raising capital: tips from a serial angel & deal junkie

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RAISING CAPITAL: Tips From a Serial Angel & Deal Junkie

by Alixe CormickAngel Investor; Member of: Kieretsu Forum, Vancouver Angel Technology Forum (Vantec), and

various advisory boards; and a corporate securities lawyer

October 22, 2015Capital Advantage

Disclaimer

• Information purposes only: The materials and information contained in this presentation are intended to provide information (not advice) about equity crowdfunding and related matters. You should not act on this information presented without first consulting with an attorney.

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• No Warranties: The information provided in this presentation is provided “as is”. We make no warranties, representations, or claims of any kind concerning the information presented is complete. We are not responsible for any errors or omissions in the content of this presentation or for damages arising from the use of the information provided under any circumstances.

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Outline of Discussion

• Your Initial Capital Structure

• Create a Solid Capital Raising Plan

• Find Investors

• Must Haves for Businesses Looking for Investors

• Your Pitch Deck

• Deal Breakers

• Understanding the Investment Process

• Last Minute Tips

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Your Initial Capital Structure:Pre-Outside Capital

• Rough guideline for tech & biotech

• Founders: 80%-90%

• Team Members: 10%-15%

• Advisors: 1%-3%

• Compensate for value not hours worked!

• Put in writing and use vesting agreements

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Your Initial Capital Structure:Pre-Outside Capital - Pricing

• Skin in the game

• Shares issued for less than $0.01 makes a Canadian IPO less likely

• Effect on pricing when looking for outside capital

• Create a cap table: Excel Example

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http://alexanderjarvis.com/wp-content/uploads/2015/01/Template-Cap-Table-Alexander-Jarvis.xlsx

Your Initial Capital Structure:Outside Capital Rounds

• Non-dilutive capital

• Common, preferred shares, and debentures

• Pre-seed

• Seed

• Series A and subsequent rounds


Your Initial Capital Structure:Outside Capital Rounds

Round Amount Purpose Pre-$ Valuation

$ Sources % of Business

Pre-Seed $25,000 to $300,000

Build & test MVP/Proof of Concept/R&D

$100,000 to $1M

Bootstrap/FFB/Crowdfunding/GovGrants

5% to 25%

Seed $300,000 to $1M

Beta Test/Launch Product/Proof of Product Solution Fit

$1M to $3M Angels/Crowdfunding/Seed VCs/Co-investment funds

10% to 50%

Super Seed $1M to $2M Working Business Model/ Proof of Product Market Fit/Product Traction

$3M to 10M Angels/Seed VCs/Crowdfunding/Strategic Investors

10% to 50%

Series A $2M to $30M

Scale customer acquisition and revenue

$10M to 100M

VCs/Family Offices/ Crowdfunding/Instit-utional/ StrategicInvestors/AltFinPlatforms

20% to 50%


Your Initial Capital Structure:Valuation

• Geography and investor group dependent

• Look for comparable businesses

• Ultimately a negotiation between investor and business

• Expect 10% to 30% dilution per round

• Use convertible debt or preferred shares if uncertain or to avoid significant dilution


Create a Solid Capital Raising Plan

• Determine your key milestones or inflection points that will impact your value

• What is the minimum amount you need to get to each point

• What non-dilutive sources of capital are available to you at each stage?

• Identify what you want to offer investors


Create a Solid Capital Raising Plan

• Make a list of contacts that can help

• Old school versus new school capital raises

• Identify potential investors or credible market intermediaries

• Sample, track, learn, and improve what you are doing to raise capital

• Keep all doors open


Find Investors:Identification

• Friends and family

• Angel investor networks

• Free or almost free angel investor forums

• Pay to play angel investor forums

• Online accredited investor portals

• Individual angel investors and venture capital firms

• Introductions from professional advisors and others

• Identification through research

• Signaling angel investors and venture capital firms

• Third-party finders


Find Investors:Approach

• Method 1:

• Well connected angel/VC assists with introductions

• Commitments;

• Downstream intros and more commitments

• Method 2:

• Credible market intermediary streamlines process


Must Haves for Businesses Looking for Money

• Tax credits• Small Business Venture Capital Act

• Scientific Research And Experimental Development Tax Incentive Program

• Government grants – NRC Concierge Service

• Product or service that addresses a large market need versus a want or nice to have

• Team that can execute

• Solid understanding of business and challenges


Your Pitch Deck

• Standard Pitch Deck Slides:

• Description of your company

• Team

• Problem or need (market opportunity)

• Solution (make sure your name is on this slide)

• Value proposition to investor

• Revenue model

• Strategy to capture that market


Your Pitch Deck #2

• Standard Pitch Deck Slides (continued):

• Channels or verticals;

• Any traction you have;

• How will you build momentum;

• Strategic relationships (partners, customers & LOIs);

• Competitors, Differentiation & Barriers to Market;

• Financial overview;


Your Pitch Deck #3

• Standard Pitch Deck Slides (continued):

• Investments to date and projected rounds you will need

• Simple top line 5 year projection (revenue, expenses, net)

• Identify break-even and profitability

• Use of proceeds (may use a timeline or roadmap)

• Capital request –ask for the money

• Risk factors

• Summary & contact information


Your Pitch Deck #4

• Bare Essentials:• Description of your company;

• Team;

• Problem or need (market opportunity);

• Solution (make sure your name is on this slide);

• Value proposition to investor;

• Any traction you have;

• Use of proceeds (may use a timeline or roadmap);

• Summary & contact information.


Deal Breakers

• Raising $ to replace debt; pay big salaries; develop an idea not a business; or with no clear purpose

• One man team

• No personal skin in the game

• Unrealistic valuations

• Serious character flaw(s)


NDAs – Non-Disclosure Agreements

• Exceptions but, seasoned Angel Investors and VCs will not sign

• Business plan contains no proprietary information

• If you really want an NDA:

• narrow coverage

• introduce at due diligence stage


Understanding the Investment Process

• Long process

• Meet and greet first step

• All investment basics must be met

• Due diligence review

• Terms may be renegotiated

• Close in person


Last Minute Tips

• Securing a key investor early will make raising capital significantly easier

• In person meeting = 5x more $ than an email and 3x more $ than a phone call

• People only invest if they know you, know the business, and like the investment opportunity


Thank-you and Good-Luck

Venture Law Corporation618-688 West Hastings Street

Vancouver, BC V6B 1P1Phone: 604-659-9188

Fax: 604-659-9178Email: [email protected]

Website: www.venturelawcorp.comBlog: www.AlixeCormick.com

Twitter: @AlixeCormickGoogle+: AlixeCormick


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raising capital: tips from a serial angel & deal junkie

Small Business & Entrepreneurship