This document summarizes a seminar on raising capital and doing deals presented by Stuart Hillston, CEO of Constellation Capital. The seminar covers why companies raise money, when they should raise it, the different types of capital available and where to obtain it. It also discusses what is needed to successfully complete a deal. The key points made are that companies typically raise money to start, grow or acquire; preparation and timing are important for fundraising; and having a clear business plan, pitch deck and summary are essential for attracting investors and completing a deal.

1. BOOTSTRAP SEMINARS 2013
Raising Capital & Doing Deals
Stuart Hillston, CEO, Constellation Capital

2. “Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where—” said Alice.
“Then it doesn’t matter which way you go,” said the Cat.
—Alice’s Adventures in Wonderland BY LEWIS CARROLL
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3. Where we’ll go today
• Raising Capital (not in order!)
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Why raise money?
When should you raise?
How will you raise?
What type of capital?
Where do you get it?
Who from?
• Doing Deals
– What you will need to do a deal
– How a deal can go wrong
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4. Why raise money for your business?
Ask yourself these questions about your business:
• Where are you now?
• Where are you going?
• How will you get there?
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5. Why raise money for your business?
• Describing this “journey” is your basic business
strategy
• Regardless of the starting point, most
companies need cash to achieve their goals
• The three main reasons for raising money are:
– To start
– To grow
– To acquire
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6. Why raise money for your business?
• To start a company you will have:
– some initial expense
– some ongoing fixed expenses
– some ongoing variable expenses
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7. Why raise money for your business?
• To grow you will most likely have to:
– Spend money before you can earn it
– Hire people
– Develop more products
– Open an office
– Do marketing
• It is cash flow – or lack of it – which most often
kills off companies
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8. Cash Flow
• A company with £1,000 of costs and £2,000 of
revenue can still go bust
• Cash flow is all about the timing differences
between the costs and the revenues
• You must be realistic about these timings!
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9. Why raise money for your business?
• To acquire another company you will need:
– Cash for the legal costs
– Cash for the acquisition (some, if not all)
– Cash for the increased expenses/cash flow
– Cash for integration
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10. When to raise money?
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When you know how much you need
Before you need it
And especially before you run out of cash
Allow 3-9 months for the process
Preparation shortens the time
So does a good valuation!
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11. Where from?
• Where you get your capital will depend on how
much you need…
• And what type of capital
– Debt
• You borrow the money and have to pay it back (+interest)
– Equity
• You sell shares in your company and are expected to deliver a
return
– Grant/gift
• You are given the money, usually with restrictions on what
you can do with it
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12. Where from?
• Primary sources of equity capital (selling shares)
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The 4 F’s – founders, family, friends (& fools)
Angel Investors
Crowdfunding
“junior” funds
• SEIS - £150,000, one time only
• EIS - £5,000,000 once per year
– VCs
– Private Equity
– Institutional Investors
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13. Where from?
• Common terms:
– Seed capital – getting started, typically up to
£50,000
– First round – making it real, early growth –
typically up to £500,000
– Series A – real growth, scale, traction – typically
more than £1,000,000
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14. Where from?
– Seed capital – 3 F’s
– First round – Angels, Crowd, small funds
– Series A – Funds, PE, VC
– Series B onwards – PE, VC, Institutions
– Acquisition – PE, VC
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15. How to go about it
• To raise money you need 3 essential
documents (more later)
– A business plan which states how you will effect
your strategy, resources required, time
– An investment presentation (not a product pitch)
– A summary (teaser) – the last thing you write!
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16. How to go about it
• But before you start writing:
– You are not “selling” an idea…
– … or a product …
– … or even a dream
• You are making an investment case
• So what do you need to know?
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17. Think like an investor
• The three basic risks in all investments
– Valuation risk
• You over value the investment when entering and so
reduce the returns on exit (if there is one)
– Execution risk
• The company (management) fail to deliver on the plan
– “Force of sale” risk
• Being unable to sell shares when you want to sell, or
being forced to sell when you don’t want to!
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18. What makes a good investment?
• An undervalued company which doesn’t need
the money which someone else wants to buy
for a much higher price.
• But you don’t see many of those…
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19. What makes a good investment?
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A clearly identified problem or opportunity
A practical, innovative solution
A viable, scalable market
A team that can make the plan happen
A clear differentiator from competition (USP)
Solid financial plan
“”right” level of funding, at a realistic valuation
Clear route to market and growth opportunities
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20. What you need to do the deal
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A clear idea of what you need (not just cash!)
Good documents (BP, deck, teaser)
A lawyer (even for seed rounds)
An understanding of equity
A shareholders agreement
A term sheet
A sensible valuation
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21. Doing the deal
• How much cash do you need and why?
• Do you have enough cash cover?
– 3-6 months operating expenses at cash low point
• What other help do you need?
• What people do you need?
• Where is your team deficient?
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22. What you need
• Good documents
– Business Plan (including financials)
• 1-2 years for start-up is fine
• 3 years for early stage growth
• 5 years beyond that
– Pitch deck
– Summary (Teaser)
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23. The business plan – an outline
Business Name & Cover
Sheet
Legal Notices (FSMA
disclaimer, Confidentiality)
Table of Contents
Executive Summary
Introduction & Strategy
The Problem/Opportunity
The Product/Service/Solution
The Market
The Management Team
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The Management Team
The Revenue Model
Marketing
SWOT
Financials
Development Opportunities /
Future Potential
Investor Proposition
Appendices
Supporting documentation
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24. The business plan – common questions
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How long should it be?
What format should it be?
How do I keep it confidential?
Does style matter?
What about supporting documents?
Can you show me a perfect business plan?
I don’t like your template, can I use my own?
Will you write my/our plan for us?
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25. The pitch deck – 30 second pitch
• Problem or Opportunity
– Who has it?
– What is it?
• Solution
– Maturity
(viability, dev stage, barriers to
entry)
– “Fit” (sector)
– Innovation
(model, technology)
• Scale
– Market
(size, geography, readiness)
– Growth
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• Ability (Risk)
– Team
– Competition
– Barriers (regulatory, 3rd
parties)
• Magic
– Secret sauce
– Differentiation
• Why?
– What do you need?
– Why invest in you?
– Why XXXX?
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26. The summary/teaser
• The last thing you should write!
• Ideally 2-4 pages encapsulating the investment
proposition
• Work hard on condensing the words and
retaining the meaning
• This is your introduction (your first
impression), substance & style
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27. And finally…
• Investment deals fail to complete…
– Valuation
– Terms & conditions of investment
– Sharp practice by investors
– Naivety of management
– Deal fatigue
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28. And really finally…
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29. 10 Things you shouldn’t put in your business plan!
1. The numbers are conservative
2. The entire “product” brochure set
3. The exit is a trade sale or a flotation
4. We only need 0.001% of the market
5. There is no competition
6. Your 10 page CV (life history)
7. A guaranteed return for investors
8. A 10-year financial plan
9. Huge salaries for management
10. TPYOS
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30. Summary
• Strategy comes first
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Assess where you are starting from
Determine your goal(s)
Describe how you will get there
Work out the resources you will need
• SWOT (and other tools)
• Business plan
– Build it
– Proof it and then get it checked externally
– Maintain it
• Documentation set
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31. 26/11/2013
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