Towards the futureStartups & Innovation      March 19, 2013 Alexander M Orlando, DBA  amo@partners500.com
AgendaInnovators & Innovators What are the financing options?   How to attract and engage investors?     Deal structure an...
Innovator’s Ranks                  Seeders                                Sellers            Individuals that inspire     ...
Innovators’ Style                              Seeders                                         Sellers                    ...
Innovator’s Score      Calculate your innovators score on      www.innovahub.comInnovaHub
A big undertaking• Starting a business is a big commitment  – Energy & Passion  – Time  – Financial resources (yours and y...
Key questions about you• Why am doing this  – Make money  – Lifestyle  – “Change the world”• How long do you want to commi...
Key questions about the business• Be honest with yourself about the risks /  unknowns  – Do customers want the product / s...
questioncan you do an elevator pitch?                            your idea…
and an audience…
45 Seconds!! YES 45.
Introduction     10 secProblem Solved   15 secYour Vision      10 secRequirements     10 sec
IMPOSSIBLE?
3 keywordsto        describe             your                  idea
picture your idea              an effective elevatorpitch is illustrative and tangible.
your pitch should be clearrather than being filled with …
be conciseAn effective elevator pitch containsas few words as possible and does not go intotoo much unnecessary        det...
keep your eyes shut whilesomeone reads your text out loud and  videotape your presentation
Overview of financing optionsNon-Equity Financing   Equity Financing                       Angel Financing  Self Finance /...
Self financing / bootstrapping•   Financing growth from previous cashflow and personal funds•   Obviously need to have cas...
Debt / bank finance• Relatively limited funds will be available ; likely to  want security anyway• Banks only lend to pred...
Good reasons to raise equity finance     Pre-requisites                                                Large Potential    ...
When NOT to raise VC  Application                          Market size is              Motivation is is a feature         ...
Equity Financing                                     Early Stage     Later Stage    Pre-IPO /    Private                  ...
Venture Capital – How the VC makes money•   Raise fund every 2-4 years     – Pension funds, financial institutions and spe...
Angels – How the Angel investor makes money•   Unlike the VC the Angel invests their own money•   Much smaller absolute re...
Venture Capital – What a good VC will add • Advice and Strategy         • Internationalisation • Hiring                   ...
What does an investor look for?  Team                       Technology               Traction  •   Can   evaluate each as ...
Identifying relevant VC partners               Has funds                to invest                                         ...
Getting on radar screens• Out of the blue email is a longshot• Try to build context   –   Analyse portfolio companies – ar...
Sharing relevant information    Pre - first meeting                 Pre - termsheet               Post - termsheet•    100...
Types of investment•   Ordinary Share investment     – Simplest form, often used by angels     – All shareholders have sim...
Venture Capital – “Typical Deal Terms”         •     Board Representation         •     Liquidation Preference         •  ...
Alexander M Orlando, DBA amo@partners500.com
Towards the Future of Innovations & StartUps
Towards the Future of Innovations & StartUps
Towards the Future of Innovations & StartUps
Towards the Future of Innovations & StartUps
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Towards the Future of Innovations & StartUps

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An in depth look at the Innovator's Types and Styles and how they play a role into Innovation today. Funds4Founders by Partners500

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Towards the Future of Innovations & StartUps

  1. 1. Towards the futureStartups & Innovation March 19, 2013 Alexander M Orlando, DBA amo@partners500.com
  2. 2. AgendaInnovators & Innovators What are the financing options? How to attract and engage investors? Deal structure and what to expect during the investment process
  3. 3. Innovator’s Ranks Seeders Sellers Individuals that inspire Inventors or innovators that through their wishes seek to to sell, license, or innovation fund their inventions. Solvers Seekers Professionals that utilize their skills Entrepreneurs, organizations, and and knowledge to propose investors that are looking for new innovative solutions for a prize. ideas, solutions, or inventions. © 2013 Alexander M Orlando , DBAInnovaHub
  4. 4. Innovators’ Style Seeders Sellers Solvers Seekers © 2013 Alexander M Orlando, DBAInnovaHub
  5. 5. Innovator’s Score Calculate your innovators score on www.innovahub.comInnovaHub
  6. 6. A big undertaking• Starting a business is a big commitment – Energy & Passion – Time – Financial resources (yours and your investors)• Before thinking of financing, is worth taking a deep breath …
  7. 7. Key questions about you• Why am doing this – Make money – Lifestyle – “Change the world”• How long do you want to commit?• What level of financial risk are you prepared to take?
  8. 8. Key questions about the business• Be honest with yourself about the risks / unknowns – Do customers want the product / service? – Do you have the competence to build the product and the team – Can you monetise the product / service? – How competitive is / will the space be? – How big can the overall market become?
  9. 9. questioncan you do an elevator pitch? your idea…
  10. 10. and an audience…
  11. 11. 45 Seconds!! YES 45.
  12. 12. Introduction 10 secProblem Solved 15 secYour Vision 10 secRequirements 10 sec
  13. 13. IMPOSSIBLE?
  14. 14. 3 keywordsto describe your idea
  15. 15. picture your idea an effective elevatorpitch is illustrative and tangible.
  16. 16. your pitch should be clearrather than being filled with …
  17. 17. be conciseAn effective elevator pitch containsas few words as possible and does not go intotoo much unnecessary detail.
  18. 18. keep your eyes shut whilesomeone reads your text out loud and videotape your presentation
  19. 19. Overview of financing optionsNon-Equity Financing Equity Financing Angel Financing Self Finance / Venture Capital Bootstrapping Debt / Private Equity Bank Finance Public Stock Markets
  20. 20. Self financing / bootstrapping• Financing growth from previous cashflow and personal funds• Obviously need to have cashflows…• Most good bootstrapped companies emerge from a service or consulting companies that are productising their offering• Pros – Bootstrapped companies almost always spend cash more effectively than equity financed companies – Already being close to existing customers, give excellent ability to understand problems and define good solutions• Cons – Resources for product and market dev constrained by cashflows – May miss a big opportunity if other players raise finance and invest heavily
  21. 21. Debt / bank finance• Relatively limited funds will be available ; likely to want security anyway• Banks only lend to predictable businesses they can understand• If your capital requirements are limited and your business is following a well trodden path, can be a useful source of finance• Not particularly useful web or high growth tech industries
  22. 22. Good reasons to raise equity finance Pre-requisites Large Potential Unique Product Passionate Market Or Concept Founding Team Opportunity Implications… Intense Need to move competition rapidly likely VC funding supports Rapid Product Hiring Partnerships Development Internationalisa Commercialisati Infrastructure tion on
  23. 23. When NOT to raise VC Application Market size is Motivation is is a feature too small not financialnot a product• Risk is not that you waste time unsuccessfully trying to raise finance …• … real danger is that you do succeed in raising VC funds – Lose opportunity for small exit which could be personally lucrative – Lose opportunity to run lifestyle business – Get bound in to 3+ yrs work you may not enjoy
  24. 24. Equity Financing Early Stage Later Stage Pre-IPO / Private Seed Series A, (B) (B),C,D… Buy-out EquityInvestment Size 0 - €1m €2m-€20m €5m-€20m €30m+Potential Grant-funding Venture Venture SpecialistSources of Capital Capital Late stageFunds University seed tech funds (Wealthy) investment Angel funds Friends and investors family Hedge Funds Angel Investors (Venture Capital)
  25. 25. Venture Capital – How the VC makes money• Raise fund every 2-4 years – Pension funds, financial institutions and specialist “fund of fund” investors• Invest money over 3-5 years ~ 1/2 of investments lose money ~ 1/3 of investments break even ~ 1/6 of investments make (lots) of money• Very small management fee on funds managed ~ 1-2.5% pa• Carry ~ 20-25%x (Total Return – Total Amount Invested)
  26. 26. Angels – How the Angel investor makes money• Unlike the VC the Angel invests their own money• Much smaller absolute returns can be very meaningful to an angel• The Angel approach is to invest small amounts at a very early stage / low valuation – €50-€250k at valuations of €500k-€4m• Two “exits” for angel – Firm might be sold quickly for €5-10m or less where the Angel can make 2-5x money – Firm raises VC money, after which Angel typically becomes more passive but has built up exposure very cheaply to a venture backed enterprise• The key thing when selecting an Angel therefore is whether they can help you raise VC finance – See which Angel investors have invested with which VCs
  27. 27. Venture Capital – What a good VC will add • Advice and Strategy • Internationalisation • Hiring • Trusted service – Developers provider relationships – Country Managers – Search / recruiting – Sales – Branding / PR – CEO / CFO / COO – Finance, etc – Advisory Board • Exit optimisation • Partnerships – Knowledge / contacts with relevant buyers • Profile and PR – Experience with process • Further access to capital
  28. 28. What does an investor look for? Team Technology Traction • Can evaluate each as – Exceptional – Good / credible – Mediocre / incomplete • Misconception that being good / credible across the board is what VCs look for – Can always add credible attributes to the mix later • We focus on finding opportunities which rate as exceptional in one attribute
  29. 29. Identifying relevant VC partners Has funds to invest • Do create a shortlist • Rifle is a better weapon than a Match of shotgun Excellent Size/Stage/track record Geography Shortlist • Similar process for identifying angels, look at VC funding press releases to identify prior Angel investors No directly Relevant competitive Portfolio investments
  30. 30. Getting on radar screens• Out of the blue email is a longshot• Try to build context – Analyse portfolio companies – are there any links there? – Analyse contact network and advisors – Analyse press coverage – Participate in blog conversations – Attend events and conferences – Relevant PR around product also helps• VCs spend their time looking for businesses with momentum
  31. 31. Sharing relevant information Pre - first meeting Pre - termsheet Post - termsheet• 100 page business plan not • Dialogue rather than • Some additional required documentation – expect reference calls with• 20 page ppt which clearly lots of meetings partners / customers answers main questions is best • Calls with current / • Personal reference calls bet prospective customers or – • Legal / accounting audit Product partners (if relevant) – Market • Meeting broader team – Business Model • Drafting legal – Team • Brainstorming around documentation – Competition strategy – Product Roadmap • Identifying key hires post – Technology Overview closing – Business Development • Formal presentation to – Financial Status VC partnership 2-4 weeks 1-2 Months
  32. 32. Types of investment• Ordinary Share investment – Simplest form, often used by angels – All shareholders have similar rights – Company Board composed according to• Convertible Loan – Sometimes used by both Angels and VCs – Typically when another financing is anticipated soon – Loan will convert (with a discount ~25%) into the next financing round• Preferred Share Investment – Typical Structure used by VCs and occasionally larger Angels investing as a group
  33. 33. Venture Capital – “Typical Deal Terms” • Board Representation • Liquidation Preference • Participation rights • Anti-dilution rights • Element of reverse vesting • Certain control and veto rights • Period of exclusivity to close legalsPhoto Source: Philip Greenspun, MIT
  34. 34. Alexander M Orlando, DBA amo@partners500.com
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