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Returns-On-Innovation

“Financing start-ups”

E.Factor, 25th of June 2008

Kissing the right frogs? or kissing the frogs right?

Tom.Paffen@capitalc.eu

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Returns-On-Innovation

Venture Capital

Finance horizonFinance horizon

Private Capital markets

IPOs

Follow-Ons

Convertibles

Mergers & Acquisitions

Company Development

Finance need

SEED CAPITAL

EARLY STAGE

LATER STAGE

TURN-AROUND

BUY-OUT

BRIDGE

First € 500k - € 50 mln

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Returns-On-Innovation

Entrepreneurs’ Funding: Many Options

Your Personal Funds

“3F” – Friends, Family, and Fools

Personal Credit Cards and Other Borrowings

Business Angels

Corporate Direct Investment

Venture Leasing

Governmental loans

Mezzanine Financing

Merger and Acquisition

Initial Public Offering

Secondary/Follow-on Public Offering

Private Placements – Debt & Equity

Buyout/Acquisition Financing

Corporate Debt

Venture Capital/Private Equity

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Returns-On-Innovation

5 Questions before calling a Venture Capitalist

• Do you have enough growth ambitions? • Do you want to be a

co-investor/shareholder in the company you are working in?

• Do you know how much capital you need and what the use of proceeds will be?

• Are you willing to have “outsiders” in the board to discuss operations and strategy?

• Do you know what the goal/buss.model of the venture capitalist is?

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Returns-On-Innovation

What is private equity/venture capital?Characteristics

• Sharecapital/equity for non-public/listed companies– Combi of shares and (convertible) loans

• Active shareholder role /RvC

• Investment period 3-7 years

• Specialisations in investment stage and/or sector

• Capital at Risk -à Risk premium

Seed Start-up Replacement-capital BuyoutExpansion

Maturity of the company

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Returns-On-Innovation

What is the business model of a VC?

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Returns-On-Innovation

Succesfull (ICT) Innovations: Predictable?

• “Well-informed people know that it is impossible to transmit the voice over wires and that were it possible to do so, the thing would be of no practical value”, - Boston Post, 1865.

• Alexander Graham Bell,1876: ”What is the use of communication over a distance? I don’t know anybody over there?”

• "I think there is a world market for maybe five computers." - Thomas Watson, Chairman of IBM, 1940/3/9

• “Television will never be a medium of entertainment” – David Sarnoff, RCA, 1955.,

• "640K ought to be enough for anybody."Bill Gates, 1981• End 80s:” Mobile Phones are only needed for Emergence

services”• Early 90s: The Internet: “no serious business use - ”• Consumer Need for Broadband in 2015 maximum 50Mbps -

Jet-Stream, 2005.

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Returns-On-Innovation

Capital Capital –– C Ventures (3): SelectionC Ventures (3): Selection

We select deals by combining the right business driversWe select deals by combining the right business drivers::

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Kissing the frog right? -The Art of kissing

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Returns-On-Innovation

Kissing the right frog:“Elevator Pitch”

• Now or Never feeling:• Focus on how and why prospective customers

will buy from you, and pay you money.

YOUR VALUE PROPOSITION MUST BE COMPELLING, QUANTIFIABLE, PROVEABLE, REFERENCEABLE, AND EASILY EXPLAINABLE…

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Returns-On-Innovation

Kissing the right frog:The real prince?

• Management Team(!)– Track-record– Commitment (co-investment / time)– Complementary team (technology/marketing)

• Business Activity– (potential) consumenten needs– Vision / Trends– Adressable market / First customers

• Product/Technology Advantage– USPs– Competition– Alliances and/or Patents

• Investment Rationale/Financials– Investment Need/ Use of Proceeds– Business Model (recurring revenues)– Perspective on ROI / Exit scenario– Key financials