How to finance my company or startup

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How to finance my company or startup

  1. 1. HOW CAN I FINANCE MY START-UP OR COMPANY?
  2. 2. Agenda of the session - I have the business idea, now what?
- How to finance my project
- Documents needed
- Business model description
- Barcelona ecosystem overview
- Q&A - Networking
  3. 3. WHO AM I Connect with me Joan Carles Piñol •Bachelor in BA and MBA ESADE, Barcelona. •IESE Business School, Madrid. info@sambaaccel.com •Business Angel Academy, London www.joancarlespinyol.comMentor for start-ups and SMEs seeking private equity, Founder andManaging Director of Rockstar Spain, and mentor of Samba Accel,previously founder of Lleida Business Angels. Joan Carles is also @joancarlespHead of the Foreign Relations Committee of the Spanish Associationof Business Angels (AEBAN) and Academic Coordinator andProfessor of Venture Academy of UPC (Polytechnic University of eretailCatalonia). Moreover, he is Past President of the Junior ChamberInternational local chapter in Lleida and member of the board. /JoanCarlesPiñolHualde Joancarles.pinyol@gmail.com
  4. 4. CONTENTS 1. Intro 2. Private equity financing 3. Debt and negotiation 4. Convertible loan 5. Equity - FFF / Grants - Business Angels - Venture Capital - Bootstraping 6. Business Model description 7. Why do companies fail?
  5. 5. Intro Entrepreneur! You have a business idea, and now what? Inverstor! Do you know how to invest in start-ups?
  6. 6. What does it need to start a project? A serious and credible business plan, or investors’ pitch. A human team with experience, implication and complementary capacities. Adequate financing for each stage 6
  7. 7. What else doe you need? A serious and credible business plan, or investors’ pitch. A human team with experience, implication and complementary capacities. Adequate financing for each stage 7
  8. 8. Today we will speak about Financing!!!
  9. 9. How to obtain money to begin?• There are four sources of cash: Bootstrap Equity Debt Grants
  10. 10. Where does the money come from? EQUITY ADVANTAGES DISADVANTAGES • Usually limited. • Sometimes easy to raise. • Icreases family’s financial Family money Risk due to its low diversification. Business Angels/ • ? • ? Venture Capital • Sometimes easy to raise • Requires a big investment in Mercado de (if indebtedness capacity). Time and preparation. Capitales • Tax benefits. • Only for large companies.GRANTS • Not adjusted to the needs of • Cheap. The company. Public sources • Limited. • Large time. (non reimbursed) • Not enough.DEBT • Increases financial risk. • Sometimes easy to raise • When indebted, the company (if indebtedness capacity). loses capacity to obtain +debt. Bank debt • Tax benefits. • The bank is not a collaborator, And does not understand its Operational needs.
  11. 11. Financial need (or CF+) over timeGENERATES € NEEDS € Month sGENERATES € Years NEEDS €
  12. 12. High growth potential companies, what happens at each stage Success Maturity Cash Flow “Death Valley” Moderate success Growth Break even Idea Prototype Start-up Proof of concept Market proof Failure Failure Development stage And time
  13. 13. Entrepreneurship ecosystem in Barcelona FUNDING PROVIDERS Business Convertible BANs VCs Accelerators Loans KNOWLEDGE INSTITUTIONS B2B SERVICE PROVIDERS START-UPS GOVERNMENT AGENCIES ASSOCIATIONS EVENTS
  14. 14. INCUBATORS University Public Private Incubators Incubators Incubators
  15. 15. AGENDA 1. Intro 2. Private equity financing 3. Debt and negotiation 4. Convertible loan 5. Equity - FFF / Grants - Business Angels - Venture Capital - Bootstraping 6. Business Model description 7. Why do companies fail?
  16. 16. Investmets 1st quarter 2012 in Spain Business Angel Networks: 2.075 Total investment: 17.815k VCs: 11.900 Public convertible notes: 3.190
  17. 17. Financial needs according to growth stage Financial needs Sales 1.500.000€ 300.000€ 150.000€ Developmet Stage and time Foundation Seed Start-up Growth Expansion Internationalization 17
  18. 18. Rics according to stage Financial need Ventas High risk 1.500.000€ 300.000€ 150.000€ Low risk Developmet Stage and time Foundation Seed Start-up Growth Expansion Internationalization 18
  19. 19. Who finances every stage? Financial need Sales IPO Companies VCs 1.500.000€ Business Angels 300.000€ FFF, grants, 150.000€ Mentoring groups Developmet Stage and time Foundation Seed Start-up Growth Expansion Internationalization 19
  20. 20. Why are investors so demanding• They enter as minority shareholders without guaranties or collaterals...• They pay a higher share price than the one paid by the promoters of the business, and that the one that today has the business. • VCs enter companies in less• Shares have not liquidity, which difficults exit. favourable terms than other types of investors.• Nothing guaranties that the business plan is going to accomplish… and that anybody will buy • Investors eill usually negotiate to the shares. include certain clauses in the• Innovative businesses have high mortality rates. investment agreement to mitigate certain risks.• Possible assimetries of information between promoters and investors. 20
  21. 21. Which are these clauses• Political • Seat on the board. • Qualified majority for certain decisions. • Hiring key people. • Investments of more than certain amount• Liquidity and exit agreements • Tal along • Drag along (conditioned to min or max %, minimum price) • Preferred right when liquidation or transmition (VCs) • Mandatory purchase (not common)• Economic • Ratchet• Information 21
  22. 22. Entrepreneurs • Highly compromised and with management Compromised: capacity • Mandatory that the majority of the time has full Implication: time dedication. • Alligned with the current situation of the Wages: project. Investment: • The higher, the better valued. • Different backgrounds and with in-depth Team: industry knowledge. 22
  23. 23. Project • New product, service, disruptive Innovation: tecnology. Proved abroad. Competitive • Competitive advantage that makes it advantage: sustainable in the future. Industry: • ICT, green technologies, healthcare... High growth • Ambitious project with potential: internationalization capacity. Geographic area: • Nearby 23
  24. 24. Investment Inicial phase: • Early stage. • Accordin to phase and reality of the project. Venture Capital Valuation: Method. • The remaining part to cover total financial need, that allows Share: the project to be sustainable. Investors take into account • Will be valued: Third part • Support from public administration, university, advisors, experts. guaranties: • Letter of intent of future custommers. 24
  25. 25. AGENDA 1. Intro 2. Private equity financing 3. Debt and negotiation 4. Convertible loan 5. Equity - FFF / Grants - Business Angels - Venture Capital - Bootstraping 6. Business Model description 7. Why do companies fail?
  26. 26. DEBT What do we know about credits and loans?
  27. 27. DEBT Company A Company B ROA = PAT / Net Assets ROE = PAT / Fondos Propios Company A Company B EBIT 10,00 10,00 Intereses 2,5 0 PBT 7,50 10,00 Tax 30% 2,25 3 PAT 5,25 7,00 ROA 5,25% 7,00% ROE 10,50% 7,00% Nominal interest: 5% Financial leverage can be positive for shareholder!
  28. 28. Financing your business: Debt Sources of financing through debt for SMEs • Loan agreement • Credit card • Suppliers • Long term bank loan • Leasing • Public administration programs 2
  29. 29. What banks search? • Personality: Are you trustworthy and have a credit history solid (personaly and corporate) • Conditions: How current situation impacts your company and industry? • Equity: How much have you invested in your company? • Capacity: How will the company returd debt? • Guarantees: What assets are available if company is not able to return the loan? 2
  30. 30. Negotiation • Negotiation – Documents • Historical documentation • Project presentation • Compromise of partners and administrators • Objective, realistic, transparent approach • Not asking more, or less • Expose the situation causes and measures Objective and transparent information, our listener will not be an expert risk analyst
  31. 31. Negotiation • Documents to present – Historicañ • Annual accounts of the last 3 years • Tax clearing of the last 3 years • Bank pool • Company activity description in the last years • Origin of the situation • Forecasts for the year to come We should put in value the history and the responsibility / obligations we have assumed and respected.
  32. 32. Negotiation • Documents to be submitted – Presentation of the project • Viability of the project • Treasury Plan • Brief SWOT Analysis and description of project and industry • Details of sales, production and investment policies • Appropriate adjustments updates
  33. 33. AGENDA 1. Intro 2. Private equity financing 3. Debt and negotiation 4. Convertible loans 5. Equity - FFF / Grants - Business Angels - Venture Capital - Bootstraping 6. Business Model description 7. Why do companies fail?
  34. 34. What is? CONCEPTUALLY: A loan GUARANTY: No requested INTEREST: fixed or even variable INTEREST: The amont of interest is variable indexed to company results (the profits, the more interest rates)
  35. 35. Convertible loan CONCEPTUALLY: A loan AVAL: No requerido As a non convertible loan, but the lender INTERESES: sólo se devuelven los años que hay beneficios can decide (after a period of time), VALOR DEL INTERÉS: El importe de los intereses es variable en instead of returning función de los resultados de la empresa (+ beneficios + interés) the interest, the loan converts into equity of the company
  36. 36. Convertible Loans
  37. 37. AGENDA 1. Intro 2. Private equity financing 3. Debt and negotiation 4. Convertible loan 5. Equity - FFF / Grants - Business Angels - Venture Capital - Bootstraping 6. Business Model description 7. Why do companies fail?
  38. 38. Financing your company: EQUITY • Sources of founding equity: • Personal savings • Friends or Family • Government or Public Administration • Angel Investors • Mentoring or investing groups
  39. 39. AGENDA 1. Intro 2. Private equity financing 3. Debt and negotiation 4. Convertible loan 5. Equity - FFF - Business Angels - Venture Capital - Bootstraping 6. Business Model description 7. Why do companies fail?
  40. 40. F, F, F, F • Founder), Family, Friends, Fools • Seed finance • The company has recently been founded. Not yet begun the process of production / distribution, and only limited testing of prototypes and "beta” • High risk! 40
  41. 41. AGENDA 1. Intro 2. Private equity financing 3. Debt and negotiation 4. Convertible loan 5. Equity - FFF - Business Angels - Venture Capital - Bootstraping 6. Business Model description 7. Why do companies fail?
  42. 42. Business Angel Networks in Catalonia 400 PRIVATE INVESTORS
  43. 43. Angel Investors HISTORY ... • Middle Ages: Catholic kings (Cristóbal Colón) • Begining of XXth century: BROADWAY • Medium of XXth century: SILICON VALLEY (HP) • ‘90: EUROPE • XXIst century: CATALONIA/SPAIN
  44. 44. Who where the first investors? 44
  45. 45. Usual implication from Angel Investors • Member of the Board of Directors • Coach / mentor. • Support in Crisis Management • Exit in the first financing round • Passive.
  46. 46. AGENDA 1. Intro 2. Private equity financing 3. Debt and negotiation 4. Convertible loan 5. Equity - FFF / Grants - Business Angels - Venture Capital - Bootstraping 6. Business Model description 7. Why do companies fail?
  47. 47. VCs in Catalonia VCS
  48. 48. Business accelerators Corporate Business Holdings programs Accelerators Of participated companies
  49. 49. THE 10 MOST COMMON LIES OF VCs 1. “I liked your company, but my partners didnt.” 2. “If you get a lead, we will follow.” 3. “Show us some traction, and well invest.” 4. “We love to co-invest with other venture capitalists.” 5. “Were investing in your team.” 6. “I have lots of bandwidth to dedicate to your company.” 7. “This is a vanilla term sheet.” 8. “We can open up doors for you at our client companies.” 9. “We like early-stage investing.” * Idea original Guy Kawasaki: http://blog.guykawasaki.com/2006/01/the_top_ten_lie.html 49
  50. 50. AGENDA 1. Intro 2. Private equity financing 3. Debt and negotiation 4. Convertible loan 5. Equity - FFF / Grants - Business Angels - Venture Capital - Bootstraping 6. Business Model description 7. Why do companies fail?
  51. 51. KEBAB ALLIANCES 51
  52. 52. Example of bootstraping • Humor sites: Asco de vida, Cuána Razón, Visto en FB,… • Initial investment: non existent • 5 sites • 300 million pages viewed / month. Internet allows bootstrap businesses
  53. 53. AGENDA 1. Intro 2. Private equity financing 3. Debt and negotiation 4. Convertible loan 5. Equity - FFF / Grants - Business Angels - Venture Capital - Bootstraping 6. Business Model description 7. Why do companies fail?
  54. 54. Alexander’s Osterwalder IP
  55. 55. AGENDA 1. Intro 2. Private equity financing 3. Debt and negotiation 4. Convertible loan 5. Equity - FFF / Grants - Business Angels - Venture Capital - Bootstraping 6. Business Model description 7. Why do companies fail?
  56. 56. Why do companies fail?  The business is under financed  Corporate expansion not enough planifyed or financed  Poor management  The business offers products or services which nobody can buy  Inability to adapt to a changing environment  Failure to control expenses  Poor execution which creates unsatysfied customers 5
  57. 57. Examples of failures • Iridium – satellite system from Motorola If big companies failed, everybody can fail
  58. 58. And, what happens if you fail? What do you risk? •Time (a lot) •Money (less) What can be reinforced? •Professional career •Personality •Self esteem •Learning from mistakes 58
  59. 59. And if you fail? 59
  60. 60. Contact with usSamba AccelBusiness Accelerator of scientificand technological start-upsPau Clarís, 95-4-208009 Barcelonainfo@sambaaccel.comwww.sambaaccel.comTwitter: @samba_accelVimeo: http://vimeo.com/40888891 60

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