Angel Investing to Island Tech 2009

Stirling Team
Hugh Notman , partner
30 yrs securities and corporate finance; PwC Corporate Finance, Association for Corporate Growth, 3 boards
Peter Scott , partner
32 yrs corporate finance; 17 years TD Bank; 5 years president TD Capital; PwC Sr VP of Corporate Finance
David Shore , partner
18 yrs corporate finance; CIBC Investment Banking; 3 meaningful startups; 2 public boards
George Dorin , Sr VP
30 yrs corporate finance; CA with CF designation (Corporate Finance), Sr VP, Wolrige Mahon; Sr Accountant, KPMG; PwC; RBC
Mike Hou , associate
BA, with distinction; studying for CFA

About Stirling Mercantile Divestitures M&A Advisory Expansion Capital Fairness Opinions Early-Stage Finance FAIRNESS OPINIONS Director comfort & legal protection from independent, expert valuation EXPANSION CAPITAL Multiple industry experience Seasoned corporate financiers EARLY-STAGE FINANCING Full-service approach throughout process Aligned interests likely to secure funding DIVESTITURES Corporate financier involvement can improve price, simplify process . M&A ADVISORY Sage advice in times of need or growth opportunity

10 Years of Transactions

Early-stage Financing

www.stirlingmercantile.com

Diverse Portfolio - Successful Exits 7 Technology IRR 342% 23x Cash 5x Cash 3x Cash Life Science

Perspectives Advisor Investor Exit Transactions Founder

Funding Road Map Confidential F, F & E Seed, Angel Series A Series B Year 1 2 3 4 5 Early Adopters Crossing the Chasm Mainstream Growth Develop Scale Expand Phases Funding Roadmap . Investor Exit Revenue today Launch

Objectives

Murphy’s Law

High Valuation Trap
Problem:
Follow-on investors value lower than last
Forced to “cram down” last investors or no deal
Solution:
Understand downstream valuations
.

Valuation
Consider the post $ cap table for the next round
And subsequent rounds to the exit

Term Sheet Structures
Common shares
Preferred shares
Convertible debt
Hint: this will all be thrown out with the next investment, keep it simple
.

Investment Types
Common shares
Pros
Quick and inexpensive agreement
Alignment with entrepreneurs
Cons
No protection
Suggest
Include some rights often given to Prefs
.

Investment Types
Preferred shares
Pros
Downside protection from rights
Cons
Time consuming and expensive agreement that will be replaced
.

Investment Types
Convertible Debt
Pros
Downside protection from debt and rights
Quick and inexpensive agreement
Flexibility on valuation – discount to next round or warrants
Cons
Typical discount of 20% to 30% is not high enough reward
.

Suggested Rights
Follow/tag/drag along
Follow – right to sell if management sells
Also called tag along or co-sale rights
Drag – if majority want to sell, 100% sell
ROFR of financings, right to participate
Restrictions on changing rights, issuing debentures or stock, or completing mergers or acquisitions
.

Final thoughts
Make a decision quickly, don’t drag out entrepreneurs
When “No”, try to offer advice
Focus on your domain expertise
Invest in people . Don’t try to cover all downside risks with deal terms.
.

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Angel Investing to Island Tech 2009

by David Shore on Nov 16, 2009

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Angel Investing to Island Tech 2009 — Presentation Transcript