Funding Your Business Roc Bp 2012

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Rochester Regional Business Plan Competition - Funding Sources

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Funding Your Business Roc Bp 2012

  1. 1. Funding Your Business- Capital Options Rami Katz Chief Operating Officer Excell Partners
  2. 2. Agenda: • Stages of Financing • Key types of financing • Boot strapping • Grants • Loans / Debt • Equity • Excell Partners • If we have the time…2/28/2012 2012 Rochester Regional Business Plan Contest 2
  3. 3. 2/28/2012 2012 Rochester Regional Business Plan Contest 3
  4. 4. • Personal assets • “Boot strapping” • Grants • SBIR, NYSERDA • Foundations, Economic Development • Loans / Debt • Bank loans • Economic Development • Equity • 3Fs • Angels • VCs2/28/2012 2012 Rochester Regional Business Plan Contest 4
  5. 5. − “Down-n-dirty” prototypes − Pre-payments from customers − Progress payments (Gov’t contracting) − Extended payment terms from suppliers − Factoring − Risk sharing partnerships Beg, Borrow, or…2/28/2012 2012 Rochester Regional Business Plan Contest 5
  6. 6. Agenda: • Stages of Financing • Key types of financing • Boot strapping • Grants • Loans / Debt • Equity • Excell • If we have the time…2/28/2012 2012 Rochester Regional Business Plan Contest 6
  7. 7. − Free Money (Almost…) − ~15% hit rate − S.O.S. – is it aligned with your goals? − Accounting − Reporting2/28/2012 2012 Rochester Regional Business Plan Contest 7
  8. 8. − SBIR/STTR – high-risk, high return product development − Phase-1: $150K, Phase-2: ~$1MM − NYSERDA – Energy savings projects, − $100K - $MMs, − Usually requires a match − Government- http://grants.gov/ − PTAC - http://www.rochesterptac.com/2/28/2012 2012 Rochester Regional Business Plan Contest 8
  9. 9. Agenda: • Stages of Financing • Key types of financing • Boot strapping • Grants • Loans / Debt • Equity • Excell • If we have the time…2/28/2012 2012 Rochester Regional Business Plan Contest 9
  10. 10. Senior, secured debt − Usually commercial banks − Common misperception: − BANKS DON’T FINANCE LOSSES ! − Need multiple collateral sources (assets): − A/R – 80%, − Inventory – 20-60%, − Fixed assets – 50% − Cash flow – debt service as small % of earnings/cash − PERSONAL GUARANTEES!2/28/2012 2012 Rochester Regional Business Plan Contest 10
  11. 11. Other Debt sources − SBA – www.sba.gov – 7(a), Microloans… − ~75% government guarantee − Factoring − IDA – COMIDA, etc. − Trade Associations, etc. − HUD2/28/2012 2012 Rochester Regional Business Plan Contest 11
  12. 12. Agenda: • Stages of Financing • Key types of financing • Boot strapping • Grants • Loans / Debt • Equity • Excell • If we have the time…2/28/2012 2012 Rochester Regional Business Plan Contest 12
  13. 13. • The investor becomes part owner • Most returns come through exit • Put, dividend, stock buy-back • Plan for Liquidity event • Requires size and growth2/28/2012 2012 Rochester Regional Business Plan Contest 13
  14. 14. • Pre-Seed: Business plan; technical feasibility • Seed / Startup: Prototype development; non- revenue customers; company infrastructure • Early Stage / A round: Initial Mfg.; revenue generation • Second Stage: Shipping , but not profitable • Third Stage: Profitable, need expansion • Bridge Financing: Additional growth prior to liquidity event • Exit: – M&A, LBO, IPO2/28/2012 2012 Rochester Regional Business Plan Contest 14
  15. 15. 2/28/2012 2012 Rochester Regional Business Plan Contest 15
  16. 16. Target – 10X in 5 years  58.5% PA Actual (%): Fund Type 1-Year 3-Year 5-Year 10-Year 15-Year 20-Year Target Early Stage 21.88 4.36 6.26 0.89 43.08 31.46 40-100% Later Stage 25.57 12.71 12.87 6.65 13.16 21.44 25%+ Multi-Stage 17.71 2.91 5.04 4.53 29.49 24.44 30-50% S&P500 1.14 1.23 (1.18) 2.82 5.23 7.64 NASDAQ 1.97 4.91 1.35 4.89 4.62 7.91 Dow Jones 3.83 3.15 1.37 4.66 6.53 9.16 Source: Cambridge Associates & NVCA – US VC Index 09/30/20112/28/2012 2012 Rochester Regional Business Plan Contest 16
  17. 17. VCs Vs. Angels Late Mostly later stage 3,673 deals $28.4B Stage $20.1B 61,900 deals Early Stage Mostly early stage (1,414, $8.3B) Early Seed (396, $0.9B) Angel Investment VC Investment source: UNH CVR-2010 source: PWC-2011 Q1+Q2-2011 - $9B2/28/2012 2012 Rochester Regional Business Plan Contest 17
  18. 18. VCs Vs. Angels – Cont’d Angels: • Invest own money • Avg. deal - $325K VCs: • OPM • Avg. deal - ~$7.7MM • Fund size = deal size & investment stage • KNOW YOUR AUDIENCE2/28/2012 2012 Rochester Regional Business Plan Contest 18
  19. 19. Current valuation: $2MM Investment required: $1MM Pre-Money = $2MM Post-Money = $3MM (Current+Investment) Investors’ share: $33% B-plan: Yr-5 valuation= $30MM (10X, 5yrs)2/28/2012 2012 Rochester Regional Business Plan Contest 19
  20. 20. • Term Sheet • Common Stock • Preferred Stock • Convertible Debt2/28/2012 2012 Rochester Regional Business Plan Contest 20
  21. 21. • Deal Summary – pre “legal contract” • Terms included: • Representations & Warranties • Positive and negative covenants • Securities description • Rights & responsibilities • Examples: NVCA => resources • www.ExcellNY.com2/28/2012 2012 Rochester Regional Business Plan Contest 21
  22. 22. • Investors & Founders on the same basis • Cash vs. Sweat Equity • Difference in returns • Most company favorable • Little/no protection for the investors • Votes proportional to shares • “Passive” investors • Requires agreement on Valuation2/28/2012 2012 Rochester Regional Business Plan Contest 22
  23. 23. • A Separate class - Typical of VC’s • “Liquidation preference” • Participating preferred • Anti-dilution / Ratcheting • Benefits • Protection / Control • Specific Distributions • Requires agreement on Valuation2/28/2012 2012 Rochester Regional Business Plan Contest 23
  24. 24. Example Preferred Stock Covenants: Need 2/3 majority of Preferred Investors to: • Issue stock; • Sell or merge • Declare dividends; • Repurchase stock (except employee); • Amend By-Laws; • Create a subsidiary; • Incur debt greater than $X; • Acquire or dispose of assets greater than $Y; • Incur capital expenditure greater than $Z2/28/2012 2012 Rochester Regional Business Plan Contest 24
  25. 25. • Common for angels • Technically debt, but intended to become equity • No real collateral • Delays decision on valuation • Converts at a discount to future investment • Preference in liquidation • What if no future investment?2/28/2012 2012 Rochester Regional Business Plan Contest 25
  26. 26. • Understand the different funding sources • Understand where your company is • Understand your investors and the implications of an equity deal before you start the process. • Remember that you will all be partners when the deal is done. • The term sheet process is a good free look. • Involve your advisors early.2/28/2012 2012 Rochester Regional Business Plan Contest 26
  27. 27. Product Concepts & New IP Venture Stages Early Concept Pre-Seed Seed Growth Maturity Stage Customer Market Idea Prototype Revenues Profitability Validation ExtensionGrants Grants – SBIR, NYSERDA, ARRA, etc. 3Fs Equity Seed– Excell, RAN A/B Series– Trillium, CVF, HP Econ. Dev. / Factoring Debt Senior/Bank Debt2/28/2012 2012 Rochester Regional Business Plan Contest 27
  28. 28. Agenda: • Stages of Financing • Key types of financing • Boot strapping • Grants • Loans / Debt • Equity • Excell • If we have the time…2/28/2012 2012 Rochester Regional Business Plan Contest 28
  29. 29. Excell – A Dedicated Seed Fund • Part of the UR, representing: • Cornell, UB, SU and RIT • Invests $150K-$250K in Seed/Pre-Seed deals • Looking to make 5-10 investments this year • To date: • 22 Investments, 9.3% IRR • $134MM of follow-on funding • 245 FTEs with >$76K in avg. salaries www.ExcellNY.com – (585) 458-SEED 2/28/2012 2012 Rochester Regional Business Plan Contest 29
  30. 30. Thank You! Rami Katz rkatz@excellny.com 585-458-SEED2/28/2012 2012 Rochester Regional Business Plan Contest 30
  31. 31. Since we have the time: • How not to make Investor pitches and what VCs will NEVER say- http://www.youtube.com/watch?v=8SaHW6Y7_Yg2/28/2012 2012 Rochester Regional Business Plan Contest 31

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