2. Serial Entrepreneur
ISOCOR (NASDAQ: icor) & Network365/Valista (Intel)
Adjunct Professor of Entrepreneurial Studies
INSEAD, IE Business School, UCD, UCC
Innovation, Lean Startup, Leadership, Business Planning &
Fund Raising
Consultant
Clients include MSD, Alltech, Darley Flying Start,
MoneyMate, HP, ResMed …
Accolades
Finalist Ernst & Young Entrepreneur of the Year
Tech Pioneer World Economic Forum
ISA Award for Outstanding Software Achievement
Blog: www.LeanDisruptor.com
RAOMAL PERERA
2
10. How Do You Finance A New Venture?
- Sine Qua Non
- Without which there is nothing!
How much money do I really need?
When must I have it?
What is the best funding I need?
What is the best source for it?
How do I go about securing it?
10
11. Looking for Investment
• What is the most important thing
that an investor looks at?
• What is he investing in?
YOU!
11
15. Master Your Weapons
15
• Yourself
• Business Model Canvas
• Your Pitches: Elevator Pitch, 2-page
Executive Summary, Slide Presentation
• Pitching Skills
• Financial Plan – do stress test your
assumptions
– Pricing
– Market
– Customers, Partners
• Term Sheets
15
17. The Investment Dance
17
$
Teaser,
Elevator
pitch
2 pager, PPT,
working
sessions with
partner, team
Terms
discussed
Your team
pitches to their
full partnership
Final DD,
legal docs
drafted
Your
GREAT
innovation
3-9 months
Invited
to office
Term sheet
issued
Invited
for
coffee
They visit
onsite, key
suppliers,
…
Receive
them
onsite
Check
received
Now the
fun part
19. The Investment Dance
19
$
Teaser,
Elevator
pitch
2 pager, PPT,
working
sessions with
partner, team
Terms
discussed
Your team
pitches to their
full partnership
Final DD,
legal docs
drafted
Your
GREAT
innovation
3-9 months
Invited
to office
Term sheet
issued
Invited
for
coffee
They visit
onsite, key
suppliers,
…
Receive
them
onsite
Check
received
Now the
fun part
19
28. First Steps (Pre-Seed)
• Incorporated Company
–EQUAL split of the shares; 1/3 each
between the three founders.
• Unsecured overdraft of IE£60k
• Invested £7,501 each (Total of £22,503)
• Enterprise Ireland Feasibility Grant of IEP
£15k
• Agreed that the founders will also
vest their shares over 48 months
28
29. Initial Cap Table
Founder 1 – 750,100 @ £0.01
Founder 2 – 750,100 @ £0.01
Founder 3 – 750,000 @ £0.01
Valuation = £22,503
(Transferred 50k shares to each of my
four children)
29
30. Value of Founder’s Share = IEP 22,503
Ownership = 100%
External Funding = IEP 22k
30
31. NEXT
Funding:
• Capitalised the Co. with IE£22k
• Bank Overdraft IE£60k
• EI (Gov) Feasibility Grant IE£15k
• First Customer – Carphone Warehouse IE£15K
• Did not draw a salary – but accrued it.
31
33. Angel Funding (Startup Funding)
• Build Product – Mobile Commerce Server
• Ask Andy De Mari (serial entrepreneur) to
join the Board as Chairman & Mentor
• Source Angel Financing ~ IE£1 million
• Get started on the PR campaign
33
34. Angel Types
Newbie: Easily seduced by the product and the story:
Strategy: Focus on the vision. Make him an advisor. Reciprocate his
love.
Thought Leader: look for deals in key markets, leveraging certain
trends
Strategy: Teach him something new about the market--share an insight.
Captain Diligence!: Team leader, gives your plan a virtual
colonoscopy
Strategy: Have a detailed business plan. Prepare to defend key metrics.
Follower: follows the lead of key influencers in the group
Strategy: Find out who the influencers are, skip the followers
Network Angel: Leverages multiple angel groups-even his deals
have deals
Strategy: Leverage his network to build a syndicate for your company 34
35. Angel Types
Darth Vader: Cynical, thinks of a million reasons to say
NO, negative influencer
Strategy: Avoid, counteract by gaining support of thought
leaders
Ego capitalist: He’s cool, he’s hip, he’s made money as
a CEO and he’s figured out the formula--invest in what
made him $$ before.
Strategy: Wear a hoodie with his incubator’s name on it
Mercenary: Feigns interest but is really looking to sell
you his services
Strategy: Use pepper spray
35
36. Mentor Capital
What angel investing can be all about...
• Individual mentor and investor
• Helps with an angel or VC round
• Joins your team and rolls up sleeves
• Finds early €
• Helps you achieve milestones
• Introduces you to angels and VCs, when you are ready
How to find mentors:
• Network
• Ask your lawyer
• Go to angel pitch events
• Contact experts in your field who might be mentors
• Examine similar companies: who are their advisors?
36
37. Angel Funding Series A1
Series A1: 400,000 @ IE £1.00
Total No. of Shares = 2,650,300
Valuation IE £2.65 million
37
38. Angel Funding Series A2
Series A2: 724,700 @ IE £1.75
Total No. of Shares = 3,375,000
Valuation just under IE £6 million
TIP:
Mentors are great. There’s no reason not to give
someone a small success fee if they help you raise
money
38
40. Value of Founder’s Share = IEP 3.9m+
Ownership = 57.7%
External Funding = IEP 1.69m+
TIP:
Don’t be held hostage by any Investor.
Make Sure Friends and Family understand the ‘Risk’ in
the investment.
40
41. N365: Close 1st Major Customer Deal
Closed first customer deal with Digifone (now
O2). Licence fee: > IE£80k + maintenance
41
42. N365: Built a Pipeline
Second Telco customer (HK-CSL)
at over 50% probability
42
43. Convertible Loan from VC
Received €1.0m as a Convertible Loan from a
VC.
Loan to convert into shares at a discount of
10%
43
44. VC Psychology: The Fear / Greed Pendulum
Greed:
• Wanting to maximize fund returns
• Wanting to build the next big thing
Fear:
• Down round if company runs out of cash before
achieving milestones
• Loss of capital (and prestige)
• Loss of Limited Partner support for next fund
44
45. VC Funding
TIPS:
• Understand the economic and control terms
• Get to know the General Partners in the VC – They
matter and make the decisions
• The term sheet is critical. What’s in it usually
determines the final deal structure. Don’t think of it
as a letter of intent. Think of it as a blue print for
future relationship with your investor.
• Liquidation preference is a critical term that is part
of most equity financing
• Move to close the deal quickly – From Term Sheet
to money in the bank - we did it in 10 days!
45
47. Reps & Warranties
• What is the true and complete state of
this company?
– Company registration
– Financial statements
– Business plan
– IP rights and other assets
– Liabilities
– Material contracts
– Litigation
47
48. Details of a Term Sheet
• Pre-Money and Post Money
• Liquidation Preference and
Participation
• Board of Directors
• Protective Provisions
• Drag Along
• Anti-Dilution
• Pay-to-Play
• Dividends
• Redemption Rights
• Conversion
Vesting
Employee Pool
Information and
Registration Rights
Right of First Refusal
Voting Rights
Restriction on Sales & Co-
Sales Agreement
Founders Activities
Indemnification &
Assignment
Closing Conditions
No Shop Agreement
48
49. Discount Rates
• Why so high
(typically 40% –
75%)?
– Compensation for
company building,
value add
– Illiquidity of the
shares
– As a proxy for
haircutting financial
projectionsSeed Start-up Expansion ExitMezzanine
Stages
JustifiableDiscountRate
Base ROR
Systematic Risk
49
50. A Good VC Pitch – What is the opportunity?
• Tells VCs what they need to know
• Is different from your customer sales
pitch
• Is about your business, not about your
product
• Is clear about what you do
• Excites VCs about the opportunity to
build a market leader
50
51. A Good VC Pitch – Deal with the Risks
• Deal honestly with your key risks:
• Product Risk: Does the product work & meet
customer needs?
• Market Risk: Is there a large € market for this?
• Competitive Risk: Is this the best company in this
space?
• Management Risk: Is this the right management
team to execute and build this business?
• Liquidity Risk: Can VCs exit (within the timeframe
of the fund) and return € to investors?
51
52. What You Say – What the VC Hears
• We are three years ahead of the market
– OK, call me in two years when customers need
you, if you haven’t run out of money waiting for
the market to emerge.
• The big guys don’t have a clue
– Great. They won’t partner with you, either.
• Our model is conservative and only assumes
we get 1% of the market.
– Why 1%? Your model is faith-based, not fact-
based.
• We are the next Instagram.
– Please don’t skip your meds. 52
53. WHAT YOU SAY – WHAT THE VC HEARS
• We are Groupon for restaurants, events….
– You and 10,000 others… most of whom will fail
• We are destined to win because our product is
so compelling.
– And you’ll be outclassed by folks with better
marketing
• Exit strategy? As the next big thing, we’ll IPO
for sure.
– But 95% of exits are M&A.
• We have no competition.
– You have no market… OR...
– Really? We met two competitors last month 53
54. VC Funding Series B
• €15m
• Pre money valuation €30m
– Dropped from €38m due to dot com crash
• Price per share €6.1418
– Dropped from €7.54491
• Employee Option Pool (20%)
• 2 Investor Directors
• Legal fees capped at £25k
• Weighted average anti-dilution
• Liquidation Preference etc…
54
55. Value of Founder’s Share = IEP 13.8m+
Ownership = 30.6%
External Funding = IEP 16.69m+
TIP
Understand the economic and control terms
55
56. VC Funding Series C
• €10m
• Pre money valuation €21m
• C convertible preferred shares @ €2.801 per share
• Employee Option Pool (20%)
• 3 Investor Directors
• Keyman insurance for Raomal Perera & Denis
Hennessy
• Legal fees capped at £50k
56
57. Moving to the US
• Consider buying a US product firm to establish a
beach-head
• Choose US geography based on proximity to
customers and relevant capital
• Keep engineering in a lower-cost region outside of
US
• You don’t need to hire an American to run your
operation but your US head should have US
experience, especially sales & business
development
• Leverage existing multinational customers
/partners 57
58. Acquisition Series C-1
• €11m
• Acquired iPIN
• Entry into the US market
• Create clear market leader
• Build strength against new competitors
• Accelerate growth and profitability
58
59. Stage Pre-Money/ Post-Money Valuation Distribution of Equity Ownership
Seed Pre-money Investment Post-
money
Team Angel VC1 VC2 VC3 VC4 VC5
€0 €22,5k €22.5k 100%
Series A Pre-money Investment Post-
money
Team Angel VC1 VC2 VC3 VC4 VC5
€2.9m €0.5m €3.4m 89.7% 10.3%
€4.3m €1.6m €5.9m 71.1% 17.9% 9%
Series B Pre-money Investment Post-
money
Team Angel VC1 VC2 VC3 VC4 VC5
€30 €15m €45 49.7% 12.1% 15% 16.2% 4% 3%
Series C Pre-money Investment Post-
money
Team Angel VC1 VC2 VC3 VC4 VC5
€22.5m €10m €32.5m 29.9% 5.4% 20.3% 19.5% 2.9% 2.9% 19.1%
Network365 – Multiple Funding Rounds
59
61. The Key to Getting Funded
• Has a credible CEO /founders with relevant market
experience for this business
• Has traction & proof points (customers)
• Is strongly differentiated from the competitors
• Has a well conceived business model
– Financials are supported by business assumptions
– Company is metrics and milestone driven
– CEO/team knows what it takes to get sustainable growth
– Is capital efficient
– The economics seem to make sense
– The team lives their model
• Is solving a problem that matters and captures the
investors imagination
61
62. Courses I Teach at INSEAD
2016J
P3 – Entrepreneurial Field Studies EFS
(FBL)
P4 – Business Planning Workshop – Lean
Approach BPW (FBL)
2016D
P3 – Entrepreneurial Field Studies EFS
(SIN)
P4 – Business Planning Workshop – Lean
Approach BPW (FBL) 62
65. Elevator Pitch Vs 2 Pager
• Elevator Pitch
– 60 seconds/ 3 minutes
– Goal: pursuit
– Killer idea
- Real pain/best product
– Verbal
– Immediate & simple
– Next step: Send me
more info.
2 Pager
10 minutes
Goal: hook
Killer plan
- Real pain/best plan
(product and so much
more)
Written
Nuanced with
details
Next step: Can you
come in? 65
66. Perfect Pitch Outline
The Investment Opportunity (Elevator Pitch: the wow!)
Company Overview (Who are you?)
Our Opportunity / Business Problem (So what?)
Our Unique Solution (What, exactly, do you do?)
Underlying Technology (How do you do it?)
Business Model (How do you make money?)
Target Market (Who writes the check?)
Competitive Landscape (Whom do you win against?)
Go to Market Strategy (Unfair competitive advantage?)
Financials (Succeed: how big can you get and at what cost?)
Milestones / Uses of Capital (You’ll succeed…. by when?)
Team (On whom are the investors betting on?)
Summary: Reasons to Invest (Restate elevator pitch)
66
67. Elevator Pitch (The WOW)
What Investors Want to See
• Large Market Opportunity
• Unique, compelling
solution validated by early
customers
• Unfair market advantage
• Right team for this
opportunity
• Multiple exits yielding
venture-scale returns
Common Mistakes
What is this all about
Poor pacing
Lack of impact
Unsubstantiated claims
Smart Strategy
Get us excited!
Borrow credibility from
customers and partners
Be confident, crisp,
credible & compelling
67
68. Company Overview (Who Are You?)
What Investors Want to Know
• What do you do?
• How old is the firm? Key
milestones achieved?
• Customers & Partners?
• Your financing history?
• Who are your advisors?
• Anyone of note on your
Board?
• What is the investment
opportunity for me?
• Tell me about this round
Common Mistakes
Lack of clarity about what
you do
Put the “WOW” up front
Bermuda Triangle #1
Smart Strategy
Emphasize relevant
experience
Borrow credibility from
customers and partners
Bootstrap to first
milestone
68
69. Business Problem (Is This A Compelling Problem?)
What Investors Want to
Know
• What market?
• What customer?
• Pain?
• Market forces?
• What’s wrong with the
existing solutions?
• Is the pain serious enough
to create an opportunity
for a startup?
Common Mistakes
A nice to have but
not a must have
Techno-idealism
Smart Strategy
Customer design
partners
Customer Advisory
Board
69
70. Unique Solution
(Is This Compelling For Customers?)
What Investors Want to KNOW
• What exactly is the
product/service that
customers buy?
• Your value proposition
• Did customers help define
the product?
• Broadly applicable or a one-
off?
• Price? A “whole product”
solution?
• Do you have reference
account proof points? ROI?
Common Mistakes
No clear business
benefit or ROI
Faith-based design
A consulting business
Smart Strategy
Design partner
Customer advisory
board
External market
validation / research 70
71. Underlying Technology (Is this Hard to do?)
What Investors Want to
Know
• Does it work?
• What is the secret sauce?
• How hard is it to
productise?
• Is the product finished? Is
this the release we are
betting on?
• Are the most important
elements patent-
protected? Worldwide
patent?
Common Mistakes
Too much detail for non-
specialist investors
Too much customisation
needed to scale
Bermuda Triangle #2
Smart Strategy
Simple diagram showing
how this fits into the
customer’s environment
71
72. Business Model (How do you make money?)
What Investors Want to
Know
• Who pays you?
Customers? Partners?
Advertisers?
• What is your customer or
partner acquisition model?
• Revenue Cycle?
• Pricing model?
• Customer acquisition
cost?
Common Mistakes
Confusing a product
plan with a business
plan?
Underestimating
customer acquisition
cost
Smart Strategy
Use a peer company
model
Show a credible sales
pipeline
72
73. Target Market (Is This A Large Market?)
What Investors Want to
Know
• What is the market we are
betting on?
• How big is the market
today? Tomorrow?
• CAGR
• Underlying market forces
driving this growth?
• What is your market share
at break even?
Common Mistakes
Market is too small
Anemic growth
Lack of focus – you are
pursuing too many market
markets or niches
Uncritical reliance on
market analysts
1% fallacy
Smart Strategy
Credible, bottoms-up data
backed up with your
pipeline
73
74. Competitive Landscape (Are you meaningfully ahead?)
What Investors Want to Know
• Who are your primary
competitors?
• What do you do better than
anyone else?
• Are the differentiators you
highlight really important to
customers?
• Are these advantages
sustainable?
• Where are you vulnerable?
• What is your Gorilla
strategy?
Common Mistakes
“We have no competition”
Dis (mis)sing the
competition
Narcissism of small
differences
Focus on features more
than benefits
Smart Strategy
3rd party reviews &
customer references
Differentiate on business
attributes, not just
technology
74
75. Go–to-market Strategy (Can You Build The Business?)
What Investors Want to
Know
• Your unfair business
advantage?
• Can you sell efficiently?
• What is your world
domination strategy?
• How much sales visibility
do you have for this year
& next year? Really?
• What partners do you
need to ‘own’ the market?
Common Mistakes
“Our technology is so
much better than the
competition”
“If we build it, they will
come”
A science project, not a
business
Smart Strategy
Have a go-to-market
partner … but don’t bet
the farm on him
Show a credible sales
pipeline
75
76. Financials (How Capital Efficient Are You?)
What Investors Want to
Know
• Customer acquisition cost
• 2-3 year P&L
• Burn (monthly cash use)
• Snapshot at break-even:
– # of customers
– Revenue
– Market share
– Employees
– MRR & Churn
– Cash used/cash in bank
• Can you get to break-even
with reasonable capital?
Common Mistakes
Don’t understand what an
investor want to see
Hockey-stick growth or
anemic growth
Unrealistically low capital
needs
Build a model for investors
rather than run the company
Smart Strategy
Integrate key metrics and
financials
Backup financial slides
Have a spreadsheet model
Use peer comparisons
76
77. Metrics, Milestomes & Uses Of Capital (What Has To
Happen For A Successful Next Round?)
What Investors Want to Know
• Do you live your model? Is
management metrics-
driven?
• Milestones & metrics
– Cashflow
– Product milestones
– Team milestones
– Customers (€€ and logos)
– Partnership milestones
– Financial (break-even) metrics
– Operational metrics
– Exit metrics for this market
• Risk of running out of cash before
reaching milestones
• How will capital be used?
Common Mistakes
No real business plan
Vague metrics
High risk milestones
Viewing your model as an
exercise for the investor
rather than managing your
company
“Numbers? Go ask my
CFO”
Smart Strategy
Identify realistic peer
companies to explain and
benchmark your business 77
78. Team (This Is The Biggest Bet The Investors Make)
What Investors Want to Know
• Person, title, experience
• What have you done that is
relevant to this business?
• Have you worked together
as a team before?
• Have you made investors
€€?
• Does anyone know this
business ‘in their bones’?
• Who are you missing?
Hiring plans?
• Can investors help build out
the team?
Common Mistakes
A “jailhouse”- “time-
served” resume
Experience is irrelevant
for this business
Focus on where you
went to college
Smart Strategy
Map your team’s skills
to the skills needed to
build THIS business
78
79. The Dream Team
• Made € for investors
• Built marquee companies
• Has startup experience
• Worked together before
• Developed world class products
• Dealt well with adversity; turned around company
from under performer to high impact winner
• Managed positive M&A or IPO exits
• Has an excellent contact network in this market
• Hires well
79
80. Pitching
PITCH KILLERS
• Don’t know your
audience
• Opening with team bios
• Slide abuse
• No hook/No power
• Monotone/lecturing with
many people
• Not prepared for Q&A
• Bullshitting (there’s no
way this can fail)
• Weak closing
KILLER PITCHES
Know your audience
Opening with The Promise
Kawasaki’s 10/20/30 rule
Driving home the need
Athletic presentation by 1
person
Prepared for Q&A
Credibility (these are the
risk, we mitigate them by..)
Killer closing
80
82. Why is an Elevator Pitch so Important?
• I’m bootstrapping my business – I don’t
need any funds – Why do I need an
elevator pitch?
• An elevator pitch will help you figure out
what’s at the core of your business.
82
83. Six Questions you must answer with
your Elevator Pitch
Start with a HOOK
1.What is your product or service?
2.Who is your market?
3.What is your revenue model?
4.Who is behind the company?
5.Who is your competition?
6.What is your competitive advantage?
End with an Ask 83
84. Sample Elevator Pitch
Ring tones are just the tip of the ice berg. Soon,
Mobile Network Operators will have access to a very
large revenue stream as a result of creating a 3G
Network. Network365 provide a payment platform for
value added services and products that can be either
directly integrated to the Billing system of providing
several channels to receive payment for these
additional services.
IDC estimates that the market for Internet Commerce
Applications is at $1.7B and expects it to top $13B by
2003.
Network365 will charge a license fee and a usage fee
to the Operators. We will also provide a ‘managed
services’. 84
85. Sample Elevator Pitch
Our team has the experience of building scalable
software platforms and has the experience of selling
to telecos. The CEO is was the co-founder of
ISOCOR, which was listed on NASDAQ and
delivered the second highest return to the lead
investor’s fund.
Our competitors are Qpass & i-Pin two companies in
the US also building payment platforms for mobile
operators.
85
86. Sample Elevator Pitch
Our differentiator will be our ability to penetrate
the Japanese market which is the most
advanced market for value added services.
We are anticipating $2million this round to be
used for employee building, increased office
space, entry into Japanese market.
We have a compelling two page executive
summary that I would like to send you. Can I
get your address? 86
87. Take a few minutes to write down your
Elevator Pitch
• HOOK
• What is your product or service?
• Who is your market?
• What is your revenue model?
• Who is behind the company?
• Who is your competition?
• What is your competitive advantage?
• ASK
87