Acquiring	
  Resources:	
  	
  
Thinking	
  About	
  Growth	
  
	
  
VentureOut	
  Moldova	
  
#VOMoldova	
  
	
  

Octobe...
Outline
 

Basic Rules

 

Mental Models

 

Sources of Capital

 

Comparison
New Venture
Finance: Basic
Rules

Rule 1:
Do Not Run Out of Cash
CIMITYM
=
Cash is
more
important
than your
mother.
Accidents in
North American
Moutaineering
Accidents in
North American
Moutaineering

“…and they fell
to their death.”
New Venture
Finance: Basic
Rules

Rule 1:
Do Not Run Out of Cash
Rule 2:
Raise the Right Amount From the
Right Investor(s)
Rule #3:
Valuation as
Negotiation
New Venture
Finance: Basic
Rules, redux

Rule 1:
Do Not Run Out of Cash
Rule 2:
Raise the Right Amount From the
Right Inve...
New Venture
Finance: Basic
Rules, redux

Rule 1:
Do Not Run Out of Cash
Rule 2:
Raise the Right Amount From the
Right Inve...
New Venture
Finance:
Mental Models

New venture finance is different
because…
1.  High uncertainty
  Fundamental, irresol...
Venture
Finance:
Mental Models

“Splitting up the Pie”

“Build the Sandwich”

Traditional view

Positive sum model

Zero s...
2500’ Sandwich = GOOG
Sources of Capital
Self-Financing
 

Savings

 

Credit cards

 

Second Mortgages

 

Sweat

 

“Affordable Loss”

 

Bank Robberies
Friends, Family,
Fools (and
Faculty?)

 

People who are close to you trust
you for other reasons
 

Family members

 
...
Crowdfunding
 

W/w, in 2012, more than 500 platforms
in operation

 

Expected to raise ~$5B USD in 2013,
with possibil...
Fred Wilson,
Union Square
Ventures

Networks and markets are slowly
changing the global economy and the
creative sector is...
Flow chart
guide to 22
crowdfunding
platforms…

http://t.co/bFiGjkzZuK
Some words from
our sponsors…
http://bit.ly/18Ht9AN
Using	
  CF	
  to	
  Access	
  Capital	
  Markets	
  
Angels/Individual
Investors

 

High net-worth individuals who
invest in and support companies
in the early stages of gro...
Venture
Capital
Limited
Partners
General
(Venture)
Partners

Foundations

Large
Funds

Universities

Regional
Funds

Small...
Commercial
Loans

 

Money borrowed from bank or
other commercial entity

 

Interest payments
 

Cash-flow

 

Collat...
New Venture Finance:
Sources of Capital

Source
Self-financing
Credit cards
Friends / family / fools
Crowdfunding
Angel / ...
New Venture Finance:
Sources of Capital

Source

Risk?

Return? Legit? Help? Control?

Self-financing

+

+

+

-

n/a

Cr...
Basic rules of venture finance at Venture Out Moldova, Fall 2013
Basic rules of venture finance at Venture Out Moldova, Fall 2013
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Basic rules of venture finance at Venture Out Moldova, Fall 2013

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Slides review basic rules of venture finance and considerations when thinking about how to raise money and from whom. Includes overview of crowdfunding.

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Basic rules of venture finance at Venture Out Moldova, Fall 2013

  1. 1. Acquiring  Resources:     Thinking  About  Growth     VentureOut  Moldova   #VOMoldova     October  28  –  November  1,  2013     Prof.  David  A.  Kirsch   Robert  H.  Smith  School  of  Business   University  of  Maryland,  College  Park   dkirsch@umd.edu   @darchivist    
  2. 2. Outline   Basic Rules   Mental Models   Sources of Capital   Comparison
  3. 3. New Venture Finance: Basic Rules Rule 1: Do Not Run Out of Cash
  4. 4. CIMITYM = Cash is more important than your mother.
  5. 5. Accidents in North American Moutaineering
  6. 6. Accidents in North American Moutaineering “…and they fell to their death.”
  7. 7. New Venture Finance: Basic Rules Rule 1: Do Not Run Out of Cash Rule 2: Raise the Right Amount From the Right Investor(s)
  8. 8. Rule #3: Valuation as Negotiation
  9. 9. New Venture Finance: Basic Rules, redux Rule 1: Do Not Run Out of Cash Rule 2: Raise the Right Amount From the Right Investor(s) Rule 3: Valuation as Negotiation Rule 4:
  10. 10. New Venture Finance: Basic Rules, redux Rule 1: Do Not Run Out of Cash Rule 2: Raise the Right Amount From the Right Investor(s) Rule 3: Valuation as Negotiation Rule 4: Remember Rule 1
  11. 11. New Venture Finance: Mental Models New venture finance is different because… 1.  High uncertainty   Fundamental, irresolvable 2.  Asymmetric information  Costly to overcome 3.  Nature of assets  Specific, transformed 4.  Nature of markets  Illiquid, high transaction costs
  12. 12. Venture Finance: Mental Models “Splitting up the Pie” “Build the Sandwich” Traditional view Positive sum model Zero sum assumption Longer sandwich = more resources Value extraction
  13. 13. 2500’ Sandwich = GOOG
  14. 14. Sources of Capital
  15. 15. Self-Financing   Savings   Credit cards   Second Mortgages   Sweat   “Affordable Loss”   Bank Robberies
  16. 16. Friends, Family, Fools (and Faculty?)   People who are close to you trust you for other reasons   Family members   Friends (close to you)   Fools (who cannot judge you)   Faculty (4th “F”)?   Solves information asymmetry problem   Reduces general uncertainty   Increases valuation   Mom won’t negotiate with you (but she should!)
  17. 17. Crowdfunding   W/w, in 2012, more than 500 platforms in operation   Expected to raise ~$5B USD in 2013, with possibility to go much higher   Four basic models     Reward-based, Donation-based, Equitybased & Lending-based Campaigns       Average 9 weeks, raise $7,000 USD Fee structures vary, 10-35% Converts social into financial capital, but not always reversible or readily replenished.
  18. 18. Fred Wilson, Union Square Ventures Networks and markets are slowly changing the global economy and the creative sector is at the forefront of these changes. Instead of going to Hollywood studios for the funds to make their next movie, directors are choosing to harness the network of their fans. Instead of going to the publishing industry for their book advance, authors are choosing to harness the network of their fans. Instead of signing a deal with a record label, musicians are harnessing the network of their fans. The same thing is happening with comic books, video games, theater productions, and many other creative endeavors. Kickstarter has changed the way creative projects come to life. http://bit.ly/1cmqVuS
  19. 19. Flow chart guide to 22 crowdfunding platforms… http://t.co/bFiGjkzZuK
  20. 20. Some words from our sponsors… http://bit.ly/18Ht9AN
  21. 21. Using  CF  to  Access  Capital  Markets  
  22. 22. Angels/Individual Investors   High net-worth individuals who invest in and support companies in the early stages of growth   Invests his or her own money   Weak personal tie to entrepreneur   Varying levels of sophistication       Rich & foolish Rich & wise AngelList syndication?
  23. 23. Venture Capital Limited Partners General (Venture) Partners Foundations Large Funds Universities Regional Funds Small Funds Institutions Special Stage Funds Portfolio Venture Venture Venture Venture Venture Venture Companies
  24. 24. Commercial Loans   Money borrowed from bank or other commercial entity   Interest payments   Cash-flow   Collateral
  25. 25. New Venture Finance: Sources of Capital Source Self-financing Credit cards Friends / family / fools Crowdfunding Angel / individual investors Venture capital Large private equity IPOs Bank / other CP Risk? Return? Legit? Help? Control?
  26. 26. New Venture Finance: Sources of Capital Source Risk? Return? Legit? Help? Control? Self-financing + + + - n/a Credit cards ++ ++ + - n/a Friends / family / fools +++ +++ + - common Crowdfunding +++ +++ ++ - depends Angel / individual investors ++++ ++++ ++ + / ++ com/pref Venture capital +++++ +++++ +++ ++++ pref+ Large private equity ++++ ++++ +++ ++ pref IPOs +++ +++ +++ + public? Bank / other CP ++ ++ ++ + collateral
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