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February 2011 - Business Law & Order - Matthew Bower
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February 2011 - Business Law & Order - Matthew Bower

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Cash is the lifeblood of any business, especially early-stage, high-growth enterprises. We will discuss: The Capital Fundraising Plan (know how much you need to raise and when to raise it); Grant …

Cash is the lifeblood of any business, especially early-stage, high-growth enterprises. We will discuss: The Capital Fundraising Plan (know how much you need to raise and when to raise it); Grant Funding (what could be better than money you don’t have to repay and doesn’t cost you equity); Securities Law Basics (how to avoid personally obligating yourself to give back every dime of investor money if things don’t go well); How to Structure Investor Funding (what’s the best way for you to take in investor money). And….of course, your questions!

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  • 1. DEVELOPING A BUSINESS “CAPITAL FUNDRAISING PLAN”
    By: Donald H. Baker, Jr.
    Presented By: Matthew W. Bower
    Safford & Baker, PLLC
  • 2. WHAT IS A “CAPITAL FUNDRAISING PLAN”?
  • 3. WHAT IS A “CAPITAL FUNDRAISING PLAN”?
    A “Capital Fundraising Plan” or “CFP” is a self-diagnostic plan or tool that combines a business operational plan with a funding needs assessment.
  • 4. WHAT IS A “CAPITAL FUNDRAISING PLAN”?
    The CFP helps answer three questions:
    HOW MUCH investment capital the company needs.
    WHY AND WHEN investment capital is needed.
    WHAT is the right way to think about valuation and other key investment terms.
  • 5. WHAT IS A “CAPITAL FUNDRAISING PLAN”?
    The advantages of using a CFP:
    You will gain a sense of confidence in your proposed “ask”, your terms and what is a “must” for your business.
    You will be able to tell your “financial” story more effectively to investors.
  • 6. WHAT IS A “CAPITAL FUNDRAISING PLAN”?
    The advantages of using a CFP:
    You will help investors become realistic about long-term capital needs, so that if you need additional capital, they will be will prepared for it.
  • 7. WHAT IS A “CAPITAL FUNDRAISING PLAN”?
    The advantages of using a CFP:
    You will have a document around which you can construct both your investor presentation and your investor negotiations on issues such as valuation and dilution.
  • 8. WHAT IS A “CAPITAL FUNDRAISING PLAN”?
    The advantages of using a CFP:
    Finally, the CFP reveals that your investor “ask” makes no financial sense.
  • 9. WHAT IS A “CAPITAL FUNDRAISING PLAN”?
    A CFP is NOT:
    A set of projections leading to a multi-billion dollar business in three years.
    A plan that cannot be changed.
    An exact science.
  • 10. HOW TO MAKE A “CFP”
  • 11. HOW TO MAKE A “CFP”
    Step One. Choose a relevant time frame – three to five years.
    Step Two. Develop a list of the most significant business and operational milestones (“Key Milestones”) during the timeframe in Step One. (But not funding milestones.)
  • 12. HOW TO MAKE A “CFP”
    A “Key Milestone” is a measurable event which, if it happens, results in your business being recognizably more valuable. “Recognizable” just means that it is meaningful, not that the change in value is huge.
  • 13. HOW TO MAKE A “CFP”
    Step Three. For each Key Milestone:
     
    What is your “Shopping List” of necessary non-monetary resources (personnel, equipment, etc.)?
    How much time is needed?
    How much do the one-time items in your Shopping List cost?
    What do the ongoing items in your Shopping List cost over the time frame?
  • 14. HOW TO MAKE A “CFP”
    Your “one-time items” costs plus your “ongoing items” costs over the time frame equals your “Investor Ask” for each Key Milestone.
  • 15. HOW TO MAKE A “CFP”
    Step Four. Repeat the process for each Key Milestone.
    For Key Milestones that are post-revenue, reduce the total by net contributions from sales and operations
  • 16. HOW TO MAKE A “CFP”
    At the end of the CFP process, you will have:
    A three- to five-year business picture
    A description of your “Key Milestones”
    A “Shopping List” for each Milestone
    A forecasted “Investment Ask” for each Key Milestone
  • 17. HOW TO MHOW MUCH IS IT WORTH? VALUATION AND INVESTMENT PROPOSITION.
  • 18. Valuation and Investment Proposition
    Step One. Place a reasonable range of value on the business at the end of year three assuming that the three-year business picture is fully realized.
  • 19. Valuation and Investment Proposition
    Step Two. Explain your reason of why that range is defensible based on the metrics you have adopted in the three- to five-year picture.
  • 20. Valuation and Investment Proposition
    Step Three. Working backward from the end of the three- to five-year business plan, take each Key Milestone and assign a value to that Milestone only.
  • 21. Valuation and Investment Proposition
    Answer this question:
    If at the end of business plan, the business is worth $(X)mm, then when I hit this Milestone, I am (Y)% to the goal, and the business is therefore worth (Z)%.
  • 22. Valuation and Investment Proposition
    Why are we working backwards in developing the value proposition?
    Stay realistic
    Focus milestones
    Avoid common entrepreneur valuation mistakes
  • 23. Valuation and Investment Proposition
    What are the common entrepreneur valuation mistakes?
    The “We Will Take Over the World” approach
    The “What I Gotta Keep” approach
  • 24. Valuation and Investment Proposition
    Now, you are ready to structure a pitch to investors based on this basic investment proposition:
    Today, this business is arguably worth $________ to $________ (the “Pre-Money Value”).
    If investors collectively invest the “ask amount” for this Key Milestone, and we reach the next Key Milestone, our business will be worth $________.
  • 25. Valuation and Investment Proposition
    Your investment will then be worth $________ to $________.
    That is a rate of return of ________, plus the opportunity to increase that return as the business valuation increases.
    Later investors will have to pay more in order to achieve higher values in the future, and you’ll feel good about the value you got when you invested. In other words, you are being compensated for being an early risk-taker.
  • 26. Valuation and Investment Proposition
    Later investors will have to pay more in order to achieve higher values in the future, and you’ll feel good about the value you got when you invested.
  • 27. QUESTIONS?
    Matthew W. Bower
    Safford & Baker PLLC
    mbower@saffordbaker.com