show me the money! - 2x partners · show me the money! financing boot camp 0 andrew whitman...

SHOW ME THE MONEY!

Financing Boot Camp

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Andrew WhitmanFounding Managing Partner2x Consumer Products Growth Partners

[email protected]

June 2010

TODAY’S AGENDA

What we’ll try to cover ...

� Where Growth Capital Comes From

� Kinds Of Investors And What They Look For

� Your Investor Pitch

� 10 Reasons Investors Pass …

And, Ways To Enhance The Odds of Raising Capital

� Bonus: Anatomy of a Term Sheet

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… and if I miss something,

we’ll have time to discuss.

ANDREW S. WHITMAN

Andy is a successful consumer products investor and executivewho melds experience of a Fortune 100 executive with passion and resourcefulness of an entrepreneur.

�Managing Partner, 2x Consumer Products Growth Partners (www.2xPartners.com)

» Growth capital exclusively to emerging branded consumer products companies(Focus areas include food, beverage, personal care, home care and pet care – particularly in the

organic/natural, specialty/gourmet and ethnic sectors. Businesses are primarily within the $1-15 million

revenue range. Sorry no pre-revenue ever.)

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INVESTOR& PARTNERSince 2001

INDUSTRYOPERATORGeneral Foods and Kraft

Unit head

Prior functional backgroundin marketing, sales, operations planning and corporate development/M&A

BACK-UP

Biographical Summary

ANDREW S. WHITMAN

Managing Partner

Successful consumer products executive and investor who melds experience of Fortune 100 executive with passion and resourcefulness of entrepreneur.

Active industry investor and non-executive partner to management in invested companies including gDiapers eco-friendly diapers, Wellness/Old Mother Hubbard all-natural pet foods and Eagle snacks.

Previously led large businesses and small/un-integrated

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Previously led large businesses and small/un-integrated businesses with dedicated plants and/or brokered sales forces at Kraft Foods and General Foods. Proven general manager who leverages a diverse breadth of prior functional assignments, including marketing, sales, operations planning and corporate development.

Current and past not-for-profit or industry association Board member including Jewish United Federation Foods & Hospitality Trade Sector, Marketing Executives Network Group (MENG) and Venture Board of the Women’s Self-Employment Project.

MBA – Kellogg School (Northwestern).BBA – University of Wisconsin.

SOURCES OF GROWTH CAPITAL

Growth capital for small(er) businesses can come from manyplaces.

� Founders

» Savings

» Home equity lines/second mortgages

» Credit cards

� Debt

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� Debt

» Bank loans

− Term debt

− Revolvers … generally tied to inventory and receivables

� Investors

» All types and flavors

TYPES OF INVESTORS

Investors can play many roles … understand what you’re looking for before you start looking.

� Passive Investor

» Just Money

» Absolutely Nothing Wrong With This

� Partner Oriented Investor

» “Value Added Capital”

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» “Value Added Capital”

» In Our Case – “Industry Help Than Happens to Come With Bucket of Cash”

� Activist Investor

» Often “Runs” the Company or Leads Direction

» E.g. Carl Icahn

TYPES OF INVESTORS

Different investors play at different stages.

� Venture Capital and Private Equity are Very DifferentVenture Capital Private Equity

» Investment Profile Early Stage Companies Established Companies

» Buyout Nature Consortium Most Often Single Investor

» Returns Lots of Bankruptcies; Less Highs and Lows

A Few Homeruns

Growth Capital Someplace In Between

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Friends & Family / Angels Earlier

� Business Stages & Investors Match Up

Idea Up & Running Building A Business Mature

Friends & Venture Private

Family / Capital Equity

Angels

Growth

Capital

INVESTORS LOOK FOR

Different investors look for different stage businesses;accordingly, level of expected track record differs.

Headline: Give a reason to believe … “imagine the possibilities”

Our Investment Criteria As Example:

1. Founders/management team seeking a partner, not just an investor

2. Powerful consumer-driven positioning with exceptional product

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fulfillment

3. Strong sense of “proven-ness” based on in-market performance

» Hardest for earlier stage companies to meet

4. Exponential growth potential to at least $30+ million in revenue

within 3 to 5 years

5. Categories that immediately leverage our expertise

6. Attractive financial proposition (especially GM%) and expected returns

WHAT’S IN YOUR PITCH

Keep it simple … listen to Guy Kawaski.

� The 10/20/30 Rule of PowerPoint

» 10 slides

» 20 minutes

» No font smaller than 30 points

� TEN slides

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� TEN slides

1. Problem

2. Your solution

3. Business model

4. Underlying magic, technology, unique selling proposition

5. Marketing and sales

6. Competition (e.g. features/benefits – comparison slide)

7. Team (sometimes found more towards the back)

8. Projections and milestones

9. Status and timeline

10. Summary and call to action

WHAT’S IN YOUR PITCH

Keep it simple … listen to Guy Kawaski.

� TWENTY Minutes

» People arrive late, leave early

» Typical 1 hour time slots, do 20 minute pitch, 40 minute discussion

� THIRTY Point Font

» Headlines so you can tell story and audience won’t read ahead of you.

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» Headlines so you can tell story and audience won’t read ahead of you.

» If too dogmatic, find out age of oldest person and divide by two = optimal font

size

THE REJECTION

So, why did they say no?

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10 REASONS INVESTORS PASS

And, Ways To Enhance The Odds of Raising Capital:

1. Dazed and Confused

» Too Hard To Follow

− Tell Story Concisely

− Be Compelling with Passion & Facts

− 1-3 Page Exec Summary

− 10-20 Slides

− Bottoms Up Excel Model

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If you’d like a copy, send an email [email protected]




2. Wrong Way

» Seeking Capital From Wrong Sources

− Recognize That Courtesy Visit Does

Not Mean Likelihood To Invest

− Match Your Prospecting With

Their Investment Criteria

Talk To Angels And Angel Groups

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− Talk To Angels And Angel Groups

Where Appropriate





2. Wrong Way

3. All Sizzle, No Steak

» Pure Marketing Pitch Doesn’t Work

− You’re Pitching Your Business

Not Selling A Customer

− Have The Data (e.g. SPINS or IRI/

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− Have The Data (e.g. SPINS or IRI/

Nielsen if CPG business)

− Detailed Financial Model And

Use of Proceeds

− Be Specific Regarding Important

Metrics (e.g. sell-through velocity

and gross margins in CPG)





2. Wrong Way


4. Leaky Bucket

» E.g., Distribution is Growing but

Velocity (Sales/Door) is Declining

− Buy The Data (e.g. SPINS or IRI/

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− Buy The Data (e.g. SPINS or IRI/

Nielsen if CPG business) –

Not As Expensive As You Think!





2. Wrong Way


4. Leaky Bucket

5. No Margin for Error

» Even Sub-Scale, Margins Are Weak

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− Get Margins Right Early

− Don’t Assume Scale Is Cure All





2. Wrong Way


4. Leaky Bucket


6. Know Not Thy Business

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» Founders Don’t Know Their Financials

(Or Other Metrics)

− Know Your Business Even If Not

The CFO Type

− Get Help Where You Need It





2. Wrong Way


4. Leaky Bucket



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7. Betting on the Come

» Most Of The Growth Comes From

Products/Channels/Etc. That Aren’t

Here Yet

− Have Mix of “Step on the Gas”

Existing Business And “New Stuff”





2. Wrong Way


4. Leaky Bucket



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8. Mismatched Returns

» Returns From Investment In Your

Company Are Too Low For Investor

− Align Potential Investors With

Your Company Return Potential

− Know That Investors Will Discount

Projections and Returns





2. Wrong Way


4. Leaky Bucket



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9. Failure of Confidence

» Investor Doesn’t Have Absolute

Confidence In Founder/Management

− Ensure You’re Not Giving Reasons

To Doubt

− Do What You Say and When You

Say You’ll Do It

− PLEASE Don’t Say Projections

Are Conservative!





2. Wrong Way


4. Leaky Bucket



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9. Failure of Confidence

10. Too Messy

» Deal (or Company) Is Not Worth The

Effort

− Clean Up “Odd” Structures or

Terms ASAP

− Proactively Avoid Unrealistically

High Valuations and Therefore

Subsequent Down Rounds


BEFORE WE GET STARTED

VALUATION IS IRRELEVANT!

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BEFORE WE GET STARTED

VALUATION IS IRRELEVANT!

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(In Isolation)

ANATOMY OF A TERM SHEET

Understanding the Interrelation of Valuation, Structure and Terms are Critical: Like Squeezing a Balloon – Can Move Air Around.

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Understanding the Interrelation of Valuation, Structure and Terms are Critical: Like Squeezing a Balloon – Can Move Air Around.

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or


ECONOMICS AND STRUCTURE:Let’s briefly walk through key areas …

1. Investment

2. Types of Securities

3. Warrant Coverage

4. Valuation

5. Management Options

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5. Management Options

6. Distributions/Waterfall

7. Governance / Board

8. Consent Requirements

9. Exit Timing & Redemption Rights

10. Other Standard Provisions

Anti-Dilution Pre-Emptive Rights

Right of First Refusal Drag-Along and Tag-Along

Governing Document Changes Contingent Documents

Exclusivity Binding/Non-Binding

Expiration

If you’d like a copy, send an email to

[email protected]

RESOURCES

� Available in NEWS section of 2xPartners.com

» Anatomy of a Term Sheet

» Angel Group Lists

» 2x TrendWatch

� Contact Information

» Andrew S. Whitman

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» Andrew S. Whitman

» [email protected]

Questions?Good Luck!

THE END

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Good Luck!

ABOUT US

Industry partners not pure investors.

� Industry Insiders lead investments and add value to emerging branded

consumer products businesses

» Focus exclusively on emerging consumer products companies with deep expertise

in the industry

» Partner with founders and management to build marketplace winners

» Bring industry expertise, contacts and connections that immediately add value

� Our success formula:

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� Our success formula:

HIGH POTENTIAL BUSINESSES

Partner exclusively with businesses which leverage the intersectionof what we know with where we execute.

Consumers & Insights

Need State

Product Usage

Purchase Patterns

Grocery

Convenience

Club

Mass/Super Stores

Industry Knowledge Selling Channels

5 Categories:

Food

Beverage

Personal Care

Home Care

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� Important Note:

Minority ownership stake as part of a partnership most common;

Majority interest or complete buyout not atypical

Purchase Patterns

Strategic Planning

Marketing

New Product Development

Manufacturing

Distribution

Sales & Category Management

Finance and IT

Mass/Super Stores

Big Box

Discount/Dollar Stores

Drug

Natural/Specialty

Online/Direct/Catalog

Food Service & Vending

Home Care

Pet Care

5 Growth Traits:

Natural

Organic

Ethnic Products

Specialty

Gourmet

OUR TEAM

Industry Insiders experience/operating approach creates value andis major reason people want to work with us.

� Seasoned veterans complement and support founders/management

» More than 350 years of directly relevant expertise and proven history of

creating value by building marketplace winners in small and large companies

� Leveraging industry expertise, contacts and connections

� Experience and operating approach is attraction for entrepreneurs

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� Experience and operating approach is attraction for entrepreneurs

� Our team and Limited Partners bring deep CPG experience with both

successes and learnings from failures

2x TRENDWATCH

Share news, notes and nuggets with friends in the industry.

� 2009 Editions» January Winter Fancy Food Show

» March ExpoEast

Housewares Show

» Summer All Candy Expo

National Restaurant Show

All Things Organic

Summer Fancy Food Show

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Summer Fancy Food Show

Kehe Distributor Show

» Fall SuperZoo

All Baby & Child Expo

ExpoEast

Backer Pet Show

» October NACS

If you’d like to be added to the distribution list,

send an email with your contact info to

[email protected]