Non-Traditional Sources of Capital<br />Presented By: Alan D. Lewis II<br />STONECUTTER GROUP, llc<br />Building the Found...
Contents<br /><ul><li>Introduction
Key Terms
Traditional vs. Non-Traditional Sources
Risk vs. Return
Concepts and Misconceptions
The Art of Forecasting
Legal Framework for Equity Capital Raising
Startup and Early Stage Sources
Emerging and Growth Sources
Finders and Service Providers
Key Considerations
Conclusion
Questions and Answers</li></ul>NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 2<br />Pres...
Introduction<br /><ul><li>Goal: Provide entrepreneurs, small business owners, and managers with overview of non-traditiona...
Outcome: A clear understanding of the opportunities and challenges involved with pursuing non-traditional sources.
Approach: Address key terms and concepts, provide an overview of selected forms, and provide references for follow-up.</li...
Key Terms<br /><ul><li>Issuer
Due Diligence
Term Sheet
Closing
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A presentation designed to provide an introduction to non-traditional capital for small and emerging businesses.

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  • Issuer: A business that is selling corporate securities to an outside investor.Due Diligence: The forensic process investors undertake when both evaluating an opportunity and validating representations made by the issuer.Term Sheet: A non-binding summary of the terms either proposed by the issuer, or offered by an investor.Closing: The completion of a financial transaction typically involving the execution of an investor qualification questionnaire, stock purchase agreement, and issuance of stock certificates to investors.Debt: Monies borrowed in exchange for a promise to pay back (i.e. a promissory note). Generally secured with business and personal assets.Equity: The culmination of shareholder value contained in the business. Generally the businesses assets less its liabilities. Also referred to as “Net Asset Value” or “Book Value”.Corporate Securities: Ownership in a business sold to an investor in the form of common or preferred stock. Generally unsecured.Shareholders: Founders, Investors, and/or Managers who own common or preferred stock in a Corporation.Stakeholders: Creditors, Customers, and other parties (e.g. community) with a direct or indirect interest in a business.Assets: Items the firms owns or substantially controls whether fixed, current, tangible, or intangible. (e.g. Property, Plant, Equipment, Furniture, Fixtures, Cash, Securities, Receivables)Liabilities: Obligations to pay creditors, or other liens or encumbrances that effectively reduce the value of the businesses assets. (e.g. Payables, Debt, Judgments)EBIDTA: Earnings before Interest, Depreciation, Taxes, and Amortization. Effectively the actual net operating profit (base cashflow) of the company before certain tax related accounting expenses are applied. Also known as Operating Income, Income from Operations, Net Operating Income (NOI).Cashflow: Monies available, after normal expenses, to the company for financing and investing activities. Generally used to determine a business’s ability to grow, take on debt payments, and/or pay dividends.Debt Service: Payments of principle and interest towards accrued debt. Corporation: The generally accepted legal instrument (entity) used to provide tangible ownership in and management of a business that involves outside investors.Institution: A legally organized group such as a fund, investment bank, or commercial bank that makes direct investments on behalf of its shareholders. As opposed to an individual, or small informal group of angels.Return on Investment (ROI): The expected amount of payback to an investor over a given period of time. Typically calculated less the original investment (e.g. $4m return on $1m would equal a 3x ROI).Exit Strategy: An event that will enable the founders and/or investors to recoup their investment such as a public offering, acquisition, or follow-on financing.
  • Scg Non Traditional Sources Of Capital

    1. 1. Non-Traditional Sources of Capital<br />Presented By: Alan D. Lewis II<br />STONECUTTER GROUP, llc<br />Building the Foundation for Responsible and Sustainable Enterprise<br />
    2. 2. Contents<br /><ul><li>Introduction
    3. 3. Key Terms
    4. 4. Traditional vs. Non-Traditional Sources
    5. 5. Risk vs. Return
    6. 6. Concepts and Misconceptions
    7. 7. The Art of Forecasting
    8. 8. Legal Framework for Equity Capital Raising
    9. 9. Startup and Early Stage Sources
    10. 10. Emerging and Growth Sources
    11. 11. Finders and Service Providers
    12. 12. Key Considerations
    13. 13. Conclusion
    14. 14. Questions and Answers</li></ul>NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 2<br />Presented by Alan Lewis<br />
    15. 15. Introduction<br /><ul><li>Goal: Provide entrepreneurs, small business owners, and managers with overview of non-traditional sources of capital and key strategies for working with them.
    16. 16. Outcome: A clear understanding of the opportunities and challenges involved with pursuing non-traditional sources.
    17. 17. Approach: Address key terms and concepts, provide an overview of selected forms, and provide references for follow-up.</li></ul>NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 3<br />Presented by Alan Lewis<br />
    18. 18. Key Terms<br /><ul><li>Issuer
    19. 19. Due Diligence
    20. 20. Term Sheet
    21. 21. Closing
    22. 22. Debt
    23. 23. Equity
    24. 24. Corporate Securities
    25. 25. Shareholders
    26. 26. Stakeholders
    27. 27. Assets
    28. 28. Liabilities
    29. 29. EBIDTA
    30. 30. Cashflow
    31. 31. Debt Service
    32. 32. Corporation
    33. 33. Institution
    34. 34. Return on Investment (ROI)
    35. 35. Exit Strategy</li></ul>NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 4<br />Presented by Alan Lewis<br />
    36. 36. Traditional vs. Non-Traditional Sources<br />DEBT<br />Individual Lenders<br />Non-Bank Lenders<br />Peer to Peer<br />Friends and Family<br />Crestmark Capital | Prosper.com<br />Commercial and Merchant Banks<br />Economic Development Agencies<br />Bank of SCV | SCV Bank<br />VEDC | PCR SBDC<br />ASSET BASED<br />Individual Investors<br />Venture Capital | Private Equity<br />Capital Markets<br />Pasadena Angels | Peate Ventures<br />The Riverside Companies | OTCBB<br />Accounts Receivable<br />Purchase Order<br />Inventory and Equipment<br />Bay View Capital | Cornerstone Capital<br />King Trade Capital<br />TRADITIONAL<br />NON-TRADITIONAL<br />NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 5<br />Presented by Alan Lewis<br />
    37. 37. Risk vs. Return<br /><ul><li>ROI Requirements are based on stage of development and inherent risk
    38. 38. The earlier the stage the more risk, the higher expected return (e.g. Angels seek multiple – 4x)
    39. 39. The more established the business, or the more collateral available, the lower the risk and expected return (e.g. commercial banks seek marginal returns – 9%)
    40. 40. Commercial and asset based lenders are typically “balance sheet” and “cashflow” investors
    41. 41. Equity investors are typically “income statement” and “exit strategy” investors</li></ul>NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 6<br />Presented by Alan Lewis<br />
    42. 42. Concepts and Misconceptions<br /><ul><li>Concepts
    43. 43. “The Rat Race”
    44. 44. Other Peoples Money (“OPM”)
    45. 45. Rational Faith
    46. 46. Tastes, Requirements, and Language often Changes and Interlopes
    47. 47. Misconceptions
    48. 48. Angels and Venture Capitalists Invest in Startups
    49. 49. Investors Invest in Good Ideas
    50. 50. Investors Invest in Good Business Plans
    51. 51. Reality
    52. 52. Skin in the Game
    53. 53. Proven Track Record
    54. 54. Investors Invest in Value
    55. 55. Value equals Revenue, Profitability, and Net Asset Value</li></ul>NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 7<br />Presented by Alan Lewis<br />
    56. 56. The Art of Forecasting<br /><ul><li>Commercial Lenders prefer Marginal Growth
    57. 57. Equity Investors prefer Exponential Growth
    58. 58. Cashflow is Key to Growth
    59. 59. Overstating versus Understating
    60. 60. Identify the Potential
    61. 61. Match Capital Requirements to Aggressive yet Achievable Milestones
    62. 62. Mitigating Shareholder Dilution</li></ul>NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 8<br />Presented by Alan Lewis<br />
    63. 63. Legal Framework<br /><ul><li>California Corporations Code
    64. 64. California Department of Corporations (DOC)
    65. 65. Securities Act of 1933, 1934, and 1940 (“the ‘XX Act”)
    66. 66. U.S. Securities and Exchange Commission (SEC)
    67. 67. Financial Industry Regulatory Authority (FINRA)
    68. 68. Sarbanes-Oxley (SOX or SARBOX)</li></ul>NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 9<br />Presented by Alan Lewis<br />
    69. 69. Private Placements<br /><ul><li>Startups and Growth Companies
    70. 70. Unaccredited Investors (No more than 30)
    71. 71. Accredited Investors (Unlimited, <300)
    72. 72. Public versus Private Offering (Exemptions)
    73. 73. Regulation D, Rule 506 ($Unlimited)
    74. 74. Form D
    75. 75. Regulation A – Requires a registration (Up to $5m)
    76. 76. “Rule 504 “– No longer allowed (Less then $1m)
    77. 77. California Corporations Code Section 25102
    78. 78. Private Placement Memorandums (PPM)</li></ul>NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 10<br />Presented by Alan Lewis<br />
    79. 79. Venture Capital<br /><ul><li>Early Stage, Exit Strategy Oriented
    80. 80. Active Role in Board and will often place Management
    81. 81. Significant Control in Company Decisions
    82. 82. Generally industry specific (e.g. internet, bio-tech, pharma)
    83. 83. Generally purchase approximately 51% at a Blended Value
    84. 84. Generally Seek ≥4x ROI</li></ul>NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 11<br />Presented by Alan Lewis<br />
    85. 85. Bridge Financing<br /><ul><li>Available to Startup and Growth Companies
    86. 86. Covers gaps in cashflow
    87. 87. Available when other forms of Financing have been put in place
    88. 88. Lender bridges against future investment
    89. 89. Generally like “sweeteners” and “kickers” (e.g. stock)
    90. 90. Generally very expensive (50%+)</li></ul>NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 12<br />Presented by Alan Lewis<br />
    91. 91. Peer to Peer Lending<br /><ul><li>Targeted to Startup, Micro, and Small Businesses
    92. 92. Also known as “Social Lending”
    93. 93. New form of lending powered by the Internet
    94. 94. Occurs directly between individuals
    95. 95. Online marketplace model
    96. 96. Friends and family model
    97. 97. Prosper.com
    98. 98. Zimplemoney.com
    99. 99. Gobignetwork.com</li></ul>NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 13<br />Presented by Alan Lewis<br />
    100. 100. Investor Web Sites<br /><ul><li>Targeted to startups
    101. 101. Sites that aggregate investors and opportunities
    102. 102. Investor and Investment Search Engine
    103. 103. Typically feature Angel Investors
    104. 104. Angelsoft.net
    105. 105. Fundinguniverse.com
    106. 106. Gobignetwork.com
    107. 107. Vfinance.com
    108. 108. Fundingpost.com</li></ul>NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 14<br />Presented by Alan Lewis<br />
    109. 109. Private Equity<br /><ul><li> Established Companies with no less than $1m in EBIDTA
    110. 110. Financial Buyers
    111. 111. Buy and Hold
    112. 112. Generally purchase 100% at 5x to 6x EBIDTA / Operating Income, or
    113. 113. 1x Gross Income less Debt</li></ul>NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 15<br />Presented by Alan Lewis<br />
    114. 114. Emerging and Growth Options<br /><ul><li> Small Public Offerings
    115. 115. Mergers and Acquisitions
    116. 116. Strategic Investors
    117. 117. Mezzanine Financing
    118. 118. Bond Financing</li></ul>NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 16<br />Presented by Alan Lewis<br />
    119. 119. Finders and Service Providers<br /><ul><li>Licensed versus Unlicensed
    120. 120. Finders
    121. 121. RE and Mortgage Agents
    122. 122. Business Brokers
    123. 123. Commercial Bankers
    124. 124. Economic Development Agencies
    125. 125. Investment Banks (Broker/Dealers)
    126. 126. Wealth Managers
    127. 127. Service Providers
    128. 128. Attorneys (Securities and Transactional)
    129. 129. Accountants / Auditors
    130. 130. Advisors / Consultants</li></ul>NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 17<br />Presented by Alan Lewis<br />
    131. 131. Considerations<br />Stage of Development<br />Economic Conditions<br />Cost of Capital<br />Expectations<br />Corporate Governance<br />Accountability<br />Transparency and Disclosure<br />Autonomy<br />NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 18<br />Presented by Alan Lewis<br />
    132. 132. References<br />CA Dept. of Corporations Securities Regulation Divisionhttp://www.corp.ca.gov/srd/default.asp<br />U.S. Securities and Exchange Commission, Small Business Informationhttp://www.sec.gov/info/smallbus.shtml<br />Financial Industry Regulatory Authority (FINRA)http://www.finra.org/Industry/index.htm<br />Investopedia.comhttp://www.investopedia.com/?viewed=1<br />Security Lawyers Deskbookhttp://www.law.uc.edu/CCL/<br />Entrepreneur Magazine – Financinghttp://www.entrepreneur.com/money/finance/index.html<br /><ul><li>TheFunded.comhttp://www.thefunded.com/
    133. 133. Association for Corporate Growthwww.acg.org
    134. 134. Caltech/MIT Enterprise Forumhttp://www.entforum.caltech.edu/
    135. 135. Los Angeles Venture Association (LAVA)www.lava.org
    136. 136. National Venture Capital Association (NVCA)www.nvca.org
    137. 137. Pepperdine Private Capital Markets Reporthttp://bschool.pepperdine.edu/research/pcmsurvey/</li></ul>NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 19<br />Presented by Alan Lewis<br />
    138. 138. Conclusion<br /><ul><li>Traditional Financing
    139. 139. Less Complicated and Costly
    140. 140. May be Harder or Easier to Obtain
    141. 141. Depends on Stage and Fundamentals
    142. 142. Non-Traditional Financing
    143. 143. More Complicated and Costly
    144. 144. Often Harder to Obtain then Traditional
    145. 145. Recommendations:
    146. 146. Used seasoned and licensed service providers
    147. 147. CPAs, CFAs, JDs, S-62, S-7, S-79</li></ul>NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 20<br />Presented by Alan Lewis<br />
    148. 148. Questions and Answers<br />Alan D. Lewis IIPrincipal<br />(661) 600-6140alan.lewis@stonecuttergroup.com<br />STONECUTTER GROUP, llc<br />Building the Foundation for Responsible and Sustainable Enterprise<br />NON-TRADITIONAL SOURCES OF CAPITAL<br />©2010 Stonecutter Group, LLC<br />SLIDE 21<br />Presented by Alan Lewis<br />

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