SOURCES OF FUNDING University of Adelaide eChallenge

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SOURCES OF FUNDING University of Adelaide eChallenge

  1. 1. SOURCES OF FUNDING University of Adelaide eChallenge 7 July 2004
  2. 2. 1. Seed Capital – less than $250k <ul><li>Company Characteristics </li></ul><ul><ul><li>Business planning phase </li></ul></ul><ul><ul><li>Developing production capabilities </li></ul></ul><ul><ul><li>Product research & test marketing </li></ul></ul><ul><ul><li>Highly speculative start up </li></ul></ul><ul><ul><li>Controlled by founder </li></ul></ul>Seed Capital Company Life Line
  3. 3. 1. Seed Capital – less than $250k <ul><li>Funding Provider’s Characteristics </li></ul><ul><ul><li>Own funds, Family and Friends </li></ul></ul><ul><ul><li>Other Seed Investors known to Founder </li></ul></ul><ul><ul><ul><li>High net-worth individuals </li></ul></ul></ul><ul><ul><ul><li>Sophisticated Investors </li></ul></ul></ul><ul><ul><li>Subjective investment analysis </li></ul></ul>Seed Capital Company Life Line <ul><li>Key Criteria </li></ul><ul><li>Founder/Personnel </li></ul><ul><li>Product </li></ul><ul><li>Route to Market </li></ul><ul><li>Competitive Edge </li></ul><ul><li>Profitability & Growth </li></ul>
  4. 4. 2. Angel Investors - $100k to $500k <ul><li>Company Characteristics </li></ul><ul><ul><li>Product development phase </li></ul></ul><ul><ul><li>Market research done & route to market known </li></ul></ul><ul><ul><li>Initial marketing of product </li></ul></ul><ul><ul><li>High growth and high risk </li></ul></ul>Company Life Line Angel Investors Seed Capital
  5. 5. 2. Angel Investors - $100k to $500k <ul><li>Funding Provider’s Characteristics </li></ul><ul><ul><li>Target early-stage start-ups </li></ul></ul><ul><ul><li>Provide seed money to get business running </li></ul></ul><ul><ul><li>Usually invest in areas related to expertise </li></ul></ul><ul><ul><li>May take role in company’s development </li></ul></ul><ul><ul><li>Long time horizon (up to 5 years) </li></ul></ul>Company Life Line Angel Investors Seed Capital <ul><li>Key Criteria </li></ul><ul><li>Founder/Personnel </li></ul><ul><li>Product </li></ul><ul><li>Route to Market </li></ul><ul><li>Competitive Edge </li></ul><ul><li>Profitability & Growth </li></ul>
  6. 6. 3. Venture Capital - $500k to $5m <ul><li>Company Characteristics </li></ul><ul><ul><li>Expansion phase </li></ul></ul><ul><ul><li>Establishing market presence </li></ul></ul><ul><ul><li>Has an asset – device, process or technology </li></ul></ul><ul><ul><li>No profit history but rapid growth prospects </li></ul></ul>Company Life Line Venture Capital Seed Capital Angel Investors
  7. 7. 3. Venture Capital - $500k to $5m <ul><li>Funding Provider’s Characteristics </li></ul><ul><ul><li>VC Funds, Investing Syndicates </li></ul></ul><ul><ul><li>Time horizon typically (3-5 years) </li></ul></ul><ul><ul><li>Must have defined exit strategy </li></ul></ul><ul><ul><li>Stringent investment criteria </li></ul></ul><ul><ul><li>Takes an active board role </li></ul></ul><ul><ul><li>Requires detailed documentation </li></ul></ul>Company Life Line Venture Capital Seed Capital Angel Investors <ul><li>Key Criteria </li></ul><ul><li>Founder/Personnel </li></ul><ul><li>Product </li></ul><ul><li>Route to Market </li></ul><ul><li>Competitive Edge </li></ul><ul><li>Profitability & Growth </li></ul>
  8. 8. 4. Development Finance – up to $5m <ul><li>Company Characteristics </li></ul><ul><ul><li>Development of Marketing or Distribution </li></ul></ul><ul><ul><li>Continuing expansion or New Product launch </li></ul></ul><ul><ul><li>Similar characteristics to VC stage </li></ul></ul><ul><ul><li>Usually 12 months prior to IPO/Trade sale </li></ul></ul><ul><ul><li>Enables orderly exit of some founding/VC shareholders </li></ul></ul>Company Life Line Venture Capital Development Finance Angel Investors Seed Capital
  9. 9. 4. Development Finance – up to $5m <ul><li>Funding Provider’s Characteristics </li></ul><ul><ul><li>Private Equity Funds (AMP, Colonial, CPH) </li></ul></ul><ul><ul><li>Sophisticated Investors </li></ul></ul><ul><ul><li>Investment Banks </li></ul></ul><ul><ul><li>Corporates </li></ul></ul><ul><ul><ul><li>Internal R&D Dept </li></ul></ul></ul><ul><ul><ul><li>Alliance/ JV Partners </li></ul></ul></ul>Company Life Line Venture Capital Angel Investors Seed Capital <ul><li>Key Criteria </li></ul><ul><li>Founder/Personnel </li></ul><ul><li>Product </li></ul><ul><li>Route to Market </li></ul><ul><li>Competitive Edge </li></ul><ul><li>Profitability & Growth </li></ul>Development Finance
  10. 10. 5. Initial Public Offering - >$10m <ul><li>Company Characteristics </li></ul><ul><ul><li>Need a proven business model </li></ul></ul><ul><ul><li>Profit history preferred </li></ul></ul><ul><ul><li>Sell down by some existing shareholders </li></ul></ul><ul><ul><li>Raising of new capital for continued expansion </li></ul></ul><ul><ul><li>Now a Public Company </li></ul></ul>Company Life Line Venture Capital Seed Capital Angel Investors Initial Public Offering Development Finance
  11. 11. 5. Initial Public Offering - >$10m <ul><li>Funding Provider’s Characteristics </li></ul><ul><ul><li>Retail Investors </li></ul></ul><ul><ul><li>Limited Institutional Investors </li></ul></ul><ul><ul><li>Require dividends and profit growth </li></ul></ul><ul><ul><li>Lower risk investment due to liquidity </li></ul></ul>Company Life Line Venture Capital Seed Capital Angel Investors Development Finance <ul><li>Key Criteria </li></ul><ul><li>Founder/Personnel </li></ul><ul><li>Product </li></ul><ul><li>Route to Market </li></ul><ul><li>Competitive Edge </li></ul><ul><li>Profitability & Growth </li></ul>Initial Public Offering
  12. 12. 6. Secondary Capital Raisings >$5m <ul><li>Company Characteristics </li></ul><ul><ul><li>Expansion or Acquisition Capital </li></ul></ul><ul><ul><li>Mature business </li></ul></ul><ul><ul><li>History of profit and share price performance </li></ul></ul><ul><ul><li>Increased share liquidity </li></ul></ul>Company Life Line Venture Capital Angel Investors Seed Capital Secondary Capital Raisings Initial Public Offering Development Finance
  13. 13. 6. Secondary Capital Raisings >$5m <ul><li>Funding Provider’s Characteristics </li></ul><ul><ul><li>Institutional Investors </li></ul></ul><ul><ul><li>New Retail Investors </li></ul></ul><ul><ul><li>Require dividends and profit growth </li></ul></ul>Company Life Line Venture Capital Angel Investors Seed Capital Secondary Capital Raisings Initial Public Offering Development Finance <ul><li>Key Criteria </li></ul><ul><li>Founder/Personnel </li></ul><ul><li>Product </li></ul><ul><li>Route to Market </li></ul><ul><li>Competitive Edge </li></ul><ul><li>Profitability & Growth </li></ul>
  14. 14. 7. Debt Finance - >$500k Company Life Line Venture Capital Debt Financing <ul><li>Established trading record </li></ul><ul><li>Stable and predictable revenues </li></ul><ul><li>Assets as security </li></ul><ul><li>Cash to service interest & loan repayment </li></ul><ul><li>Keep control of business </li></ul><ul><li>Obligated to repay principal </li></ul>Angel Investors Seed Capital Secondary Capital Raisings Initial Public Offering Development Finance
  15. 15. 8. Case Study - G o o g l e TM <ul><li>Company Funding Timeline </li></ul><ul><ul><li>Mar 1995: Co-Founders Sergey Brin and Larry Page meet </li></ul></ul><ul><ul><li>Jan 1996: Create precursor to Google search engine </li></ul></ul><ul><ul><li>Sep 1998: Raise US$1 million from Friends, Family and “Angels” </li></ul></ul><ul><ul><li>- Andy Bechtolsheim (Co-Founder, Sun Microsystems) </li></ul></ul><ul><ul><li>- Jeff Bezos (Founder, Amazon.com) </li></ul></ul><ul><ul><li>Jun 1999: Raise US$25 million from two VC firms </li></ul></ul><ul><ul><li>- Kliener Perkins Caufield & Byers </li></ul></ul><ul><ul><li>- Sequoia Capital </li></ul></ul><ul><ul><li>Aug 2004: Raise US$2.7 billion in IPO </li></ul></ul>
  16. 16. 8. Case Study - G o o g l e TM <ul><li>What Did it Cost Google Founders? </li></ul><ul><ul><li>Sep 1998: Raise US$1 million </li></ul></ul><ul><ul><li>- 17% of Google’s share capital </li></ul></ul><ul><ul><li>- One board seat (of three) </li></ul></ul><ul><ul><li>- Company valued at US$5.5 million </li></ul></ul><ul><ul><li>Jun 1999: Raise US$25 million from two VC firms </li></ul></ul><ul><ul><li>- 34% of Google’s share capital </li></ul></ul><ul><ul><li>- Two board seats (of five) </li></ul></ul><ul><ul><li>- Company valued at US$70.5 million </li></ul></ul><ul><ul><li>Aug 2004: Raise US$2.7 billion in IPO </li></ul></ul><ul><ul><li>- 12% of Google’s share capital </li></ul></ul><ul><ul><li>- Three board seats (of nine) </li></ul></ul><ul><ul><li>- Company valued at up to US$24 billion </li></ul></ul>
  17. 17. 8. Case Study - G o o g l e TM <ul><li>How Much could the Investors make? </li></ul><ul><ul><li>Sep 1998: Friends, Family and “Angels” </li></ul></ul><ul><ul><li>- Paid US$1 million </li></ul></ul><ul><ul><li>- After IPO will hold 6% of Google </li></ul></ul><ul><ul><li>- Worth US$1.4 billion 150,000% return </li></ul></ul><ul><ul><li>Jun 1999: Two Venture Capital firms </li></ul></ul><ul><ul><li>- Paid US$25 million </li></ul></ul><ul><ul><li>- After IPO will hold 20% of Google </li></ul></ul><ul><ul><li>- Worth US$4.5 billion 8,000% return </li></ul></ul>

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