1. Funding sources and strategies
- Who has the money and how/when you should talk to them.

2. Why you need funding $ R&D
(-$)
•A mature company grows
organically: SELL!
(+$$$$)
Mature PRODUCE
(-$)
Company
– Reinvests share of earnings.
– Often loan financed.
OTHER
COSTS
Investment (-$)
R&D
(+$$$$$$) (-$$$)
•A startup is immature:
SELL? PRODUCE – The viability of the cycle has
Startup
(+$$) (-$$$) not been proven.
– (Several) investments are
needed to establish a
OTHER
COSTS sustainable cycle.
(-$$)
2 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012
Development Department of Mechanical Engineering, The Technical University of Denmark

3. Who to go to at different stages
INVESTOR TYPE
FFF (Friends, Fools and Family)
Crowd funding
Public funds
Innovation environments
Business angels
Private / corporate investors
Venture Capitalists
Banks
Pension funds
Stock investments
INVESTMENT SIZE (DKK)
20.000 - 5 million 3 - 20 million 10-100 million >50 million
IMPORTANT TASKS
Visualize idea Test prototype Build production Optimize production
Validate idea Identify customers Produce product Validate costs Optimize sourcing strategies
Proof of concept Sell to pilot customer(s) 1st segment sales 2nd segment sales Continued expansion
Describe market Proof of market Proof of traction R&D
Estimate cost Formulate business model Formulate marketing strategy Ongoing marketing efforts
Stage
3 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012
Development Department of Mechanical Engineering, The Technical University of Denmark

4. Pre-seed / Seed stage
• Pretty much everything needs to be described
– The risk of failure is very high (66% according to litterature).
– The value of the company is low.
• Typical funding sources
– FFF, Crowd funding, Business Angels, Public funds and innovation
environments.
• Investment criteria
– The idea has great value.
– The team is key.
– Investors expect a high potential
return on investment (ROI).
4 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012
Development Department of Mechanical Engineering, The Technical University of Denmark

5. Pre-seed / Seed stage II
• Typical characteristics for the phase:
– Each task aims to validate critical points in the business plan.
– Validation of technology and market means reduced risk.
– Often, one critical factor can kill off the business.
Pilot COSTS
customer
Market signs
insights
VALUE OF COMPANY
Prototype
works!
LEVEL OF RISK
Time
• Investors are likely to invest between DKK 0.5-5 million.
• Crowd funding and the FFF are typically in provide smaller
investments.
5 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012
Development Department of Mechanical Engineering, The Technical University of Denmark

6. Startup Phase
• Important factors have been validated
– Concept has been thoroughly tested.
– Cost estimates have been validated or detailed.
– Business plans have been validated with partners/customers.
– First customer(s) have signed... something.
• Typical funding sources
– Private investors, Venture Capitalists (for high growth
ventures), public funds.
• Investment criteria
– Market validated, ”the customers are waiting”.
– The team is key.
• The investor is likely to take an active roll in daily operations.
– Sales and marketing are important issues.
6 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012
Development Department of Mechanical Engineering, The Technical University of Denmark

7. Startup phase II
• Typical characteristics for the phase:
– Focus on getting to break even.
– Sales, not written letters of intent.
– Initial costs are high.
– Through optimization, costs are reduced. VALUE OF
COMPANY
Pilot EARNINGS(!)
customer First ”Real”
signings
sales
COSTS
Large
Production
costs LEVEL OF RISK Time
Break
even!
• Typical investment of between DKK 3 and 20 million
7 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012
Development Department of Mechanical Engineering, The Technical University of Denmark

8. EDGEFLOW
EDGEFLOW
Revisited (slides courtesy of EdgeFlow Aps)

9. EDGEFLOW
EdgeFlow’s ”Catch 22”
A startup in the seed phase or a seed venture in the startup phase?
• We have a proof of concept and a good understanding of the
market and costs involved in producing. Several customers have
shown an interest.
•We are in dialogue with several investors who are saying:
• ”We need letters of intent from customers!”
•The customers are saying:
•”Interesting, but we need more hours of
operation”
•And EDGEFLOW is saying:
•”We need money to create a product that can
run for long periods”

10. EDGEFLOW
Exercise 3
Help your lecturer.
• In your groups:
• Spend 5 minutes discussing how Jakob
should handle his predicament.
•Ask Jakob for clarification if needed.
• Be ready to share your conclusions!
(Thank you in advance!)

11. Growth phase (1st round -> pre-public)
• ”Traction” has been shown in first segment(s)
– The rollout strategy works – now it should be replicated.
– Going into new segments requires significant investments.
– Risk is much lower (cultural differences and such).
• Typical funding sources
– Private investors, Venture Capitalists (later stage),
Banks, Pension funds. 3 1
2
1
• Investment criteria 3 4
– Medium yield, low risk investment.
2
3 4
4
11 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012
Development Department of Mechanical Engineering, The Technical University of Denmark

12. Growth phase (1st round -> pre-public) II
• Typical characteristics for the phase:
– ”Hockey stick” time!
– Growing from national/regional organisation til international.
– Less need for entrepreneurs and more need for operational
savvy.
VALUE OF
COMPANY EARNINGS
Investments
in new
segments
COSTS
LEVEL OF RISK Time
12 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012
Development Department of Mechanical Engineering, The Technical University of Denmark

13. Different investors – different terms
Type Risk Profile Expected return Equity Return multiple /
shareholder timing
FFF High Risk May vary Perhaps None
Business angel High Risk Cash return Yes 10x / 5 yrs out
Innovation env. High Risk Cash return + Yes 10x / 5 yrs out
reports
Private investor Medium-High Cash return + Yes 5x / 5 yrs out
knowhow/tech
Venture Medium Risk Cash return Yes 5-10x / 5 yrs out
Capitalist
Pension Fund Medium-Low Cash return Yes 2-4x / 5 yrs out
Public fund High Risk Reports,
knowledge
No None
!
(public)
Banks* Low Risk Cash return No 1-3x / 5-10 yrs
Shareholders Medium-Low Cash return Yes 2-6x / 5 yrs out
Crowd funder High Product/perk No None
* Note that banks usually require collateral from the founders or board
13 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012
Development Department of Mechanical Engineering, The Technical University of Denmark

14. ”Gearing” an investment
• Investors tend to want as much as possible for as little as
possible (good ”mileage”).
• Also, an investor is often interested in sharing the
investors with others (syndicating the investment).
• A bigger investment means your company has to give
away a larger share...
• ... Unless you are able to establish some
gearing for the investment:
• Gearing can be created through public
funds* that typically invest a max. of 40-
60% of the total funds required.
* See www.innovationsradar.dk
14 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012
Development Department of Mechanical Engineering, The Technical University of Denmark

15. Exercise 4:
For each group:
Spend five minutes searching
www.innovationsradar.dk:
Find at least one fund that is suitable for
your business.
When is the deadline for applying?
Share your result with the class.
15 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012
Development Department of Mechanical Engineering, The Technical University of Denmark

16. Additional notes on traditional investors
• Modern equity taking investors tend to provide funding
and knowhow.
– A ”knowledge” investor is a very strong asset.
• A single investor is rarely interested in getting a majority
in the company
16 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012
Development Department of Mechanical Engineering, The Technical University of Denmark

17. A quick note on ”Why Crowd Funding rules”
• As established earlier, investors are necessary to get the
wheels rolling.
• To invest, they have to see a potential for sales and
earnings.
• Crowd Funding does just that:
It gets the wheels rolling
AND
it validates the market
17 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012
Development Department of Mechanical Engineering, The Technical University of Denmark

18. Introducing: Vaeksthus Greater Copenhagen
• The Vaeksthus provides a host of useful services to
entrepreneurs.
• Kristian Lund (Project Consultant) will introduce some of
these services right after the break.
• See more on: http://www.startvaekst.dk/vhhr.dk
18 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012
Development Department of Mechanical Engineering, The Technical University of Denmark

19. 19 Original material by Jakob A. Bejbro Andersen for course 42629 – Innovation and Product 2012
Development Department of Mechanical Engineering, The Technical University of Denmark