MobCon

November 2014

Securing Financial Resources to Help Your Business Grow

Agenda

• Introduction of Panelists

•Financing Options

•Angel Tax Credit

•Factors and Process for Funding

•Term Sheets and Valuation

Best Combination of Investor & Financing Options

• No one-size fits all answer!

• Most important thing is matching your capital strategy to your business strategy

Most Common Financing Options

Capital Source Description Company Profile Benefits Considerations

Bootstrap

Business funded

through

customers/reven

ue

Revenue from

customers covers

cash needs of

business

Non-dilutive,

control your own

destiny

Can limit business

growth

Bank DebtCredit line, term

loan

Established,

profitableNon-dilutive

Lack of flexibility,

covenants

Equity – Angels

Sale of common

or preferred

shares to

individual

investors

High-growth

potential,

approaching early

product/market fit

Flexible capital,

potential investor

value add

Lose some control

Equity - VC

Sale of

preferred shares

to Venture Firms

High-growth

potential, clear

product market fit

Size of capital,

follow-on funding,

flexible capital,

potential investor

value-add

Lose some control

Angel Investments vs VCs

2013 Angels Venture Capital

Billions Invested $24.80 $29.69

#Companies 70,730 4,106

Average Investment $350,629 $7,231,612

% in Seed/Start-up Stage 21% 3.3%

Angel Tax Credit

• 25% credit for Angel Investors (Individuals and Angel funds)

• $150,000 maximum for Individuals

• Credit can be refundable

• Business Qualifications• Headquartered in Minnesota

• 25 or fewer employees

• Less than $4 million in equity

• Less that 10 years in operation

• Eligible industry with proprietary technology

Angel Tax Credit – New for 2015

• “Insiders” no longer eligible • Officers

• Principals• 20% owners• Family of insiders

• $15 million in tax credits per year• $7.5 million in credits reserved for

investments in women-owned, minority—owned and companies in Greater Minnesota

Angel Tax Credit Performance

• 284 businesses received investments

• $248 Million in investments

• Greater Minnesota• 18 headquarters (2014)

• 34 with operations (2013)

• 14 women-owned/8 minority owned businesses

• In 2014 $15 million in credits allocated• $12 million from Jan 1 – March 3

• $3 million on May 10th (following legislative action

Angel Loan Fund

• No interest loans of up to $250,000• Used for startup costs, working capital,

inventory, franchise funding, expansion projects and more

• Loan equal to 10% of expected equity raised; payments deferred for 7 years

• Mitigation Risk Fee – 30% of the loan if business is sold during the 7 year term

Other Financing Options

• Contests/Prizes

• Gov Grants/Loans• SBIR / SBA

• Crowdfunding

• Vendors

• Distributors

• Specialty Finance• Equipment loans

• Inventory financing

• AR financing

• Working Capital

loans

• Economic Dev.

Factors in Getting Funding

• Getting an investor meeting

• For most investors a referral is best way in (another investor, an advisor, another entrepreneur)

• Know Their Process (communication method, type of documentation)

• Getting to ‘Yes’

• Strong Value Proposition

• Proprietary Product/Service

• Product/Market Fit/Traction

• Experienced Management Team

• Reasonable Raise/Valuation Expectations

• Realistic Exit Strategy

What the Process Looks Like

• Initial Screening

• Presentation

• Evaluate the Opportunity

• Due Diligence

• Venture Fund Meeting/Approval

• Term Sheet

• Negotiation

• Closing

• Ongoing Involvement

What is in a Term Sheet?

• Amount of Raise

• Valuation of Company (Pre & Post)

• Type of Security (Common/Preferred, Convertible/Participating)

• Liquidation Preference

• Dividends

• Anti-Dilution

• Board Structure

• Protective Provisions

• Closing Conditions

Capital Needed & Valuation

• Assessing capital need• Match the business strategy – how much is needed to hit key

milestones and what are those milestones?

• Assessing valuation• Investor ownership expectations

• Investor return expectations

• Business metrics (if applicable)

• Path to liquidity

• Management team

Getting Fair Terms

• Get educated• Brad Feld – Startup Deals: Be Smarter Than Your Lawyer and

Venture Capital Firm

• Create competition• Get multiple investors interested at the same time

• Bootstrap so you don’t ‘need the money’

Questions?