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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

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