Equity Capital Life Cycle Concept and Introduction Growth Maturity Decline product development Sales Sales and profit Cash flow Profit TimeR&D Pre-Seed Start-Up Round 1 Round 2 & Seed ExitGrants/ Love Angel Angel VC $ VC $Money $ $ $
Financing Alternatives• Personal Financing• Business Loans• Government Grants• Accelerators• Angel Investors• Asset Backed or Receivables Lending• Venture Capital• Bank Debt
Venture Capital Investment• Cdn VC’s invested $438 mm in Q2 ‘12 up 17% from ‘11• Disbursements to 135 companies up 6% due to a slower Q1 2012• Domestic market activity 725mm as of June 30 is down 3% 2012 vs. 2011• These #’s are substantially down from the high water mark of almost 4billion in the late 1990’s and 2.1b in ’07• VC invested has dropped from a high of 5.9b in ‘00 to 1.1b in ‘10.
Venture Capital Investment• For entrepreneurs, choosing the best financing model for their start-up isn’t a luxury – it is a necessity• The terms you will be offered will be commensurate with the value you have created. Sales = Higher Valuation• VC’s money comes from LP’s which is mostly institutional
Venture Capital Pros• Small piece of a big company is better than a large piece of a small company• Industry expertise• Their goal is to grow the company quickly and exit.• Deep pockets for follow on financing• Allows you to focus on the business rather than constantly raising $
Venture Capital Cons• You have to qualify• Often looking for exit in short time frame• Negotiations tend to be one sided• Legal costs of documentation are high• Equity has a higher cost than debt +30%• Staff & time commitment for due-diligence• Reduced control or determination of business
Venture Capital Cons• Your business is exposed to the VC’s funding cycle and market uncertainties• One author referred to VC’s as a last resort• May control board decisions• Follow on Financing requires higher valuations to support VC’s valuation• Funding is down and VC’s are taking less risk.
Pitfall’s• Complex covenants based on performance metrics• Inordinately thick documents• May replace management• Liquidation preference• Anti-dilution clauses• Loose control of the direction of your company
Do it Your Way - Parting Thoughts• Over 90% of all businesses are started and grown with no equity financing• VC is the OPM drug of Start-ups• Oct’11 Profit Hot 50 - Seed Financing – 96% Founders own capital, Growth Capital – 64% Founders own Capital• Control your destiny until you create sales• Eyes Wide Open and be well researched
Future Topics1. Bootstrapping a Company & Exec Summary2. Forming an Advisory Board3. Preparing a Pitch for Investors4. Accessing Capital from a Angel Network5. Terms to expect from an Investors Term Sheet6. Pros of Cons of accessing Venture Capital too early & some of the pitfalls to avoid
Gerard Buckley, BBA, FICB, ICD.DPresident and CEOJaguar Capital Inc.(C) 416-884-9522(W) firstname.lastname@example.org@jaguarcapital@gerardbuckley