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NVBC Dialing For Dollars 2007

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NVBC Dialing For Dollars 2007

  1. 1. Dialing for Dollars June 7, 7pm; Segal Graduate School of Business
  2. 2. About Stirling Mercantile <ul><li>Sectors </li></ul><ul><li>Mid market financings </li></ul><ul><li>Early-stage VC financings </li></ul><ul><li>Mergers and acquisitions </li></ul><ul><li>Valuations and fairness opinions </li></ul><ul><li>Public market advisory services </li></ul>
  3. 3. About Stirling Mercantile
  4. 5. www.stirlingmercantile.com
  5. 6. Tell me what you do <ul><li>One sentence - what you sell, to whom and why they should buy. </li></ul><ul><ul><li>We sell [hardware/software] that helps [our target market] [save money or make money] </li></ul></ul><ul><li>“ We make software that helps gas companies account for their production more accurately” </li></ul><ul><li>“ We sell bandwidth to businesses that is more reliable and costs less than it does from telcos” </li></ul>.
  6. 7. Sources of Financing <ul><li>Equity – family, friends, employees, angels & VCs </li></ul><ul><li>Debt – banks, subordinated lenders & others </li></ul><ul><li>Grants – governments and government supported agencies </li></ul><ul><li>Revenue – be careful with ‘consulting’ though, can be too distracting </li></ul>. Early stage financing
  7. 8. The Financing Map F, F & E Seed, Angel Series A Series B Year 1 2 3 4 5 Beta Customers Early Adopters Crossing the Chasm Mainstream Growth Design Beta V. 1 V. 2 IP Roadmap Funding Roadmap . Early stage financing
  8. 9. VC Activity Source: Thomson Financial, cvca.ca Early stage financing
  9. 10. What happens when you bring in equity investors? <ul><li>Dilution </li></ul><ul><li>More governance and oversight </li></ul><ul><li>Additional management </li></ul><ul><li>Capital to accelerate development </li></ul><ul><li>Access to broader network </li></ul><ul><li>Added business insight </li></ul>. Early stage financing
  10. 11. Standard Terms <ul><li>Preferential stock: </li></ul><ul><ul><li>Paid first upon liquidation </li></ul></ul><ul><ul><li>Protection against dilution </li></ul></ul><ul><ul><li>Right to purchase more </li></ul></ul><ul><ul><li>Varying levels of control over business </li></ul></ul><ul><li>Motivated solely by return on investment </li></ul>Early stage financing
  11. 12. What Do VCs Need? <ul><li>Strong team, with integrity </li></ul><ul><li>Clear, lucrative and sustainable value proposition </li></ul><ul><li>Large market opportunity and the ability to scale into it </li></ul><ul><li>Realistic valuation and deal terms </li></ul>. Early stage financing
  12. 13. What Do VCs Need? <ul><li>Traction from the target market </li></ul><ul><li>Appropriate deal size for their fund </li></ul><ul><li>Appropriate market sector for their fund </li></ul><ul><li>Close proximity </li></ul>. Early stage financing
  13. 14. What Do VCs Want? <ul><li>2 or 3 independent board candidates </li></ul><ul><li>Transaction ready due diligence binder </li></ul><ul><li>Close proximity </li></ul>. Early stage financing
  14. 15. What Should You Look For in a VC? <ul><li>More than money </li></ul><ul><li>“Been there, done that” management </li></ul><ul><li>Corporate governance </li></ul><ul><li>Exit strategies </li></ul>. Early stage financing
  15. 16. What Should You Look For in a VC? <ul><li>More than money </li></ul><ul><li>“Been there, done that” management </li></ul><ul><li>Corporate governance </li></ul><ul><li>Exit strategies </li></ul>. Early stage financing
  16. 17. What Should You Look For in a VC? <ul><li>More than money </li></ul><ul><li>Contacts </li></ul><ul><ul><li>for additional management </li></ul></ul><ul><ul><li>for customers </li></ul></ul><ul><ul><li>for partnerships </li></ul></ul>. Early stage financing
  17. 18. Business Plan <ul><li>Executive Summary </li></ul><ul><li>Product or Service Description </li></ul><ul><li>Industry and Opportunities </li></ul><ul><li>Marketing and Sales Plans </li></ul><ul><li>Competition, Competitive Advantages </li></ul><ul><li>Management and Board Members </li></ul><ul><li>Financials and ProFormas </li></ul>Packaging
  18. 19. Executive Summary <ul><li>“Put it at the beginning but write it at the end” </li></ul><ul><li>Start with a simple description of who your clients are and why they will buy from you </li></ul><ul><li>Keep it down to about 2 pages – just enough to stimulate questions of interest </li></ul>. Packaging
  19. 20. Position Value to Customer Sales Unit Volume You Comp Comp Packaging
  20. 21. Keep It Concise! <ul><li>Use grade 8 English, and test it </li></ul><ul><li>Ask yourself if each paragraph helps to explain why this company has value </li></ul>. Packaging
  21. 22. Avoid Saying… <ul><li>Our projections are conservative </li></ul><ul><li>We have no competition </li></ul><ul><li>We have a first mover advantage </li></ul><ul><li>We only need to capture x% of the market share </li></ul>. Packaging
  22. 23. Presentation <ul><li>A picture tells a thousand words, but… </li></ul><ul><li>… don’t spend time or money on graphics and eye-candy </li></ul><ul><li>Docs in PDF, available for download from your site </li></ul>. Packaging
  23. 24. Due Dilly Binder/Folder <ul><li>All material contracts </li></ul><ul><li>Details of financials </li></ul><ul><ul><li>Inventory and valuable assets </li></ul></ul><ul><ul><li>HR tables and analysis </li></ul></ul><ul><ul><li>Comments on liabilities or notes to the Financials </li></ul></ul><ul><li>Don’t leave out anything salient </li></ul>. Packaging
  24. 25. Due Diligence Folder/Binder A great example of a due dilly map, made available in the root of the folder or binder Packaging
  25. 26. Financial Models <ul><li>“ Plans are useless, but planning is indispensable” </li></ul><ul><li>Dwight D. Eisenhower </li></ul><ul><li>Not intended to be carved in stone </li></ul><ul><li>Represents your plan, expected to change </li></ul>. Packaging, Financials
  26. 27. Purpose <ul><li>Explain how the company scales </li></ul><ul><li>Must clarify price and sales growth </li></ul><ul><li>Estimate how much capital will be required </li></ul><ul><li>Shows you can plan to be fiscally responsible </li></ul>. Packaging, Financials
  27. 28. Price <ul><li>Support your price based on competition </li></ul><ul><li>Get client validation, in writing if possible </li></ul><ul><li>Consider how your price may change going forward </li></ul>. Packaging, Financials
  28. 29. Expenses <ul><li>Spend a lot of time on being accurate about your cost of sales and profit margin </li></ul><ul><li>Spend very little time getting the fixed expenses right, unless your business is different </li></ul><ul><li>Showing losses in the first 2 years is ok, assuming you have the cash to do so </li></ul>. Packaging, Financials
  29. 30. Cash Flows <ul><li>Must detail working capital requirements </li></ul><ul><li>Must show how much money the company will need and when </li></ul><ul><li>Can be simply added to the bottom of the income projection </li></ul>. Packaging, Financials
  30. 31. Scope <ul><li>Run out 60 months </li></ul><ul><li>First two years for cash flow </li></ul><ul><li>Last three for size of opportunity </li></ul><ul><li>Show prior actuals if you have them </li></ul>. Packaging, Financials
  31. 32. Bottom Up vs. Top Down <ul><li>Market = 100,000,000 </li></ul><ul><li>We will get 5% </li></ul><ul><li>At a price of $2,000 </li></ul><ul><li>We will sell $10,000,000 </li></ul><ul><li>Incredible! </li></ul><ul><li>Sales cycle = 60 days </li></ul><ul><li>Sales training = 60 days </li></ul><ul><li>We will hire 20 effective sales people… </li></ul><ul><li>… who will sell 21 per month </li></ul><ul><li>At a price of $2,000 </li></ul><ul><li>We will sell $10,000,000 </li></ul><ul><li>Credible! </li></ul>. Packaging, Financials
  32. 33. Assumptions <ul><li>Separate tab </li></ul><ul><li>Include most trigger cells on the same page for investor adjustment </li></ul><ul><li>First Things First </li></ul><ul><ul><li>Highlight key assumptions </li></ul></ul>. Packaging, Financials
  33. 34. Packaging, Financials
  34. 35. Packaging, Financials
  35. 36. Formatting Suggestions <ul><li>Use a different colour for triggers </li></ul><ul><li>Add simple graphs </li></ul><ul><li>Provide ratios </li></ul>. Packaging, Financials
  36. 37. Sales Growth <ul><li>Add a realistic monthly figure for growth in the first 18 to 24 months </li></ul><ul><li>Multiply that by your prices(s) to generate revenue </li></ul><ul><li>Scale it up in the last 3 years </li></ul>. Packaging, Financials
  37. 38. Total Revenue <ul><li>At critical mass, revenues should be significant </li></ul><ul><li>Don’t reverse engineer with unrealistic assumptions for sales growth </li></ul><ul><li>Find a way to get to $30 to $50 million in 5 to 7 years, with defendable assumptions, ie: </li></ul><ul><ul><li>Expand your markets </li></ul></ul><ul><ul><li>Add value for a higher price </li></ul></ul>. Packaging, Financials
  38. 39. Cap Table <ul><li>Not required, but good practice </li></ul><ul><li>Show pre-money, post money and fully diluted with the investment you are seeking </li></ul><ul><li>Include an ESOP of about 15% and room for directors </li></ul>. Packaging, Financials
  39. 40. Cap Table Sample . Packaging, Financials
  40. 41. Cap Table Sample . Packaging, Financials
  41. 42. Valuation <ul><li>Start-ups are very hard to value rationally </li></ul><ul><ul><li>Not based on investments previously made or discounted cash flows </li></ul></ul><ul><ul><li>Based on ROI to the investor and incentive for management/founders </li></ul></ul><ul><li>Be realistic </li></ul><ul><li>Usually $1 to $3 million </li></ul>. Packaging, Financials
  42. 43. Format for the Presentation <ul><li>One slide for assumptions </li></ul><ul><ul><li>Identify the key variables, likely price and take-up </li></ul></ul><ul><li>One slide for results </li></ul><ul><ul><li>Include ratios </li></ul></ul><ul><li>One slide for deal structure or closing cap table </li></ul>. Packaging, Financials
  43. 44. Target the Best VCs <ul><li>Learn who’s who from your lawyer, an entrepreneur, an agent like me and www.cvca.ca </li></ul><ul><li>Find the right person at each firm – based on their background and portfolio </li></ul>Marketing
  44. 45. Prepare and Practice <ul><li>List the questions and answers you think are relevant and add to the list as you meet investors </li></ul><ul><li>Get your presentation down to 20 minutes and practice live at least 10 times </li></ul>Marketing
  45. 46. First Contact <ul><li>Get an introduction </li></ul><ul><li>Don’t go in for a presentation, go for a coffee first </li></ul><ul><li>Talk about the business - who you sell to, why they buy, etc – not the technology </li></ul><ul><li>Ask about his/her portfolio and deals s/he would like to do </li></ul>Marketing
  46. 47. Follow-up <ul><li>Write back the same day, 2am is better than next day </li></ul><ul><li>Answer all questions you couldn’t earlier and ask a few of your own </li></ul><ul><li>Suggest another meeting and primary topic </li></ul>Marketing
  47. 48. Summary .
  48. 49. Thank you <ul><li>A copy of this presentation is available at: </li></ul><ul><li>www.stirlingmercantile.com/speakers.htm </li></ul>

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