investment game at letsgro festival 2014
TRANSCRIPT
Investment Game
Planning for today
• 13.00 – Coffee
• 13.30 – Introductions
• 13.45 – About Startup Investment
• 14.00 – Instructions Investment Game
• 14.15 – Case preparations
• 15.00 – Negotiate
• 16.00 – Evaluation
• 16.30 – Pitching
Introductions
Tvilight BV“Intelligent streetlights, reducing energy consumption”
• Spin out from the TU Delft
• Started in 2012 as a one person project
• In 24 months company grew to 30 employees
• Pre seed investment of 500k
• Series A investment of 4M
• Now growing rapidly on global scale
Sneak preview: The Launch Cafe Pre Seed Fund
Criteria
1. The concept is scalable and has international potential
2. The concept has a strong competitive edge
3. There is a prototype or beta available
4. There is a (launching) customer
5. The team is able to build the product themselves
6. The team has experience in the market
7. The team is fully committed and focused
About startup investments
Let’s talk about investments….
You need fuel to launch your strategy ….
How to convince an investor
Pecking order of finance
• Own money
• Gift
• Loan
– Normal loan
– Subordinate loan
– Convertible loan
• Equity
Two types of funders
• Trust driven funders– You!– Family, friends & fools– First employees– Crowd funding– Business angels
• Fact driven funders– Venture capitalist– Banks
Trust driven funders
Fact driven funders (VC’s and banks)
• Remember: they manage money of others!!
• Focus on evidence:
– Business opportunity
– Customer references
– Experience of team
• It is all about risk management!
Funding stages
1. Own money and friends, family & fools “pre seed” – 50k– Idea stage, search for customers demand, only founding team
2. Business angel and subsidies “seed” – 500k– Prototype stage, first customers, first employees
3. Venture capitalist “series A / series B” – 5M– Scaling stage, serious revenue, growing team
4. Exit “IPO / acquisition” – A lot– Serious challenger or opportunity for big players
Funding stages
An ideal investment has…
• A working product
• A growing market
• A launching customer
• …. A great team
• …. A great team
• …. A great team
• …. A great team
Ask yourself the following questions first…
• Do you have the ambition?
• Can your startup become a real business?
• What stage you are in?
• Define your risk profile?
• How much funding you need?
• What are you willing to share / give away?
• What do you need besides funding?
Preparations!!
1. Make your materials: one pagers, slide deck, business plan
2. Make a list of potential funders (desk research)
3. Visit events where you can meet potential funders (field research)
4. Approach the least appealing funders first and practice
5. When you have enough feedback and confidence, approach the most appealing funders
Be critical to yourself, if you do not find investor’s interest maybe it is because of you!
Investor is interested, now what?
• Negotiate the terms for funding– Valuation– Type of stock– Dividends– Anti Dilution Rights– Governance– Vesting conditions– Management and CEO replacement– Ambition for exit– Confidentiality– Termination conditions– Other….
• If no experience: always get an advisor!!
Making the deal: Due Diligence
• Due diligence
– Product
– Market
– Team
– Financial
• Do your own due diligence!
Finalizing the deal: Bring in the lawyers!
• Paperwork
– Participation agreement
– Shareholders agreement
– Guarantees and disclosing
– Management agreement
– Company constitution
– Representations
– Warranties
– Etc. etc. etc.
Making the deal: Champagne!!
• Closing
– Day at the notary!
– Lot of signatures!
– Don’t forget to celebrate!!
Getting an investor is like a marriage
• Are you sure you need funding?
• Put everything on paper and assume the worst case scenarios!
• Never sign anything until you fully understand everything!
• Trust and share the vision!
• Remember: you can only give away shares once
Investment Game
Make an investment deal!
Process
– Choose a buddy
– Group is divided in founders and venture capitalist
– Each group prepares their own case
Planning
– Preparations (45 minutes)
– Negotiations (75 minutes)
– Evaluation (45 minutes)
Casus- The company Earth Escape needs an investment of $100M.- The VC Aerovent Capital is interested to invest the full amount.- How to structure a deal acceptable to both parties?
Profile Earth Escape- The founder of Earth Escape dreams of conquering the market of space
tourism. His team has 25 years of experience, their product is superior and the market forecasts are fantastic.
Profile Aerovent Capital- Aerovent Capital is a renown investor in the aerospace industry. They have a
proven track record of successful investment deals. Besides financial resources they offer a vast network of experts and potential clients. Earth Escape is a risky investment, but it has the potential to become a “home run”!
Casus: Aerovent Capital & Earth Escape
Points
- Substantive points (S) 50%
- Process points (P) 50%
Substantive points (Term Sheet)
- 8 technical aspects of the deal (minimum score is 45).
Process points
- 5 proces aspects of the deal (no minimum score).
How to make the deal
1. Equity percentage
2. Type of stock
3. Dividend
4. Anti dilution clause
5. VC board members
6. Vesting of shares
7. CEO replacement
8. No shop
The founder and investor get points for each negotiated results. Howeverthey are not aware of the importance of each others results!
Substantive points
1. Trust
2. Respect
3. Equitability
4. Regard to other’s interests
5. Interest in future collaboration
A deal is only a good deal if both parties leave the table with a smile. How far do you go to get your substantive points?
Proces points
Groups
Founders Venture Capitalists
Case
Do not share the case with your counterpart!!!