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J U N E  2 0 0 7 Financing Options for Start-Ups B O B  H I G G I N S Managing General Partner S U M M E R  @  H I G H L A...
Agenda <ul><li>Introduction </li></ul><ul><li>Sources of Capital </li></ul><ul><li>What are VCs looking for? </li></ul><ul...
Sources of Capital
Sources of Capital <ul><li>Grants </li></ul><ul><li>Self-Funding </li></ul><ul><li>Angel Investors </li></ul><ul><li>Ventu...
Grants <ul><li>Many companies start with technology that was grant-funded </li></ul><ul><li>Grant funding for companies: <...
Grants <ul><li>Advantages: </li></ul><ul><ul><li>Limited or no dilution </li></ul></ul><ul><ul><li>No board requirement </...
Self-Funding <ul><li>For companies with smaller growth potential or lower initial cash needs </li></ul><ul><li>Advantages:...
Angel Investors <ul><li>Entrepreneurs, professionals, B-School professors </li></ul><ul><li>Seed stage funding for promisi...
Venture Capital <ul><li>For start-ups with growth potential and significant cash needs </li></ul><ul><li>Advantages: </li>...
Corporate Venture Capital <ul><li>For companies with strategic value </li></ul><ul><li>Advantages: </li></ul><ul><ul><li>C...
Strategic Investors <ul><li>Customers, suppliers, and distributors </li></ul><ul><li>For companies seeking capital and rel...
Private Equity / Hedge Funds <ul><li>Usually for later-stage companies </li></ul><ul><li>Advantages: </li></ul><ul><ul><li...
Financing Should Fit: <ul><li>the company </li></ul><ul><li>its stage </li></ul><ul><li>its management, and  </li></ul><ul...
What are VCs Looking For?
Evaluating Opportunities: VC Criteria <ul><li>People </li></ul><ul><li>Market </li></ul><ul><li>Technology / Product / Ser...
People (Founders & Management) <ul><li>Leading researchers </li></ul><ul><li>Serial entrepreneurs </li></ul><ul><li>Abilit...
Market <ul><li>Multi-billion dollar potential </li></ul><ul><li>Rapid adopter customers </li></ul><ul><li>Known acquirers ...
Technology / Product / Services <ul><li>“ Breakthrough” ideas with clear value propositions </li></ul><ul><li>Platform tec...
Deal <ul><li>Valuation </li></ul><ul><li>Exit </li></ul><ul><li>Terms: licensing fees and royalties </li></ul><ul><li>Opti...
Q & A
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Higgins Financing Options For Start Ups

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  • Mention what Kent asked you to speak about what VCs look for when commercializing science Greg Verdine, Eric Lander, etc. have already spoken at seminar
  • Transcript of "Higgins Financing Options For Start Ups"

    1. 1. J U N E 2 0 0 7 Financing Options for Start-Ups B O B H I G G I N S Managing General Partner S U M M E R @ H I G H L A N D P R O G R A M
    2. 2. Agenda <ul><li>Introduction </li></ul><ul><li>Sources of Capital </li></ul><ul><li>What are VCs looking for? </li></ul><ul><li>Q&A </li></ul>
    3. 3. Sources of Capital
    4. 4. Sources of Capital <ul><li>Grants </li></ul><ul><li>Self-Funding </li></ul><ul><li>Angel Investors </li></ul><ul><li>Venture Capital </li></ul><ul><li>Corporate Venture Capital </li></ul><ul><li>Strategic Investors </li></ul><ul><li>(Customers, Suppliers, Distributors) </li></ul><ul><li>Private Equity / Hedge Funds </li></ul>SOURCES OF CAPITAL
    5. 5. Grants <ul><li>Many companies start with technology that was grant-funded </li></ul><ul><li>Grant funding for companies: </li></ul><ul><ul><li>Federal Government </li></ul></ul><ul><ul><ul><li>NIH, NSF, SBIR, DOE, and DARPA </li></ul></ul></ul><ul><ul><li>State Government </li></ul></ul><ul><ul><ul><li>CA and MA stem cell research funding </li></ul></ul></ul><ul><ul><li>Private Foundations </li></ul></ul><ul><ul><ul><li>Howard Hughes Medical Institute </li></ul></ul></ul><ul><ul><li>Disease-Specific Societies </li></ul></ul><ul><ul><ul><li>American Cancer Society and Cystic Fibrosis Foundation </li></ul></ul></ul>SOURCES OF CAPITAL
    6. 6. Grants <ul><li>Advantages: </li></ul><ul><ul><li>Limited or no dilution </li></ul></ul><ul><ul><li>No board requirement </li></ul></ul><ul><ul><li>Prestige </li></ul></ul><ul><li>Disadvantages: </li></ul><ul><ul><li>Rules and guidelines </li></ul></ul><ul><ul><li>Not long-term </li></ul></ul><ul><ul><li>Inflexibility </li></ul></ul>SOURCES OF CAPITAL
    7. 7. Self-Funding <ul><li>For companies with smaller growth potential or lower initial cash needs </li></ul><ul><li>Advantages: </li></ul><ul><ul><li>Ownership and valuation </li></ul></ul><ul><ul><li>Decision-making and flexibility </li></ul></ul><ul><ul><li>Potential for a family business (Jim Sharpe) </li></ul></ul><ul><li>Disadvantages: </li></ul><ul><ul><li>Growth because of limited capital </li></ul></ul><ul><ul><li>Risk concentration </li></ul></ul><ul><ul><li>Lack of assistance </li></ul></ul>SOURCES OF CAPITAL
    8. 8. Angel Investors <ul><li>Entrepreneurs, professionals, B-School professors </li></ul><ul><li>Seed stage funding for promising ideas </li></ul><ul><li>Advantages: </li></ul><ul><ul><li>Similar to VC, but less focused on valuation </li></ul></ul><ul><ul><li>Can be a good source of advice </li></ul></ul><ul><li>Disadvantages: </li></ul><ul><ul><li>Usually only “one shot” </li></ul></ul><ul><ul><li>Does not confer same legitimacy as other financing sources </li></ul></ul><ul><ul><li>Possible investor impatience </li></ul></ul><ul><ul><li>Potential issues in raising follow-on rounds </li></ul></ul>SOURCES OF CAPITAL
    9. 9. Venture Capital <ul><li>For start-ups with growth potential and significant cash needs </li></ul><ul><li>Advantages: </li></ul><ul><ul><li>Potential value-add – Help with recruiting, financing, customers, and strategy </li></ul></ul><ul><ul><li>Long-term partners (multiple rounds) </li></ul></ul><ul><ul><li>Deep pockets </li></ul></ul><ul><li>Disadvantages: </li></ul><ul><ul><li>More valuation-sensitive: dilution </li></ul></ul><ul><ul><li>Loss of control </li></ul></ul><ul><ul><li>“ The Lemming Effect” </li></ul></ul>SOURCES OF CAPITAL
    10. 10. Corporate Venture Capital <ul><li>For companies with strategic value </li></ul><ul><li>Advantages: </li></ul><ul><ul><li>Can lend credibility </li></ul></ul><ul><ul><li>Less valuation sensitive </li></ul></ul><ul><ul><li>Usually passive </li></ul></ul><ul><li>Disadvantages: </li></ul><ul><ul><li>Uncertainty for follow-on rounds </li></ul></ul><ul><ul><li>“ Right of first refusal” issues </li></ul></ul><ul><ul><li>“ Camel’s nose under the tent” </li></ul></ul>SOURCES OF CAPITAL
    11. 11. Strategic Investors <ul><li>Customers, suppliers, and distributors </li></ul><ul><li>For companies seeking capital and relationships </li></ul><ul><li>Advantages: </li></ul><ul><ul><li>Less-dilutive </li></ul></ul><ul><ul><li>Frequently up-front payments in exchange for future royalties </li></ul></ul><ul><ul><li>Provide early credibility </li></ul></ul><ul><li>Disadvantages: </li></ul><ul><ul><li>Smaller source of capital </li></ul></ul><ul><ul><li>Selling company’s future? Limiting options? </li></ul></ul><ul><ul><li>Potentially time-consuming </li></ul></ul>SOURCES OF CAPITAL
    12. 12. Private Equity / Hedge Funds <ul><li>Usually for later-stage companies </li></ul><ul><li>Advantages: </li></ul><ul><ul><li>Understand growth issues </li></ul></ul><ul><ul><li>Willing to consider re-caps and turnarounds </li></ul></ul><ul><ul><li>Potentially helpful at exit (IPO) </li></ul></ul><ul><li>Disadvantages: </li></ul><ul><ul><li>Not comfortable with start-ups </li></ul></ul><ul><ul><li>Often not a long-term partner </li></ul></ul><ul><ul><li>Limited value-add </li></ul></ul><ul><ul><li>Pressure for liquidity </li></ul></ul>SOURCES OF CAPITAL
    13. 13. Financing Should Fit: <ul><li>the company </li></ul><ul><li>its stage </li></ul><ul><li>its management, and </li></ul><ul><li>its history </li></ul><ul><li>Finding the right investor can be critical to a company’s long-term health… </li></ul><ul><li>… much like selecting a medical specialist. </li></ul>SOURCES OF CAPITAL
    14. 14. What are VCs Looking For?
    15. 15. Evaluating Opportunities: VC Criteria <ul><li>People </li></ul><ul><li>Market </li></ul><ul><li>Technology / Product / Service </li></ul><ul><li>Deal </li></ul>
    16. 16. People (Founders & Management) <ul><li>Leading researchers </li></ul><ul><li>Serial entrepreneurs </li></ul><ul><li>Ability to attract other world-class people </li></ul><ul><ul><li>CEO, Board of Directors, SAB, and investors </li></ul></ul><ul><li>Self-awareness: “Scientific Entrepreneurs” v. “Entrepreneurial Managers” </li></ul>VC CRITERIA
    17. 17. Market <ul><li>Multi-billion dollar potential </li></ul><ul><li>Rapid adopter customers </li></ul><ul><li>Known acquirers </li></ul><ul><li>Wall Street interest </li></ul><ul><li>Probable government approval </li></ul><ul><ul><li>FDA, CMS, FCC, EPA </li></ul></ul>VC CRITERIA
    18. 18. Technology / Product / Services <ul><li>“ Breakthrough” ideas with clear value propositions </li></ul><ul><li>Platform technologies </li></ul><ul><li>Strong IP position </li></ul><ul><li>Follow-on potential </li></ul>VC CRITERIA
    19. 19. Deal <ul><li>Valuation </li></ul><ul><li>Exit </li></ul><ul><li>Terms: licensing fees and royalties </li></ul><ul><li>Option pool </li></ul><ul><li>Milestones </li></ul><ul><li>Co-investors </li></ul>VC CRITERIA
    20. 20. Q & A
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