Presentation to CxO audience on creative financing

1. Creative Financing
for CXO Series
November 8, 2007
Juan Ramon Zarco
Magellan International
jrzarco2001@yahoo.com
703-376-4893

2. Agenda
 Stage of Development
 Industry or Market Sector
 Geographic Location
 Ownership Background
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3. Stages of New Venture Development
Stages of Development
 Seed
 Early Stage (“Series A” or Tranche A)
 Expansion (“Series B” or Tranche B)
 Late Stage (“Series C” or Tranche C, D or E)
 Exit
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4. Dollars Stages of Development
Revenue
Net Income
0 Cash Flow
0 Time
Seed Early Stage Expansion Late Stage Exit!!
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5. Capital Market Line
Seed Stage VC
Late Stage VC
Early Stage VC
Return
Grwth Pub Equity
Private Equity
Est. Pub Equity
T-Bonds
T-Bills
Risk
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6. Stages of Financing
 Bootstrapping
 Proof of concept- <$50k
 Seed Financing
 (R&D Financing) - $150k
 Early Stage Financing
 First Customers - $1 to 5 million
 Expansion
 Sales and marketing - $5 to 10 million
 Late Stage
 Continued growth to exit - $10 to $25 million
 Exit
 IPO, LBO, M&A, PIPE, ESOP
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7. Sources of Financing
Debt or Equity
 Debt vs. Equity
 Entrepreneur/State Funding
 Friends and Family
 Angel Investor
 Strategic Partner
 Venture Capital
 Asset-based Lending; equipment lessor; venture debt, Bank
 Trade credit; Factor
 Mezzanine Lender; Public Debt; High Yield Paper
 IPOs
 Acquisition; LBO; MBO
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8. Sources of New Venture Financing
Sources of New Venture Financing Seed Early
Stage
Expansion Late
Stage
Exit
Entrepreneur/State Fund
Friends and Family
Angel Investors
Strategic Partner
Venture Capital
Asset-based Lender
Equipment Lessor
Venture Debt
Trade Credit
Factor
Mezzanine Lender
Public Debt
IPO
Acquisition, LBO, MBO
Black shading indicates primary focus of investor type.
Gray shading indicates secondary focus, or focus of a subset of investors.
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9. Factoring
Asset-Based Lending
 Receivables – Net 30, 60 or 90
 Tangible Inventory – liquidation value, i.e.,
adjusted basis (Purchase price less
depreciation)
 Payables – Interest bearing
 Trade Credit
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10. Costs of Capital
1-year 5-year 10-year 20-year
Early/Seed 38.9% -1.5% 44.7% 19.9%
Balanced* 14.7% 0.4% 18.2% 13.3%
Late Stage 10.4% -4.7% 15.4% 13.7%
All Venture 19.3% -1.3% 26.0% 15.7%
NASDAQ 8.6% -11.8% 11.2% 12.4%
S&P 500 9.0% -3.8% 10.2% 11.7%
Source: Thompson Venture Economics/National Venture Capital Association for periods ending December 31,
2004
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11. Industry or Market Sector
 Biotech  Grants
 Low interest loans
 Medical  SBA/SBIC
 Government contracts
 Energy
 Environmental
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12. Geographic Location
 Trade zones
 Foreign country economic incentives, e.g., East
Germany, Taiwan
 Urban, e.g., Treasury Department financing for
urban development and jobs
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13. Ownership Background
 Minority Owned
 Subchapter S
 Woman Owned
 Preferred Stock
 8a
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14. Milestones to reach Creative Financing
 PPM
 Strategy and Tactics
 True-up Accounting
 EVA analysis
 Management Team
 Accounting and Legal Teams
 “Time is of the Essence”
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15. Final objectives
 IPO or M&A?
 Family Enterprise
 Survival
 Growth
 EVA
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16. Conclusions
Comments or Questions?
jrzarco2001@yahoo.com