VanFUNDING 2016: Capital raising options for startups on small business financing (Evans & Evans Inc.))

Financing Options For Small
Businesses
Jennifer Lucas, MBA, CBV, ASA
Managing Partner
Evans & Evans, Inc.

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Evans & Evans, Inc.
Our expertise ranges from start up organizations in
the process of developing their business plans and
strategies to well established multinational
corporations. Since 1989 we have worked with
clients in a broad range of sectors locally,
regionally and internationally, delivering timely,
accurate and cost-effective corporate finance
solutions.
EVANS & EVANS, INC 1610 – 400 Burrard St. Vancouver, BC V6C 3A6 T:(604)408-2222 F:(604)408-2303 info@evansevans.com

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Who Am I?
• MBA, CBV, ASA with over 17 years of experience
in valuation, due diligence, fairness opinions and
strategic planning
• Supported numerous go public and M&A
transactions

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Financing EcoSystem
• Multiple private and public options available
• Which option is best for you depends on:
▫ How much you need
▫ When you need it
▫ What you are using it for

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Sources of Funding
Increasing Levels of Due Diligence
0$ $50K $100K $500K $1.5M $3.0M $5.0M $10.0M
Self –Fund / Grants
NRC / IRAP
Angels / IRAP. SR&ED
Angels,, Series A, VC
PR, Series B, Go Public
PE, M&A
Friends & Family

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Private Financing
• Pros
▫ More flexibility – no need to seek regulatory approval
▫ No exchange / reporting costs
▫ More autonomy for management
• Cons
▫ Ability to attract and retain larger investors can be
limited
▫ Limited ability to use stock for acquisitions
▫ Lack of liquidity for investors
▫ Need a clearly defined exit strategy

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VC Math
• Earlier stage deals than Private Equity
• Venture Funds Returns in 10 deals
▫ 2-3 winners providing 3x – 10x return
▫ 4-6 break even or limited to no liquidity
▫ 2-3 complete loss

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Private Equity
• Invest directly or though limited partnerships
• Typically a 5 – 7 years investment horizon
• Generally looking for established companies
with positive cash flow or EBITDA
• Considered “financial buyers”
• Some may bring management expertise
• Equity return expectations of >25%

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Public Financing – IPO/RTO/CPC
• Pros
▫ Access to Capital beyond cash flow
▫ Use stock for future acquisitions
▫ Public valuations can exceed private
▫ More liquidity
▫ Generally more leverage available
▫ Increased credibility
▫ Incentives for employees
• Cons
▫ Takes time (9-12 months)
▫ Management commitment to process
▫ Expenses – audit, legal, continuing disclosure
▫ Public scrutiny
▫ Supporting the stock in the market

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Costs of Financing
• Legal
▫ Subscription agreements, offering documents,
shareholder agreements
• Audit
▫ May be required for funds, VCs or larger investors
• Finders’ Fees
▫ % paid out to advisor
Depending on transaction can be 10% - 15% of gross proceeds

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What do you Need?
• Business Plan / Executive Summary
▫ Clearly articulate the opportunity
• Clean Structure
▫ Established company with ability to issue shares
• Use of Proceeds
▫ What are you using the money for
▫ Milestones if appropriate

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Money vs Smart Money
• Some investors bring only money
▫ Institutions, friends, family, some funds, Angels
• Other Investors bring expertise / assistance
▫ Angels, VCs, some PE firms
▫ Business, marketing or technical expertise
▫ Help grow the business in more ways than
working capital

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What are you worth
‘Nothing is more difficult then
figuring out what a
small business is really worth.
After all these years it remains
a very difficult problem for me”
Mr. Warren Buffet, October 2003

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PRICE IS WHAT YOU PAY, BUT VALUE IS
WHAT YOU GET”
• Price is what is negotiated in the actual market
• Value is a theoretical (notional) calculation of
the net benefits of the investment
• Only time tells if the Price was right!
Mr. Warren Buffet, October 2003

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Value Drivers
• Unique product / service / technology
• Early customers / revenue
• Protection (IP/Patent/Contract/User Base)
• Management team
• Deal structure
• Promise of quick exit

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Price Considerations
Bargain Prices Higher Prices
• Vendor has to sell
• Limited funding available to
purchaser (i.e., limited
leverage of asset)
• Lack of knowledge/poor
negotiations by vendor
• Market conditions
• Strategic purchaser that enjoys
synergies
• Non-cash consideration
• Contingent consideration
• Market conditions
• Lack of knowledge/poor
negotiations by vendor

Questions?

VanFUNDING 2016: Capital raising options for startups on small business financing (Evans & Evans Inc.))

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