Live Webinar October 30, 2012

Mike Drzal is the chair of LeClairRyan's Venture Capital practice and he works extensively with start-ups and emerging companies at the investment level - coaching clients that are seeking capital and funding sources. As lead counsel, he focuses his practice on debt and equity financing, mergers and acquisitions, strategic alliances, joint ventures, management buyouts, intellectual property licensing transactions and a variety of domestic and international transactions. Mike currently serves as general counsel to emerging companies, including medical device, bioinformatics, pharmaceutical, diagnostics, manufacturing and distribution, alternative energy, medical information technology, internet and high-tech research and development companies.

Robert Okabe’s first involvement with start-up ventures was as an angel investor. He has made 14 investments of his own funds since 1995, with one major liquidity event and three other positive returns of capital. He is also a co-founder of an angel group, helped organize an angel capital fund, and serves as a Trustee of the Angel Resource Institute.  He is a co-founder of RPX Group, a firm focused on building start-up companies from university innovations, and has led many of the firm’s most successful engagements.

Luke Smith has spent time in engineering and operations at large public companies, as well as a string of start-ups. He led engineering organizations, manufacturing organizations and product divisions in large public companies. In 1995, he entered the world of start-ups as vice president of operations and chief executive for a handful of technology-based companies. Smith has extensive experience obtaining funding for start-ups. Additionally, he consults, mentors, and serves as a director in the start-up space.

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Approaching funding sources

Networking

Creating a stellar presentation

Companies need five tools to effectively engage with investors- Elevator Pitch Executive Summary Business Plan Slide Presentation Financial Model

A quick verbal synopsis of the company- Under two minutes long Covers only MAJOR items

(market/unique technology/strong team)

Structured as a lead-in to a follow-up discussion

(don’t ask for money at this point)

Elevator pitches never happen in elevators- Listeners can walk away at any time Others are probably nearby

(no confidential information) Learn from the movies-

Based on a survey of organized investor groups conducted by the Angel Resource Institute 58 responding groups (represent 2000+

investors) Investment run rate of over $50MM a year

Questions were asked on a seven point scale 1 is best, 7 worst

Entrepreneur’s primary outreach document

Efficient screening tool for investors

Value of Executive Summary

1

59%

2

31%

Executive Summary Quality

1

11%

2

27%

3

44%

Some are good (38% rated 1-2)

Most could be better (62% rated 3-5)

POST (problem/opportunity/solution/technology)

STORM (strategy/team/others/resources/milestones)

Preferred Length (pages)

1

13% 3

15%

2

63%

Keep it short- 2 pages Deliver as a PDF

No formatting problems No changes or errors

Should tell the complete story of the company

Not as valued as the executive summary!

Investors aren’t impressed Better than average is not

good enough

Quality of Business Plan

1 6%

4

24% 3

40%

2

13%

Value of Business Plan

1

33%

2

25%

3

20%

Hide use of business plan software Use demos or diagrams for complex issues Describe full regulatory process (if applicable)

Preferred Length (pages)

21 - 3028%

11 - 2034%

None

30%

Length less important Avoid confidential

information Few will sign an NDA at this

point Don’t ask!

Value of Presentation

1

41%

2

22%

3

24%

Quality of Slide Deck

3

48%

2

24%

First major interaction between investors and entrepreneurs

Confirms or refutes impression to date

Better than business plans Perhaps not good enough

A great presenter can make a decent slide deck great

Preferred Length (minutes)

16 - 2032%

11 - 1545%

Open strongly Expect to be interrupted Know how to use PowerPoint!

Achieve the 3Cs Clear Concise Compelling

Value of Financial Projections

1

25%

2

42%

Quality of Financials

5

22% 3

26%

4

26%

Highly valued by investors, but- Typically scrutinized later in

the investment process Not necessarily a deal killer

Financial model quality is viewed negatively

Some problems are easily fixed

Cover five years in your model- Which way to the airport?

Use graphs with detailed backup Focus on cash flow-

Capital expenditures/receivables/inflation

There is no such thing as a conservative scenario!

Selling what? The opportunity The team

Excellent presentation skills are a must

Does launch make sense? Use disciplined, gated process to determine:

Gate 1: Market Assessment/Key Market Conditions Gate 2: Technical Review/Technology Evaluation Gate 3: IP Assessment Gate 4: Market Evaluation Gate 5: Commercialization Plan Gate 6: Business Plan

© Copyright 2012 LeClairRyan All rights reserved

Threshold requirements: Good IP or some other barrier to entry A big, lucrative addressable market A strong management team, including

a bankable CEO

If there were a “correct” way to get financing, everyone would do it the same way

Almost every approach works sometime Some approaches do work more often than not It’s a low yield activity; plan on many pitches

When getting advice remember humans “filter” low yield activities often selecting matches to their prejudice or experience

Team Problem and solution Proof of market acceptance/validation Market size Exit

Plan

Prepare

Pitch

Verbs implying action

Know your value proposition/core competence Customers/market size/share of market

List all milestones to cash flow breakeven Have basic financial statements Build a team with domain expertise

“The plan is nothing. Planning is everything,” Eisenhower

A door opener, not a securities disclosure document 2 to 3 pages long Typical Content:

The company The problem/opportunity Large market size Competition position and barriers to entry by competitors Go to market strategy The team Financing requirements Exit strategy

Always include contact information and a securities disclaimer

Executive SummaryCompany Overview· Nature of Business· Company Vision· Business Size· Business Development Stage· Funding Awards & RecognitionProduct· Product Concept· Product Concept Market Segment· Targeted Users· Targeted Buyers· Competitive Advantage/Barriers to Entry by Competitors· Stage of Product Development· Intellectual Property Status

Market Analysis & Marketing Strategy· Market Analysis· Go-to-Market Strategy· Target Buyer Profile Positioning· Pricing· Promotional Management and Organization· Management Team· Staff· Advisors· Organizational ChartFinancial Plan· Financial Needs Summary· Investor Summary· Revenue Model· Projections (Sales & Income)· Assumptions & CommentsAppendices

1. “Mandatory figures”a) Clearly identified ROI, time to cash flow breakeven (after breakeven exit “takes care

of itself”)b) Market size at a scale matching their style.c) Your sustainable competitive advantage, value proposition, core competence, moat,

etc.d) “reference customers”

2. Optional elements – personalize the pitcha) Team biosb) Brief tutorial on technology involvedc) Company history

Target a 20 slide max. Bring back up slides should the audience want to get into details

Typical Content: Slide 1 - Overview Slide 2 - The Problem Slide 3 - The Solution Slide 4 - Opportunity and Market

Emphasize large addressable market Slide 5 - Technology/Product Slide 6 - Unique Competitive Advantage/Barriers to

Entry Slide 7 - Competitive Landscape Slide 8 - Go-to-Market Strategy

Slide 9 - Financial RoadmapInclude high level 5 year projectionsInclude investment sought

Slide 10 - The Team Slide 11 - Current Status

Milestones achieved to datePending orders

Slide 12 - ExitProvide most likely exit scenarioProvide comparables if available

Slide 13 - Summary3 Strongest points – what distinguishes thisopportunity from others

Don’t pitch “cold.” Conduct research to know: The audience (history, responsibility, authority) Their investment “sweet spot” and style Their existing investments and balance to invest The “fund’s” age

Learn from previous presenters Get introductions/references before your pitch Do critical dry runs with your slide deck

The cardinal rule of any presentation is to “meet the needs” of the audience

1.Be prepared for “games.” You may not get to use your slide deck2.Engage with the audience3.Sell4.Take questions

It never “depends”. Give direct answers. It’s not an opportunity to display your vast intelligence

Use your planning to prepare for questions. Failure to answer a basic question will usually disqualify you.

If you don’t have the answer admit it. Then arrange to get the answer.

Our company raised $100 million(four rounds) The CEO was a salesman We were a great team We executed to our committed plan The CEO created a sense of scarcity We raised money when we didn’t need it.

I raised 17 million (two rounds) The investors believed that I was instrumental in a previous $200 million success. We executed perfectly to our committed plan We were a good team We didn’t pivot. I wasn’t as good as the CEO above Company sold at value of money invested

Our company raised $35 million CEO had a previous successful $150 million exit We had a unique approach to a several billion dollar emerging market The “team bio” was exceptionally strong

Utilize the public chat at the bottom left of your screen to submit your question. The panel will address them in the order they are

received.

Thank You!