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Young Entrepreneurs Roundtable

Young Entrepreneurs Roundtable



Presntation to Columbia and Harvard GSB Young Entrepreneur Roundtable Fall 2008 hosted by Erica Duignan Minnihan and Jolyne Caruso Fitzgerald

Presntation to Columbia and Harvard GSB Young Entrepreneur Roundtable Fall 2008 hosted by Erica Duignan Minnihan and Jolyne Caruso Fitzgerald



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    Young Entrepreneurs Roundtable Young Entrepreneurs Roundtable Presentation Transcript

    • Young Entrepreneurs Roundtable Jolyne Caruso Fitzgerald Erica Duignan Minnihan November 6 th , 2008
    • Market Conditions
      • The Major Equity Indices are off over 40%
      • Credit spreads are at prohibitive levels
      • M&A slowing – focus on strategic deals
      • Number of VC deals down 13% Q3 v. Q2
    • Things You Probably Already Know
      • This is not good news for any start up – cost of capital spike
      • Credit driven crisis compounds challenges
      • Bootstrapping will become mandatory for most
      • Risk premiums rise for seed investment – valuations down
      • Your projections and valuation will be “Buzz Cut”
    • What Angels are Thinking
      • Net worth is down substantially
      • Personal liquidity is reduced
      • Existing investments need follow on dollars – debt and equity
      • Down rounds for portfolio
      • Exit opportunities diminished
      • Cash to survive downturn is paramount – less VC funds
      • Execution risk gains importance
    • “ Angels need to be honest with themselves and not ignore the reality of limited resources available to do new deals even while ‘protecting our own children.’  In the coming months alluring new opportunities will have to be reviewed in light of the blight of our existing children.” John May – Chair Emeritus Angel Capital Association October 14, 2008
    • What VC’s are thinking
      • It’s time to “batten down the hatches”
      • Spending must be controlled NOW
      • Earnings and Growth Assumptions must be reduced in light of new economic conditions
      • Worst case scenarios assessed
      • Reduce debt to weather slowdown
      • Second rounds are not inevitable
      • Get cash flow positive ASAP
    • "During the bubble, something like 1,600 companies were funded… I see VCs clearing out a minimum of one-third plus of those investments… It’s why you have to keep your powder dry. You really have to watch what’s going on." Marty Pichinson – Sherwood Partners October 24, 2008
    • What Entrepreneurs Are Thinking
      • Credit cards and HELOCs limited
      • Cash conservation is first priority
      • Avoid “death spiral financing”
      • Reduce fixed costs
      • Generate internal cash flow
      • Revaluate customer base
      • Slow recovery mandates survival mode
    • Deals Getting Done
      • Companies that benefit from the downturn or are “recession-proof”
      • Companies that save consumers money – BillShrink - $8mm Srs. B
      • Reliable customer base with ability to pay – Higher One - $75mm
      • “ Must have” products, no luxuries
      • Hot Sectors: clean tech, software
      • Low follow on capital requirements
      • High level of scalability
    • Q3 2008 Deals By Stage
      • # Deals Funded Q3 08
      • Startup/Seed – 348
      • Early Stage – 742
      • Expansion – 913
      • Later Stage – 927
      Percentage of Total Capital Invested by Stage Source: PricewaterhouseCoopers/National Venture Capital Association
    • Q3 2008 VCs invest $22.6 billion Source: PricewaterhouseCoopers/National Venture Capital Association
    • Investor Priorities Shift
      • Growth Sectors – Clean Tech
      • Scalability – Software
      • Proven Revenue Model
      • Recurring Revenue
      • Path to Market Acceptance is clear
      • Customers have the ability to pay
      • Proven management, no room for error
    • What Deals Look Like Now
      • Valuations are down significantly
      • Hurdle rates are harder to meet
      • Exit scenarios are less lucrative
      • IPO market closed, M&A market slow
      • Fundamentals and quality earnings rule
      • Investors are conserving cash for follow on rounds in portfolio companies
    • Angel stage valuations trend lower Chart and Data Provided by Angelsoft
    • Getting Your Deal Going
      • You have an idea or business you think can attract funding in this environment
      • Creating a capital strategy to access the market efficiently
      • Understanding Investor Momentum
      • Syndicating your deal across groups/firms
      • What and who you need to close the deal
    • Angels looking for the top 1% Chart and Data Provided by AngelSoft
    • Strong Capital Strategy
      • What is your capital strategy?
      • Does it make sense?
      • Should you be raising more/less now?
      • Are you looking for the right amounts?
      • Angels - $500K-$1 mm
      • VC’s - $5 mm +
      • Money should last at least 18 months
      • Must be worth 10X post money in 3-5 years
    • Harness Investor Momentum
      • Being prepared for due diligence allows you to take advantage of momentum
      • Even the time of year is important
      • Who is championing your deal?
      • Connect with individuals who will support you before you make your presentation
      • Know the outcome of the meeting before you go in, have an advocate
    • Syndicating Deals
      • Angel Investor groups work cooperatively
      • They will talk to each other and will almost never “compete” for your deal
      • Most investors prefer you raise more, rather than less capital in early rounds
      • Having a few groups interested will speed the process and can raise valuation
      • Be sure to appoint a lead group and encourage diligence sharing to speed the process along
    • Closing the Deal
      • Attracting interest can be easy
      • Closing funding is the tough part
      • Having a top notch board helps you close
      • Who should be your Board of Advisors
      • How do you recruit people for your BOA
      • What is involved with being on the BOA
      • How can your BOA help you close funding
    • Your Board of Directors
      • What is the role of the BOD?
      • Who will be on the BOD?
      • When do I need to create a BOD?
      • How can having good Board Members help me get funded?
      • What should I be cautious about in choosing my Board?
      • What do I need to provide the BOD?
    • The Right Investors
      • What are you looking for in an investor?
      • How can you use networks to raise capital
      • Investors who understand your industry
      • Investors who have a history with you
      • Investors who can add value
      • Rolodex access, expertise, intro to follow on capital
    • Resources and Reading
      • “ Extending the Runway” – David Berkus
      • “ Art of the Start” – Guy Kawasaki
      • “ Winning Angels” – Amis and Howard
      • www.angelinvestmentjournal.com
      • www.unh.edu/cvr
      • www.angelcapitaleducation.org
      • www.kauffman.org
      • www.angelsoft.net
    • Q&A