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.

Transcript

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