Capital Raising for Start Ups - Australia - 2 q2019

Enabling New Models of Competition
Q2 2019
Capital Raising for Start-ups: Australia -
A … sort of, Comprehensive Guide
(based on workshop presentations; not securities or financial advice)
Presentation By:
Dan Da Silva B Bus (Acct) FCIS CFTP (Snr) CPA (Tres.) F Fin MAICD
Creative Commons / Fair Use Permitted with Attribution
Caveat & Important Notice: This is a general presentation, meant solely for discussion and information purposes for early stage businesses
in Australia. It is not securities advice or financial advice. This presentation has been prepared without having regarded to, or taking into
account, any particular party’s needs or objectives, stage of development, financial situation, corporate structure or capital stack.
Reasonable efforts have been made to ensure that the information herein is current and accurate, and has been obtained from reliable
sources. However, this presentation is not necessarily fully up-to-date, complete or an appropriate guide for all parties. Accordingly, no
recipients of the presentation should rely on any information, comments or recommendations (whether express or implied) contained in this
document without obtaining specific advice from their specialist, professional advisers.

Enabling New Models of Competition Capital Raising for Start-ups: Focus - Australia 2
Caveats
n Information presented is general; its not customised
n Information may not be current or up-to-date
n Only an introduction to some issues
n Topic is too complex for 1 paper / presentation
n Many points are my Opinions Only; and, many smart people
may have Different Opinions than these.
n Seek professional advice: securities, legal, tax / accounting, etc.
n Many sources have been used – apologies in advance for
any acknowledgements inadvertently missed.
n There is no single ‘right answer’ for every case: “It depends”.
Use the Presentation selectively; a Guide, not a ‘Gospel’ -
Make Enquiries, Consult Professionals and Dig Deeper Yourself.

Contents
1. Start-up Stages & Capital Sources – Pg. 4
2. VC Scene & Ecosystem – Pg. 10
3. Incubators & Accelerators – Pg. 21
4. Non-VC Sources of Funding – Pg. 31
5. Bootstrapping & Avoiding Equity Capital Raising – Pg. 48
6. Valuation – Pg. 55
7. Summary – Pg. 57
q Appendix A: Scale & Trends in Venture Funding – Pg. 59
q Appendix B: Start-up Success Rates – Pg. 67
q Appendix C: Some Basics & Pre-requisites – Pg. 70
q Appendix D: Resources & Links – Pg. 80

Start-up Stages &
Capital Sources

So, what’s a “Start-up”?
For our purposes today …
1. Any “Early Stage” Technology Business
2. Thinking about funding operations & growth,
and
3. Potentially raising capital in pre-Seed, Seed or
Series A funding rounds, and addressing FFF,
Angels, VCs and / or Corporate Venturing
offshoots.

Enabling New Models of Competition Capital Raising for Start-ups: Focus - Australia
VC perspective: How M8 Ventures
see Stages & their Role
6
Start-up: Typical Stages
Acknowledgement for Graphic / Source: https://m8.ventures

Equity Funding for Start-ups
1. The 3 F’s: Family, Friends & ‘Fools’
2. Angels (Individuals & Clubs / Syndicates)
3. Crowd Sourced Funding (Individuals, Angels)
4. Incubators(Some; not All– via their VC Sponsors)
5. Accelerators (Most; not all - also, their VC Sponsors)
6. High Net Worth Individuals / Family Offices
7. (Early Stage) Venture Capital (VC) Firms / Funds
(Can be a Confusing Landscape)
8. Trade Players / Corporates (inc via Incubators & Accelerators)

n Later Stage Venture Capital Funds:
Established high-growth businesses. Like roll-ups, inc. some
scale-ups, esp. when complementary to existing portfolio
investee companies. Usually $3-10 mil EBITDA
n Private Equity Firms:
Usually minimum $10+ mil EBITDA; prefer ‘opportunities’
n Fund Management Companies:
Focussed on Listed Companies; sectors by mandate
n Hedge Funds:
Usually businesses from minimum $30-50 mil EBITDA
Who Does Not Invest in Start-ups?

Stages & Sources: Important, But Indicative
"Rough" Stages FFF Crowd Angels Incubator Accelerator Corporate VC "Bank"
1 Idea / Concept-to-Plan
2 Some Development
3 MVP in Development
4 MVP in Market
5 MVP Validation
6 MVP Traction
7 Product-Market Fit
8 Revenues With Burn
9 Revenues Break-even
10 Revenues + Profits uptrend
11 Revenues Scalable + Profits
12 Revenues + Profits Scalable
Most Likely or Suitable Sources of Equity Capital &Debt

VC Scene &
Ecosystem

Where Does The Money Come From?
Super Funds:
Corporate &
Industry (Union)
Investment
Funds
Life
Insurers
Sovereign
Wealth Funds
2-6 % of Funds2-6% of Funds ~2 % of Funds ~5 % of Funds
Venture Capital Funds: Various Types
5-10 Yr. Investment Horizon; e.g. Blackbird*
Banks
Corporates
HNWIs/FOs
Incubators Accelerators; e.g. Startmate*

Huge Pools of Capital – Examples Pg 1 of 2
n USA Mature VC Market: Megabillions Sequoia Capital US$15.3
bil (22 Funds to 2019) Kleiner Perkins US$600 mil (for 18th Fund to 2019).
Y Combinator
Oz Examples
n Square Peg Capital: Fund #3 - $340 mil 2018-9 (inc HostPlus); Fund
#2 - $234 mil 2017; Fund #1 - $175 mil 2014-15 (HostPlus $50)
n Reinventure: $50 mil FinTech 2017 (NAB, Westpac)
n Leap Capital: Debt Fund $50 mil 2019
n Blackbird VC: Fund #3 $261 mil 2018 ($413 mil = 5 Funds)
n Brandon Capital: $250 mil Biotech
n AirTree Ventures: $254 mil 2016
n Carthona Capital: $200 mil 2014
n Club Investible (Angel Group): $20 mil 2018 (~50 start-ups / $200-500k each)

Huge Pools of Capital – Oz Examples Pg 2 of 2
n Blue Chilli (inc She Starts, ++)
n Maru-D
n Right Click Capital
n Acorn Capital (Aust. Unity JV)
n M H Carneigie
n Follow [the] Seed
n Sapien Ventures
n Acumen Ventures
n Rampersand
n Southern Cross Ven. Ptrns.
n One Ventures (Healthcare, + Debt $)
n South Australian VC Fund
$2++ mil to $50+ mil Investible Capital:
n Artesian Ventures (Co-partner with Accelerators
/Incubators, Angels & Unis.)
n Main Sequence Ventures (CSIRO Innovation
Funds, Aust Unis.)
n Acorn Capital (Aust. Unity is JV partner)
n H2 Ventures
n Tank Stream Ventures / Bridge Lane
n Altor Capital
n River City Labs
n Black Sheep Capital
n The Founder Institute
n Giant Leap Fund (Impact Investor)
n Trimantium
Numerous listings accessible, e.g. AirTree Ventures On-line Resources Page (one of the best), and
June 2019: “A list of Australian Venture Capital firms” #97 - https://fundcomb.com/blog/a-list-of-australian-vcs

VC Funds Activity - Australia (Source: Artesian, April
2019)
https://www.artesianinvest.com/artesianinvest/australias-largest-most-active-vc-firms/
This Ranking
By Number of Investments
is Hotly Debated in VC Circles!
But, at least it’s a
Good Start on Keeping Tabs.

But, you need to know their focus - e.g.
n Right Click Capital - Pre-seed to Series B
q Preferred investments: Software-powered startups, that have a deep-
technology solution or are in Internet of Things (IoT).
n NAB Ventures - Seed-Series D, investments of $500 K — $5 mil
n Preferred Investments: Fintech and adjacent areas (eg reg-tech)
n Carthona Capital - Pre-seed, Series A (to $2m), Series B to
$4m, then follow on strongly ($3mil+)
q Preferred Investments: Previously, Robots (Ag use), Debt Collection,
Autonomous Vehicles, Real Estate Data
n Telstra Ventures – Broadly, open re Investment Amounts
n Preferred Investments: A few million in revenue, software-differentiated, large
addressable market and companies that can leverage Telstra insight, data, or
customer base.
Source: https://medium.com/@ads.long/surprising-learnings-from-vc-firms-pitching-to-startups-
5141e162027e?fbclid=IwAR1V9xdpQtP82535M3hevudATX6CBXcAfScd3H1ob2wwY5YOMz2BeaqemP4
Caveat: My opinion based on my reading – may be incorrect

How VCs Get Paid (typically)
1. Management Fees:
2% p.a. of Fund; this only covers basic costs
2. Profit Share – (Carry, or Carried Interest):
Usually 20% of the Returns in Excess of the
Original Investment,
BUT only if a Hurdle Rate is Beaten (say, 8%)
3. Direct Investment: “Skin In The Game” –
Direct Investment Alongside Institutional
Investors; can be 5% - 30% of Fund Size
This
is
Why
They
Exist

VC IRR Requirements (Pg. 1 of 2)
$ mil
Fund Size Costs Fails - 33%
100$ 20$ 26.6$
Profit Invested 1 X - 33%
193$ 80$ 26.6$
IRR Tot. Return 5 X - 33%
8% 160$ 26.6$
Fail: If, say, 5 X Return on 33% of Invested Amount; 10 Yrs
Did not beat Hurdle IRR
Note: “IRR” here is illustrative; does not properly account for TVM - https://www.nexitventures.com/blog/vcs-seek-10x-returns/

VC IRR Requirements (Pg. 2 of 2)
$ mil
Fund Size Costs Fails - 33%
100$ 20$ 26.6$
Profit Invested 1 X - 33%
193$ 80$ 26.6$
IRR Tot. Return 10 X - 33%
20% 293$ 26.6$
Beat Hurdle IRR
Success: If, say, 5 X Return on 33% of Invested; 10 Yrs
Amount
Note: “IRR” here is illustrative; does not properly account for TVM - https://www.nexitventures.com/blog/vcs-seek-10x-returns/

VC Process: 8 - 16 Weeks
1. Pitch: as an Investment-ready Company
2. 1st Meeting – Getting-to-know-you
3. Detailed Investor Pack
4. 2nd Meeting – Detailed; could go 2-4 hours
5. Terms Sheet
6. Virtual Data Room / Due Diligence
7. Approvals (Investment Committee Or Other)
8. Investment Agreement / Shareholders Agreement
(Draft/Final)
9. Conditions Precedent Met
10. Investment

Enabling New Models of Competition Capital Raising for Start-ups: Focus - Australia
Terms Sheet: What to Expect
n Issuer & Investor Entity Details
n Investment Amount & Collateral, if any
n Basis of Issue / Valuation & Any Variables
n Pre-conditions, If Any
n Liquidation Rights / Rights to Future investment /
Redemption / Conversion Options
n Voting Rights, Board Seats, Information Rights
n New Issues of Notes/Shares, Sales, Drag Along, Tag
Along & Anti-dilution Provisions
n Founders’ Obligations, KPI / Milestones & Triggers
for Changes in Rights & Obligations of Parties
n Approvals, Process / Timing, Costs, Expiry Date for
Offer
Investors
Want:
1. Good Entry /
Low Valuation
2. Down-side
Protection
3. Exit Strategy /
Pathways
4. Min. IRR /
ROI; Upside
Kickers
5. Governance,
Accountability
& Control(s)

Incubators &
Accelerators

https://www.smartcompany.com.au/startupsmart/news/australias-24-most-active-accelerators-incubators/
Red Boxed
programs are
University
affiliated
https://www.smartcompany.com.au/startupsmart/news/australias-startup-ecosystem-is-booming-and-universities-are-jumping-in/
Incubators & Accelerators: Activity – Aust.
(Source: Artesian, Nov 2017)

What is .. An Incubator / An Accelerator
Incubator
n Generally run as co-working
spaces, Universities, Govts. &
Local Business Communities.
n Aims to provide a suitable
environment for development
of “concepts into businesses”.
n Mostly, No cash invested.
n May have a charge for space &
services, inc. quid-pro-quo
equity at Pre-seed or Seed, &
exit at Series A Round.
n Usually makes money from
provision of services & space.
n May be linked to an Accelerator
Accelerator
n Generally run by VCs; Fast- tracks a
Business / MVP to ‘commercialisation’
n Structured program over ~12-16 weeks
n Provides operational resources and
facilitates development by direct
investment, in-kind support inc. Legal,
Mentors / Experts-in-Residence, etc
n Is driven by Return-on-Investment from
Valuation Uplifts for a Portfolio of
Investee Companies
n May initially invest $20-250 K at Seed
stage to own 5% - 25%
n Usually participates in Series A & Series B
Funding Rounds (often, on preferential terms)
Sometimes Interchangeable !

Accelerators: The Good, Bad & Ugly
n Intensive
n Team Builds
n Base Money
n Mentors
n Structure
n KPIs / Milestones
n Fast-tracking
n Show-casing
n Credibility
n Networks
n Aim = Validation
n Cheap Buy-In
n Portfolio Game
n Process /
Production Line
n Employees, not
Entrepreneurs
n Quick Discard / No
Pivot
n Narrow Experience
Range?
n Cloning Mindset
n Beware Some
“Standard
Agreements”
n Defensive /
Portfolio
Protection Issues
n “Idiot” Mentor
n Outrageous
Follow-on Rights
n High Multiple
Liquidity
Preferences
Note: Some of these benefits & issues / concerns / caveats also relate to other types of Investors; not unique to Accelerators.
Take-away: Good, but Select with care; do DD & avoid “Private Co. Accelerators”

Getting Into An Accelerator / VC Fund
1. Addressing a ‘Problem’ (?)
2. Global: Application &
Market
3. Scalable: Business Model /
Operational Platform
4. Founder / Team:
Credentials, Cohesion &
Commitment
n Clear “Use Case”
n Minimum Viable Product
n Product-Market Fit
n Customer / Rev. Traction
n Growth Rate & Trend /
Momentum
n Users / Installed Base/
DAU; Strong Upward Trend
n Revenue Trend / Growth
n Scalability Demonstrated
THIS: Right Idea & Team PLUS, THIS: Validation

Traction for An Accelerator: Example
“The ideal stage for our Accelerator is pre-Series A with a
little traction (we call this our "Goldilocks zone”).
Generally speaking, this means:
1. Enterprise / Marketplace Start-ups:
$5k+ in MRR with 20%+ growth m/o/m
2. Consumer Products:
5k+ DAUs with 5%+ w/o/w growth
3. Deep Tech Start-ups:
an MVP or prototype and a strong technical team.”
Jason Calacanis; more details at: launchaccelerator.co Frequently Asked Questions: launchaccelerator.co/faq.

Accelerator Process: ~ 20+ Weeks
1. Open-to-Pitch: usually twice a year
2. “Office Hours” Meeting(s) – Meet potential Mentors & Decision Makers
3. Pitch & Other Material Lodged
4. Short List: Within 4-6 weeks of Open-to-pitch
5. Presentations & Meetings
6. Selection into Investment Cohort / Seed Investment Agreement (e.g. 6%
$20K)
7. 12 weeks Development in Incubator
8. Demo Day: Present to Investors; Interested Parties Connect / Networking
9. “Seed+” or Series A Round - Presentations, Discussions, Negotiations
11. Approvals (Investment Committee Or Other)
12. Investment Agreement / Shareholders Agreement (Draft/Final)
14. Series A Investment

Example: Startmate (Blackbird Ventures)
n Accelerator backed by Blackbird VC Fund(s); 300+
Tech Founder-Investors pool their expertise & $
n $75K for 6% ($2 mil Val) plus $-for-$ when over
$250K invested pre-program, at same valuation
n Startmate runs two programs a year. The first one is
in Sydney (January - April) and the second one is in
Melbourne (July - October).
n After program, 1 week in Syd-Melb, and 1 week in
San Francisco Silicon Valley re Demo Days for $$$.
n Blackbird will usually follow / equal other investors.
My opinion based on my reading – may be incorrect

Example: MedTech Actuator
n 15 Month Intensive Program for MedTech Start-ups; 10
startups (per intake) for -
n 2 month intensive kick-start sprint
n 4 month tailored, mentor-driven development
n 9 month market-focused scale-up
n Seed-to-Series A; $10K per 1% Equity; A$1 mil post-money
Val.. Max. Investment $200K Seed Investment = 20% stake
n The expected outcome is a globally competitive MedTech
start-up leading into clinical trials, advanced manufacturing,
and at-scale technology deployment.
n Actuator’s Accelerator is competitively accessed.
n Suite of priming programs to help projects develop to the
point of eligibility.
http://medtechactuator.com/actuator-accelerator/
My opinion based on my reading – may be incorrect

Non-VC Sources of Funding:
Discussion

Angels
n Many Angel groups in major capital cities; easy access
n Like geographic closeness, and for some, a hands-on position
n Often considered ‘amateurs’ re professional VCs; not correct
n Often work in Syndicates / “Clubs” so can influence others
n Can make quick decisions, as Individuals; longer in syndicates
n Will seldom agree a Valuation above $2 mil
n Usually looking for exit within 2 years
n Can make good Adv. Board / Board members in early stage
n Investment smaller than VCs; $20-250K norm
n May not be able to do follow-on investing
n Ideally, document for exit at agreed KPI / Valuation / Timing

Angel Group Process: 8 - 16 Weeks
1. Lodge Pitch etc. with Angel Community; fees may apply
2. Pitch to Angels Inv. Committee: as an Investment-ready Company
3. Discussions & Refinements with Angels / Committee
4. Angels Committee Selections, Discussions, Approvals
6. Terms Sheet / Draft Agreements
8. Final Shareholders Agreements
9. Angel Seed Investment

Family Offices 400+ / HNWIs*: Examples
n Radek Sali (ex-Swisse) – Light Warrior Group (B Corp)
n Larry Kestelman – Oxygen Ventures
n Wilson Family (Reece Plumbing) - Super Seed Investors
n Kevin Maloney – Tulla Group
n Lowey Family – Ilona Capital / LFO
n Schwartz Family – Trawalla Group
n (Daniel) Besen Family – Besen Capital
n Alex Waislitz – Thorney Group
n Paul Little – Little PE
n Shaun Bonnet – Precision Group
n Stewart Baron – Baron Corp
n Marcus Kahlbetzer – Bridge Lane
n Brett Blundy – BBRC Private Capital
n (Tony) Gandel Family – Gandel Invest
n Kim Jackson / Scott Farquhar - Skip Capital
n Barry & Darren Smorgon – Sandbar Investments
1. Need an Intro;
Insider Helps
2. Sector / Specialist
Focus
3. Indirect Usually;
but ‘sweet spots’
4. $2-15 mil
5. Non-control;
Portfolio Approach
6. Like to Co-Invest
* Also see – Financial Review Top 200 & Similar Listings; Tech., Under 40, Female, etc..

Fam.Off./HNWIs: Sectors, Location, etc
Source: Deloitte Access Economics &The Table Club, 2017

Corporate Venturing / Trade Players:
Examples
n Google Ventures
n Intel Capital
n Microsoft Scale-Up
n Salesforce: A$50 mil Aust start-up fund (2019)
n Virgin Group
n Telstra Ventures
n SingTel / Optus: Innov8 – Series A + Start-up
n Stockland: Proptech Accelerator (BlueChilli)
n Spotless / Downer Group
n Coca-Cola Amatil: FoodTech Accelerator (BlueChilli)
Also, Intermediaries Programs,
e.g.:
• Slingshot – has run
~21 programs for
Corporates such as,
Qantas, HCF, News
Corp, Caltex, NRMA,
etc.
• Blue Chilli
• CoVentured – ~60
Corporate members

Crowd Sourced Funding (CSF)
n Principal driver for many Founders may be ability to
seek & get (unreasonably or “unjustifiably”) high
valuations, which would not be available from VCs or
most Angels.
n Eight CSF Platforms licensed by ASIC in Australia
n Equity Investment, so “CSF” differs from Crowd Funding for Art &
Charitable Projects (e.g. Go-Fund-Me, etc)
n Platforms generally charge for establishing a program, & do
varying degrees of due diligence; increasingly important for all.
n Requires reasonable disclosures via an Information
Memorandum inc Financials, having a Board, annual audits, etc
n Useful for most App, B2C and Service / Product Companies
My opinion based on my observations of many CSF valuations;
obviously, does NOT APPLY in all cases.

Crowd Sourced Funding: Oct 2018 Example
Alphabetical
Listing of
Platforms
Success Onboarding Other Cost - Other Costs 2 Effective Min. Effective
Type Fee Fee (Max) Flat % (max) Per Pledge
Costs (see
Notes) Fee %
Birchal * 6.00% $ 3,000 0.00% $ - $ 73,100 6.09%
Equitise 7.50% $ 10,000 $ 100,000 8.33%
KickstarterOz AON 5.00% $ - 3.00% $ 0.20 $ 96,120 8.01%
OnMarket *** AON 7.50% $ 10,000 3.00% $ 0.30 $ 136,180 11.35%
Pozible ** AON 3.00% $ - 1.75% $ 0.30 $ 57,180 4.77%
ShareEquity # 6.00% $ 72,000 6.00%
Venture Crowd 6.00% $ 4,400 $ 76,400 6.37%
Broad Average: $ 87,283 7.27%
Notes: Based on $1.2 mil raised from 600 Investors with an Avg pledge of $2k each.
Source: Website information, as interpreted. No warranty or guarantee of accuracy given.
Where Fees/Costs are in a range, the highest cost is shown
Where Transaction Fees are not stated, the Flat % cost is 1%is used
Where Per Pledge Costs are not stated, the Per Pledge cost of $ 0.30 is used
* = Includes a refund of some costs / fees
** = Fee based on Amount Raised in a Range. AON = All or Nothing
*** = Other Fees Unstated but Likely, such as Marketing/facilitation, etc..
# Listing - Pay only on Success

CSF=Mixed Results: Oct 2018 Info. Not Current
Company Platform Target - Low Target - High Received % of Mid Pre-Money Val Outcome
Next Address Birchal 300,000$ 1,500,000$ 230,000$ 26% 5,000,000$ Fail
Winery Lane Birchal 300,000$ 900,000$ 36,012$ 6% 4,360,000$ Fail
Solar D Capital Funding 1,500,000$ 2,500,000$ 3,350$ 0% ? Fail
Zimpla Enable Funding 800,000$ 2,000,000$ 199,300$ 14% ? Fail
HashChing Equitise 1,000,000$ 1,500,000$ 304,750$ 24% 25,000,000$ Fail
Joust Australia OnMarket 700,000$ 2,000,000$ 330,920$ 25% 4,700,000$ Fail
Wyza OnMarket 200,000$ 500,000$ 62,550$ 18% 10,200,000$ Fail
AVERAGE OF THE "FAILS": 685,714$ 1,557,143$ 166,697$ 16%
Company Platform Target - Low Target - High Received % of Mid Pre-Money Val Outcome
Park SSC Birchal 200,000$ 750,000$ 316,035$ 67% 2,250,000$ Success
Sash Birchal 112,500$ 550,000$ 184,321$ 56% 3,500,000$ Success
Choovie Equitise 250,000$ 700,000$ 294,250$ 62% 2,500,000$ Success
Manrags Equitise 300,000$ 900,000$ 363,250$ 61% 3,000,000$ Success
West Winds Gin Equitise 500,000$ 3,500,000$ 932,000$ 47% 8,700,000$ Success
Xinja Equitise 500,000$ 3,000,000$ 2,400,000$ 137% 40,100,000$ Success
DC Power OnMarket 1,750,000$ 4,750,000$ 2,200,000$ 68% 20,050,000$ Success
PT Blink OnMarket 500,000$ 2,000,000$ 930,993$ 74% 15,950,000$ Success
Revvies OnMarket 250,000$ 450,000$ 265,220$ 76% 1,750,000$ Success
SendGold OnMarket 500,000$ 2,000,000$ 527,914$ 42% 20,800,000$ Success
AVERAGE OF THE "SUCCESSES": 486,250$ 1,860,000$ 841,398$ 69%
Source: Stockhead 8 Oct 2018; Cycam Analysis

Universities: Affiliated Start-up Programs
Source: Galileo Ventures; https://www.smartcompany.com.au/startupsmart/news/australias-startup-ecosystem-is-booming-and-universities-are-jumping-in/
n Melbourne University
n Monash University
n RMIT
n La Trobe University
n Uni. Of NSW
n Uni. Tech. Sydney
n Flinders University
n Wollongong University, etc. ..

Universities: Affiliated Accelerators – May 2018
Source: Medium Article – May 2018 - https://medium.com/@jralexander/australias-booming-startup-ecosystem-f7b639947391

University Program Example –
Monash University’s * “Generator”
5 Week ‘Validator’ Program
(*Must be a Monash student, staff member or Alumni, or one of your team members is)
“LAUNCH PATH”:
Week 1 - What makes a good start-up idea
Week 2 - Launching and testing your idea
Week 3 - Getting your idea to market
Week 4 - How to find a co-founder
Week 5 - Pitch
https://www.monash.edu/entrepreneurship/programs/validator?mc_cid=2ad3855e35&mc_eid=f163f0ad24
Worst case: Good Training.
But, also, likely to attract
University Funding, or Warm
Intro / Seed Funding from A
Uni-related VC Fund

Debt
n Not Just Credit Cards, Personal Loans & Second Mortgages
n Many Different Types: Invoice Discounting, Hybrids (Convertibles,
Redeemable Prefs.), Supplier Finance, etc
n Debt is Non-dilutive + “Cheap”: i.e., keep operational control & all upside
q But, Still Restrictive: There are Operational Ratios / KPI covenants, etc
q And - Less Supportive Environment: No Mentoring, Networks, etc..
n “Debt VCs”: Principal + Int., or Int. Only, + maybe, Equity stake
Examples of “Debt VCs”:
n Westpac: $1 billion
n One Ventures:
n Leap Capital: $50 mil 2019
n Clearbanc USA: $1 bil (Stripe transactions &
F’Book Ad Conversion metrics)
But, first you
need to have:
• Traction
• Customers
• Revenues
• Positive
Trends

Q&D Comparison of Non-VC Sources (1)
Types of Equity
Investor
Amount
Normally
Invested
Commentary
Family, Friends
& "Fools"
$10 K -
$500 K
Less / Lowest Scrutiny & Possibly, Lowest Cost:
The 3F’s are usually highly-sympathetic and may invest on
the basis of faith or goodwill, without being too demanding
re Security, Likely Returns, etc. The amount of ownership
given away for capital invested may be small, so less
ownership “dilution” occurs.
Crowd Sourced
Funding
$50 K -
$250 K,
but can be
as high as
$2-6 mil.
Less Equity Value Given Away & Scope for Large
Fundraising plus a “Fan Base”:
Crowdfunding allows access to large numbers of smaller
investors, and is useful for building a customer base, or a
base of advocates / followers on social media, etc.
Generally, the valuation attached to an enterprise here is
not ‘considered deeply’ by these investors, so less Equity
may be given away (i.e. less “dilution” of ownership).

Q&D Comparison of Non-VC Sources (2)
Types of
Equity
Investors
Amount
Normally
Invested
Commentary
Angel
Investors
$50 K –
$1 mil
Invest Larger Sums than FFF & Bring Industry Experience &
Strategic / Operational Insights:
Professional Investors who also bring market & operational
expertise to accelerate growth and build revenues / profits. They
invest at realistic valuations, & can help prepare the business for
the next rounds of capital raising at higher valuations, again,
reducing later dilution. They do tend to have maximum limits
often will not provide more capital past the earliest start-up
stages. Often looking to exit in 1-2 years.
HNWIs /
Family
Offices
$500 K -
$20 mil
Larger Sums & Strategic / Operational Insights:
Similar to Angels, except they provide significantly more capital,
both at the start and through subsequent growth-phases. Tend to
stay with the business as long-term investors to either a Series C-
D, Trade Sale or an Initial Public Offer (“IPO”; listing on a stock
exchange, e.g. Australian Securities Exchange)

Bootstrapping &
Avoiding Equity Capital Raising

Why Raise Capital? Valuation Uplifts
& Trade-offs?? So, When is Best …??
Assumption: More Money =
Faster Growth / More Revenue / Higher Valuation
n Speed / First-to-market / Competition
n Grab Customers / Enlarge Footprint / Go Global
n Develop Platform/ Expand Features / Improve UX
n Hire Key Staff / Up-skill: CTO, CFO, CMO
n Engage Channel Partners / Build Strategic
Partnerships

“Valuation Canvas” From CP Ventures
VALUATION CANVAS Company:…............................... Created By:.............................. Date:.................
Current Revenue Multiplier
Annual recurring rev (ARR): _________
a) Multiply by 6 to 8: ______________
Annual non-SaaS rev (AR): __________
b) Multiple by 1 to 2: ______________
= Valuation (a+b):_________________
Applies to revenue generating
businesses.
Future Valuation Method:
a) How much could the company be
worth in 5 years? _________________
b) Your likely dilution %: ___________
c) (a*(1-b)): _____________________
= Valuation (c/10): ________________
The aim is to get a 10 times return on
your money.
Valuation by Stage:
a) Stage: ________________________
b) Country multiplier: ______________
=Valuation (a*b): _________________
Stage: Idea $500k-$1m, MVP $1m-
$2.5m, Live & Rev $2m-$5m, Growing
rev $5m-$10m, High Rev $10+
Country: US*HK*2, Australia*1,
Germany*1.5, UK*1.5, Singapore*1.5
Totals:
Average Valuation: _________________________
Max Valuation: ____________________________
Min Valuation: ____________________________
Berkus Method:
Sound idea: ___________+$500,000
Prototype: ____________+$500,000
Management team:_____+$500,000
Strategic relationships: __+$500,000
Initial Sales:____________+$500,000
= Valuation: ____________________
Applies to pre-revenue businesses. For
higher sales multiply by 2.
Notes:
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
www.Capitalpitch.com/valuationcanvas
https://hub.capitalpitch.com/wp-content/uploads/2019/04/Valuation-Canvas-CapitalPitch.pdf

Where’s the Spend?
& Using Debt (of Various Types) vs Equity
• Where Can We Cut Costs?
• Understand Capital Expenditure vs Operating Costs
• Understand Working Capital – Sales Cycle, (Net) Cash-flows
• Understand Fixed vs variable Costs
n Customer Acquisition / Marketing – Can be 40%++ of cost base
(esp. Google & Facebook ads); metrics critical
n People – Founders, Employees, Contractors; Contingent Payments?
n Advice – Legal/IP, Accounting / Taxation, Industry? Contingent Pmts.?
n Fixed Assets – hardware, equipment; lease vs buy
n IT Platform & Software Development – development, testing / re-
development & maintenance: site, apps, - MVP
n APIs – usually a variable cost, but needs consideration.

Needs Assessment / Financial Model
n Minimum Needs – vs – Nice to Have?
n How much needed across stages of development?
n When do we need what amounts?
n What valuation & dilution will we have at each stage of
capital raising?
How to answer these questions: Financial Model; over 2-3
years; Yr. 1 cash flows in great detail; Iterative = “Dashboard”
n Cash-flow statement
n Balance Sheet
n P&L Account (most like all losses for projected period)
n Capital Structures / Capital Stack
n Valuations / Dilution i.e. Ownership Percentages

The Lean Start-up
1. Build (MVP; first test key assumptions)
2. Measure
3. Learn
4. Revise or Pivot
5. Repeat 1.
https://www.youtube.com/watch?v=sobxOzRjAGg
Validate your business idea:
https://www.youtube.com/watch?v=QaoVWtLX038
Validate your business idea:
THE LEAN
STARTUP
by Eric Ries

Avoiding Capital Raising
Pros:
n Fuller Control
n More Upside Later
n Builds “Skin in the Game”, shows resilience, both of which
Investors like to see.
Cons:
n Staff / Platform Quality; Smaller Gene Pool / Networks
n No $, Slows Growth, Enterprise Dies
Best Oz Examples:
q Atlassian $31 Bil - $10K Cr Card;
q Envato ~$0.6 bil $5K Cr Card
But, these are the Exception, not the Rule.

Avoiding Equity Capital Raising: How
1. New Co-Founders / Board with Equity / Options: 2-4 years,
with 12-24 month “Cliff”
2. Contingent Payments: e.g. re professional services
3. “Bad” Debt: Second Mortgage / Credit Cards / Personal
Loans / FinTech Financiers
4. “Good” Debt: Inventory / Supplier Finance / Invoice
Discounting / Receivables Finance
5. Government: Interns, Specialist Finance (CEFC), EMDG, ATO
R&D Scheme, etc..

Avoiding Equity Capital Raising: Issues
n “Equity” at early stage will probably come as a Secured,
Convertible Note; i.e. hybrid equity, but basically Debt.
n Toxic Debt? - Failure to meet Convertible Note covenants
or KPI can result in massive dilution, and possibly, in full
loss of control, employment, etc.. Negotiate the Covenants
and don’t accept anything you can’t deliver.
n Huge Dilution? - Convertibles will usually convert at a
favourable discount for the noteholders, so dilution
effects & attractiveness of the equity offer in the next
round need careful consideration / negotiation at the start.
Aggressive discounts can also deter new investors.

Valuation: Art, not Science

Valuation Tips
n Showing comparative valuations, esp. from USA-examples, is simply
a starting point for ‘discussion’. Don’t expect to be taken seriously.
n Crowd-sourced Funding can have ‘wacky’ Valuations (i.e. highly
favourable to Founders); but can create a down-round &
disillusionment for those Investors in future. Use with care.
n Many Accelerators will support (in cash or kind) a Start-up in their
cohort with pre-money valuations of ~$1 mil. Some will match $-
for-$ investments at prior valuations, except for investments by FFF.
n Professional / Sophisticated Investors will seldom, if ever, value any
“idea”, at over $2 mil. Remember: Its all about Execution &
Resilience & Commitment - not how brilliant you think your idea is,
and how you think you’re on the path to global domination.
n To negotiate higher valuations, you need Team, Obvious Product-
Market Fit, Solid Traction - & some Luck!

Summary

Summary
n No Free Lunch
n Just Do It: Launch / Test / Validate / Improve … & Repeat
n Lean Start: Try to Bootstrap as Much as Possible
n Project: Must Be Global & Scalable to Attract VCs
n Fast Growth mostly Improves Valuation; Higher Valuation lowers dilution
n Hyper-growth invariably requires New Capital; Can be a Comp. Adv.
n Equity & Debt: not mutually exclusive; consider mix re stage; both take
“security” over assets.
n Equity Raising Involves Dilution = Less Control & Upside
n Really Know Your Competition / Industry / Metrics
Not Easy: Continuingly Huge Amount of Work
q Huge Financial Upside & Fantastic Satisfaction
q Journey Easier: Help via Co-Founders / Team / Board / Advisory Board
Not Impossible, Either: Well-travelled Track, Lots of Guidance

Appendix A:
Scale & Trends in
Venture Funding

Global Venture Financing 2012-19 Q1 - USDSource: Venture Pulse, Q1'19. Global Analysis of Venture Funding, KPMG Enterprise. Data provided by PitchBook, April 11, 2019.
https://assets.kpmg/content/dam/kpmg/xx/pdf/2019/04/venture-pulse-q1-2019.pdf

Global Median Deal Size 2012-19 Q1 – US$
Source: Venture Pulse, Q1'19. Global Analysis of Venture Funding, KPMG Enterprise. Data provided by PitchBook, April 11, 2019.

USA: VC Fund Raising
https://bothsidesofthetable.com/a-deep-dive-into-what-has-really-changed-in-venture-capital-f5d225f7f8

Australia: Venture Fin. 2012-19 Q1 US$
Source: Venture Pulse, Q1'19. Global Analysis of Venture Funding, KPMG Enterprise. Data provided by PitchBook, April 11, 2019
20182016
According to the KPMG Enterprise Venture Pulse Q4 2018 report, venture capital investment in Australia totalled US$899 million ($1.25
billion) in 2018, compared to US$576.1 million in 2017. see https://www.smartcompany.com.au/startupsmart/news/aussie-startups-1-25-billion-vc-funding/

Australia: VC Deal Trends 2008-18; AU$
2018 was a stellar year – with VC investments of ~A$3.1 bil across 161 deals
Source: Preqin data on Venture Capital Activity in Australia 2018 and WB Analysis.
https://finfeed.com/features/3-billion-venture-capital-australian-2018-and-growing/
Note: Preqin defines Venture Capital deals in Australia to include all investments in Australia-based portfolio companies from both local
and overseas investors. These investors can be GPs and LPs, sometimes unspecified investors as well. (USD converted to AUD herein.)
{Cycam Comments: This differs from the KPMG figures in the previous slide by a significant amount, and relates to definitions used.}

Australian Start-up Focus
Source: Recap Of Australia’s Venture Capital Scene
https://news.crunchbase.com/news/deals-down-under-a-recap-of-australias-venture-capital-scene/

Australian Start-ups’ VC Funding
Source: Recap Of Australia’s Venture Capital Scene
https://news.crunchbase.com/news/deals-down-under-a-recap-of-australias-venture-capital-scene/

Appendix B:
Start-up Success Rates

The Start-up Journey in Australia:
A 5-Yr Snapshot (Source: AVP)
https://www.linkedin.com/company/artesian-capital-management/

Aust Tech: $100+ mil Val. & Start Dates
https://medium.com/@rohit_bhargava/launch-of-playbook-ventures-investor-connect-bridging-the-gap-between-startups-and-capital-b85949537269
Note – Selected Examples Only

Appendix C:
Some Basics & Pre-requisites

“Table Stakes”
1. Global Markets
2. Scalable Business Model
3. Big Vision & Big Returns: “Return the Fund”
4. Team, Team, Team: Who’s Going to Do It?
5. Advisory Board / Board / Consultants
6. MVP
7. Validation & Traction: Prove Product-Market Fit

More Basics
n Why is Funding Needed? Where’s the Spend?
n When is Capital Raising Best Done?
n Understand different ways to Fund the Cash Burn
n Bootstrapping vs Debt vs Equity
n Equity = ‘For Life’; check out all partner, terms & do a
pre-nup.
n Know Everything About The Business; Key Metrics
n Know Everything About The Industry & Competitors
n The Discipline of Due Diligence
n Investor Ready? What Does this Mean? By Stage …
n Continuous Process – So Become Good At It

Co-Founders / Team
n C-Suite: Now, CEO, CTO, CMO …… later? COO, CFO, HR, etc
n Clear, Defined Roles & KPI / Accountability / Deliverables
n Vest Equity / Options on Outcomes, not Sign-up.
n Avoid Mono-Culture / Build Diversity & Inclusion Culture
n Expect to Make Changes; ‘pre-nups’ can be important
n Relevant, World Class?:
Michelin Star Chefs make Michelin Star Restaurants
Recruit “Missionaries”:
They’re Are Better Than Mercenaries

Clear Revenue Model? Examples
n Free + Ads / Data /
Leads
n “Freeium”: installed
base & growth
n Premium
n Subscription Only
n Pay-Per-Use (PPU) /
View
n Subscription + PPU
n License Fee
n Transaction Fee
Examples: User Side
n Listing Fee
n Pop-up
n Customised Ads
n Ad - Directory Listing
n Ad – Premium Listing
n Listing
n Preferred Supplier
n Click-Thru / CPC
n Revenue Share
“Advertiser” Side
n Anonymised Data
n Generation of Warm
Leads
n Partners / Channels
n Cross-sell
n Up-sell
Other

Metrics, Metrics, Metrics:
• How Do Your Close Competitors Report & Measure?
• How Does Your Industry Report & Measure?
• How Do / Should Start-ups Report & Measure?
Starting Points – Don’t Turn Up If You Can’t (at least) Discuss:
1. Run Rates: (Annualised; Forward) Revenue, Customers, etc.
2. Burn Rate: 12-18 months projections under 2 Scenarios; %age
Split Mktg, Staff, Prod Dev, etc.
3. Trailing Twelve Months (TTM): 12 Months Revenue, Customers
4. Conversion Rates / Cost-per-Click, Customer Acquisition Costs
(CAC) Now; At Scale), Life-Time Value of Customer (LTV),
ROI=CLV/CAC; New-vs-Repeat Purchases,

Board / Advisory Board
n No Bullshit Ever = Trust = Effectiveness
n Corporate Governance: Fiduciary & Statutory
n Credibility / Gravitas / Depth / Range of Experience
n Perspective / Objectivity + Accountability Culture
n Mentoring: Personal & Professional Development
n Arbitrator: team conflict / cohesion
n Networks & Influence: 2 Degrees of Separation
n Fast-tracking Growth / KPI re Accountability Culture
n Keep Continuous Communication / Speciality Advice: Industry,
Finance, Legal, Geography
n Cost-Effective: mostly ‘give back’; not-for-the-money
n Changeable re Business Stages

Competitors & Their Backers?
n Useful to know who likes the sector & why; i.e.
who has invested
n What does their Portfolio of Investee Companies
look like
n Should you avoid them? Useful to know as a
“Defensive” issue, possibly – will they take a look
at you to check out / stifle competition??
Good Starting Point: Crunchbase
https://www.crunchbase.com

Due Diligence: Critical for Funding
n Essential to Pass Muster: All Investors do DD; some Intensely
n Be Fully Prepared: Before you go to any Prospective Investors
What (Minimum):
1. Legal Entity / Structure, Jurisdiction etc.
2. Ownership / Shareholdings: inc. Classes of Shares, Rights By Class, performance
Rights, Warrants, Options, etc.
3. Material Contracts: Royalties, Licensing Employment, Rental, etc.
4. IP & Protection: Domain Names, Trade Marks, Copyright Materials etc.
5. Other Intangible Assets:
6. Financials & Forward Model: Current Balance Sheet inc Contingent Liab.; Base Case
- 12 months detailed, & 2-3 Yr Projections; P&Ls, Cash-Flow Statements, Balance
Sheets; Key Metrics, Ratios; Capital Stack: Valuations, Dilution in next Rounds, etc
7. Information Memorandum: or, at very least, Business Plan / Go-to-market Strategy
Where: Virtual Data Room, Dropbox, Google Drive, etc

Before Raising “Professional” Capital
n Basics, as before
n Valid Solution to a Problem: Know / explain the pain point(s)
n Global Opportunity / Scalable Business Model; Emphasise.
n Deep Research & Understanding: Market, Competitors, Tech ..
n Risk Analysis & Risk Mitigation Strategies
n IP Listing & Protection (now / later)
n Team / Advisory Board (Helps) / Consultants (Clarify KPI/Why?)
n Minimum Viable Product: Testing / Validation / Traction
n Financial Model / Capital Structure / Valuation Range & Basis
n Go-to-Market; or, Next Stages – Biz. / Marketing Plan (Simple)
n Elevator Pitch (30 Seconds); Quick / Marketing Pitch (10
Minutes; ~10 slides) & “Full / Board Pitch” (1+ Hour)

Appendix D:
Resources & Links

Govt. Grants, Rebates & Incentives
n Export Market Development Grant: Austrade; after $20K spend ..
n R&D Tax Incentive Scheme: ATO; wide range of expenses, inc O’seas
n Numerous Federal, State & Local Government Grants: Innovation,
Employment, etc.
n Early Stage Investment Company (ESIC) Status: provides
investment rebates for Investors, reducing risk / improv RoI.
n Early Stage Venture Capital Limited Partnerships (For VCs) : Focus
on Fund Managers / VCs, mainly those who have offshore parents and / or
offshore investment fund partners, to provide various types of tax relief
n Public Sector Innovation Fund: for Govt Procurement - e.g. CivVic Labs,
a LaunchVic Accelerator designed around Govt-focussed start-ups
n Clean Energy Finance Corporation: Solar, Wind, Water Tech. & Infra.
n And, much more ………….

Govt Help into Programs &
Accelerators: LaunchVic …. Some Examples
n EM Advisory: ~$3K post-LaunchVic subsidy: Investor-ready
program / bootcamp https://emadvisory.com
n Catapult Accelerator: On-line Assessment Tool re Funding
and Accelerator Acceptance
https://mycatapult.com.au/index.php/launchvic/
n Artesian Venture Partners: Large/ active seed-stage VC
focusing on Clean Energy, AgTech and MedTech.

Some Resources & Links
n Airtree Ventures: Brilliant resource; newsletter; esp. vast range of Local & Int.
Funding Sources -
https://docs.google.com/spreadsheets/d/1LoF39WfiwJOpivK5xDZ7ZXjLCME07nWcKxjlD2a2Ih8/edit#gid=2089260987
n AngelList: Accelerator Applications, Start-up central; USA focus
https://angel.co/accelerators/apply
n Aust Govt: Grants, Resources, Tax Incentive/R&D, etc. https://www.industry.gov.au/topic/funding-
and-incentives/business-and-startups + Entrepreneurs’ Programme: Support re Mentors,
Accelerating Commercialisation etc. https://www.business.gov.au/assistance/entrepreneurs-programme
n AusTrade: Born Global; Offshore Launching Pads; https://www.austrade.gov.au/landingpads
n Capital Pitch / CP Ventures: Pitch Decks, DD Checklists, etc. https://hub.capitalpitch.com
n Crunchbase: Look-up Investors in Competing Start-ups; USA focus
https://www.crunchbase.com
n EventBrite: : Many start-up, funding etc. groups; most free – https.eventbrite.com
n LaunchVic: Vic Govt Facilitator; Programs, Events, News, Pitches, Jobs, etc
https://launchvic.org
n Legal Vision: Start-up Founder Docs - Structuring, Capital Raising, Employee Share
Schemes, Due Diligence, etc. https://legalvision.com.au/startups/
n Rich 200 - Australian Financial Review (2019) : UHNWIs’ sectors / focus
https://www.afr.com/rich-list

Capital Raising for Start Ups - Australia - 2 q2019

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