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Angles & Demons - a quick foray into start-up funding

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My off-the-cuff perception of deals that fit within an angel investor's sweet spot.

My off-the-cuff perception of deals that fit within an angel investor's sweet spot.

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  • 1. ANGELS & a quick peek at DEMONS https://www.flickr.com/photos/xubangwen/ start-up financing the logic of
  • 2. The goal of this deck is just to present a typical scenario from my perspective. Obviously all businesses are as unique. That said, they are not as unique as each entrepreneur thinks 
  • 3. why finance? GESTATION (Prototypes, Pilots, & Plans) COMMERCIALIZATION (Products & Pivots) GROWTH (Scale & Scope) TRADE SALE OR IPO (Lipsticking, Woooing, & Exit) All businesses go through phases in their life cycles. During some phases, financing helps a company cross a chasm. There are 4 chasms that financiers typically help with….
  • 4. why finance? GESTATION (Prototypes, Pilots, & Plans) COMMERCIALIZATION (Products & Pivots) GROWTH (Scale & Scope) TRADE SALE OR IPO (Lipsticking, Woooing, & Exit) ~Time 9 months ~Needed 125K Spent on? MVP Design, Engineering, and Testing ~Valuation 500K ~Seed Investor Gets 25% ~Series A Investor Gets ~Series B Investor Gets ~You Get 75%
  • 5. why finance? GESTATION (Prototypes, Pilots, & Plans) COMMERCIALIZATION (Products & Pivots) GROWTH (Scale & Scope) TRADE SALE OR IPO (Lipsticking, Woooing, & Exit) ~Time 9 months 18 months ~Needed 125K 1M Spent on? MVP Design, Engineering, and Testing Sales, Sales, Sales & production / engineering support to keep up ~Valuation 500K 3M ~Seed Investor Gets 25% 20% ~Series A Investor Gets 30% ~Series B Investor Gets ~You Get 75% 50%
  • 6. why finance? GESTATION (Prototypes, Pilots, & Plans) COMMERCIALIZATION (Products & Pivots) GROWTH (Scale & Scope) TRADE SALE OR IPO (Lipsticking, Woooing, & Exit) ~Time 9 months 18 months 18 months ~Needed 125K 1M 2.4M Spent on? MVP Design, Engineering, and Testing Sales, Sales, Sales & production / engineering support to keep up Expanding into New Segments / Locations, Brand, & Rebuild ~Valuation 500K 3M 8M ~Seed Investor Gets 25% 20% 14% ~Series A Investor Gets 30% 21% ~Series B Investor Gets 30% ~You Get 75% 50% 35%
  • 7. why finance? GESTATION (Prototypes, Pilots, & Plans) COMMERCIALIZATION (Products & Pivots) GROWTH (Scale & Scope) TRADE SALE OR IPO (Lipsticking, Woooing, & Exit) ~Time 9 months 18 months 18 months 18 months ~Needed 125K 1M 2.4M Spent on? MVP Design, Engineering, and Testing Sales, Sales, Sales & production / engineering support to keep up Expanding into New Segments / Locations, Brand, & Rebuild Finding, Pitching & Closing w/ continued growth ~Valuation 500K 3M 8M 20M (4x PAT) 100M ~Seed Investor Gets 25% 20% 14% 2.8M (11x) 14M (55x) ~Series A Investor Gets 30% 21% 4.2M (4x) 21M (20x) ~Series B Investor Gets 30% 6M (3x) 30M (15x) ~You Get 75% 50% 35% 7M 35M
  • 8. lies, damn lies, statistics, and spreadsheets FY01 FY02 FY03 FY04 FY05 FY06 FY07 REVENUE 0 200,000 1,500,000 3,500,000 7,000,000 12,000,000 23,000,000 INVEST 125,000 1,000,000   2,400,000       COST 170,000 500,000 750,000 1,500,000 2,000,000 2,500,000 3,500,000 CASH -45,000 700,000 750,000 4,400,000 5,000,000 9,500,000 19,500,000 DISCOUNT 0.95 0.7   0.7       NPV $566,469  $2,834,597    $8,586,727        Behind the scenes, the previous slides were driven by a pro-forma  projection that would need to look something like the following…. Funding is needed to fill a hole that is not covered by sales revenue.   Usually, that means growing ahead of revenue, either start-up, or  fast growth.  An angel is primarily interested in understanding/validating  your assumptions about revenue (price times volume) and  cost (people, production, promotion, and place).  You need to  be able to explain why your business can deliver these  numbers. An angel needs to understand  what you are spending her  money on….
  • 9. exhaustion warning One other thing… Each round of fundraising will take 6-9 months to close So you need to start the next round soon after you close the current round.
  • 10. SELF BANK PRIVATE EQUITY PUBLIC EQUITY CROWD VENTURE FUNDS ANGEL INVESTORS INCUBATORS BIZ PLAN COMPETITIONS SELFFRIENDS & FAMILY SALES LOAN OVERDRAFT $ where does financing come from?
  • 11. FUNDING CRITERIA ANGELS Quantum of funds LOW Cost of funds HIGH Speed to get funds FAST Availability of options MANY Ease of discovery HARD Due Diligence EASY Mentorship and Coaching GREAT Cost Support NONE Restrictive Terms MINIMAL Control you give up MINIMAL Business Development GREAT when would you source from angels? • Angels are useful early on (ideation & POC) • Don’t get greedy at this stage. You are much higher risk than you might think • Don’t expect too much from angels. They may be as new as you • Angels may not even know they are angels, you need to prospect!
  • 12. Who to stalk in 2013… 1. There are many Managing Directors who have been retrenched from banks after the sub-prime collapse. These guys have lots of play money and think associating themselves with the start-up world makes them sexy 2. 1st generation entrepreneurs who made it in Singapore before 3. Brick and mortar 2.0 – by 2013, the children of family businesses who are now budget deciders are about 40 years old…they were the first generation of cyberians, so they get it. Up till now, they have been too young and inexperienced to be trusted with big family businesses. In the next decade, they will be able to allocate play money and innovation for their big businesses
  • 13. DOCUMENT LINK Sample Agreements & Investment Documents http://ycombinator.com/seriesaa.html Inc’s “How to find an Angel Investor” http://www.inc.com/guides/start_biz/24011.html Convertible Debt http://en.wikipedia.org/wiki/Convertible_debt How to be an Angel Investor http://www.paulgraham.com/angelinvesting.html useful links
  • 14. SHARE THIS DECK & FOLLOW ME(please-oh-please-oh-please-oh-please) stay up to date with my future slideshare posts http://www.slideshare.net/selenasol/presentations https://twitter.com/eric_tachibana http://www.linkedin.com/pub/eric-tachibana/0/33/b53 Please note that all content & opinions expressed in this deck are my own and don’t necessarily represent the position of my current, or any previous, employers
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