Funding Available to Start-ups


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Funding Available to Start-ups

  1. 1. Funding Available to Start-ups Mark Klausner Jeffrey Peres Managing Director Vice President [email_address] [email_address] Signal Hill Capital Group LLC 443-796-4000
  2. 2. Overview <ul><ul><li>Financing Planning </li></ul></ul><ul><ul><li>Types of Financing </li></ul></ul><ul><ul><li>Approaching Investors </li></ul></ul><ul><ul><li>Closing the Deal </li></ul></ul>
  3. 3. Financing Planning
  4. 4. Developing a Financial Plan <ul><ul><li>Where are you in your corporate life cycle? </li></ul></ul><ul><ul><li>How much capital do you need? </li></ul></ul><ul><ul><li>How soon will you need more money? </li></ul></ul><ul><ul><li>What milestones will you achieve with this round? </li></ul></ul>
  5. 5. Stages of New Venture Development
  6. 6. Capital Plan and Cash Flows
  7. 7. Milestones <ul><li>Product approval / launch </li></ul><ul><li>Third Round </li></ul><ul><li>Clinical progress </li></ul><ul><li>Second Round </li></ul><ul><li>Prototype, product testing, proof-of-concept, clinical data, market validation </li></ul><ul><li>First Round </li></ul><ul><li>Tested value proposition, technology protected, market analysis </li></ul><ul><li>Seed </li></ul>
  8. 8. Timeline / process Closing Due diligence Negotiate term sheets Preliminary due diligence Meet with investors Develop marketing materials Target investors Decide on type of financing Develop financial plan / assess capital needs 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Weeks
  9. 9. Types of Financing
  10. 10. Sources of New Venture Funding Red shading indicates primary focus of investor type. Blue shading indicates secondary focus, or focus of a subset of investors of the type. Acquisition, LBO, MBO Public Debt IPO Mezzanine Lender SBIC Equipment Lessor Asset-based Lender Venture Capital Strategic Partner Grants Angel Investors Friends and Family Entrepreneur Exit Rapid Growth Early Growth Start-up Development Sources of New Venture Financing
  11. 11. Grants <ul><ul><li>Advantages </li></ul></ul><ul><ul><li>Low cost of capital </li></ul></ul><ul><ul><li>No dilution to shareholders </li></ul></ul><ul><ul><li>External validation </li></ul></ul><ul><ul><li>Disadvantages </li></ul></ul><ul><ul><li>Complex process </li></ul></ul><ul><ul><li>Time and cost to apply </li></ul></ul><ul><ul><li>Adherence to grant guidelines </li></ul></ul><ul><ul><li>Documentation </li></ul></ul><ul><ul><li>Limits flexibility </li></ul></ul><ul><ul><li>Doesn’t expand intellectual capital </li></ul></ul>
  12. 12. Development Agreement <ul><ul><li>Advantages </li></ul></ul><ul><ul><li>No explicit dilution to shareholders </li></ul></ul><ul><ul><li>Leverage the resources of a large industry player </li></ul></ul><ul><ul><li>External validation </li></ul></ul><ul><ul><li>Funding based on milestones </li></ul></ul><ul><ul><li>Expands intellectual capital </li></ul></ul><ul><ul><li>Disadvantages </li></ul></ul><ul><ul><li>Value transfer to partner </li></ul></ul><ul><ul><li>Highly negotiated </li></ul></ul><ul><ul><li>Operational complexity / management </li></ul></ul><ul><ul><li>Are you “locked-in” </li></ul></ul><ul><ul><li>Loss of control </li></ul></ul>
  13. 13. Debt <ul><ul><li>Advantages </li></ul></ul><ul><ul><li>Lower cost of capital </li></ul></ul><ul><ul><li>No dilution to equity holders </li></ul></ul><ul><ul><li>Well defined process to closing </li></ul></ul><ul><ul><li>Disadvantages </li></ul></ul><ul><ul><li>Annual fixed cost </li></ul></ul><ul><ul><li>Repayment obligations </li></ul></ul><ul><ul><li>More difficult to obtain for early-stage companies </li></ul></ul>
  14. 14. Equity <ul><ul><li>Advantages </li></ul></ul><ul><ul><li>Permanent capital </li></ul></ul><ul><ul><li>Typically expands intellectual capital </li></ul></ul><ul><ul><li>Most common way of funding start-up ventures </li></ul></ul><ul><ul><li>Disadvantages </li></ul></ul><ul><ul><li>Expensive </li></ul></ul><ul><ul><li>Dilutive to common shareholders </li></ul></ul><ul><ul><li>Lengthy and complex process to obtain financing </li></ul></ul>
  15. 15. Sources of Equity Capital $1 - 20 mm NA <ul><li>Corporate VC </li></ul>$5 - 20 mm > $500 mm <ul><li>Marquee VC </li></ul>$2 - 10 mm $50 - 250 mm <ul><li>Intermediate VC </li></ul>$2 - 5 mm < $100 mm <ul><li>Boutique VC </li></ul>< $1 mm > $50 mm <ul><li>Super Angel </li></ul>< $100 k > $2 mm <ul><li>Angel </li></ul>< $50 k NA <ul><li>Friends and family </li></ul>Typical Commitment Fund Size
  16. 16. Qualifying Investors <ul><ul><li>Referral path </li></ul></ul><ul><ul><li>Reputation </li></ul></ul><ul><ul><li>Average funding provided – initial, follow-on </li></ul></ul><ul><ul><li>Experience / track record </li></ul></ul><ul><ul><li>Portfolio companies </li></ul></ul><ul><ul><li>Style / interaction with management </li></ul></ul><ul><ul><li>Process </li></ul></ul>
  17. 17. Approaching Investors
  18. 18. How Do I Get in Contact with the Right People? <ul><li>Industry network, Agent </li></ul><ul><li>Corporate VC </li></ul><ul><li>Personal network, Agent </li></ul><ul><li>Marquee VC </li></ul><ul><li>Personal network, VC shows and conferences, Agent </li></ul><ul><li>Intermediate VC </li></ul><ul><li>Personal network, VC shows and conferences, Agent </li></ul><ul><li>Boutique VC </li></ul><ul><li>Personal network, Angel clubs </li></ul><ul><li>Super Angel </li></ul><ul><li>Personal network, Angel clubs </li></ul><ul><li>Angel </li></ul><ul><li>Personal network </li></ul><ul><li>Friends and family </li></ul>
  19. 19. I’ve Got a Meeting…Now What? <ul><ul><li>Know your audience </li></ul></ul><ul><ul><li>Your slides shouldn’t tell the whole story </li></ul></ul><ul><ul><li>Practice presentation skills </li></ul></ul><ul><ul><li>Showcase the team </li></ul></ul><ul><ul><li>Value proposition and business model are key </li></ul></ul><ul><ul><li>Don’t overwhelm with technology </li></ul></ul><ul><ul><li>Focus on the goal get another meeting </li></ul></ul><ul><ul><li>Follow up on open items quickly </li></ul></ul>
  20. 20. Why Should Someone Give You Money? <ul><ul><li>Potential market </li></ul></ul><ul><ul><li>Proprietary technology </li></ul></ul><ul><ul><li>Business model </li></ul></ul><ul><ul><li>Management </li></ul></ul>
  21. 21. Closing the Deal
  22. 22. Due Diligence <ul><ul><li>Validation of business plan </li></ul></ul><ul><ul><li>Market size </li></ul></ul><ul><ul><li>Competition </li></ul></ul><ul><ul><li>Execution plan </li></ul></ul><ul><ul><ul><li>Distribution </li></ul></ul></ul><ul><ul><ul><li>Technological roadmaps </li></ul></ul></ul><ul><ul><li>Operational metrics </li></ul></ul><ul><ul><li>Historical and projected financial data </li></ul></ul><ul><ul><li>Legal issues </li></ul></ul>
  23. 23. Term Sheet Issues <ul><ul><li>Valuation </li></ul></ul><ul><ul><ul><li>Pre-money </li></ul></ul></ul><ul><ul><ul><li>Post-money </li></ul></ul></ul><ul><ul><li>Price </li></ul></ul><ul><ul><ul><li>Per share </li></ul></ul></ul><ul><ul><ul><li>Warrants </li></ul></ul></ul><ul><ul><li>Structure </li></ul></ul><ul><ul><ul><li>Liquidation preference </li></ul></ul></ul><ul><ul><ul><li>Dividends </li></ul></ul></ul><ul><ul><ul><li>Redemption rights </li></ul></ul></ul><ul><ul><ul><li>Anti-dilution </li></ul></ul></ul>
  24. 24. Term Sheet Issues <ul><ul><li>Control </li></ul></ul><ul><ul><ul><li>Directors </li></ul></ul></ul><ul><ul><ul><li>No-shop clauses </li></ul></ul></ul><ul><ul><ul><li>Conversion / automatic conversion </li></ul></ul></ul><ul><ul><ul><li>Restricted actions </li></ul></ul></ul><ul><ul><ul><li>First offer rights </li></ul></ul></ul>
  25. 25. Common Myths About Financing <ul><ul><li>You don’t need more money </li></ul></ul><ul><ul><li>A term sheet is a commitment </li></ul></ul><ul><ul><li>No venture money is available </li></ul></ul><ul><ul><li>If they don’t get the message they are stupid </li></ul></ul><ul><ul><li>Building a company and raising money is easy </li></ul></ul><ul><ul><li>The Founder’s ownership percentage is the most important thing </li></ul></ul><ul><ul><li>Technology is the key to raising money </li></ul></ul><ul><ul><li>Raising money is the goal </li></ul></ul>