funding available to start-ups
TRANSCRIPT
Funding Available to Start-ups
Mark KlausnerJeffrey Peres
Managing DirectorVice President
[email protected] [email protected]
Signal Hill Capital Group LLCwww.signalhillcapital.com443-796-4000
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Overview
• Financing Planning
• Types of Financing
• Approaching Investors
• Closing the Deal
Financing Planning
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Developing a Financial Plan
• Where are you in your corporate life cycle?
• How much capital do you need?
• How soon will you need more money?
• What milestones will you achieve with this round?
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Stages of New Venture Development
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Capital Plan and Cash Flows
Cash Balance Funds Raised
Quarterly Cash Burn Cumulative Cash Burn
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Milestones
– Seed – Tested value proposition, technology protected, market analysis
– First Round – Prototype, product testing, proof-of-concept, clinical data, market validation
– Second Round – Clinical progress
– Third Round – Product approval / launch
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Timeline / process
Weeks
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Develop financial plan / assess capital needs
Decide on type of financing
Target investors
Develop marketing materials
Meet with investors
Preliminary due diligence
Negotiate term sheets
Due diligence
Closing
Types of Financing
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Sources of New Venture Funding
Sources of New Venture Financing
Development Start-up Early Growth Rapid Growth Exit
Entrepreneur
Friends and Family
Angel Investors
Grants
Strategic Partner
Venture Capital
Asset-based Lender
Equipment Lessor
SBIC
Mezzanine Lender
IPO
Public Debt
Acquisition, LBO, MBO
Red shading indicates primary focus of investor type. Blue shading indicates secondary focus, or focus of a subset of investors of the type.
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Grants
Advantages
• Low cost of capital
• No dilution to shareholders
• External validation
Disadvantages
• Complex process
• Time and cost to apply
• Adherence to grant guidelines
• Documentation
• Limits flexibility
• Doesn’t expand intellectual capital
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Development Agreement
Advantages
• No explicit dilution to shareholders
• Leverage the resources of a large industry player
• External validation
• Funding based on milestones
• Expands intellectual capital
Disadvantages
• Value transfer to partner
• Highly negotiated
• Operational complexity / management
• Are you “locked-in”
• Loss of control
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Debt
Advantages
• Lower cost of capital
• No dilution to equity
holders
• Well defined process to
closing
Disadvantages
• Annual fixed cost
• Repayment obligations
• More difficult to obtain for
early-stage companies
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Equity
Advantages
• Permanent capital
• Typically expands
intellectual capital
• Most common way of
funding start-up ventures
Disadvantages
• Expensive
• Dilutive to common
shareholders
• Lengthy and complex
process to obtain financing
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Sources of Equity Capital
Fund Size Typical Commitment
Friends and family NA < $50 k
Angel > $2 mm < $100 k
Super Angel > $50 mm < $1 mm
Boutique VC < $100 mm $2 - 5 mm
Intermediate VC $50 - 250 mm $2 - 10 mm
Marquee VC > $500 mm $5 - 20 mm
Corporate VC NA $1 - 20 mm
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Qualifying Investors
• Referral path
• Reputation
• Average funding provided – initial, follow-on
• Experience / track record
• Portfolio companies
• Style / interaction with management
• Process
Approaching Investors
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How Do I Get in Contact with the Right People?
Friends and family – Personal network
Angel – Personal network, Angel clubs
Super Angel – Personal network, Angel clubs
Boutique VC – Personal network, VC shows and conferences, Agent
Intermediate VC – Personal network, VC shows and conferences, Agent
Marquee VC – Personal network, Agent
Corporate VC – Industry network, Agent
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I’ve Got a Meeting…Now What?
–Know your audience
–Your slides shouldn’t tell the whole story
–Practice presentation skills
–Showcase the team
–Value proposition and business model are key
–Don’t overwhelm with technology
–Focus on the goal get another meeting
–Follow up on open items quickly
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Why Should Someone Give You Money?
–Potential market
–Proprietary technology
–Business model
–Management
Closing the Deal
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Due Diligence
–Validation of business plan
–Market size
–Competition
–Execution plan– Distribution– Technological roadmaps
–Operational metrics
–Historical and projected financial data
–Legal issues
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Term Sheet Issues
• Valuation– Pre-money– Post-money
• Price– Per share– Warrants
• Structure– Liquidation preference– Dividends– Redemption rights– Anti-dilution
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Term Sheet Issues
• Control– Directors– No-shop clauses– Conversion / automatic conversion– Restricted actions– First offer rights
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Common Myths About Financing
–You don’t need more money
–A term sheet is a commitment
–No venture money is available
–If they don’t get the message they are stupid
–Building a company and raising money is easy
–The Founder’s ownership percentage is the most important thing
–Technology is the key to raising money
–Raising money is the goal