich and the Swiss engineering company Tex-A-Tec are the sources of BioCAP’s competitive advantage.
The current global encapsulation market is estimated at CHF 500 mil[i]. BioCAP will initially focus on the food industry, due to its high market potential, relatively easy regulatory environment and growing demand for encapsulation technologies. The micro encapsulation market is fragmented among a limited number of small niche players offering their proprietary technology. Since demand for micro encapsulation is expected to grow at rate of 10% over the next three years, there is a market opportunity for BioCAP to exploit. In 2011, when BioCAP starts its operations, the estimated micro encapsulation market size is expected to reach CHF 670 mil. With its capacity, BioCAP will be able to supply lead customers and service 2% of the global demand.
In the first two years, BioCAP will invest in application development and will pursue co-development and commercialization agreements on an exclusive base with market leaders in food ingredients encapsulation. BioCAP plans to approach large Swiss-based food ingredient companies such as Firmenich and Givaudan. Commercial production and first revenue stream will start from 2011.
The company expects to reach a turnover of CHF 13,5 mil in 2015 with an expected price for glucan of 150 CHF/kg.
The value of the company, using DCF method, is CHF 10,8 mil with a terminal value of CHF 34 mil beyond 2013, using a WACC of 30% and assuming a long term annual growth rate of 3%.
There are several business risks to which BioCAP will be exposed in the first year of its existence. The commercial applications have not yet been developed. Product registration will be required from national regulation authorities. The development of some applications might be prevented by competitors’ IP.
BioCAP has a dedicated team of executives with extensive experience in entrepreneurship, sales & marketing, R&D and finance. In addition, BioCAP is advised by an experienced board of directors and a reputable scientific board.
BioCAP requires CHF 1,5 mil in seed finance for product development and CHF 2,5 mil in a first financing round to invest in production facilities with a capacity of 225’000 kg of yeast per year and for application development. The estimated IRR is 95%. In exchange for the seed money, BioCAP proposes 40% of the shares.
Table of Contents
Executive Summary 0
1 Company description 1
1.1 BioCAP 1
1.2 Technology and product description 1
2 Market analysis and segmentation 2
2.1 Value chain 2
2.2 Product properties 3
2.3 Customer needs 4
2.4 Value Proposition 5
2.5 Market overview 5
2.6 Market segmentation 5
2.7 Targeting 8
3 Industry analysis 8
3.1.1 Competitors 9
3.1.2 Suppliers 9
3.1.3 Customers 10
3.1.4 Substitutes 11
3.1.5 New entrants 11
4 Business model 11
4.1 Initial stage 11
4.2 Growth stage 12
4.2.1 Advanced applications 13
5 Marketing mix 14
5.1 Product 14
5.1.1 Support services 15
5.2 Price 15
5.3 Promotion 15
5.4 Place 15
6 Development and personnel plan 16
6.1 Development plan 16
6.2 Personnel plan 17
6.2.1 Production personnel 17
6.2.2 General management and administrative personnel 17
6.2.3 Other personnel 17
7 Regulatory aspects 18
7.1 Product regulation 18
7.2 IP rights and strategy 18
8 SWOT analysis 20
9 Human resources 21
9.1 Executive management 21
9.2 Board of directors 22
9.3 Scientific board 22
9.4 Strategic partners 24
9.5 Ownership structure 24
10 Financial plan 25
10.1 Valuation 25
10.2 Revenues 25
10.3 Costs 26
10.4 Cash flow & balance sheet 27
10.4.1 Cash flow from operations 27
10.4.2 Cash flow from investments 27
10.4.3 Cash flow from financing 27
10.4.4 Balance sheet 28
10.5 Sensitivity analysis 28
10.6 Risk factors 28
11 Appendix 30
11.1 Patented glucan extraction process 30
11.2 Technology scale-up 31
11.3 Equipment for industrial plant 32
11.4 List of competitors 32
11.5 Micro encapsulation technologies 33
11.6 Development plan 34
11.7 Income statement 35
11.8 Cash-flow statement 36
11.9 Balance sheet 37
11.10 Working capital 38
11.11 Personnel plan 39
11.12 Strategic partners 40
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Strictly Confidential BioCAP – Business Plan 29.05.2009
1 Company description
1.1 BioCAP
BioCAP is a spinoff of HeiQ/Tex-a-Tec, a Swiss specialty chemicals firm that has the objective to market glucan in the food ingredients industry as an encapsulating agent.
The patented glucan extraction process has been developed by Tex-a-Tec, a chemical process engineering company in Switzerland and exclusively licensed out to BioCAP.
The technology development has been co-financed by Carlsberg, one of the world’s largest brewery groups and a Fortune 500 company, with the intention to find a new value-added approach to utilize spent brewers yeast. The Carlsberg Feldschloesschen brewery in Basel, Switzerland is regarded as a preferred supplier of brewers yeast.
BioCAP will be registered as an Aktiengesellschaft (AG)[ii] company, following Swiss law and using seed money in the form of subsidies from the Venture Kick Foundation.
1.2 Technology and product description
BioCAP manufactures particulate beta-glucan 1-3-1-6[iii], the major component of the yeast cell wall. Glucan is used to encapsulate ingredients such as vitamins and flavours in order to protect them from their environment. The encapsulated ingredient can then be used as an additive in a number of food products like yogurts, cereal bars, and beverages. Once in the body, the nutrient is released and is available for the metabolism.
Based on the patented extraction technology, yeast is emptied of its contents[iv]. The remaining cell wall is the glucan.
Figure 1. Glucan is a biopolymer with a spherical shape and a size between 3 – 5 мm. Yeast cell closed - encapsulates the ingredient. Yeast cell opened – releases the ingredient.
2 Market analysis and segmentation
2.1 Value chain
The main players of the micro encapsulation industry are shown in the figure below:
Figure 2 - Value chain in the micro encapsulation industry
Food manufacturing companies, the drivers of the encapsulation market, typically search for encapsulation solutions for three following applications[v]:
§ Protection of the encapsulated ingredients against oxidation, heat and extreme pH during processing or in order to increase shelf life.
Encapsulation allows for the reduction in the use of preservatives in foods and beverages.
§ Controlled release of ingredients
The release of ingredients can be triggered by moisture, pH or heat and can be targeted, for example, at the intestine.
§ Flavour masking of encapsulating materials
While consumers are increasingly attempting to eat healthily, products containing functional ingredients often don’t taste good. Examples are fish oil that contains omega-3 fatty acids or herbal extracts, which are typically bitter tasting.
2.2 Product properties
The five main physical properties of the carrier glucan are listed and explained below:
Glucan is a natural substance, derived from yeast, a living organism. It is widely used in bakery products and beverages. Glucan is proven to favourably stimulate the immune system and to lower cholesterol, reducing the need for pharmaceuticals such as antibiotics and anti-cholesterols. Glucan is already widely used as an FDA accredited immunostimulant.
Glucan is a stable carrier. It is able to transport functional substances deep into the intestinal tract. Glucan doesn’t get destroyed by the acidic environment in the stomach[vi].
Glucan is expected to have a high loading capacity, due to its balloon-like structure. Further research financed by HeiQ/TAT is being conducted at the University of Applied Science in Muttenz, Switzerland, on the characterisation of Glucan as well as its absorption and release rate.
Glucan can be used as a carrier for many different ingredients. It is useful for carrying both fat and water-soluble substances. Glucan can be used as a carrier for a whole range of substances when further modified[vii].
Glucan is odour and taste free as well as colourless, properties that are required by the food industry.
2.3 Customer needs
Food ingredient companies consider the following factors when choosing the ideal micro encapsulation technology[viii]:
§ Function
Manufacturers need to think about what functionality is required for the finished product. For example, the microcapsule can be used to mask the flavour or to protect the content from its environment.
§ Manufacturing cost
§ Size, Density and Stability
§ Processing Conditions
The encapsulated ingredient needs to survive before releasing its contents.
§ Encapsulation Material
An encapsulation material must be used that is nonreactive with both the ingredient to be encapsulated and the formulation to which the encapsulate will be added.
§ Odour and colourless
The food industry requires that the carrier be odour and tasteless as well as colourless, in order not to interfere with the other ingredients.
2.4 Value Proposition
BioCAP is a high-end solution provider to food ingredient companies that are looking for technologies to enhance their existing portfolio of encapsulation techniques. Glucan, as a carrier, is a natural substance that is derived from brewer’s yeast and thus widely available and accepted in the food industry. Glucan will provide food ingredient companies with a superior technology and ultimately with new applications for the overall growth of the food industry, in processed and functional foods as well as health additives.
2.5 Market overview
There are several competing micro encapsulating agents on the market. The most popular ones are vegetable gum, cellulose derivatives, gelatine, modified starch and dextrin. These micro encapsulating agents are used in beverages, confectionary and other food products for encapsulation of flavours, colours, vitamins and other substances.
We estimate the total accessible market of micro encapsulation at CHF 500 mil. The market is going to grow at the same rate as the functional food and beverages market with a 10% rate in the next 3 years[ix]. In 2011, BioCAP’s first year of production, the estimated micro encapsulation market size will be around CHF 660 mil.
2.6 Market segmentation
Our market is segmented into two main categories of actors:
A. Micro encapsulation SMEs
B. Large food ingredients companies doing in-house encapsulation
To ensure a complete overview we also identify actors that directly impact our market namely:
C. Ingredient companies outsourcing encapsulation
D. Food manufacturers
Figure 3 - Segmentation of the micro encapsulation market
Frost & Sullivan (2008) divides micro encapsulation companies into two categories (namely A and B) based upon the type of services they provide in adding value to the food end products[x]:
§ (A) The micro encapsulation SMEs: service companies provide encapsulation services to both food ingredients companies and food manufacturing companies. The main services provided are R&D and design work for prototype applications, pilot plant scale operations and contract manufacturing services.
Micro encapsulation SMEs usually work with a large variety of encapsulation technologies and choose the most appropriate one depending on the substance to encapsulate and the properties the customer is looking for.
§ (B) The large food ingredients companies doing micro encapsulation in-house: “(…) large enterprises that have micro encapsulation as an alternate way to product innovation. These enterprises have purchased or developed technology through continued investments in R&D. It also enabled them to gain market share by differentiating their product line.”[xi]
This segment is constituted by several large multinationals such as DSM, Danisco or Tate & Lyle. Partnerships or acquisition of start-ups is largely used.
In addition to the micro encapsulation companies, we take into consideration companies outsourcing the encapsulation process and the food manufacturing companies.
§ (C) The food ingredients companies outsourcing the encapsulation process: these companies usually contract micro encapsulation SMEs to encapsulate specific ingredients that they will then sell to the end-products companies. Most large companies use this service on an ad-hoc basis. However, some companies outsource their entire encapsulation process and do not have the infrastructures and the know-how required for example to co-develop applications with a start-up company without involving a third party.
§ (D) The food manufacturing companies: companies such as Kraft, Unilever or Nestle have a strong decision power in the definition of the ingredients they are buying. Differentiation through innovation is also crucial for these companies. For this reason, they are strongly interested in building partnerships with start-ups proposing innovative technologies, even if they do not do the encapsulation themselves. Unilever for example, expressed the potential interest to work together with BioCAP on selected applications.
2.7 Targeting
Technology leaders and innovators with a proven track record will be aproached first. Glucan will be sold to large food ingredient companies doing encapsulation in-house for the following reasons.
§ these companies have experience and expertise with encapsulation which may reduce our time-to-market
§ selling Glucan to large companies would allow us to focus our sales & marketing resources
§ these companies are looking for innovative products and technologies to differentiate themselves from the competition.
3 Industry analysis
Figure 4 – Competitive forces analysis. The threat of new entrants, the threat of substitute products, the bargaining power of suppliers, the bargaining power of customers.
3.1.1 Competitors
The leading players in food micro encapsulation, according to the 2008 Frost & Sullivan report on the micro encapsulation industry, include Balchem Corporation in the US, Brace in Germany, Coating Place of the US, Particle Coating Technologies in the US and Particle Dynamics and TasteTech in the UK[xii]. The micro encapsulation market is however a small, specialized community with each competitor claiming its own area of expertise and proprietary techniques with the biggest barrier for specialized micro encapsulators being able to gain the same access to financial resources of large corporations.