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Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
Venture Capital Primer Rev6
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Venture Capital Primer Rev6

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Venture Capital Primer - Update

Venture Capital Primer - Update

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  • accelerate the commercialization process; creating an environment that supports technology-based businesses; facilitating partnerships between firms, Arkansas' universities and economic development organizations; helping firms obtain early-stage capital; providing mentoring services and expert assistance in technology, business, organizational management and marketing; and helping with legal and intellectual property matters.
  • Transcript

    • 1. Raising Capital to Fund Growth Jeff Amerine, PMP Technology Licensing Officer Adjunct Instructor, Entrepreneurship University of Arkansas Advisor, Innovate Arkansas [email_address]
    • 2.
      • Introductions
      • Financing Basics
      • Where’s the Money?
      • What’s Available in Arkansas?
      • Financing Sources
      • What Attracts the Money?
      • Recap / Q&A
    • 3.
        • BS, US Naval Academy 1984
        • MS, Operations Management – University of Arkansas
        • US Air Force Officer 1984-1990
        • System engineer, product manager, VP, CEO, CTO
          • 18 years in telecom and software technology development
          • 7 startup ventures
          • 3 Fortune 500s
        • U of A Technology Licensing Officer & Adjunct Instructor, Entrepreneurship
        • Staff Advisor, Innovate Arkansas
        • Manager & Investor, Gravity Ventures Arkansas
    • 4.
      • University of Arkansas Technology Licensing Office
        • Access to 100+ technologies developed at the UA
        • Team of business and intellectual property professionals
        • Mission:
          • Commercialize world-class research to build a sustainable knowledge-based economy to benefit Arkansas and the world.
        • http:// www.uark.edu/ua/tlo/index.html
    • 5. Innovation Center 535 Research Center Blvd
    • 6.  
    • 7.
        • Patents
        • Trademarks
        • Copyrights
        • Trade Secrets
      TM ©
    • 8.  
    • 9.  
    • 10.
      • What Does IA Do?
      • Accelerate the technology commercialization process
      • Facilitate partnerships between firms, universities and economic development organizations
      • Prepare firms to obtain early-stage capital
      • Provide expert assistance in technology, business, organizational management and marketing
      • Advise with legal and intellectual property matters
    • 11.
      • “I shall be telling this with a sigh
      • Somewhere ages and ages hence:
      • Two roads diverged in a wood, and I—
      • I took the one less traveled by,
      • And that has made all the difference.”
      • The Road Not Taken
      • By: Robert Frost
    • 12. $$ Time Seed Early Growth Mature / Expansion Adrenaline Junkies Growth Leaders Crank Turners Revenues Expenses
    • 13.
      • Passion and commitment: You have to be a true believer
      • Value proposition: Solves a real problem or meets a real need
      • The team: Onboard the bus and in the right seats
      • Competitive advantage: Better, faster, cheaper
    • 14.
      • Focus, focus, focus: Avoid trying to “boil the ocean”
      • Repeatable, scalable processes: Execution is key
      • Choose your customers well!
      • Remember accounting profits are great but cash is king!
    • 15.
      • How do I finance my startup??
      • Equity???
      • Debt???
      • Bootstrap???
      • Other???
    • 16.
      • Equity finance = selling shares or membership units
      • Advantages: Does not impact cash flow, higher risk tolerance.
      • Disadvantages: Loss of control; dilution of interest
    • 17.
      • Debt finance = taking a loan from a bank or individual
      • Advantages: Does not dilute ownership
      • Disadvantages: Loan payments, personal guarantees, banks don’t lend money to startups without assets
    • 18.
      • Bootstrapping= working for free or using “FFF” money
      • Advantages: May not dilute ownership, friendly terms
      • Disadvantages: Family issues, personal guarantees, not eating or having fun  ….
      Friends Family Fools
    • 19.
      • Government: Grants, SBIR/STTR, Loans, Recovery Act
      • Advantages: Does not dilute ownership
      • Disadvantages: Takes forever, political decision criteria, government rights and oversight
    • 20.
      • Angels
      • VCs
      • Strategic investors
      • Debt
      • Mezzanine
      • Public markets
      • Other
    • 21.
      • Mostly not here…but we are working on that point
    • 22.
      • Angel
        • Fund for Arkansas’ Future
          • $6M angel fund
          • Up to $500K investments
        • Gravity Ventures Arkansas
          • $>1M angel fund
          • $50K-100K investments
    • 23.
      • Public Sector Seed Capital
        • Arkansas Science & Technology Authority (ASTA)
          • Up to $50K-$300K in royalty/ debt financing
        • Arkansas Development Finance Authority (ADFA)
          • Risk Capital Matching Fund - $100K - $750K
      • Mezzanine
        • Diamond State I & II
        • Look for EBITDA positive growth stage companies
    • 24.
      • Other Investment Incentives
        • Arkansas Economic Development Commission
          • Equity investment state tax credits – 33.3%
          • Can be monetized and transferred
        • ASTA
          • R&D state tax credits – 33%
          • Can be monetized and transferred
        • Arkansas Capital Corporation
          • New Market Investment tax credits
          • SBA Loan Guarantees
    • 25.
      • Management Team, Management Team, Management Team
      • Intellectual Property that can be a barrier to entry
      • Customer traction – can the company execute?
      • Physical proximity to the investors
      • Other interested investors – nobody wants to be first
      • Entrepreneur skin in the game
      • Realistic valuation – this depends a lot on where you sit 
    • 26.
      • Angels
        • Typically high net worth individuals
        • Look to do very early stage seed investments
        • Often bring relevant domain knowledge
        • Occasionally form “Angel Funds”
        • This group can some times be broadened to include “ friends, fools, and family ”
        • Examples: Fund for Arkansas’ Future
    • 27.
      • VC Firms grew out of Silicon Valley in the 1950s
      • Largest concentration around R&D Universities
      • Desired returns: Typically a minimum of 10X
      • Examples: Kleiner-Perkins, Sevin-Rosen, NMP
      • Investment Preferences:
        • Proven management team
        • Intellectual property that creates high barriers
        • Customer traction
    • 28. Venture Fund LLP Limited Partners Venture Investments
      • Public Institutions
      • Individuals
      • Private Equity Firms
      • Mutual Funds
    • 29.
      • Successful VC funds:
        • Out of ten investments made after 3-5 years:
          • One big home run – at least 10X or more return
          • Four marginal survivors
          • Three on life support
          • Two total failures
      • “ 1 home run (10x) out of ten investments ” ……Chrysalis VC Fund
      • Historical Returns – High teens to >30%
    • 30. 1-2 Winners 10X Returns Due Diligence on 20 Investments Receive 1000s of Business Plans Read 1000s of Executive Summaries Invite 100s of Companies to Present Invest in 10
    • 31.  
    • 32.
      • Industry Preference
      • Stage Preference
      • Investment Size Parameters
      • Geographic Preference
      • Risk Balancing and Age of Fund
      • Fund Experience and Expertise
      • Due Diligence
    • 33.
      • Based on VC perceived risk, usually not the risk the entrepreneur sees
      • Four main risk categories:
        • Product/Technology risk
        • Market risk
        • Execution/Management risk
        • Financing Risk
    • 34.
      • No “standard” way to determine valuation!!
      • Examples:
        • Net Present Value of Discounted Cash Flows
        • Multiple of Annual Revenues
        • Multiple of Net Income
        • Multiple of Subscribers
        • Valuation by Comparison
        • Use of Valuation Tools – www.equitynet.com
    • 35.
      • Recommendation:
        • Look at the comparable companies in your space
        • Set your valuation within the range of the comps
        • Be conservative
      • Pre-revenue startups seldom have valuations greater than $1M-2M even with great IP and management
    • 36.
      • Term Sheet – a proposal to invest
      • Not binding
      • Outlines the deal points
      • Investment contingent on negotiation and due diligence
      • Key Points
        • Pre-money valuation
        • Post-money valuation
    • 37.
      • Pre-money valuation = $4M
      • Investment = $1M
      • Post-money valuation = $5M
      • VC ownership = $1M / $5M = 20%
      • VCs typical want preferred stock
    • 38.
      • Typical VC deal needs an exit in 5-7 years
      • Want a 10X return minimum
      • Play for capital appreciation
        • Example: $1M today = $10M @ Exit
        • VC Protections = Preferred Stock, Ratchets, Anti-dilution
        • VC Ownership will “Ratchet-up” if company misses milestones
    • 39.
      • Key Points to Negotiate
        • Board of Directors
        • Vesting & Acceleration
        • Option Pool & Acceleration
        • Preferred Stock
        • Anti-Dilution Protection
    • 40.
      • Comprehensive review of everything
        • Management references
        • Market size & need
        • Sales Pipeline & Customers
        • Strategic relationships
        • Financials
        • Intellectual property
        • Legal issues
      • Grueling process that will find the BS!
      • Can last 30-90 days
    • 41.
      • Entrepreneurs’ Disease: 100% X 0 = 0
      • Unrealistic valuations
      • Lack of preparation for having a VC “help” run your company
    • 42.
      • Excellent management that has a track record
      • Intellectual Property or Subject Matter Expertise that creates a competitive barrier
      • Solves big problems in big markets - $1B++
      • Customer traction – i.e. somebody will buy your widget
      • Entrepreneur “skin in the game”
    • 43.
      • Skype
        • VOIP service provider
        • Revenues based on “eyeballs”, advertising or some such
        • No cost for PC-to-PC calls
        • Initial VC investors:
          • Draper –Richards: Bill Draper and Howard Hartenbaum - $250,000 initial investment
        • Sells to eBay in 2006 for $2.1B
        • Initial VCs make 1300X return on their initial investment
      Irrational Exuberance?? Possibly, but some big hits still happen – RARELY.
    • 44.
      • Guy Kawasaki interviews:
        • Mike Moritz, Sequoia Capital and Paul Graham, Y Combinator
        • http://www.building43.com/videos/2009/08/07/fireside-chat-money-and-passion/
    • 45.
      • Existing Fortune 500 firms
      • Look to invest in technologies that can benefit their business portfolio
      • Open to “Extrapreneurship” i.e. spin-outs
      • Create their own venture funds
      • Examples: GE, IBM, Intel, Honda, NEC, Chevron
      • Upside: Can bring tremendous market access
      • Downside: Very slow moving typically
    • 46. Honda Strategic Venturing (HSV) Strategic venture investment arm of the global Honda R&D organization .
      • Window to Global Innovation : Create new value jointly by bridging the outside entrepreneurs and our internal R&D through venture investing
      • Spinout of Internal R&D projects : Develop new businesses via technology carve-outs which find a better commercial fit outside of Honda
      • Entrepreneurship at Honda R&D : Enhance Honda’s innovation spirit by harnessing entrepreneurship in the global venture community
    • 47. Drive Innovation
    • 48. Alternative Energy
      • Fuel cell, hydrogen reformer
      • Battery, Bio-fuel, Solar energy
      • Energy harvesting
      Robotics Communication for Mobility
      • Sensors, Gyros, Radar
      • Actuators, Motors
      • Image processing, voice recognition
      • Wireless Communication
      • In-vehicle network
      • Human machine interface
      Advanced Materials
      • High performance materials: coating, fabric, rubber, structure, nano
      • Functional materials: catalysts, membranes, electrodes
      High Interest Technologies
    • 49.
      • Target:
        • Game-changing technologies
        • Technologies that can contribute to Honda’s R&D road map
      • Primary Interest: Mutual Strategic Value
        • We offer:
          • Funding
          • Joint development with Honda R&D
          • Product / Market knowledge
        • We seek:
          • Board observer rights
          • Strategic commercial rights
      • Investment Size:
        • Seed-to early-stage:
          • HSV Fund (Honda’s technology venture fund w/ partner Atrium)
        • Mid-to late-stage:
          • Honda Motors direct investment
    • 50.
      • Some venture firms focus on debt
        • Gives first preference on assets
        • Can be convertible to equity
        • Avoids/limits shareholder dilution…
        • But it has to be paid every month
        • Examples: Western Tech Investments, Silicon Valley Bank, Commercial banks/SBA loans
    • 51.
      • Growth financing to get to liquidity event
      • Targeted at profitable companies that need to scale
      • Last stage financing before M&A activity or IPO - 
      • Typically $10M-$100M or more in financing
      • Can be debt/equity and is typically a syndicate of private equity funds
    • 52.
      • Forget about it….
      • Post 2001 - virtually unavailable
      • Sarbanes-Oxley (SOX) requirements have a further stifling impact
      • Not a good exit or liquidity strategy for US-based tech startups at this point
      • Some rare exceptions still arise…
    • 53.
      • US Government
        • SBIR/STTR funding can be a great source of seed, pre-seed funding
        • Universities know how to get this funding
        • No dilution, no equity, and no debt
        • Some Incubators use this to get companies rolling:
          • Virtual Incubation Company (VIC)
        • Process can be slow and involved
    • 54. $$ Time Seed Early Growth Mature / Expansion Angels VCs Strategic Investors Debt Investors Revenues Revenues Expenses Mezzanine Bootstrap – self financing SBIR/STTR
    • 55.  
    • 56. University R&D Technology Engine Entrepreneurial Culture Available Venture Finance
    • 57. University R&D Technology Engine Entrepreneurial Culture Available Venture Finance
    • 58.
      • The Road Less Traveled – new ventures are critical to our economic health and success!
      • The team, the plan, and a good finance strategy are key
      • A “startup culture” has to be nurtured
      • Arkansas is taking steps to create the right environment
    • 59. Raising Capital to Fund Growth Jeff Amerine, PMP Technology Licensing Officer Adjunct Instructor, Entrepreneurship University of Arkansas Advisor, Innovate Arkansas [email_address] “Techpreneurship Blog” http:// blog.innovatearkansas.org

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