You Must be well Funded In order to Succeed Where’s the Money.

You Must be well Funded You Must be well Funded

In order toIn order to

SucceedSucceed

Where’s the Money

©Jerry Musnitsky 2000©Jerry Musnitsky 2000

MoneyMoney There is more money than deals*There is more money than deals* It’s easier to get $10 million than $100KIt’s easier to get $10 million than $100K Do the right things and the money will comeDo the right things and the money will come

*They must be good deals

TopicsTopics Money SourcesMoney Sources

• What they meanWhat they mean• What they doWhat they do

Evaluation FactorsEvaluation Factors• What you meanWhat you mean• What you doWhat you do

People versus PlansPeople versus Plans

Money SourcesMoney Sources

DebtDebt EquityEquity GovernmentGovernment AngelsAngels Strategic Corporate AllianceStrategic Corporate Alliance VentureVenture Private PlacementPrivate Placement Public OfferingPublic Offering

DebtDebt

R&D Product Launch

MarketPenetration

Maturity

Cash Flow Negative Cash Flow Positive

Venture Leasing

Niche Banking

Factoring

Asset Based

Traditional Banking

Venture LeasingVenture Leasing

Finance equipment, facilities, etc.Finance equipment, facilities, etc. Highly flexibleHighly flexible

• no financial controlsno financial controls High Cost (13-20% yields + warrants)High Cost (13-20% yields + warrants) Requires established access to equityRequires established access to equity

• favorable financial conditionfavorable financial condition• satisfactory collateralsatisfactory collateral• strong managementstrong management

Niche BankingNiche Banking Finance Accounts ReceivableFinance Accounts Receivable Moderately flexibleModerately flexible

• performance is monitoredperformance is monitored• blanket security interestblanket security interest

Moderate cost (9 to 12% yields)Moderate cost (9 to 12% yields) Favorable financial condition, proven Favorable financial condition, proven

access to equity & strong access to equity & strong managementmanagement

FactoringFactoring Finance Accounts ReceivableFinance Accounts Receivable Highly flexibleHighly flexible High Cost (20 to 40% yields)High Cost (20 to 40% yields) Requires strong collectiblesRequires strong collectibles

Asset based lendingAsset based lending Finance receivable and inventoryFinance receivable and inventory Revolving lines of creditRevolving lines of credit

• extensive reporting and cash controlextensive reporting and cash control FlexibleFlexible

• High borrowing with minimal financialHigh borrowing with minimal financial Reasonable costReasonable cost (11 to 14 % yields)(11 to 14 % yields) Favorable operating record & strong Favorable operating record & strong

ManagementManagement

Traditional BankingTraditional Banking Finance accounts receivableFinance accounts receivable Provide working capitalProvide working capital Limited flexibilityLimited flexibility

• strong financial conditionstrong financial condition Low Cost (8-10% yields)Low Cost (8-10% yields) Strong operating history, low risk, Strong operating history, low risk,

strong managementstrong management

SBA LoansSBA Loans Loan is 85% guaranteed by gov’tLoan is 85% guaranteed by gov’t Terms are favorableTerms are favorable Cash flow is requiredCash flow is required Individual contribution requiredIndividual contribution required Personal guarantees requiredPersonal guarantees required

Bank EvaluationsBank Evaluations

75% People75% People ProjectionsProjections Products, Market, Competition Products, Market, Competition Sources of RepaymentSources of Repayment SVB Silicon Valley Bank example:SVB Silicon Valley Bank example:

• Who’s in the Deal?Who’s in the Deal?• Collateral packageCollateral package• Performance PlanPerformance Plan

AngelsAngels

Individuals investing for their own Individuals investing for their own accountaccount

Intuitive and People orientedIntuitive and People oriented Angels provide guidanceAngels provide guidance Angel MoneyAngel Money

• A. $1 million raise @ $50 K per personA. $1 million raise @ $50 K per person• B. $500 K per personB. $500 K per person

High risk & high costHigh risk & high cost

Angel’s EvaluationAngel’s Evaluation Big Market OpportunityBig Market Opportunity Excellent management teamExcellent management team Good technologyGood technology Complete Business PlanComplete Business Plan

Strategic Corporate AllianceStrategic Corporate Alliance

Two or more companies join to gain Two or more companies join to gain competitive advantagecompetitive advantage• Start-ups to matureStart-ups to mature

Fit within organizations’ Business PlanFit within organizations’ Business Plan Start-up offers:Start-up offers:

• People & TechnologyPeople & Technology Corporate partner offers:Corporate partner offers:

• Financing, infrastructure, access to marketFinancing, infrastructure, access to market

ThermoelectronThermoelectron Evaluation CriteriaEvaluation Criteria

• 1. People1. People• 2. Technology2. Technology• 3. Market3. Market• 4. Fit within corporate Business Plan4. Fit within corporate Business Plan• 5. Likelihood of success5. Likelihood of success

PPO & IPOPPO & IPO To offer or not to offer?To offer or not to offer?

• to suffer the slings and arrows of to suffer the slings and arrows of outrageous investor demands and outrageous investor demands and regulatory complianceregulatory compliance

StructureStructure• Stock, debt, limited partnership, LLC, Stock, debt, limited partnership, LLC,

profit sharing, royalties, etc.profit sharing, royalties, etc.

Public vs. PrivatePublic vs. Private Public permits general solicitationPublic permits general solicitation

• advertising, internetadvertising, internet Big boy accounting firmBig boy accounting firm Big boy law firmBig boy law firm Costs $250 K +Costs $250 K +

Private can be done with less Private can be done with less expense and less delayexpense and less delay

Offering Types (US)Offering Types (US) 27K (58-13B-27K)27K (58-13B-27K) Reg D OfferingReg D Offering 27J27J Small Corporate Offering Registration Small Corporate Offering Registration

(SCOR)(SCOR)

27K27K Must be in-State corporation, limited Must be in-State corporation, limited

partnership or LLCpartnership or LLC No more than 25 investorsNo more than 25 investors No general solicitationNo general solicitation No limit on amount of fundsNo limit on amount of funds

Reg DReg D Federal regulation 17CFR230.501-Federal regulation 17CFR230.501-

508508 Need not be in-State companyNeed not be in-State company Unlimited number of “Accredited Unlimited number of “Accredited

Investors” & 35 non accreditedInvestors” & 35 non accredited No general solicitationNo general solicitation No limit on funds raisedNo limit on funds raised High costHigh cost

27J27J Must be in-State companyMust be in-State company No limit on number of investorsNo limit on number of investors Limit of $1.5 million raiseLimit of $1.5 million raise 80% must be used in-State80% must be used in-State General solicitation is acceptableGeneral solicitation is acceptable

SCORSCOR Registered securities offering for Registered securities offering for

small businesssmall business Need not be in-State companyNeed not be in-State company No limit on number of investorsNo limit on number of investors Limit of $1 million raisedLimit of $1 million raised General solicitation acceptableGeneral solicitation acceptable Filing and reviews are extensiveFiling and reviews are extensive

Funds and RORFunds and ROR

1 2 3 4 5 6

Bank Finance

Venture Lease

FactoringCorp. Partner

Angels

Venture

Company Development CycleCompany Development Cycle

Model Proto Demo Product Sales

Sweat Seed Cap Venture

ValuationValuation Valuation determines investors and Valuation determines investors and

cost of moneycost of money• Many methods of valuationMany methods of valuation• Finance amount/valuation =% company Finance amount/valuation =% company

sold to equity investorssold to equity investors• Valuation discussed AFTER investors buy Valuation discussed AFTER investors buy

the conceptthe concept

Components of a VentureComponents of a Venture Management & PeopleManagement & People Market size & potentialMarket size & potential Competitive AdvantageCompetitive Advantage TechnologyTechnology Finance requirementsFinance requirements Business Plan (realistic)Business Plan (realistic) WOW factorWOW factor

Telling a storyTelling a story Founder’s ability to sell investorsFounder’s ability to sell investors

• Comprehensive business planComprehensive business plan• Persuasive verbal presentationPersuasive verbal presentation

Tightly focused and TargetedTightly focused and Targeted It’s your responsibility to inform, not It’s your responsibility to inform, not

theirs to learntheirs to learn Business Planning forces thought & Business Planning forces thought &

direction, the real needdirection, the real need

Business PlanBusiness Plan Management TeamManagement Team

• Number of foundersNumber of founders• Key employee Equity holdingsKey employee Equity holdings• Balance of expertiseBalance of expertise

Marketing PlanMarketing Plan• The centerpiece of the saleThe centerpiece of the sale• Winning a contractWinning a contract

the definition of lifethe definition of life

Financial PerformanceFinancial Performance

Technical SuccessTechnical Success

• Potential applications and productsPotential applications and products• Technical innovationTechnical innovation• Technical development plansTechnical development plans• Manufacturing capabilityManufacturing capability• State of the art technologyState of the art technology• Status of intellectual propertyStatus of intellectual property• Access to technical expertsAccess to technical experts

Financial SuccessFinancial Success• Return on investmentReturn on investment• Expected Sales & RevenuesExpected Sales & Revenues• Profit margin (net)Profit margin (net)• Interested funding sourcesInterested funding sources• RisksRisks• Potential sales & revenuesPotential sales & revenues

Commercial SuccessCommercial Success

• Market size, potential & growthMarket size, potential & growth• Market entry, access & distributionMarket entry, access & distribution• CompetitionCompetition• RisksRisks• Strategic alliancesStrategic alliances• Management teamManagement team• Cost/performance advantageCost/performance advantage• Customer interest (Desire versus need)Customer interest (Desire versus need)• Time to marketTime to market

Who are youWho are you Track recordTrack record EthicalEthical

• no surprisesno surprises RealisticRealistic Expert TeamExpert Team

• 1. Marketing Expertise. . . . . . 1. Marketing Expertise. . . . . . Impossible to findImpossible to find• 2. Management expertise. . . . 2. Management expertise. . . . Hard to findHard to find• 3. Technical expertise . . . . . . 3. Technical expertise . . . . . . Hard to findHard to find

What you doWhat you do

Develop BusinessDevelop Business Develop marketing strategyDevelop marketing strategy Set direction according to the marketSet direction according to the market Design tech to the market need (no more)Design tech to the market need (no more) Execute the planExecute the plan ManageManage

• Management is getting things done through Management is getting things done through peoplepeople

Today’s WorldToday’s World

Business DevelopmentBusiness Development Competitive AdvantageCompetitive Advantage Market PullMarket Pull Systems IntegratedSystems Integrated InternationalInternational

You Must be well Funded In order to Succeed Where’s the Money.

Documents

Transcript of You Must be well Funded In order to Succeed Where’s the Money.

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