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Venture Capital Investments in E- Commerce (U.S.A.) Total Invested ($ million) Number of Companies 600 $6,000 500 $5,000 400 $4,000 300 $3,000 200 $2,000 Netscape IPO 100 3rd largest in Amazon.com IPO $1,000 Nasdaq History 0 $0 94 95 96 97 98 99Source: Venture Economics Number of Companies Total Invested
Building Tomorrow’s Businesses –Culture, Mindset and The Columbus Spirit My ‘3i s’ • Inspiration • Invention • Implementation So remember -the Columbus Spirit?
Mind of an Entrepreneur “You look at things and ask - why? but I dream of things that never were and ask - why not?” George Bernard Shaw
Joseph Schumpeter (1911) “Entrepreneurs blow gales of creative destruction.”Role of the entrepreneur in transforming economies bydeveloping:• New products• New methods of production• New ways of organizing• Untapped raw materials• Enhanced competitive performance
Financing Tomorrow’s BusinessesWhere to go for early stage money – there is plenty of it around ! The Bank Corporate Venturers Government Grants Family and friends Seed Funds The local Pub Venture Capitalists Business Angels 2
Sources Of Business Finance “Our Money” “Our Money” B Family and Friends Family and Friends A N Business Angels Business Angels K Seed Funds Seed FundsRisk F I Early Stage VC Early Stage VC N A Expansion Capital Expansion Capital N C E Pre-IPO Pre-IPO ?? Maturity
Sources Of Business Finance1) “Our Money” - Our decisions - no strings2) Family and Friends - Few strings, great faiths3) Business Angels - Money “plus” - use my expertise4) Seed Funds - Support proof of principle5) Early Stage - Management support - experience6) Expansion - Lower level of support - but experience of business development7) Pre-IPO - Opportunistic8) Banks - Not risk takers – can be helpful
Stages Of Investment (1)1. SeedDeveloping IPR, unlikely to have full time employees, and maywell have no business premises. Working on “proof ofprinciple”2. Start upCompanies in the process of being set up, with limited trading.Involved in product development and initial marketing3. Early stageCompanies that have completed the “proof of principle”, ownsome IPR, have a management team substantially in place,requiring funds for manufacturing and/or licensing, and sales
Stages Of Investment (2)4. ExpansionEstablished companies, with a full management team andgenerating sales, and require further finance to break intonew markets. The definition “Expansion” often createsconfusion5. Pre IPOFinal round prior to a listing on a recognised Stock Exchange.Can be referred to as “Expansion” funding6. Later stageMany variants – M and A, MBO, MBI etc.
Finding Your Angels• Networking, Networking, Networking!• Research and Knowledge• Investment Criteria• Lone or “Choirs” of Angels• Angel Connections and Expertise• Personal Chemistry• Active or Passive• Track Record and Referrals
How do we IMPRESS our Angels?• Very clear Business Model and Plan• “Show me the MONEY”• Clarity and attractiveness of Presentation• Integrity• Answers to Questions• Asking the right Questions• Believable People and Teams• Ideas on building a coherent Board – including Investor Directors
Engaging The Funders• Preparing the case - how to start -”Do we need help ?” - Intermediaries-Corporate Finance.• Is the Business Model Clear?• Keep Business Plans Simple!• Targeting funders - Investors have specific criteria• ?Angels, Banks, Seed Fund, Corporates or VCs – or a “mix”• Matching agendas• Sponsors for spin-outs• Organisations and people - the forward plan
Great Eastern Investment ForumStarted in April 1994Membership of 500 plusThree presentation days a year - 8 companies at atime. Also publishes “Link-Up” and “online” atwww.geif.co.uk 1,000- plus companies seen. 250 plus presented.“Hit rate” of 40%Total funds raised is £50 millionGovt. money augments Angel Money – SmallBusiness Growth Fund – and EnterprisheChallenge Fund 4
Other Cambridge Angels• Cambridge Angels - Very High Net Worth ( HNWIs ) - Dining Club Format Each Group is approx 40 - Little Formal Structure members – No fund - - “Heavy Hitters” Individual investment decisions.• Cambridge Capital Group - “Distant Angels” - “Absent Angels” - “Passive Angels”
Financing Tomorrow’s Businesses-including spin-outs – Angel Virtues• Technical Expertise• Marketing Expertise What else you get• Contacts from Business• Decision Making skills Angels….• Presentation skills• Dealmaking skills• Money-raising skills• Other Financial skills• Possible exit routes and practical help with exit 7
US Angels – The REAL early stage funders !• In 2000 US business Angels invested more than $200billions in early stage companies• This was much more than the so called “venture capital industry” which did not reach investment levels that year of $150 billions.• In the difficult year of 2002 – when VCS “sat on hands” – Cambridge Angels kept the early stage and emerging business sector alive and well• Cambridge Angels are adopting the US success model and working more closely together.
“Show Me The Money!”• Basics – Investment Readiness• How organised are we ?• Company structure ?• Management Team?• Intellectual Property?• Vision, Purpose,Plans and Positioning Ideas?• Advisors ? “Greyhairs and Wisdom” ? Basics – eg Accounts and Controls ?• “Rumsfeld Questions” – “What we DON’T know?”
“Show Me The Money!”• Understanding the “Money Supply Chain”• Research and Help – and where to find it• What’s Best for Our Business ?• “Money on its own may not bring the Value you need”• Friends, Banks, “Angels”, VCs et al.• Grants – including DTI R & D Grants• Resourcefulness, Resilience and Recovery”• Learning from encounters with investors• Attention to detail – “nitty gritty”• Understanding how Angels may ( or may not ) work with later investors – such as VCs
Financing Tomorrow’s Businesses- including spin-outs• Technical Expertise• Marketing Expertise What else you get• Contacts from Business• Decision Making skills Angels….• Presentation skills• Dealmaking skills• Money-raising skills• Other Financial skills• Possible exit routes and practical help with exit 7
Due Diligence is a two way thing: • Investors due diligence agenda:- – Technology and I.P. – Market - is it really there? – People - can they do it? – Exit options and drive • Due Diligence on Investors:- – Investment criteria – Track record – People, relationships, references – Clarity of expectations – Available finance - including “follow on” – Willingness to syndicate and to participate
Structuring The Deal• Selecting advisors• Aligning Shareholders/Investors• Offers and Agreements• Leaving space for future financing rounds• Business strategy and Exit options• Valuation
Valuation – how and why• To indicate value to potential investors• What is a company worth? - What someone will pay for it• What is this determined by? - Other investment choices
A Search for Fair Value Issue date On issue 1 Year OnBookham April 2000 £1.2 £231 billion millionLastminute.c March £571 £54om 2000 million millionOrchestream June 2000 £212 £52 million millionJust2clicks Feb 2000 £130 £- million
Case Study: Antenova – a funding fable• Disruptive technology which could change the world – from University collaboration• Outstanding management – technical and operations• Inexperienced in fundraising• Valuation obsession• Where has all the money gone?• Salvation, adequate funding and continued progress
Show Inspiration!Investors have emotions! “Excellence can be achieved, if we: Care more than others think is wise, Risk more than others think is safe,Dream more than others think is practical,Expect more than others think is possible.” Deborah Johnson-Ross
In Pursuit of Excellence ! “Excellence can be achieved, if we: Care more than others think is wise, Risk more than others think is safe,Dream more than others think is practical,Expect more than others think is possible.” Deborah Johnson-Ross
Be Visionary !More information at….Alan@alanbarrell.comwww.alanbarrell.com