Raising Capital - Venture Capital in Australia

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This presentation was prepared for the 2010 Australian Innovation festival by Mission HQ. It provides an overview of how to prepare an information memorandum for capital raising, and discusses the Australian investment marketplace

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  • Enjoyed your slides, particularly slide 8. I think potential entrepreneurs never assess the risk of actually succeeding in raising investment funds.
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Raising Capital - Venture Capital in Australia

  1. 1. An Information Memorandum that will raise capital<br />An Innovation Catalyst™ Seminar<br />Prepared and Presented by <br />Marcus Tarrant<br />Managing Director<br />Mission HQ Pty. Ltd. ATF the Innovate Trust<br />
  2. 2. Contact Details<br />Marcus Tarrant<br />Managing Director<br />Mission HQ Pty. Ltd. ATF the Innovate Trust<br />Marcus.tarrant@missionhq.com.au<br />+61 3 9005 9710<br />www.missionhq.com.au<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />2<br />
  3. 3. Copyright ©2010 Mission HQ. <br />The content, format, structure and communication technique utilised in this document are the intellectual property of Mission HQ Pty. Ltd.<br />This document is strictly classified as “Commercial in Confidence” and intended only for recipients expressly authorised by Mission HQ. Any modification or distribution under altered expression, by any means, in its entirety or in parts, to any person without written approval from Mission HQ is expressly prohibited. <br />Natural Persons or bodies corporate may not copy, retransmit, distribute, publish or otherwise transfer any copyrighted material to third parties or contractors without the express permission of Mission HQ.<br />This document is intended to reflect MISSION HQ’s high-level overview of information memorandum preparation. It does not constitute formal professional advice or a recommendation to potential licensors, tax advisors, inventors or other third parties as to a course of action in respect of the processes addressed, and should not be relied on as such. All care is taken in the preparation of this document but MISSION HQ bears no responsibility as to the contents of this document and disclaims any liability with respect to its use or misuse.<br />Intellectual Property & Disclaimer<br />
  4. 4. Seminar Agenda<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />4<br />
  5. 5. © Mission HQ Pty. Ltd. All Rights Reserved<br />5<br />
  6. 6. What is investable?<br />No Risk<br />Substantial global market<br />Strong intellectual property (monopoly position)<br />10 X return in 3 years<br />Clear exit path<br />No technology risk<br />Ideal management team<br />In a sector I understand<br />Valuation reasonable<br />Clear value proposition and market entry strategy<br />The 1 in 100 are closer to the above than the 99<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />6<br />
  7. 7. A great reason to raise capital<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />7<br />
  8. 8. When not to raise capital<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />8<br />
  9. 9. Do I really want to raise capital?<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />9<br />
  10. 10. But do I really, really want to raise capital?<br />6-12 months of pounding the pavement<br />Another board member<br />Reporting requirements<br />Forced exit – you don’t choose the timing or price<br />Milestones every six months or no more business<br />Dilution, dilution dilution<br />Expect to be replaced at some point against your will<br />Your baby is now my baby<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />10<br />
  11. 11. Beware the burn<br />A venture is a bit like a rocket, and funding is the rocket fuel.<br />Burn too slow the rocket goes nowhere<br />Burn too fast and you burn up<br />Burn just right and you might achieve your objectives.<br />11<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />
  12. 12. So what is an information memorandum?<br />The culmination of a lot of work, not a lot of work in itself<br />A document that describes a potential M&A or capital markets transaction (including project descriptions and financing details). It is used during the marketing and due diligence phase of a transaction.<br />It differs from a business plan in that it covers both past and future activity.<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />12<br />
  13. 13. What is an information memorandum used for?<br />Capital raising<br />Grant Funding<br />Mergers and Acquisitions<br />A Business or Intellectual Property transaction<br />Joint venture formation<br />Structured partnerships<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />13<br />
  14. 14. So, where should I start?<br />Don’t start writing just yet...<br />Raising capital takes time, energy and money<br />A quick raising would take at least 3 months after completion of your IM<br />Most raisings take 6-9 months<br />Writing your IM or selecting a template is definitely not the best place to start the process.<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />14<br />
  15. 15. Background on Australian Venture Capital<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />15<br />
  16. 16. Venture Capital Transactions (No)<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />16<br />
  17. 17. Venture Capital Transactions (Value)<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />17<br />
  18. 18. Venture Capital by Sector<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />18<br />
  19. 19. A process that works<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />19<br />
  20. 20. Profiling your opportunity<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />20<br />1. Select the appropriate source of capital for your opportunity<br />
  21. 21. Typical round sizes in our experience<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />21<br />1. Select the appropriate source of capital for your opportunity<br />
  22. 22. Funding Sources<br />Different investor groups have their preferences.<br />Venture Capital Funds<br />Angel Investors<br />Individual Angels<br />Angel Groups<br />Capital Raising Schemes<br />ASSOB<br />Wholesale investor<br />FFR<br />Self Financing/Bootstrapping<br />Government grants (in combination with any of the above)<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />22<br />1. Select the appropriate source of capital for your opportunity<br />
  23. 23. Venture Capital Funds<br />Australian VC’s typically moving towards later stage investments<br />Pre-seed funds currently very limited<br />Required IRR of 30-35%<br />Be mindful of the fund lifecycle – it is not the VC investing but the fund.<br />IP IPIP – execution plays are generally not considered<br />Own the customer<br />Have a clear exit timeline<br />Not interested in Australian market except for as testing purposes<br />Usual take large minority interest<br />Not suited to highly capital intensive industries <br />© Mission HQ Pty. Ltd. All Rights Reserved<br />23<br />1. Select the appropriate source of capital for your opportunity<br />
  24. 24. Angel Investors<br />Individual or Angel Groups<br />Angel investors are high net worth individuals<br />Successful entrepreneurs, technologists<br />Make personal investment decisions based on areas of comfort<br />Are often known to start-up founders, even if as remote acquaintances.<br />Depending on profile of investment background, understand the need for follow on rounds of funding<br />Can make high level introductions etc.<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />24<br />1. Select the appropriate source of capital for your opportunity<br />
  25. 25. Capital Raising Schemes<br />Assob & Wholesale Investor<br />Provides a structured and compliant approach to raising capital under and exception to the corporations act for small scale offerings.<br />Need to be come a public company (.Ltd rather than Pty.Ltd.)<br />Generally relies on your existing networks but provides a structures capital raising platform and associated credibility<br />Many and varied investment requirements<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />25<br />1. Select the appropriate source of capital for your opportunity<br />
  26. 26. Self Funding/Bootstrapping<br />Financing growth from previous cash flow and personal funds<br />Need to be in revenue to consider<br />Most bootstrapped companies come from services or consulting companies that are productising their offering<br />Usually close to existing customer and have a strong understanding of customer needs<br />Development is usually constrained by incoming cash flows<br />Can miss out on substantial opportunities as a result of not having access to substantial capital.<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />26<br />1. Select the appropriate source of capital for your opportunity<br />
  27. 27. Government Grants<br />Aus Industry<br />State Government Grants<br />Awards and Prizes<br />Most government funding is matching funding at the rate of 50/50.<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />27<br />1. Select the appropriate source of capital for your opportunity<br />
  28. 28. FFR<br />Friends<br />Fools<br />Relatives<br />A lunch and a strong relationship is usually enough<br />They invest in you rather than the venture.<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />28<br />1. Select the appropriate source of capital for your opportunity<br />
  29. 29. 2. Use the Venture Diamond<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />29<br />2. Use the Venture Diamond to select the best business model<br />
  30. 30. Start with the venture diamond<br />Give the same idea to 10 different entrepreneurs and you will end up with 10 entirely different businesses.<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />30<br />2. Use the Venture Diamond to select the best business model<br />
  31. 31. The venture diamond Model<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />31<br />2. Use the Venture Diamond to select the best business model<br />Market Size<br />Ownership of customer<br />Sustainability of Position<br />Value Chain Position<br />
  32. 32. Mapping our Venture<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />32<br />Market Size<br />2. Use the Venture Diamond to select the best business model<br />Sustainability of Position<br />Ownership of customer<br />Value Chain Position<br />
  33. 33. Investor requirements<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />33<br />Market Size<br />2. Use the Venture Diamond to select the best business model<br />Sustainability of Position<br />Ownership of customer<br /><ul><li>What are the requirements of our potential investors?
  34. 34. What do they want a business to look like?
  35. 35. What are some of their key go/no-go decision points?
  36. 36. Why are they investing?</li></ul>Value Chain Position<br />
  37. 37. Changing the business model<br />Enables us to target the venture profile to the preferred investor group (Choose the right diamond facet)<br />Provides a framework for the detailed documentation of the information memorandum<br />Establishes the key modelling assumptions and parameters for the financial model.<br />Enables us to ensure that the model is internally consistent prior to becoming bogged down in the detail<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />34<br />2. Use the Venture Diamond to select the best business model<br />
  38. 38. So what does a business model look like<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />35<br />2. Use the Venture Diamond to select the best business model<br />
  39. 39. The business model matrix<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />36<br />2. Use the Venture Diamond to select the best business model<br />Value Proposition – What are you offering? <br />Capabilities/Resources – What skills and capacity do you require?<br />Partnership – Who do you need to work with?<br />Activities – What will you do?<br />Costs – What are your significant costs likely to be?<br />Relationship – What formal and informal relationships are required<br />Channel – What are our channels to market?<br />Revenues – What will our customers pay for?<br />Customers – Who are our customers?<br />
  40. 40. Creating a holistic business model<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />37<br />2. Use the Venture Diamond to select the best business model<br />
  41. 41. Select between 3-4 alternative models<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />38<br />2. Use the Venture Diamond to select the best business model<br />
  42. 42. Then Turn your business model into a visual story<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />39<br />
  43. 43. 3. Prepare your documentation<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />40<br />3. Prepare your documentation<br />
  44. 44. What to prepare<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />41<br />3. Prepare your documentation<br />
  45. 45. Preparing your Teaser<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />42<br />A. The 1 Page Teaser<br />
  46. 46. Preparing the Pitch Pack<br />The next slides will discuss the key elements to be prepared as part of your pitch pack.<br />We will use a business I launched back in 1995 (Tuckertime) as a backdrop to the discussion<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />43<br />B. The Pitch Pack<br />
  47. 47. Tuckertime Spawned a new category<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />44<br />B. The Pitch Pack<br />
  48. 48. The Market<br />What is the size of the market?<br />Why is it really that big?<br />How are you viewing the market?<br />Justify your view of the market<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />45<br />B. The Pitch Pack<br />Cheese<br />Vs Meat<br />
  49. 49. The Problem<br />How big is the problem<br />Will people pay to solve it<br />Use key facts to define the problem on your terms<br />Develop a clear graphic to explain the solution. <br />Often the same graphic snapshot with some modification will suit the solution.<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />46<br />B. The Pitch Pack<br />
  50. 50. The Solution<br />The problems with existing solutions<br />How your solution works harder for the customer<br />Graphical or pictorial images helpful<br />This slide is to carefully craft your technologies USP. But in terms that are meaningful to the potential investor<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />47<br />B. The Pitch Pack<br />
  51. 51. The high level vision<br />Link your business intentions with your underlying technology<br />If possible let the potential investors visualise your potential technology “In Situ”<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />48<br />B. The Pitch Pack<br /><ul><li>“To utilise our novel Nitrogen, CO2 Gas flush technology to enable the creation of a new food category, “Mini Meals”</li></li></ul><li>The detailed vision (with 3 yrs)<br />Be specific about what you plan to achieve in the next three years.<br />You might not achieve your grand vision by you should achieve something significant that adds to the value of the enterprise.<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />49<br />B. The Pitch Pack<br />
  52. 52. Products and Services<br />Explain what it is that you are going to sell<br />How many different products?<br />Rationale for the range?<br />Any customer feedback on why the range of products or services is required.<br />Clearly explain exactly how you will connect your USP with your customer.<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />50<br />B. The Pitch Pack<br />
  53. 53. The business model<br />An image of the business model will generate interest and discussion in a pitch session. You will find that you come back to this over and over and over.<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />51<br />B. The Pitch Pack<br />
  54. 54. Value Chain<br />Where does your product fit into the industry value chain?<br />Do you own a “pinch point” or are you the one getting pinched?<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />52<br />B. The Pitch Pack<br />
  55. 55. Innovation Adoption Issues<br />Are there issues with adoption of your product by:<br />Suppliers<br />Buyers<br />Customers<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />53<br />B. The Pitch Pack<br />
  56. 56. The Investment Proposition<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />54<br />B. The Pitch Pack<br />
  57. 57. The Exit Path<br />How you plan to exit the business<br />Expected earnings multiple<br />Rationale for strategic exit<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />55<br />B. The Pitch Pack<br />
  58. 58. Enable Modelling of Assumptions<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />56<br />C. Prepare The financial model<br />
  59. 59. A Great Executive Summary<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />57<br />D. Write the Executive Summary<br />
  60. 60. Write the IM – Consistency is king<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />58<br />E. Write the IM Document<br />
  61. 61. Everything needs to be aligned<br />If you have undertaken the process to the best of your ability then assumptions will most likely be dis-connected<br />Your IM has a market size of $100 million and your financial model is showing $25m<br />Inconsistency <br />Reduces confidence<br />Makes understanding what you are saying impossible<br />Kills deals<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />59<br />F. Align all documents<br />
  62. 62. 4. Creating the Buzz<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />60<br />4. Creating the Buzz<br />
  63. 63. Tips from the street<br />The value of creating a “Buzz”<br />The “Buzz” created by an opportunity can be worth more than the opportunity itself.<br />Raising money is as much about having the right people say the right things about your opportunity as it is anything else. <br />A seat on the board<br />Clear exit path in 5-7 years (Depending on fund stage of life)<br />10x-30X Multiples<br />Not interested in pre money valuations above $5m<br />Minimum 10% equity<br />Strong intellectual property position<br />Product/disruptive rather than license to existing approach<br />Great team ideal, but dependent on venture stage of development.<br />Remember a VCis running a portfolio approach – a bit like a book maker! The book maker doesn’t know which horse will win.<br />Have a risk appetite but don’t want to take risks<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />61<br />4. Creating the Buzz<br />
  64. 64. So what does a VC expect<br />A seat on the board<br />Clear exit path in 5-7 years (Depending on fund stage of life)<br />10x-30X Multiples<br />Not interested in pre money valuations above $5m<br />Minimum 10% equity<br />Strong intellectual property position<br />Product/distruptive rather than license to existing approach<br />Great team ideal, but dependent on venture stage of development.<br />Remember a vc is running a portfolio approach – a bit like a book maker! The book maker doesn’t know which horse will win.<br />Have a risk appetite but don’t want to take risks<br />© Mission HQ Pty. Ltd. All Rights Reserved<br />62<br />
  65. 65. Conclusion<br />Raising capital is a substantial undertaking and should not be considered lightly<br />If you still want to raise capital then how can we help?<br />Advising on right capital raising path<br />Value Diamond workshops<br />Business model design<br />Creating Documentation that fits the VC model<br />Introductions<br />Thank you for your attendance.<br />63<br />

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