WBS Entrepreneurship Mentoring Workshop -28 July 2011 - Tim Powell
Wake up Investor – I‘ve got a great proposition <br />
Tim PowellSenior Executive University of Warwick Science Park<br />Director of the Minerva Private Investor Network and Access to Finance Programme <br />Tim.email@example.com<br />024 7632 3114 <br />
Minerva <br /><ul><li>Minerva is a Business Angel network operated by the University of Warwick Science Park since 1994
We have 100+ members and operate two syndicates who meet monthly to consider opportunities
In the last 15 months I have seen over 120 Business Plans- interviewed 54 companies and invited 36 to present of whom 15 received offers with 11completing deals attracting £1.07m from Minerva Investors whose money helped lever in another £2.6m
Sectors invested into :- Clean Tech- Silicon Carbide, Health & Beauty Equipment Technologies, Medical Devices, Telecomm/Broadband, nano DNA technologies, Forensic Science, Software & IT, Automotive –Electric Diesel Turbocharger….and more to come </li></li></ul><li>£10m+<br />Venture Capital<br />Regional Finance & Venture Capital Funds<br />BANKS<br />£250k<br />Specialist Funds Private Investors<br />Friends & family<br />Enterprise Finance,<br />Factoring, other debt<br />Instruments <br />Public Funding <br />Support?<br />Seed Funds, Grants etc <br />£0<br />Low Risk High Risk<br />The “Funding & Equity” Landscape for early Stage Ventures today<br />
Can Private Investors fill the funding Gap ? <br />Early Stage Ventures are considered HIGH RISK<br />Seed Funding is in short supply & often sector limited <br />Banks do not fund unsecured high risk ventures – <br />Banks will fund revenue earning concerns & provide significant “ooomph” to aid growth <br />Friends and family often carry the start up burden but are limited in funding, experience, time <br />Angel Investment is filling the ever widening gap <br />But with the supply of money limited it’s attract the early stage capital – a simple matter of supply & demand <br />But the combination of Angel money plus expertise may be the difference between failure & success<br />
What do Private Investors/Business Angels do? <br />Consider investing in pre-revenue early stage High Risk ventures in exchange for Shares in the business<br />But HIGH RISK doesn’t mean Gamble or Speculate <br />They anticipate a difficult journey but will have identified characteristics that suggests they might make a profit<br />They buy “in low” and hope to “sell high” <br />Some are passive - most will get involved individually or collectively through a group of investors <br />Bringing expertise, experience & Contacts hopefully <br />Drive towards a profitable exit – usually by attracting a trade sale/acquisition and/or “cash in” when the opportunity arises<br />
What do Angels look for in a proposition ?<br /><ul><li>A Business Plan that makes sense! -Viable, Achievable, Realistic, ,
Well balanced team –if only for this stage of its development
Product or technology that has some element of Proprietary ownership :- Patent, Design Rights, Niche …
Pre-Revenue – validated time and cost of developing a market ready product - accurately documented and assumptions evidenced.
Upto date Intelligence on the Market, Competition, Technology and evidence of demand/appetite – “Voice of the Customer “
Sales & Marketing Realism – covering time & cost to enter, launch & penetrate the market.
Financial forecast that reflects all the above and not wishful thinking
A REALISTIC VALUATION REFLECTING THE RISK! </li></li></ul><li>Is there any difference between what an Angel and an early stage fund look for ?<br />A Fund makes equity investments on the basis of anticipated strong capital growth and high levels of return -Typically, expect a 5 to 10x increase on exit. <br />Exit is fundamental most - likely through a strategic trade sale, occasionally through flotation<br />Technology biased funds especially look for a strong focus on sector-specific, proprietary technology and innovation <br />(i) clear evidence of significant technological innovation with respect to the company's commercial product(s);<br />(ii) The company may be expected to operate within certain technology sectors eg:<br />Medical & Healthcare, Advanced Materials, Clean Technologies, ICT & Digital Media<br />(iv) protection for their proprietary technology through ownership of granted patents, pending patent applications, design rights, and other recognized forms of intellectual property rights (IPR);<br />(v) An experienced management team in place ( ??) and/or internationally acclaimed technology founder(s); and<br />(vi) A business plan that demonstrates a well-defined strategy capable of achieving strong capital growth and a highly profitable exit for investors within 6 years of an initial venture capital investment ..they hope!<br />(this was taken from a fund web site ..Angels and Funds look largely for the same things) <br />
What do Angels want ?<br />They don’t want is to lose money <br />Honesty – No surprises <br />They don’t want to run your business <br />A realistic valuation ... and trust <br />Dilution is OK if for the right reasons !<br />You to have as much pain as they if it goes wrong <br />EIS approval<br />Profitability & Potential <br />A shareholder agreement that underpins your relationship <br />Clear descriptions of your roles, responsibilities and rewards <br />They are backing your ability to deliver at least the first part of the plan so they will want to see plenty of :-<br /> Energy, Enthusiasm, Ambition, Focus and Direction <br />
Preparing for Investment <br />If you have decided to go for investment <br />Get professional advice – understand what it is you are giving up and what might be expected of you <br />Build a business plan you believe in ….not dream about!<br />Realism in everything …A problem shared can be solved<br />A problem hidden will surface later when you least expect it!<br />Identify & address the strengths and weaknesses<br />Understand the “risks” ..the “what if’s” and the “pinch” points <br />Validate and evidence assumptions – avoid the “ I think” syndrome <br />Be ready for Investigation (“due diligence” ) it will take a lot of time <br />Most investments take between 3-6 months to complete – so start asking for money before you need it! <br />
Getting Prepared – the “What” Questions<br />What is the history of the business – how long established,<br />What previous funding have you had? <br />What have you invested in hard cash ?<br />What have you done to date and what you intend to do ?<br />What experience do you have about market<br />What are the skills in the team and what is missing? <br />What do you know about your competition?<br />What exactly is your product/service & What IP do you have?<br />What Resources do you need to launch/commercialise ?<br />What are you going to spend the money on ? <br />What are the time lines and what are the key risks?<br />What do you want to achieve ?<br />What’s the deal ?<br />
Getting Prepared – The “Who “ Questions <br />Who prepared the plan<br />Who prepared the forecasts <br />Who has the Vision<br />Who is the leader – driving force<br />Who has most to lose <br />Who owns the IP<br />Who owns the shares <br />Who does what – roles & responsibilities<br />Who are your advisors/partners<br />Who works full time in the business<br />Who else is investing <br />
Ultimately it’s Management who deliver the results<br />The team must be …<br /><ul><li>Knowledgeable
Executing the plan</li></ul>If there is a group of investors call on their <br />collective experience knowledge and contacts<br />Most investors are good at “doing” and where <br />they are involved businesses <br />tend to succeed quicker. <br />
What do you want in return for their money?<br />You don’t want any surprises either – use the “Due Diligence “ period to<br />get to know the investor :- <br />The chemistry must be right <br />The investor must be a good fit <br />A shareholder can’t be sacked <br />Don’t be short changed in Expertise <br />You have surrendered shares and <br />therefore some ownership – if you have got <br />the forecasts horribly wrong you may have <br />to sell more and with it may go control <br />& ownership …. <br />
What does a typical deal look like <br />EIS status approved & in place <br />Angel must have Ordinary Shares with no special powers attached<br />VC Funds may vary their stake with preference shares /debt aswell as Ordinary shares <br />Angels are restricted on clauses in in the shareholder agreement – but a VC is not … <br />There will be restrictions on what you can and can’t do <br />You will have to negotiate a NEW employment contract <br />Funding is often released in tranches against delivery of business plan milestones- so make sure milestones are realistic!!<br />Some Investors will insist on following their money onto the board<br />THE BIG QUESTION – how much of my equity will they want? <br />THE ANSWER – One that reflects the risk and your potential ! <br />
Finally<br /><ul><li>Private Investment & Venture Capital is a special type of finance.
Early stage investment is usually seed or pump priming capital and therefore you will always be selling at a lower valuation than later but without the money and hopefully the added expertise would you make it to “later” ?
Always consider the range of other types of funding
Take advice, don’t rush, be prepared and start early if you want to raise money
Financing a business is rarely a single stage process - it takes time to build and grow and along the way different types of finance are needed at different stages of development.
The appropriate finance depends on the risk/reward profile of the business at each stage of financing. </li></li></ul><li>Where to find Business Angels and more information on Angel Investment <br />www.bbaa.org.uk<br />www.bvca.co.uk<br />www.minerva.uk.net<br />