Jeremy HalpernBiography› Nu#er, McClennen & Fish, LLP -‐ Partner; Director of Biz Dev, Emerging Companies Team • Top 10 Boston law ﬁrm • Represent clients in technology, hardware, soJware, mobile, medical devices, health IT, biotechnology, cleantech CPG, consumer electronics, sports & entertainment • Provide support and outreach to the entrepreneurial community › Boards and OrganizaOons › MassVentures – Director & Investment Commi#ee Member • The Venture Arm of the Commonwealth-‐-‐ catalyzing innovaOon in Massachuse#s by providing seed and early stage venture funding to high growth technology startups. › The Capital Network – Director; Past Chairman • Providing educaOon, resources and community to high growth entrepreneurs and angel investors as they navigate the early stage capital process › Entrepreneurial Experience -‐ Entertainment and Digital Consumer Products › UC Berkeley, B.A. (Go Bears!); UCLA School of Law, J.D. 2
Christopher MirabileBiography• Co-‐Managing Director of LaunchPad Venture Group • Named XConomys "Top Angel Investors in New England" for 2012 • Adjunct lecturer in the MBA program at Babson College • Entrepreneur-‐in-‐Residence at Babsons Olin School of Business. • Previous: • CFO -‐ IONA Technologies PLC • Corporate and securiOes lawyer -‐ Testa Hurwitz & Thibeault • Management consultant with Price Waterhouses Strategic ConsulOng Group • Christopher earned his J.D. from Boston College Law School and his B.A., with honors, from Colgate University 3
Gail HoffmanBiography• Managing Director – Golden Seeds • Previous • Corporate Finance Department of Dean Wi#er Reynolds • Boston Ventures Management Inc., a private equity ﬁrm focused on the communicaOons and entertainment industries. • Received an MBA with High DisOncOon from The University of Pennsylvania’s Wharton School 4
Nutter’s Emerging Companies Group5 As a full service ﬁrm with a dedicated team of lawyers in the Emerging Companies Group, Nu=er supports ventures across the innova>on economy: • Biomedical Devices • Biotechnology • PharmaceuOcals • Life sciences • SoJware • Hardware • InformaOon Technology • Cleantech • Mobile • Consumer Products • AnalyOcs • New Media • RoboOcsa We provide entrepreneurs will the full spectrum of support that they need to build their businesses and realize their visions: • EnOty FormaOon • Founders Agreements • Financing Strategy and Key IntroducOons • Angel & Venture Capital • Debt Financing • Private Equity • IniOal Public Oﬀerings • Private Placements • Strategic Partnering • Mergers & AcquisiOons • Employment support • Equity CompensaOon • Tax Strategy • LiOgaOon • Licensing • DistribuOon • Manufacturing • Supply Agreements • Electronic Commerce • Patent and Trademark Strategy & ProsecuOon
Cover Slide Introduction• 1 Minute Elevator Pitch – Get their a#enOon! • Introduce company without distracOng from spoken introducOon • Sets the tempo • Content: – Logo – Tag Line – should explain business and begin to diﬀerenOate – Contact informaOon ‒ Name of the investor/group to whom presentaOon is delivered ‒ Possibly a non-‐distracOng picture • Be enthusiasOc – people buy from people not PowerPoint 6
Company Value Proposition (*Zoom out)• Argued to be most important slide in presentaOon – a 1 slide summary – Important enough to repeat 3 Omes – Bookend the deck – begin and end presentaOon • Content objecOve – why should investors invest – 5-‐7 bullets outlining strengths and direcOon of presentaOon • Core technology • Product candidates • Market opportunity • Key partnerships • Management strengths 7
The Problem a/k/a the Opportunity• What is the unsolved problem or need? • Who has this problem? Deﬁne your Core Customer and their a#ributes • How serious is it? Do you have Metrics? – Magnitude : How signiﬁcant is it? Can you quanOfy it? – Frequency: How oJen is pain experienced (life insurance vs. coﬀee) – CriOcality: Will the pain disrupt the business (e.g., IT outage). • Cancer Drug vs. Aspirin vs. Vitamin? • How have the alternaOve oﬀerings failed to meet the need? • Analysis of why has the problem not been solved unOl now? • Remember! – Customers buy if they experience need, not if society does. – Business customer buy to make money or solve problems. 8
Product/Service Solution• Describe your product or service? • What does it do and how does it work? • Do not get too detailed? Assume technical ma#ers will be validated later. • Use pictures or diagrams where possible. • Demo / screen shots, etc. if necessary. • How does it ﬁt within the customer’s environment? • What proof of concept have you achieved? Prototype? Beta? • What proof do you have of its eﬀecOveness? • Use accurate words to describe phase of development: • “it does” vs. “it will” vs. “it may” 9
LifeSci Only:Regulatory Progress and Path• Are you IND or 510k? Any addiOonal details? • Costs and Oming and paOent populaOon of trials needed to obtain approval? • Phase 1, Phase 2 (2b), Phase III • Strategy? • Team or consultants with experience in obtaining approval? • Roadblocks or risks? • RelaOonship of path to exit Oming 10
Solution Value Proposition andCompetitive Advantage (*Zoom In)• How is your soluOon be#er, faster or cheaper than the exisOng soluOons for your customer? **Remember Diﬀerent ≠ Be#er** – Saves costs -‐ – Drives revenue or customer acquisiOon – Allows customer to oﬀer its customers a superior value proposiOon – Decreases risks – Leverages customer’s exisOng customers or soluOons – Provides enjoyment, recreaOon, educaOon, Ome saving… (consumer product) • How much be#er, faster, cheaper? Can you quanOfy the value proposiOon to the customer? – Can you validate that your soluOon is be#er? Do you have data to indicate that such items are meaningful to the customer? – Can you quanOfy a Return on Investment (ROI) for your customer. 11
• Who is compeOng with you? • Barriers to entry for you? For others? Ones that you are creaOng? Competitive Landscape12 • Blocking IP • Startup Cost to compeOOon • Change Cost to customers • Geography • Contract exclusivity or change penalOes • Market dominaOng companies (“800lb Gorillas”) • CompeOOve Advantage revisited -‐ Why will you be able to win (not “cooler”) • Points soluOon vs. total soluOons • Current major compeOtors and why you will beat them • Avoiding the “no-‐compeOOon trap” • Explaining their trends of growth or contracOon • On a matrix – show advantages and areas where you don’t compete • Pick metrics your customers care about not just those you “win” at! • Avoid upper right quadrant graphs
Comparative Advantage &FocusCriteria 1 Criteria 2 Criteria 3 Criteria 4 You CompeOtor 1 CompeOtor 2 CompeOtor 3 13 • Choose criteria important to your customers and to end users / paOents • Show focus: being best in class in only certain things • Show where you are not compeOng
• How and when will you make money? • Who is going to pay (i.e, what is the “Revenue Model”)? Who are YOUR customers? • Manufacturing and commercializaOon strategies • Timing and frequency of buying decision and payments • Average $/purchase? Likely to increase or decrease? • Cost of Customer AcquisiOon (CCA/CAC) vs. LifeOme Value of Customer (LTV/LVC) • Fixed vs. variable costs • Revenue Model – and consequences to volume, price, margin etc. of each: • Direct / Indirect Sales • Razor and Blade • Professional Services • SAAS • Licensing • Government Contractor Strategy:Business and Revenue Model14
• How you get your customers and costs • How you actually deliver soluOon to customers (trucks, distributors or click?) • Go-‐to-‐Market and General MarkeOng strategies • How you incenOvize and compensate sales (if applicable) • Explain geography and expansion strategy (scaling or growth issues) • Discuss criOcal distribuOon partners, opOons and roadblocks • Core business vs. non-‐core business • potenOal licensing or spin-‐oﬀ opportunity • Conversion metrics (idenOﬁcaOon > lead > sales process > conversion) Sales and Distribution Model15
LifeSci Only: Cost vs Revenue /Role of Reimbursement• You cannot “help the system save money” – if your soluOon is cheaper than the compeOOon, understanding the moOvaOon of the payor vs the provider (to whom cost may equal revenue) • Will you need reimbursement? – Status of code designaOon? Strategy? • Comparables for reimbursement pricing? • If deployed onto paOents, the long term savings to payor? 16
• Industry size = the total revenue generated in a segment of the economy. • These are what are tracked by Forrester, Gartner, Thomson etc. • Only useful for trend analysis, not for evaluaOng investability. • Example: “The internet adverOsing industry is an $X billion industry” • Addressable Market = the total amount of revenue that your company could generate if it acquired every potenOal customer (the “Addressable PopulaOon”). • Willing and able buyers that you can reach • Ini>al Target Market: subset of the addressable market for whom the value proposiOon is truly compelling and obvious at product introducOon. • Annual Sales: that subset of the addressable market or the iniOal target market who buy or who are likely to buy each year. • Explain how the market is changing and why. • Customers, pricing, compeOOon, new technology, etc. • $500m TAM vs. $50m TAM – know your investors! The Addressable Market17
• Intellectual Property: Patents, Trademarks, Copyrights, Trade Secret • Diﬀerence between provisional, applicaOons and granted patents • Patent strategy • IP that covers advantage vs. extraneous claims/assets • How unique is your soluOon? • Trade Secret and development lead; Ease of replicaOon • Cost/Ability of customer to replace your SoluOon • Key relaOonships • Contractual protecOon • FDA Approvals • SancOoned monopolies (e.g., cable systems) Defensibility18
Management Team andAdvisors• Top execuOves, Board of Directors, Board of Advisors & SAB • Startup, domain, customers or key opinion experience • Prior success • Balance • Cohesiveness • Don’t put their whole resume on the slide • Only show acOves • Current staﬃng gaps and strategy for ﬁlling • OrientaOon towards success not control (“Rich” not “Monarch”) 19
Current Status: Achievements andUpcoming Milestones• Demonstrate current progress and achievement of milestones • Development partnerships • DistribuOon partnerships • Customer acquisiOon progress (conversion rates) • PublicaOons • Financing • Team Developments • Upcoming milestones and Challenges • Gant-‐style Charts • How you will overcome the challenges/weakness (ex. key hire) • OJen integrated with use of proceeds slide 20
• IdenOfy exisOng/Oming of prior preferred stock deals • Cash and monthly cash burn • How much of burn is variable vs. ﬁxed • Lowest you can the Burn without killing the company • Time and investment dollars to reach cash ﬂow posiOve • Timing and quanOty of future rounds • Current round size and Oming • Use of proceeds -‐ what will it be used for? What will it buy? • OpOmal deal structure • Pre Money ValuaOon • Dangers of including suggested valuaOons • Dangers of not knowing the appropriate valuaOons Funding, Cash and Use ofProceeds21
• Technology / Product – Will the soluOon work? Can you build it? • Business Model – Can you sell the soluOon at margin? • Supply – Can you acquire and manage criOcal vendors • Customer AdopOon Risk – Will the Dogs eat the Dog Food? • Market Dynamics – Do customers have cash and the will to spend? • DistribuOon Risk -‐ Can you acquire and run criOcal distribuOon and sales points? • CompeOOon Risk – Is there an opportunity in the marketplace? Will an 800lb gorilla eat your lunch? • Financial risks –Will you have suﬃcient or available capital now and in the future? • Legal risks –Freedom to operate ? Do you have the ability to defend your IP? • Regulatory risks – Are there barriers beyond your ability to inﬂuence? • Team risks – Is our product or customer knowledge distributed and accessible? • Exit Risk – Are there willing buyers (or a public market) for your company? Risks and Plans22
• Length to liquidity • IPO vs. M&A vs. Licensing (vs. other) • PotenOal Acquirers • Acquirer characterisOcs and raOonale for acquisiOon • How frothy is the current/expected market now and at maturity • Recent exits for similarly situated companies • ValuaOons (if available) • Counterpoint: Building a company vs. building an exit Exit Strategy and Options23
Summary Slide / Investment RaOonale • End with a summary of what you have just said. • Leave them with the key message points you are trying to convey. • Be prepared for quesOons • Appendices • All of the informaOon that may backstop your conclusions • Case studies • Customer tesOmonials • More detailed technical or product informaOon • More detailed market or customer informaOon • Demo videos 24
• P&L – Historical + 3-‐5yrs; OJen with cash, customers and headcount • Segment revenue by type of revenue • Fixed vs. Variable cost structure • Revenue and Margin RaOos • Think about cash ﬂow Oming issues – see revenue model (e.g., direct/reimbursement) • Bo#om-‐Up vs. Top-‐Down projecOons • AssumpOon tab in the Excel build • What does “conservaOve” mean: Use of High / Medium / Low • Perfect vs. FuncOonal – Running your business vs. Building a model • AnOcipaOng investor cutback • Risks of projecOons being Oed to equity and compensaOon • ValuaOon Issues Financials and Projections25
Building ProjecOons: Yeah, but… • Business plans with ﬁnancial projecOons are necessary… – Bo#oms-‐up vs. Top-‐down – HINT: Youre trying to talk yourself out of this! • Financial projecOons are a key porOon of the due diligence most investors perform • I’ve heard that I don’t really have to build a business plan with ﬁnancial projecOons because no one actually reads it… Investors are more interested in the assump1ons made when building ﬁnancial projec1ons, not the exact bo;om line FOR YOU
More on Scenario Planning… Worst-‐case scenarios should answer “What happens if there is no outside capital?” – if the answer isnt grow slower, is this a pipe dream? Best-‐case scenarios should answer “What does this business look like if everything goes right?” – if the answer isn’t a huge ﬁnancial win for your investor, is this a pipe dream? Most-‐likely scenarios should answer “What does this business look like following comparable companies’ growth paths?” – if the answer isn’t able to be funded with the current “ask”, is this a pipe dream? Goldilocks got it right: examine all op1ons!
ProjecOons: Start with Revenue Take a “Bo#oms Up” approach • Ex: We have tracked X unique visitors to our website and with an industry averages 2% conversion rate, sales will be Y. • Ex: Survey revealed customers are willing to pay $X for an app with Y features. • Ex: Q4 sales were $X. With a customer acquisiOon cost of $Y, we expect a 20% growth rate as a result of markeOng eﬀorts Econ 101: revenue = price * volume. Knowing which element is driving your company’s revenue is a key metric.
Building ProjecOons: How it works • Have an assump>ons page and reference cells for your Income Statement (don’t hard code anything) • A separate assumpOons page allows ﬂexibility – change them for diﬀerent growth scenarios • AssumpOons are the backbone of your projecOons, so you should know them COLD Excel is your friend, but be careful with cell references – it’s easy to make a mistake!
ProjecOons: Add in expenses This also has a “Bo#oms-‐up” approach • Include details of all categories – Ex. Headcount is a step-‐funcOon (hard to ﬁnd .25 person) – Ex. Income taxes, no; Sales tax, use tax, payroll tax… yes! • SG&A – MarkeOng – Development – Overhead
ProjecOons: Cash Flow • Map out cash inﬂows and ou•lows to determine funding needs – do this by month! • Revenue collecOon – Oming impacts cash projecOons. Collect in 30 days? 60 days? • DepreciaOon = noncash expense (include?) • Don’t forget to include CapEx in cash ﬂow (tooth fairy doesn’t exist)
ProjecOons: Some Final Checks "The GOAL” is to make money – Social jusOce, triple net bo#om line, etc, come AFTER proﬁtability • "You cant give away what you dont have" (unless youre the Feds) – Youll need space one day that isnt free – It is illegal to hire someone and not pay them – Equity + cash = total compensaOon • As equity values increase, cash compensaOon should increase as the less expensive long-‐run pay opOon (this means you are WINNING!) – Research ﬁnancial statements to get an idea of expenses you may have missed – Research how much things cost – don’t guess!
Pitching projecOons: What’s the “ask”? Fin projecOons need to Oe to the amount of the raise – Fundraising takes Ome, so 12-‐18 months of cash per raise – IdenOfy milestones to be hit and cost of each one – The sum of those milestone costs is the raise amount – The "cushion" in the raise is not X%, its the cost diﬀerence in the most likely scenarios The secret to life is “t” – “t” is the variable for “Ome” in mathemaOcal equaOons… and Ome in projecOons is everything
Pitching ProjecOons: Expert moves • Know your audience – The earlier you are, the more interested in your assumpOons the investors are – so know you’ll be discussing them in detail. Painstaking detail. • Be rich, not king – Does a new hire cut costs or increase revenue? This will drive the Oming of a new hire. • Don’t forget that headcount is a step-‐funcOon • What is B/E expectaOon for a new hire? – Good metric for HC is sales/employee – these numbers are benchmarked and available with some research.
Pitching ProjecOons: Rookie moves – CTRL+C+P enOre excel model into a slide – Using anything less than 18-‐point font – Li#ering clipart from 1995 – StaOng projecOons to the $.01 – Failing to summarize projecOons – Using ANY of the following phrases: • “conservaOvely esOmated…” • “at only X% of the market…” • “with no compeOOon…” – Forge€ng to explain what the amount you raise achieves – Assuming a short-‐term exit at a high mulOple
General Dos and Don’ts:“Presentation is a visual not a reference”Do • Use one topic per slide • Limit text on each slide • Use pictures, graphs, video’s – Not all bullets • Choose fonts and colors that are easy to read • PowerPoint is the accessory to YOUR presentaOon • Spell Check Don’t • Use sounds with slide transiOons • Overdo the ALL CAPS, bolded, italicized or underlined text • Use too many diﬀerent fonts • Overuse special eﬀects – focus on the content • Have technical diﬃculOes – test before the meeOng 38
• Know your material cold! Don’t wing it. • DON’T READ your presentaOon. • You should have answers to likely quesOons. • Be clear when you don’t know an answer – then follow up. • When possible, know the room. Arrive early, walk around the speaking area and pracOce using the microphone and any visual aids. • Body language and appearance = 50% of the pitch • PrioriOze and eliminate less criOcal points. • Be ﬂexible – be prepared to be interrupted. • Understand the goal of your presentaOon. Is it to inspire, to educate, to connect, to get a#enOon, to get a second more personal meeOng? Presentation Skills: Part I39
• Modulate your pace, pitch, volume, tone and enthusiasm – like when you are telling a story. This helps keep the audience focused. • Use humor, personal stories and conversaOonal language where possible. Use easy to understand analogies. • PracOce. PracOce. PracOce! GO SEE OTHER PRESENTATIONS! • Slides should HELP the oral presentaOon, not BE the presentaOon. • Bring a backup copy on a ﬂash drive and via cloud • Slides should be professional and consistent with your image. • Spend more Ome building the business than the presentaOon • Leave Ome for quesOons. • RELAX, BREATHE and SLOW DOWN Presentation Skills: Part II40
Interacting with InvestorsBasic Principles - Overview• Research the investor in advance • Pay a#enOon to what you say during the presentaOon banter • Communicate • Be likeable • State your value proposiOon up front • Come prepared with suﬃcient data (including back up slides) • Enjoy yourself and let it show • Keep the presentaOon within allo#ed Ome • Be realisOc about valuaOons in the market • Make due diligence easy • Realize investors are thinking about exit strategy 41
Interacting with InvestorsCautionary Overview – Dont do the following• Bash the compeOOon • Hype • Condescend or talk down • Be arrogant • Be vague about your technology • UnderesOmate the importance of the core science/development • Deluge investors with facts • Act desperate for funding (even if you are) • Act like you don’t need money • Cite that “the company is undervalued” as a reason to invest • Overprice your rounds so you can keep stepping up valuaOon • Give investors a reason to turn you down 42
Jeremy Halpern Partner Director of Business Development Emerging Companies Team Nu#er McClennen & Fish LLP Pitching the Plan: The DeckChristopher Mirabile Managing Director Launchpad Venture Group Gail Hoﬀman Managing Director Golden Seeds