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Debt fin philip Debt fin philip Presentation Transcript

  • Alternative Funding Sources & Debt Financing Philip G. Korn - Senior Vice President Emerging Technologies Silicon Valley Bank March 3, 2001
  • A Bit About SVB - Who We Are
    • Only US commercial bank that focuses exclusively on entrepreneurs developing early stage tech and life sciences companies
    • Established 1983, NASDAQ listed under SIVB
    • 1,000 employees located in 25 offices serving 9,000 clients nationwide
    • Financing partner with VCs and more recently the much broader angel and incubator community
    • Focus on relationships - never too early to open an account
  • Chicago, IL Phoenix, AZ San Diego, CA Northern Virginia, VA Boston, MA Atlanta, GA Austin, TX Boulder, CO Seattle, WA Portland, OR Napa Valley, CA Sand Hill, CA Palo Alto, CA Santa Clara, CA Los Angeles, CA Irvine, CA SVB SVB SVB SVB SVB SVB SVB SVB SVB SVB SVB SVB SVB SVB SVB SVB SVB Santa Barbara, CA SVB SVB Sonoma, CA SVB Minneapolis, MN Philadelphia, PA SVB Dallas, TX SVB 25 offices nationwide with clients in all 50 states Silicon Valley Bank is the the source of financial services for early-stage companies throughout the United States…
  • 2000 IPO Clients @Road, Inc. Aclara Biosciences Inc. Advanced Power Technology, Inc. AeroGen, Inc. Alliance Fiber Optic Products, Inc. Applied Molecular Evolution, Inc. Apropos Technology, Inc. Argonaut Technologies Array Biopharma, Inc. AvantGo, Inc. Avenue A, Inc. Centra Software, Inc. Ciphergen Biosystems, Inc. ClickSoftware, Inc. Corillian Corp. CoSine Communications, Inc. CrossWorlds Software, Inc. Cypress Communications, Inc. Deltagen, Inc. DigitalThink Inc. DURECT Corporation Dyax Corp. Eprise Corporation Esperion Therapeutics, Inc. Evergreen Solar, Inc. Evoke Communications, Inc. Exelixis Inc. Genomica Corporation Handspring, Inc. HealthGate Data Corp. iBEAM Broadcasting Corp. I-many, Inc. inSilicon Corporation InterMune Pharmaceuticals Inc. IntraBiotics Pharmaceuticals, Inc. Lightspan Partnership, Inc. Mainspring Communications, Inc. MatrixOne, Inc. McData Corporation Moldflow Corporation Neoforma.com, Inc. Network Engines, Inc. Nogatech, Inc. Nuance Communications, Inc. Numerical Technologies, Inc. OmniSky Corporation Opus360 Corporation OraPharma, Inc. Oratec Interventions, Inc. Organic Inc. Pixelworks, Inc. Quantum Effect Devices, Inc. Rosetta Inpharmatics, Inc. Selectica, Inc. Sequoia Software Corporation Sonic Innovations Inc. Sonus Networks, Inc. Speechworks International, Inc. Support.com, Inc. T/R Systems, Inc. Talarian Corporation Triton Network Systems, Inc. Vicinity Corporation ViryaNet Ltd. webMethods, Inc. Websense Inc. Witness Systems The companies highlighted above represent some, but not all, of Silicon Valley Bank’s current clients which completed initial public offerings during 2000.
  • Q3 2000 IPO Clients
  • Silicon Valley Bank Northern California banking niches include the following: TECHNOLOGY & LIFE SCIENCES - ANGEL / INCUBATOR / BOOTSTRAPPED Emerging Technologies : TECHNOLOGY & LIFE SCIENCES - VENTURE BACKED Online Services Communication & Electronics Software Life Sciences 8
  • Other Bank Products & Groups
    • Commercial Finance
    • eSource
    • Executive Banking
    • Cash Management
    • Corporate Finance
    • Venture Capital Group
    • Supply Chain Services
    • International
  • Recent Bank Developments
    • Closed on $120 million “fund of funds”
    • Closed on a $60 million Venture Fund to invest in bank clients (passive investments)
    • Emerging Tech Showcase series
    • New offices in San Francisco, NY and FL
    • Electronic Banking (SVBeConnect)
    • Venture Connect
  • SVB Emerging Tech Client Focus
    • 1,100+ early stage technology companies
    • Similar client hurdles - funding, management team, product development, strategic alliances
    • Leverage existing cash with SVB credit facilities.
    • Connect clients with other service providers (accountants, attorneys, HR and PR firms)
    • Work closely with angel investors, professional angel organizations & technology incubators.
    • Provide access to networking opportunities and referral sources.
  • SVB Emerging Tech Client Focus (cont’d)
    • Understand the needs of early stage non-venture capital backed technology & life sciences clients.
    • Act as a business consultant to our clients as opposed to solely being their banker
    • Selectively take on clients with a high probability of success.
  • Typical Needs Early On
    • Standby Letter of Credit
    • Corporate credit cards
    • Equipment Financing
    • Referrals for office space, controller, recruiters
  • Debt Financing 12
  • Bank Debt Is Defined As: 12 From
  • Debt financing has one key difference from equity: IT MUST BE PAID BACK! 12
  • Debt Financing
      • Who is ready to take on debt,
      • What type of debt is appropriate,
      • Why should you use debt,
      • When to layer on debt, and
      • How much to obtain
    12
  • Early Stage Debt Financing Typical Hurdles
    • Lack of track record (alpha, beta)
    • No revenues or minimal revenues
    • Lack of alliances
    • Strong competition (certain industries)
    • Incomplete management team
    • Short window of opportunity
    • 3-6 months cash on hand
  • Early Stage Debt Financing Typical Strengths
    • Founders’ technical/marketing expertise
    • One or more well connected angel investors
    • Well focused and well defined business plan
    • Board of Advisors that can validate company
    • Quality service providers
    • ***Enthusiasm and ability to execute
  • Debt Financing Vehicles: ( Who, What & When) Stage of Development / Financial Profile R&D Product Launch Market Penetration Maturity Cash Flow Negative Cash Flow Positive Available Debt Financing Venture Leasing Niche Banking Factoring Asset Based Traditional Banking 13
  • Debt Financing: (Why)
    • Basic Concepts:
    • Debt is less expensive than equity. Utilize debt financing whenever available.
    • Debt Financing is used to leverage existing equity, not replace it, in an effort to improve valuation.
    • Debt finances growth in assets:
    • Accounts Receivable Growth
    • Capital Expenditures
    • Business Acquisitions
    12
  • Underwriting Criteria: (How)
    • Management Team ?
    • Investors ?
    • Advisors ?
    • Market size and market growth ?
    • Defensible Business Plan / Technology -- What is your IP ?
    • Cash Generation/Burn Rate ?
    • Future Milestones for Funding ?
    • Sources of repayment ?
    14
  • Sources of Repayment: (We need 2)
    • Cash on Hand
    • Future Equity Rounds
    • Cash Flow:
      • Existing
      • Projected/Future (how certain)
    • Guarantors
    14
  • Financial Covenants
    • Simply Designed To Protect Sources of Repayment
    • Should be Established as per Company Projections
    • Violations Viewed as Red Flags
    • Must Match Structure of the Debt
    • Working Capital: Current, Quick and Leverage
    • Term: Debt Service, Profitability and Tangible Net Worth
    14
  • What we expect from our borrowers
    • Frequent and open communication
    • Access to management, advisors, investors, alliance partners, service providers and customers
    • Timely and Accurate Financial Reporting: Must have systems in place
    • Hold the Company to self-generated projections
    • Contingency planning
    15
  • Summary
    • SVB is far more than just a source of credit but additionally a trusted advisor.
    • Establish the banking relationship early and keep us informed as you accomplish your milestones and face new milestones.
    • Bank debt can be a key component in a growth company’s overall capitalization. It is inexpensive relative to equity and will allow you to build your valuations without spending precious equity cash.
    • Look for a Bank that understands your business, is committed to technology lending, and welcomes start-ups !
    16
  • Q & A