Best Practices in Raising Venture Capital to Grow Your Business

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Best Practices in Raising Venture Capital to Grow Your Business

  1. 1. High-Tech Tuesday Webinar: Best Practices in Raising Venture Capital to Grow Your Business David Mitchell, Research Director david.mitchell@gartner.comThis presentation, including any supporting materials, is owned by Gartner, Inc. and/or its affiliates and is for the sole use of the intended Gartner audience or otherauthorized recipients. This presentation may contain information that is confidential, proprietary or otherwise legally protected, and it may not be further copied,distributed or publicly displayed without the express written permission of Gartner, Inc. or its affiliates.© 2012 Gartner, Inc. and/or its affiliates. All rights reserved.
  2. 2. "A bank is a place that will lend you money if you can prove that you dont need it." — Bob Hope (1903-2003)"Everybody likes a kidder, but nobody lends him money." — Arthur Miller (1915-2005) "Lack of money is no obstacle. Lack of an idea is an obstacle." — Ken Hakuta"The safest way to double your money is to fold it over and put it in your pocket." — Kin Hubbard (1868-1930) 1
  3. 3. Key Issues1. The why, when, who and where of raising capital to fund growth2. Avoiding the common mistakes and reducing the investment risk3. Telling a compelling story 2
  4. 4. Poll• What use has your company made of external funding? - Received multiple rounds of external investment - Received a single round of external investment - Currently seeking external investment - No external investment plans 3
  5. 5. The why, when, who and where of raising capital to fund growth 4
  6. 6. Transition Is the Major Reason WhyCompanies Seek External Capital Ownership Private Private Public Public Product Idea Prototype Prototype Product Product Volume Production Sales Initial Sale Segment Strength Segment Strength Global Strength Unable to be funded organically via operating cash flow 5
  7. 7. Venture Capital Is Not the Only FundingSource Friends and Government Crowdfunding Family Angel Venture Investors Capital Each different source has a different fingerprint — money amount, risk appetite, desired returns, investment stage 6
  8. 8. Matching Your Transition to Stages of the Investment CycleSeed Stage Startup Stage First Stage Second Stage Third Stage Bridge Management• Company is still in • Initial prototypes • Go-to-market • Growth has • Continued Financing Buyout the ideation phase, or early products activities have begun to growth has • Interim funds • Typically a with no product have been begun, and initial accelerate, and started to create being raised to debt-based having yet been developed. sales have the company is profitable revenue prepare for a acquisition of developed. started to be becoming an streams, and later equity equity, in an generated. established international event, such as LBO transaction. player. expansion is an IPO. being considered. Potential Investment Amount Risk Return Stage Government funding Small to medium Low to medium Medium to high Any Crowdfunding Small to medium Medium to high Any Early Angel investors Early to Medium to large High High intermediate Friends and familiy Small Any Any Early Venture capital Large High High Any 7
  9. 9. Crowdfunding Is an Emerging Alternative Source: http://www.nucocochocolate.co.uk/crowdfund/ 8
  10. 10. Matching Your Needs to the Right VCFund Potential Venture Funds Filters Geography Growth Strategy Technology Type Skills Investment Horizon Candidate Venture Funds 9
  11. 11. When You Seek External Funding IsImportant• Timing impacts several important facets: - Ability to execute your business plan - Valuation and negotiation - Market sentiment and valuation 10
  12. 12. Summary Understand Your Transition Match Shortlist Transitions and to Present Investment Stages Filter and Qualify Sources 11
  13. 13. Avoiding the Common Mistakesand Reducing the Investment Risk 12
  14. 14. Reducing Perceived Risk Increases Valueas Well as Improving the Odds 13
  15. 15. Some Mistakes Come Down to theCalculations That You Make Headroom Large x Small Compound Calculations 14
  16. 16. Other Mistakes Are Based on PoorPlanning and Analysis Wrong Wrong Investor Valuation Poor Poor Documentation Presentation Poor Market Poor Business Knowledge Plan 15
  17. 17. Business Plan Mistakes Are the MostCommon and Damaging Inadequate business plan Management Competitive Opportunity Finance Team Landscape • Description • Resumes • Companies • P&L • Size and • Products • Cash Flow Growth • Alternatives • Capitalization • Enduring Table Advantage Not showing investors how you will spend their money and how you will generate returns for them 16
  18. 18. Telling a Compelling Story 17
  19. 19. A Commonly Used Story — In FiveChapters Size of the prize Runners and riders Motorcycle cheats Advice to the jockey Selling the horse 18
  20. 20. A Commonly Used Story — In FiveChapters Size of the prize Runners and riders Motorcycle cheats Advice to the jockey Selling the horse 19
  21. 21. A Commonly Used Story — In FiveChapters Size of the prize Runners and riders Motorcycle cheats Advice to the jockey Selling the horse 20
  22. 22. But Never Forget One of the MostPowerful Influencers That You Have 21
  23. 23. The Simple Formula to Remember … Show that you have a good idea that solves a problem and that addresses an unmet need; i.e., there is an identifiable market. Show that this translates into a commercially viable product, with a business model that can generate revenue and margin; i.e., that it is commercially viable. Show the investor that your team has the skills and expertise needed to deliver. Show the investor that your early advantage can be sustained long enough to be able to generate growth that can continue to expand. Everything after that is down to execution. 22
  24. 24. Recommended Reading Marketing Essentials: Five Best Practices When Seeking Venture Capital Investment David Mitchell (G00232191) Crowdfunding Needs Marketing David Mitchell (G00234050) Predicts 2012: Marketers Must Adapt to a World That Rewards Speed Richard Fouts, Jennifer S. Beck, David Mitchell and Neil McMurchy (G00226310) Marketing Essentials: Four Changes Successful Emerging Providers Make to Enable Long-Term Growth Neil McMurchy (G00211128) 23
  25. 25. High-Tech Tuesday Webinar: Best Practices in Raising Venture Capital to Grow Your Business David Mitchell, Research Director david.mitchell@gartner.comThis presentation, including any supporting materials, is owned by Gartner, Inc. and/or its affiliates and is for the sole use of the intended Gartner audience or otherauthorized recipients. This presentation may contain information that is confidential, proprietary or otherwise legally protected, and it may not be further copied,distributed or publicly displayed without the express written permission of Gartner, Inc. or its affiliates.© 2012 Gartner, Inc. and/or its affiliates. All rights reserved.

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