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Ideas To Deals 8 27
 

Ideas To Deals 8 27

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How to prepare to seek and pitch investors from Ideas to Deals Live, 8-27-09

How to prepare to seek and pitch investors from Ideas to Deals Live, 8-27-09

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    Ideas To Deals 8 27 Ideas To Deals 8 27 Presentation Transcript

    • Ideas to Deals Building an Investment Ready Business
      • “ In preparing for battle I have always found that plans are useless, but planning is indispensable.”
      • - Dwight D. Eisenhower
      • Build A Business
      • Make Meaning
      • Make a difference
      • Make Value
      • If you succeed in building a business, either funding sources will be fighting to give you money or you won’t need their money.
      • Key to Writing an Operating Plan
        • Do it for you.
        • Keep it simple.
        • Keep it real.
        • Internalize it.
        • Work it.
      • The key to funding is knowing your business and being honest about what you have.
      • Can you answer this:
      • What do you do?
      • OK…
      • Can you put it in a box and sell it?
      • What kind of Business Do
      • You Have?
      • Scaleable, Exponential Growth, Defined Exit?
      • Heavy Service Component, Slow/high Growth, No Exit?
      • Who is out there to buy our Product?
      • How do we get them to buy our product?
        • What is it all Worth?
          • Valuation
          • Valuation of early-stage companies is a little short of random.
          • Valuation is negotiated, there are no hard numbers especially for early-stage companies.
          • Provide a good projection of future value at a potential, future liquidity date and discount back.
          • Know comparables…What other companies, similar to yours, have generated what multiples of sales at liquidity.
          • Build value as you build the company ~ Focus on “Value Inflection Points”.
          • Focus on dollars not percentage
            • 10% of a $20 million company is worth more than 100% of a $1 million company.
          • Key Valuation Issues
          • Know what investors look for and expect.
          • Make sure you and the investors are on the same page. Good investors will want you to have a fair percentage of the company.
          • Know why these things are important to investors.
          • Understand the factors that influence value
          • Anticipate investor questions.
          • Look at competitive deals.
          • Learn from the process ~ Listen well
          • Suggestions for CEO’s
      • Pre Investment
      • Unit Holders Issued Valuation Pre-investment Post-investment
      • John Doe 500k $500k 25% 19%
      • Bill Smith 400k $400k 20% 15%
      • Jane Brown 800k $800k 40% 31%
      • ESO Pool 300k $300k 15% 15%
      • Note…ESO does not dilute
      • Total Issued $2 mil $2 mil 100% 80%
      • Post Investment
      • Investors 500k $500k 0% 20%
      • Total Issued $2.5 mil $2.5 mil 25% 100%
          • Cap Table Example
      • Pre Investment
      • Unit Holders Issued Valuation Pre-investment Post-investment
      • John Doe 481,250 $240,625 19% 11.5%
      • Bill Smith 381,250 $190,625 15% 9.5%
      • Jane Brown 781,520 $390,625 31% 19%
      • ESO Pool 375,000 $187,500 15% 15%
      • Investors 481,250 $240,625 20% 11.5%
      • Total Issued $2.5 mil $1,250,000 100% 62.5%
      • Post Investment
      • Investors Rd 2 1,500,000 $1,250,000 0% 37.5%
      • Total Issued $4 mil $2.5 mil 100%
      • $750,000 raised at $.50 per share; decrease in valuation of 50%
          • “ Cram Down” Example
    •  
      • Friends, Family, Founder
      • Bootstrapping is building the business from internally generated funds.
        • You need to establish a foundation for your business.
        • Build credibility and show that your business has customers and a product that people want to buy.
        • Focus on customers and cash flow.
        • Work hard and be creative in seeking ways to drive revenue while holding expenses down.
          • Angel Investors
        • Angel investors are high net worth
        • individuals who are interested in investing in
        • emerging businesses.
          • Two Types of Angel Investors
          • Professional
          • Strategic
      • Professional Investors
          • The underlying reason that they will invest is return on their investment.
          • They invest in spaces they know.
          • They invest with people they know
          • They invest based on referrals from people they know.
          • Invest based on due diligence.
          • Will require professional terms.
          • Looking for a big payout based on a liquidity event.
      • Strategic Investors
          • More interested in the product than the business.
          • Invest based on gut reaction.
          • May take common stock
          • May not look for a liquidity event.
          • May be the friends in FFF (or referred by FFF)
          • Key points About Investors
          • If you take someone else’s money you have a partner. They will want to have some influence on the company to protect their investment.
          • You will probably have to relinquish some level of control over the company.
          • If you are unwilling to share leadership of the company, investors are not the option for you.
            • Institutional Venture Capital
          • The only reason that they will invest is return on their investment.
          • They only invest in spaces they know.
          • They only invest with people they know
          • They only invest based on referrals from people they know.
          • Invest only based on due diligence.
          • Will only require professional terms.
          • They are only looking for a big payout based on a liquidity event.
      • Seeking Investors
      • Investors invest in people and teams that can execute.
      • “ A” teams with “B” markets will generally beat “B” teams with “A” markets.
      • Investor Business Plan Summary Format
      • Summary should be “concise”
      • Summary should provide a clear description of the problem you solve.
      • How you solve it.
      • Your business model.
      • The underlying magic of your product.
      • Defensibility of your product.
      • Summary should be no more than “ four-pages” .
      • Pitching
        • Question: How can you tell if an entrepreneur is pitching their business?
        • Answer: Their lips are moving.
      • Tips for Pitching
      • Explain what you do in the first minute.
      • “ Clearly” explain what you do in the first minute.
      • Articulate the problem in the market and what you do to solve it.
      • Purpose of a pitch is to “stimulate interest” not to close the deal.
      • Keep it tight. 10 slides, 20 minutes, 30 point font.
      • Speak to the audience’s interest.
      • Title Slide: This is where you tell what you do and give a simple to understand example.
      • Problem: Describe the pain you are alleviating for your customers.
      • Solution: Show how you solve the pain.
      • Business model: Explain how you make money.
      • The advantage you have:   Why are you different than everyone else?
      • Marketing and Sales: "Clearly" tell what your sales strategy is. Do not forget to discuss your pricing. 
      Pitching Plan
      • Competition: Show there is enough of a market available to buy your product even with the competition.
      • Management Team: You need to convince the investor that you have the team that can execute and will succeed.
      • Financial Projections: You need a simplified, clear slide here. You need to justify your numbers.
      • Current Status/Future Status: Show your use of funds and how that will drive the growth of the company. You do need to discuss exit options. Who are buyers and when. Don't hem-haw around.  show the investor that they can not only expect the company to succeed (which is about you) but also that they can expect a return in a certain time frame (which is about them).
      Pitching Plan
      • Investors’ Interest
      • How are you going to make money?
      • How are you going to generate my return?
      • Are you capable of “executing”?
      • Don’t When Speaking to Investors.
      • Don’t try to BS the investor because they see through it.
      • Get your value proposition across early in case you don’t get to the end of the presentation.
      • Don’t get bogged down on the mechanics of the product. Early on the investor will assume it works as you say it will.
      • Don’t When Speaking to Investors.
      • Don’t ask for an NDA at initial meetings!!!
        • Real investors are not in the business of stealing ideas and trying to develop them.
        • You control what is in the summary and initial pitch. You don’t need to disclose the “secret sauce” at this point.
        • Investors will sign an NDA prior to due diligence.
        • Get over it…You’re not that special
    • Recommended Readings
    • Resources for Assistance
      • Ohio Small Business Development Center
      • http:// sbdcfreeadvice.ning.com ,
      • 614-287-5294
      • TechColumbus
      • www.techcolumbus.org ,
      • 614-487-3700
      • Ideas to Deals Blog
      • www.ideas2deals.typepad.com
      • Everything is always impossible
      • before it works.
      • That is what entrepreneurs are all
      • about – doing what people have told
      • them is impossible.
    • The Ohio SBDC at Columbus State p. 614-287-5294 http://sbdcfreeadvice.ning.com For Information on SBDC Activities
    • “ Pitching the Dream” Mark Butterworth Innovation4ward
    • Agenda
      • What investors looking for
      • The pitch
      • Deal structure
    • Angels – Looking For
      • A company where they believe can add value and make money (and have fun)
      • An industry they understand and good management team
      • Invest based on: Chemistry
    • Venture Capital – Looking For
      • A company where they can make lots of money (fun is not a factor)
      • Big markets, sustainable differentiation and good management
      • Invest based on: Management team
    • Good Management – Ideal
      • Experience in a start-up or launching a product within a large company
      • Domain knowledge
      • Relationships with key customers
    • Good Management – Other
      • Broad vision
      • Ambitious
      • Tremendous energy
      • Good listener
      • Adaptable
      • Know that they don’t know everything
      • Hire people better than themselves
    • Investment Criteria: Other
      • Sales and marketing strategy
      • Competition
      • Technology
      • Financials
      • Exit strategy
    • The Investor’s Mindset
      • Their time is more important than their money
      • You must manage the process!
    • First Meeting – Angel Investors
      • Goal: Get a second meeting not a check
      • Format: Short, non-technical PowerPoint
      • Message: Within the first three minutes:
        • The problem you are solving,
        • How you solve the problem, and
        • That you have the management team to execute
    • First Meeting - Other
      • Do not assume:
        • they have read the plan
        • that you will get through presentation
      • The product or technology is only 5% of the pitch in the first meeting
      • One page summary financials
        • Assumptions more important than numbers
      • How the investor will make money!
    • After The First Meeting
      • You must manage the process
      • Anticipate the investors needs
      • Submit your own Due Diligence Review Manual
      • Don not tell them “it is in the business plan”
        • Opportunity to customize to their “hot buttons”
    • Deal Structure
      • Individual Angels:
        • Security: Common stock
        • Exit: Share buy-back , Sale or IPO
        • Return: 15% to 20%
        • Valuation: reasonable
      • Organized Angel Funds and Venture Funds :
        • Security: Preferred stock
        • Exit: Sale or IPO
        • Return: 30%+ compound annual
        • Valuation: Tough but fair
    • Preferred vs. Common Stock
      • Common  Investors and management have same rights
      • Preferred has additional rights:
      • Liquidation preference – get their money back first
          • Anti-dilution provisions – protection against reduction in valuation
          • Redemption – investment plus dividends back at predetermined time
          • Dividends – 5% to 8% annually
          • Veto over strategic decisions (sale, liquidation, IPO)
    • Resources:
      • Gerald A. Benjamin and Joel Margulis. Finding Your Wings (How to Locate Private Investors to Fund Your Venture). New York: John Wiley & Sons, Inc. , 1996.
      • David Gladstone. Venture Capital Handbook (An Entrepreneur’s Guide to Obtaining Capital to Start a Business, or Expand an Existing Business). Englewood Cliffs: Prentice Hall, 1998.
      • Pratt’s Guide to Venture Capital Sources . New York: Securities Data Publishing, 2000.
      • www.pwcMoneyTree.com
    • The Ohio SBDC at Columbus State p. 614-287-5294 http://sbdcfreeadvice.ning.com For Information on SBDC Activities