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Exploiting Fundraising Opportunities For Entrepreneurs

Fritz Demopoulos, Founder of Queen's Road Capital

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Exploiting Fundraising Opportunities For Entrepreneurs

  1. 1. Exploiting fundraising opportunities for entrepreneurs The Women’s Foundation June 2015 Fritz Demopoulos
  2. 2. Fundraising is not for every business Do you have a business (or idea) worth funding? 2
  3. 3. We have an array of funding sources available 3 Venture Capital – Early GSR, IDG, KP, Horizon, Sequoia, Qiming Venture Capital – Growth GGV, DCM, Sequoia, Softbank Angel Funds Zhen Fund, SV Angels Corporate Funds Qualcomm, Intel, CKH, Google, Softbank Private Equity Hillhouse, Dragoneer, TPG Hedge Funds Maverick, Brookside, Janchor, Farallon Super Angels William Bean Accelerators 500 Start Ups, TechStars, Cocoon, Next  All these firms are dabbling in early stage. Some more than others.
  4. 4. Let’s not forget alternative sources of capital, albeit they may not be ideal Seed and angel – Mostly our friends & family (avoid your in-laws) Debt – May not apply to early stage businesses Project financing Receivables Payables, employees – Not recommended 4
  5. 5. Companies go through a financing life-cyle 5
  6. 6. We’ll try to focus on venture capital, angel, seed, & PE; the most common funding sources for early and mid-stage high-growth businesses 6
  7. 7. Early stage investors have a few basic financial and psychological needs Naturally, they want to make a lot of money Hit & miss nature means they need to earn 10 x on a successful deal Of course, investors always want to take credit for your success 7
  8. 8. That means . . . Scalable business models Theoretically, should reach massive returns The addressable market needs to be big enough And, your expected market share needs to be reasonable enough Valuable and unique strategy 8
  9. 9. Dell is valuable but not unique Chrysler Viper was unique but not valuable 9
  10. 10. Timing? Game of probability Possible to raise money on a PowerPoint But normally, we need to see some traction Traction – Management team, MVP, revenues, usage traction, unique technology 10
  11. 11. Commitment is crucial 11 Did you put up some of your own money? . ..”skin in the game” Were you capable enough to convince other capable people to join you? If you are not full-time, no one will ever take you seriously. .. unless you have a track record, but you wouldn’t be listening to me then Never say, “only if I raise the money, I’ll be full-time, hire people, get going, etc. . .”
  12. 12. The deal … 12 Financial issues Non- financial issues Negotiation / tactical issues
  13. 13. Financial issues Valuation? Multiples or comparable companies No one uses CAPM, DCF except as a reference Investors’ thinking is different 13
  14. 14. $6 mln for 1/4th of your company $3 mln for 1/4th of the same company 14
  15. 15. Non-financial Control of Board Control of decisions, CFO & other Co-sale rights, drag-along rights, first rights Anti-dilution provisions Preferences 15
  16. 16. Negotiations / tactical issues Sequence, more or less -> Tease -> Preliminary -> Additional tease -> Heating up & partner involvement -> Detailed conversation & partial DD -> Partner meeting -> Term sheet -> Comprehensive DD -> Closing -> Funds wired & money in the bank 16
  17. 17. Myth – Providers of capital are indeed more intelligent Reality – Providers of capital think they are more intelligent 17 Can’t listen to everything VC’s say
  18. 18. No one will ever say no to you…or very rarely Why would VC’s limit their options in case for some reason your vision, no matter how asinine it is, actually materializes 18 Instead, they’ll say .. .. ”you are too early for us, but we’re interested” “we focus on expansion capital, but we’re interested” “we are in the process of raising a new fund, but we’re interested”
  19. 19. Most of the time, no one is interested That’s fine…even for experienced entrepreneurs, you are only as good as your last project..and VC’s still forget ….you’ll definitely know if a VC eventually becomes interested 19
  20. 20. Be aware of the types of people you meet 20 Dangerous Opportunity High potential Waste of time Expert / Knowledgeable Inexperienced / Uninformed Interested Uninterested / Other agenda
  21. 21. Can’t underestimate the power of influencers 21 Influencers Media Analysts Events Service firms Peers - Trade, bloggers, pundits – Industry analysts, investment banking analysts, research firms – Conferences, forums – Legal, accounting, bankers – Related companies
  22. 22. You’d be surprised how naïve some people are 22
  23. 23. NDA’s are lame. .. There are no real secret ideas Only things worth keeping confidential are client lists, source code, names of key engineering talents. never share the entire picture Anything you provide, whether or not you sign an NDA, will definitely be floated to the VC’s portfolio companies 23
  24. 24. “Image is everything” -- Andre Agassi 24
  25. 25. 25 You need to look like a CEO/entrepreneur Every industry is different Two strategies…fit perfectly with expectations, or do the opposite of what is expected. …
  26. 26. How to find venture capitalists or seed investors? Well, it’s their job to talk to companies and read business plans…it should be pretty easy to get in front Needless to say, personal recommendations are very important 26
  27. 27. It is very competitive A top-tier VC will be reviewing 500-800 business plans per month And maybe make 1 investment per month And as an asset class, VC is underperforming over the past 10 years 27
  28. 28. Remember, people & process 28
  29. 29. Thanks & good luck! Fritz Demopoulos 29