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Incubes presentation accessing venture capital too early 2013 08 21


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This presentation is being given to Cohort 4 of Incubes, an accelerator to Canada's leading internet companies. This presentation is the 6th in a series of 6 presentations delivered on subjects …

This presentation is being given to Cohort 4 of Incubes, an accelerator to Canada's leading internet companies. This presentation is the 6th in a series of 6 presentations delivered on subjects related to accelerating your business for entrepreneurs.

Published in: Economy & Finance, Business

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  • 1. Mentoring Presentation Pros of Cons of Accessing Venture Capital too Early & Some of the Pitfalls to Avoid
  • 2. Agenda • Meet & Greet • Introductions • 90 Second Company Elevator Pitch • Pros and Cons of Accessing Venture Capital • Some Pitfalls to Avoid • Q & A • Future Topics
  • 3. Superhero of the Modern World
  • 4. Equity Capital Life Cycle Cash flow Salesand profit Introduction Growth Maturity Decline Time R & D Pre-Seed & Seed Start-Up Sales Round 1 Round 2 Grants / Love Money $ Angel $ VC $ VC $ Exit Angel $ Concept and product development Profit
  • 5. Financing Alternatives • Personal Financing • Business Loans • Government Grants • Accelerators • Angel Investors • Asset Backed or Receivables Lending • Venture Capital • Bank Debt
  • 6. Venture Capital Investment • Cdn VC’s invested $460 mm in Q1‘13 is up 55% from Q1’12 • Disbursements to 137 companies up 17% ‘13 vs. ‘12 • Ave investment increased to 3.4m Q1’13 from 2.5m in Q1’12 which is only 49% of that seen in the US in Q1’13 for like firms • VC investment in Cda is DN fr 5.9b in ‘00 to 1.5b in ’12 which was similar to ‘11.
  • 7. Venture Capital Investment • Q1’ 2013 Clean Tech 180m, IT 150m & Life Sci 40m • Q1’ 2013 had 15 exits with 2 doing IPO’s and the remainder seen as been strategic. In 2012 there were only 30 exits for the entire year • Fundraising is DN 44% in Q1’13 to 381m of which 178m from retail investors, 100m from single fund entity & 78m foreign • Only 3% of the universe of venture capital firms generate 95% of the industry returns
  • 8. Venture Capital Investment • For entrepreneurs, choosing the best financing model for their start-up isn’t a luxury – it is a necessity • The terms you will be offered will be commensurate with the value you have created. Sales = Higher Valuation • VC’s money comes from LP’s which is mostly institutional
  • 9. Venture Capital Pros • Small piece of a big company is better than a large piece of a small company • Their goal is to grow the company quickly and exit. • Deep pockets for follow on financing • Allows you to focus on the business rather than constantly raising $ • VC firm name helps & signaling positive • It is their FT Job to help you succeed • Industry expertise
  • 10. Venture Capital Cons • You have to qualify • Often looking for exit in short time frame • Negotiations tend to be one sided • Legal costs of documentation are high • Equity has a higher cost than debt +30% • Staff & time commitment for due-diligence • Reduced control or determination of business • VC’s ask for and get better terms than Angels
  • 11. Venture Capital Cons • Your business is exposed to the VC’s funding cycle and market uncertainties • One author referred to VC’s as a last resort • May control board decisions • Follow on Financing requires higher valuations to support VC’s valuation • Funding is down and VC’s are taking less risk. • Series A crunch
  • 12. Pitfall’s • Complex covenants based on performance metrics • Inordinately thick documents • May replace management • Liquidation preference • Anti-dilution clauses • Loose control of the direction of your company • May hold veto rights or rights to sell company • Signaling effect (VC in seed rnd & passes nxt rnd)
  • 13. Do it Your Way - Parting Thoughts • Over 90% of all businesses are started and grown with no equity financing • VC is the OPM (Other Peoples Money) drug of Start-ups • Oct’12 Profit Hot 50 - Seed Financing – 98% Founders own capital, Growth Capital – 62% Founders own Capital • Control your destiny until you create sales • Eyes Wide Open and be well researched
  • 14. Profit Magazine’s Hot 50
  • 15. Profit Magazine’s Hot 50 2012 Top Performers
  • 16. Future Topics 1. Bootstrapping a Company & Exec Summary 2. Preparing a Pitch for Investors 3. Terms to expect from an Investors Term Sheet 4. Accessing Capital from a Angel Network 5. Forming an Advisory Board 6. Pros of Cons of accessing Venture Capital too early & some of the pitfalls to avoid
  • 17. Gerard Buckley, BBA, FICB, ICD.D President and CEO Jaguar Capital Inc. (C) 416-884-9522 (W) 416-646-6789 @jaguarcapital @gerardbuckley