MW2003_3_Life_Cycle_..

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  • VCs are money managers. They obtain funds form institutions - pension funds, insurance companies, banks, and sometimes wealthy individuals Angels have created their wealth in the past - successful entrepreneurs or family wealth built up over the decades
  • First customers prove the revenue model Angel Networks: Prairie Angels www.chicagoangels.org eBlast Pete Georgi Net Fuel Ventures
  • Series A, B, C First institutional inevstors, next institutional investors, etc.
  • Series A, B, C First institutional inevstors, next institutional investors, etc.
  • MW2003_3_Life_Cycle_..

    1. 1. Cover Life Cycle of Financing 8 South Michigan Suite 400 Chicago, IL 60603-3306 p (312) 853-3477 f (312) 853-0145 http://www.wbdc.org [email_address] Linda Darragh VP, Finance Program Phone: 312-853-3477, x.22 Email: [email_address] June 17 & 18, 2003 Business Matchmaking
    2. 2. Types of Businesses
    3. 3. Types of Businesses <ul><li>Company A </li></ul><ul><li>Steady growth </li></ul><ul><li>Market = local, regional </li></ul><ul><li>Grow business over many years </li></ul><ul><li>Retain ownership </li></ul><ul><li>Company B </li></ul><ul><li>Start up = R&D, Technology development </li></ul><ul><li>Market = $25M+ </li></ul><ul><li>Scales quickly </li></ul><ul><li>Sell business in 5-7 years </li></ul>
    4. 4. Debt vs Equity <ul><li>Debt Financing </li></ul><ul><li>‘ Prove’ repayment - less risky </li></ul><ul><li>Need to begin repayment immediately </li></ul><ul><li>Some financial and management advice </li></ul><ul><li>Cheap capital: interest </li></ul><ul><li>Exit strategy: pay off loan, no change in ownership </li></ul><ul><li>Equity Financing </li></ul><ul><li>High risk </li></ul><ul><li>Patient capital </li></ul><ul><li>Investors add to management team </li></ul><ul><li>% ownership of the business, 35% ROI </li></ul><ul><li>Exit strategy: IPO, acquisition </li></ul>
    5. 5. Types of Equity Investment <ul><li>Friends, Family & Angels invest their own money </li></ul><ul><li>Venture Capitalists invest money they have raised from other financial institutions and/or wealthy individuals </li></ul>
    6. 6. Types of Equity Investment <ul><li>Angels </li></ul><ul><li>Part-time </li></ul><ul><li>Limited due diligence </li></ul><ul><li>Hard to find </li></ul><ul><li>Early stage </li></ul><ul><li>< $1 million </li></ul><ul><li>investment </li></ul><ul><li>Venture Capital </li></ul><ul><li>Full-time job </li></ul><ul><li>Professional resources for due diligence </li></ul><ul><li>Directories of VCs </li></ul><ul><li>Later stage </li></ul><ul><li>> $1 million investment </li></ul>
    7. 7. Lifecycle of Financing <ul><li>PHASE ONE: </li></ul><ul><li>Moving from an idea to proof of concept </li></ul><ul><li>Personal savings </li></ul><ul><li>Family and friends </li></ul><ul><li>Loans under certain circumstances </li></ul>
    8. 8. Lifecycle of Financing <ul><li>PHASE TWO: </li></ul><ul><li>Beta testing, first customers </li></ul><ul><li>Angels and Seed Money </li></ul><ul><ul><li>Individual Angels </li></ul></ul><ul><ul><li>Angel networks </li></ul></ul><ul><li>Loans, Lines of credit </li></ul><ul><li>Equipment Leasing </li></ul>
    9. 9. Lifecycle of Financing <ul><li>PHASE THREE: </li></ul><ul><li>Growth </li></ul><ul><li>Institutional Investors/ Venture Capital </li></ul><ul><ul><li>Vary by: </li></ul></ul><ul><ul><ul><li>stage of growth </li></ul></ul></ul><ul><ul><ul><li>industry preference </li></ul></ul></ul><ul><ul><ul><li>size of investment </li></ul></ul></ul><ul><ul><li>Over $1 million </li></ul></ul>
    10. 10. Lifecycle of Financing <ul><li>PHASE FOUR: </li></ul><ul><li>Exit </li></ul><ul><li>IPO: Initial Public Offering </li></ul><ul><li>Acquisition </li></ul>
    11. 11. Current State of Equity Investment Early Stage financing/ Series A Series B - C IPO Angel Financing Friends & Family
    12. 12. Center for Venture Research - University of New Hampshire Stage Early Later Seed/ Start - Up Source FDRS FFF Angels Venture Funds Demand $25K $100K $500K $2,000K Supply --------------------------------- --------------------------------- Funding Gap Equity Capital for Entrepreneurs Pre Seed
    13. 13. Other Funding Resources <ul><li>The Small Business Innovation Research (SBIR) program (www.sba.gov/sbir) </li></ul><ul><li>funds research and development (R&D) by individuals and small business. </li></ul><ul><li>grants or contracts that do not require repayment, but specific deliverables </li></ul><ul><li>3-phase program </li></ul><ul><ul><li>feasibility: $100,000 maximum </li></ul></ul><ul><ul><li>prototype development: $750,000 </li></ul></ul><ul><ul><li>commercialization: not federally funded </li></ul></ul><ul><li>10 federal agencies develop research topic lists </li></ul>
    14. 14. WBDC Venture Program <ul><li>Services: </li></ul><ul><li>Business plan review </li></ul><ul><li>Counseling </li></ul><ul><li>Referrals </li></ul><ul><li>Venture Coaching </li></ul><ul><li>Training </li></ul><ul><li>First Thursday (monthly roundtable) </li></ul><ul><li>Springboard </li></ul>
    15. 15. WBDC Loan Assistance <ul><li>Financial Analysis </li></ul><ul><li>Microloan technical assistance </li></ul><ul><li>Preparation of pro-forma financial statements </li></ul><ul><li>Loan Packaging </li></ul><ul><li>Bank referrals </li></ul><ul><li>Referrals to business resources </li></ul>

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