How to Pick the Right Investor

HOW TO PICK THE RIGHT INVESOR
AND MANAGE A BOARD OF DIRECTORS
C4E OWEN | Friday, March 29, 2019
Dr. Michael Burcham
michael@michaelburcham.com
www.michaelburcham.com
615.400.7662

Time: Topic:
09:00 AM The Funding Journey, Finding the Right Investor
The Types of Investors to Avoid, Key Investor Types
10:00 AM 15 Minute Break
10:15 AM Angels, VC and Private Equity, 5 Personality Traits that Attract
Investors, Getting Prepared for Investors, The Investment
Process
11:00 AM Guest: Jim Jamieson, Evidence.Care
11:45 AM Lunch
12:45 PM Guest: David Franklin, Philips Medical
01:00 PM Role of the Board of Directors
Picking Investors
Managing a Board of Directors
Agenda
for
Today’s
Session

Director, Business Development
Philips
www.philips.com
• Large multi-national firm
• Seeking external companies to
acquire
• Conduct financial feasibility
analysis on potential targets
• Former Hospital Administrator
at Vanderbilt
• Worked with GE Healthcare
Co-Founder & COO
Evidence Care
www.evidence.care
• Founder of a health-tech firm
• Raised capital from Seed,
Angel & Strategic Investors
• Early customers & proof of
concept
• Led Sales for large healthcare
firm prior to launching
Evidence.care
Today’s Guest
Speakers:

Phase 1 Phase 2 Phase 3 Phase 4 Phase 5
Worthy?
Yes | No | Why
Executable?
Yes | No | Why
Breakeven?
Yes | No | Why
Profitable?
Yes | No | Why
Scalable?
Yes | No | Why
1. Ideation
2. Purpose | Story
3. Market Fit
4. Founder Passion
1. Prospect Interviews
2. Market Trend
3. Prototype - MVP
4. Early Users
1. Management Team
2. 1st Customers
3. Cash Flow
4. KPIs | Breakeven
1. Recurring Revenue
2. Refine Biz Model
3. Sales Pipeline
4. Market Validation
1. Margin Growth
2. Momentum
3. Scale
4. Predictable
CONCEPT
“Idea Frame”
PROJECT
”Proof of Concept”
STARTUP
”Customer Validation”
SUSTAINABLE
”Model Refinement”
GROWTH
”Scaling Platform”
Bootstrapping Angel Funding Series A Series B
© 2017 Furse | Burcham
The Funding Journey
Concept to Growth

DISADVANTAGESADVANTAGES
Bank debt allows the founder to
maintain full control (equity) of the
business
Debt financing is all about cash – it
doesn’t provide any non-financial
benefits.
Investor-backed companies tend to
have faster growth and more
experienced teams.
Misaligned incentives can create
challenges, founders may be
replaced.
Can help entrepreneurs get
feedback and determine validity of
their idea
Can expose the entrepreneur to
competitors or cause you to
disclose too much info.
Grants can stimulate R&D and
early technology commercialization
in a young business.
Most grants are very specific – and
may require an academic founder
or co-founder.
The Funding Sources
Pros and Cons of Each Type of Funding Source

Angel Financing
Venture Capital
Private Equity
Public
Stock Markets
Self Finance /
Bootstrapping
Debt /
Bank Finance
Equity FinancingNon-Equity Financing
The Ecosystem of
Investing

Investors Buy
Future Streams of Cash

You must learn to understand what type of
entrepreneur you are. This will make it a lot
easier to find the right investor match.
A few examples:
• Product Expert - Often tech founders
• Opportunist - Wants to capitalize on “it”
• Visionary - World changers
What Type of Entrepreneur
Are You?

Finding the Right Investor
1. Raising money is hard. It is typically
very time-consuming. Be prepared to invest
the time.
Investing is a relationship business. You
must form the relationships first.

2. Educate Yourself. Educate yourself on
the assets and resources different types of
investors can provide.
Investors are more than just walking
checkbooks -- they are industry veterans.
The right choice can help you manage your
capital, your infrastructure and more.
Many investors will have seats on your
board. You want partners who provide
guidance without challenging every
decision you make.

3. Identify the Right Investors. Search for
investors with experience in your specific
domain.
Remember that an investor is not just about
money. They also bring their experience to
the partnership.
Do your research - be certain their fund in
interested in your space and they invest in
your “stage” firm and the timing of their fund
cycle affords an investment opportunity.

4. Get an Introduction. Find a way to get a
“warm” introduction to the investor. Look for
common connections that will provide you
an introduction to the investor from a known
source.
Rarely do investors take cold calls. More
importantly, a trusted introduction will earn
you early credibility.

5. Prepare To Present. Before the meeting,
know who you are meeting and their
specific area of expertise in your space.
Show up ready to present. Omit the fluff.
Create a short presentation that is to the
point.
Focus on measurable factors such as size
of market, number of competitors, users,
revenue, etc.

6. Due Diligence. If your meetings go well,
investors will expect to meet the team,
understand your financial model, speak with
early customers, evaluate your technology.
Plan ahead.
Do Your Own Due Diligence. Find out as
much about your investor as you can. Talk
to people who have worked with them - both
past and present. Talk to other founders
within their current portfolio of investment.
Don’t assume anything.

7. Cultural Fit. Ensure the investor you
choose works well with your company.
Unique cultures distinguish startups from
one another and from corporate America in
general.
Once you’ve found a potential investor, you
need to ensure he or she will mesh with your
culture. You will be working with this person
for a long time.

My First Angel & First Investor
Walter Channing, C.W. Group

Michael Burcham | My Own Investment Journey
1992 - 1993
VP
Strategy
1982 - 1992
VP
Managed Care
1993 - 1999
Theraphysics
Founder
& CEO
1999 - 2007
Founder
& CEO
2007 - 2009
President
(Turn Around)
1989: MBA 2003: PhD
2009 – 2015
Founder
& CEO
2015 – ?
Founder
& CEO
EP, Shore Capital Partners: 2010 - Present

7 Investor Personas to Avoid
1. Investment Sharks.
While the majority of investors are looking
for a win-win deal, there are investors who
like to prey on entrepreneurs who have little
financial experience, don’t read the term
sheet or are simply desperate for a deal.

2. Investors Who Love to Litigate.
We all know that young companies don’t
have money to fight in court, so it’s easy for
a few unscrupulous investors to jump to the
conclusion that intimidation and lawsuit
threats can improve their returns and control
after the money changes hands.

3. Imperial Investors.
These are investors with such massive egos
that they expect to dictate both the terms of
the investment as well as all future strategic
decisions of your company.
I recommend that you skip this investor in
favor of a more equal partner.

4. Legal Eagle Investors.
Negotiating terms is normal before the
investment, but once the check is cashed,
you don’t want to be second-guessed on
every action.
Be wary if the term sheet is a document
longer than your business plan.

5. Academic or ”Coach” Investors.
Coaching should be expected and
appreciated, but you don’t have time for
constant tutorials on how to run a business.
A good advisor and mentor will tackle
questions and then offer key insights for
consideration.
Avoid those who simply want to tell you what
to do and how to do it.

6. Dumb Money.
Many wealthy people make poor early-stage
investors. They have long forgotten (or
never knew) the challenges faced by a
young business.

7. Investment for a Fee.
These are people who rarely invest their
own funds but promise to find the perfect
match and live off a percentage of the
action and preparation fees.
They may be licensed investment brokers or
consultants cold-calling real investors. The
challenge is performing due diligence on
the real investor.

Your organization’s perceived value can
differ greatly with regards to the type of
investor you are trying to target.
You need to know exactly what the value
proposition of your company is or can
be to your potential investors.
Investor Types

Types of Investors
Angel Investor
This category includes
individual angels, seed capital
groups, and FFFs (friends,
family and fools).
When your primary focus and
work activity involves:
• Ideation
• Purpose and Story
• Market Fit
• Founder Passion
Angel
Investor

Types of Investors
Venture Investors
This category includes angel
groups, and early state venture
investors.
These groups are most
interested when the following
milestones are achieved:
• Management team in place
• 1st Customers are buying
• Positive cash flow
• At or near breakeven
Venture
Capital

Types of Investors
Growth Equity
This category includes micro-
cap groups, and traditional
private equity investors.
These groups are most
interested when the following
milestones are achieved:
• Recurring revenue
• Margin growth opportunity
• Sales pipeline of opportunity
• Market validation
• Momentum
Private
Equity

Strategic help from an angel is the
most valuable asset any early
stage company can get.

90%
Of Outside Equity Capital in
Seed | Startup Stage Companies is
Sourced from
Angel Investors

• High Net Worth Individuals
• Have an “Early Stage” Preference for
Investing
• Often successful, exited entrepreneurs or
retired business persons – active
investors
• Tend to invest both time and money in
companies
• Angels invest their own money (not
money managers)
• They mostly invest in local companies
and entrepreneurs
Who Are Angel Investors?

Investors realize that new businesses must
walk through the valley of death prior to
becoming a viable business.
The valley of death is that period of time
before the company reaches its break-
even point.
What Do Early Stage Investors
Really Want?

ALL ABOUT VENTURE & PRIVATE EQUITY

We all know that startup
funding is up massively…
…and VC funds are raising
significantly more capital.
2006 2008 2010 2012 2014 2016 2018
$131B
$83B
$29B
2006 2008 2010 2012 2014 2016 2018
$55B
$34B
$34B
The Funding Story
What’s Going On In the Funding Market?

Traditional Series A venture capital hasn’t meaningfully increased
investment pace over the past decade.
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
1,118
687
4%
CAGR
Series A Venture Funding
U.S. Number of $5-10M Deals

Series B deal volume also has been fairly constant over the past decade.
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
1,103
643
5%
CAGR
Series B Venture Funding
U.S. VC Number of $10-25M Deals

Pre-2012 2012 2013 2014 2015 2016 2017 2018
0.9
1.2
0.8
1.1
1.2 1.2
1.4
1.6
Number of Seed Extension Rounds
Pre-2012 2012 2013 2014 2015 2016 2017 2018
69
45
52
39
28
1189
Time to Series A
Median Years from Series Seed to A
The Result: A Rise in “Seed Extension” Deals
Companies are Staying in the See Phase for a Longer Time

The Series A and B part of the market is very similar to how it was 15 years ago— except with
a 3x bigger top end of the funnel.
Series A
funds
Series A
funds
THEN NOW
Angel / Seed
Angel / pre-seed
Seed funds
Series B
funds
Series B
funds
Bottom end of the
funnel haven’t
changed much
Top end of the
funnel is now 3x
larger
The Shape of the Investment Funnel is Different Now
Angel & See Phases are Much Larger

For the best VC funds, the
upside opportunity has
never been bigger.
Let’s zoom out and
evaluate.

We all know that capital going to startups has increased significantly
in the past five years (by 300%).
2013 2014 2015 2016 2017 2018
$131B
$83B
$77B
$83B
$71B
$48B
Growth of VC in Startups Has Been Increasing
US Venture Capital Invested by Deal Size ($B)

$20B
Total
$40B
Total
$21B
Total
$61B in deals over $100M
$81B in deals over $50M
$50-
100M
$100M
-1B
$1B+
The Rise of the Mega Rounds
US Venture Capital Invested by Deal Size in 2018 ($B)

What really happened is that the IPO window was pushed out 5+ years for the
best companies and the dollars have shifted from public to private.
Old IPO
6-8 years
New IPO
10-12 years
$50M
$2B++
$RaisedPriortoIPO What Happened?
The Moving IPO Window

So in reality it seems the private capital market is now three fairly distinct categories.
Venture Capital
Scale or Bust Private IPOs
Growth Capital
The Start
Seed Capital
20% of deals drive
80% of returns
The 3 Distinct Categories of Private Capital
Today’s Investment Market

5 PERSONALITY TRAITS THAT ATTRACT INVESTORS

Investors hate being relegated to your
voicemail, and unanswered emails make it
appear that you don’t have time or don’t
care about responding.
Respond to phone calls and voicemail
messages and make time — not just to
read, but also to thoughtfully answer emails
every day.
1. Thoughtful Communication

Being truthful is obviously non-negotiable. If
you misrepresent yourself or your business,
you’ll be dead in the water.
It’s natural to think seducing investors with
best-case-scenario figures is the most
effective way to get funding for a new project.
The opposite is true.
Nothing will torpedo an investor’s confidence
in you faster than projecting everything
through rose-colored lenses.
2. Honesty & Integrity

Every person you meet is a potential
investor or a contact who will lead you to
one. This has proven true for me dozens of
times.
3. Authentic Relationships

It’s impossible to raise money if investors
don’t like you. Engage people and be
friendly.
Look sharp and exude positivity.
4. Likability Factor

How do investors get to know you better?
They search for you online. Now put
yourself in the shoes of people searching
your name and look at yourself from their
point of view: Google yourself!
Browse the first few pages and see what
comes up. What do the results say about
you?
Do they find someone who is an
inspirational leader, visionary or even an
authority? Or do they find self-aggrandizing
fluff-pieces?
.
5. A Personal Brand

It is critical to have complete clarity on
the product or service which is central to
your business – why is it required, its
functionality and its architecture.
The product or service must either solve a
customer’s pain point or meet an unmet
need.
In addition, a concept or an idea is not
enough – the investor must understand how
the product or service works, what is its
architecture and application.
The Proposition

Thoughtfully define the size of market, who
are the other competitors, and most
importantly the differentiator of the business.
For the most part, investors seek companies
which cater to large growing markets.
The Potential

The only concrete thing in a startup is the
founding team. The people behind the
venture are key to the success of the
venture.
Their understanding of the space, their
experience, and their ability to execute
consistently are the key success factors that
angel investors look for.
The People

Have you
launched the
business?
Do you have
customers?
Do you have
prior startup
success?
Do you have a
completed
product?
Are they paying
you for your
product?
Y N
Y
N
N
Y
N
Y
Y
N
Friends & Family
Angel
Angel Groups
Venture
Friends & Family
Angel
Angel
Angel
Angel Groups
Venture
What Type of Investor Is Right for You?

100
Ecstasy
-100
Agony
0
9 to 12 months
Business
Plan
Rejections
Due Diligence
They like the idea
Interest
Shown
Term Sheet
The
Negotiated
Deal
Last Minute
Demands/
Expectation
Mismatch
All Reject
Reformulate
Plan
Life Cycle of the Investment Process

• Should I invest in this new venture?
• How much cash will this venture need?
• What are the risks of this opportunity?
• How can these risks be mitigated?
• What factors affect this value?
What Is the Investor
Thinking?

• Accomplishments to date
• Investor’s perceived risk
• Industry and technology
• Venture anticipated growth rate
• Venture stage of development
• Investor’s required rate of return
• Amount of capital required
• Prior valuations of the venture
• Founders’ goals regarding growth,
control, liquidity and harvesting
• Relative bargaining positions
Factors that Impact the
Investment Decision

Preparing for the Investor
Executive Summary
Introduces the Company
Defines the 5M’s
The Presentation
Tells the Story
Creates interest
The Financial Model
Explains how
Shows assumptions made

• Be Direct and Concise.
• Passion and Enthusiasm Sells.
• Know Your Customer/Audience.
• Listen, Ask Questions, and Know Your Stuff.
• Elevator Pitch-Customer and You.
• No NDA s.
The ”Pitch”

• Typically 20-30 minutes for PowerPoint’s
• 30-60 for Q&A for a total of 1 to 1.5 hours
• Big Four: Management, Market, Model &
Money
• Get 2nd Meeting | Leave them wanting more
The Pitch Deck

• Think value not valuation
• A “verbal yes” means nothing
• Hit investors in waves - meeting cadence
• It is easy for someone to say you have a
great idea, but it is only a great idea when
they write the check
• Rejection | If you can t deal with no, don’t
get in the game
• Be Relentless
The “Post Pitch” Blues

• Momentum | Who s in?
• Find your mentor | step-up person
• Investment is not democratic | it is all
about who you know
• Timing | Best time to look is when you
don t need it
The Art of Fund Raising

• Congratulations!
• Do more homework on the person you will
be meeting
• Understand how you fit his or her:
– Existing portfolio
– Stage of fund
– Internal industry model
• An investor pitch is not the same as a
customer sales pitch
Sell Your Company | NOT Your Product!
So You Get Your 1st Meeting

• Full disclosure on both sides
• Don t expect to negotiate every item
• Make sure you understand everything in
the term sheet
• Don t value yourself compared to Google
• Lots of good startups fail - your valuation
reflects that risk
• Be creative with upside - performance
hurdles, etc.
• Close the deal - Take the money
Thoughts on the Term Sheet

• Now for the fun part!
• You have new bosses (the Board)
• They want to turn equity into cash someday
• They will forgive almost anything…Except
being lied to!
• Over-communicate, under-promise, and
over-deliver
Post Deal Signing

ROLE OF THE BOARD OF DIRECTORS

Great Board members demonstrate good judgement, intellectual agility, knowledge of
technology or digital, and the ability to deal with complexity.

The Board of Directors has 2 Mandates:
• Advisory: Consult with management
regarding strategic direction
• Oversight: Monitor performance
The responsibilities of the board are separate
and distinct from those of management. The
board does not manage the company.
Board Responsibilities

• Approve the corporate strategy
• Test business model
• Identify key performance measures
• Oversee risk management
• Plan for and select new executives
• Design executive compensation
• Ensure the integrity of financial statements
• Protect organization’s assets & reputation
• Represent the interest of stakeholders
• Ensure compliance with laws
Advisory & Oversight
Functions

Audit
Committee
Compensation
Committee
Governance
Committee
Board Committees
Strategic Insight
Board of Directors
• Achievement of strategic objectives and value creation
• Fulfil responsibilities and duties in law and prescribed functions
BoardOperations
Chairman
Board
Meetings
Reporting &
Disclosure
Internal
Controls
Executive
Committee
Internal Audit External Audit Management
Combined Assurance Model
Governance
System and
Controls
Corporate Policies & Procedures
Board Governance Instruments
Monitoring and Evaluation
KeyAreasofResponsibility
CEO & Management
Stakeholders
InformationandCommunication
Corporate
Secretary
Corporate Governance is
a mechanism through
which Boards and
Directors direct, monitor
and supervise the
conduct of the
organization to ensure
appropriate levels of
authority, accountability,
stewardship, leadership,
direction & control.
Corporate Governance Framework

77
Primary Role | Provides overall leadership
to the Board of Directors
• Principal link between Board and CEO &
Management Team
• Responsible for board agenda
• Works with board committee chairs
• Leads selection and induction of new
directors
• Counsels individual directors on their
performance
• Participates in discussions with key
stakeholders
Board Chair
Leader of the Board

78
Primary Role | Lead the Business, Lead the
Team, Report to the Board
Function
• Work closely with Board chair
• Responsible for company performance
• Formulates corporate strategy, annual
business plan and budget
• Ensures continuous improvement in
services and products
• Manages relations with stakeholders
• Responsible for long-term sustainability
CEO
Leader of the Company

1. THE MEETING:
NEVER have the board meeting "at" the board
meeting. ALWAYS call every director a few
days before the meeting and run every
important issue by them to get their input.
Update them on company performance,
especially the bad news, and let them "beat
you up" privately.
The meeting can then focus in a constructive
fashion on problem-solving and building the
Company for the future.
10 Rules

10 Rules
2. THE DISCUSSION:
Maximum PowerPoint should be about 4
slides from any presenter, especially
yourself.
This should be the limit of director interest in
detail. Boards engagement should be
strategic – not tactical.

10 Rules
3. ACCESS:
Provide complete access for the board to
everyone and everything in the Company.
They will rarely use it, but it's a great
comfort to them to know you are not trying
to hide anything.

10 Rules
4. PRESENTATION:
Have your key team members do almost all
the presentations. It gives them exposure and
allows you to make sage comments along
with the rest of the board.
A perfect board meeting is when 10% of the
talking is done by the CEO, 60% by the team,
and 30% by the directors.

10 Rules
5. NOTES:
Carefully consider every director's input and
take good notes at the meeting. These
people have lots of experience and many
great contacts.
Follow up on every suggestion given.

10 Rules
6. ENGAGEMENT:
Give the Directors projects in their areas of
expertise. It's free consulting and they usually
do a good job.
It provides a way to contribute to the
business that is meaningful and provides a
way for them to buy in to the overall
strategies.

10 Rules
7. DECISIONS:
Get in front of the board on tough decisions
like top management changes, including
changes to your own role.
If it's going to happen, make it your idea.

10 Rules
8. COMMUNICATION:
For VC directors, try to picture how they are
describing your Company to their partners,
and what questions their partners are asking.
Your job is to make each director a hero to
their partners (or corporate boss).

10 Rules
9. PRIORITIES:
Remember it's Company first, team second,
you last.
You win when everybody wins, not when just
you win. If you ever fail to understand these
priorities, you will compromise your decision
making and your position.

10 Rules
10. RELATIONSHPS:
Try to make a friend of every board member.
Send them interesting deal ideas you turn up,
learn about their interests, make the board a
"look forward to" experience for everyone.

• Creative thinkers
• Challengers
• Strategic
• Industry expertise
• Fund raising experience
• Financially literate
Key Characteristics:
Picking Board Members

Michael Burcham
E: michael@michaelburcham.com
W: www.michaelburcham.com
M: 615.400.7662
CEO, Narus Health
Faculty, The Owen Graduate School of Management, Vanderbilt
Executive Partner, Shore Capital Partners
There is no dress rehearsal in life.
You get one shot. Make it count.

How to Pick the Right Investor

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