Where to get money?

Riga, 15 December 2012

About Capitalia

• Capitalia is a leading investment and financial

advisory company in the Baltic States,

specializing in working with small and medium

sized businesses.

• Largest non-bank micro lender in the Baltic

States, venture capital and mezzanine investment

manager.

• With offices in Latvia, Lithuania and Estonia,

employs 10 investment and finance specialists.

• Financially supported more than 200 companies

with total managed loan and venture capital

investment of over LVL 10 millions.

• Market-leading experience mergers and

acquisitions, valuation and financial advisory to

small and medium sized businesses.

RIGA

VILNIUS

TALLINN

CAPITALIA OFFICES

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Sources of financing

idea start-up early growth growth mature

founders, friends, family

and grants

venture capital funds

public markets,

commercial banks

private investors/

business angels, seed funds

alternative loans

(mezzanine)

company

stage

sources of

financing

3

Risk and return decreases with maturity

idea start-up early growth growth mature

founders, friends, family

and grants

venture capital funds

public markets,

commercial banks

private investors/

business angels, seed funds

alternative loans

(mezzanine)

30-100%

20-50%

15-30%

0-∞

10-20% or less

4

Founders, friends, family

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Grants

• Grants are like subsidies – ‘free’ money, but you have to meet their criteria

• Altum (Hipotēku banka), subsidized loans for start-ups | altum.lv

– loan up to LVL 54’000, with grant up to LVL 5’600

• Nodarbinātības Valsts Aģentūra, funding for unemployed | nva.gov.lv

– LVL 2’000 + 6 month salary

• Lauku Atbalsta Dienests, funding for agriculture and similar | lad.gov.lv

– various grants depending on type of business

• Atsperiens, funding program by Riga Council and Swedbank | riga.lv

– up to LVL 8’000

• Ideju Kauss, business plan competition | idejukauss.lv

– prize fund LVL 10’000

• Investment and Development Agency of Latvia, various grants | liaa.gov.lv

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Grants (2)

• Business incubators typically provide subsidized space and services, and

non-monetary benefits (networking, advice)

– University business incubators, technology transfer centers

– Creative Andrejsala, in Riga | creativeandrejsala.lv

– TechHub, in Riga | techhub.lv

– MADARA inkubators, in Riga | madaracosmetics.lv

– Rīgas reģiona biznesa attīstības inkubators, in Ogre, Limbaži, Tukums | rrbai.lv

– Jelgavas Biznesa Inkubators, in Jelgava, Jēkabpils, Aizkraukle, Dobele | jic.lv

– Mangus, in Cēsis, Madona, Lielvārde | magnus.lv

– Valmieras Biznesa un inovāciju inkubators, in Valmiera and Gulbene | vbii.lv

– Rēzeknes biznesa inkubators, in Rēzekne, Daugavpils, Balvi, Preiļi |

idejuviesnica.lv

– Līvānu Inženiertehnoloģiju un inovāciju centrs, in Līvāni | liic.lv

– Kurzemes Biznesa Inkubators, in Liepāja, Kuldīga, Saldus | kbi.lv

– Ventspils Augsto tehnoloģiju parks, in Ventspils and Talsi | vatp.lv

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Private investors / business angels

• Business angels are generally wealthy individuals with business experience

• Invest for shares in company, often offer hands-on help

• Usually flexible on exit horizon

• Pardodbiznesu.lv, the largest website for attracting investments and selling

companies | pardodbiznesu.lv

• Connect Latvia, connecting entrepreneurs and investors | connectlatvia.lv

• Seed Forum, connecting entrepreneurs and investors | seedforum.org/latvia

• Latvijas Privāto Investoru Asociācija, business angel network |

biznesaengeli.lv

• Industry experts and successful entrepreneurs

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Seed funds

• Invest in early stage companies, for finalizing prototypes and starting

business activities

• Take shares in the company

• Often anticipate further investment rounds

• Imprimatur Capital Seed Fund (up to EUR 100’000) | icfm.lv

• New funds about to be established via Latvian Guarantee Agency | lga.lv

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Venture capital

• Invest in start-up and expansion stage companies

• Take shares in the company, often more complex structures

• 4-6 year exit horizon

• Imprimatur Capital Technology Venture Fund (up to EUR 1 mil) | icfm.lv

• BaltCap Latvia Venture Capital Fund (up to EUR 3 mil) | baltcap.com

• AB.LV Private Equity Fund 2010 | ab.lv

• Noninstitutionalized venture capital:

– Capitalia | capitalia.lv

– ZGI Capital | zgi.lv

– Eko Investors | ekoinvestors.lv

• New funds about to be established via Latvian Guarantee Agency | lga.lv

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Other useful contacts

• REA Mentoru klubs, network of business mentors | mentoruklubs.lv

• Līdere, network of business mentors | lidere.lv

• Jauno Uzņēmēju Centrs, free business consultations | jaunaisuznemejs.lv

• Startup Sauna, tech project accelerator | startupsauna.com

• Garage48, tech project ‘hackathon’| garage48.org

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What do start-up investors look for

• Team

– Core team is complete and meets the needs of the business

– Team has prior experience in the field

– Personality chemistry factor

– Team works philosophies that investor encourages (ethics, diligence, frugality)

• Product and business operations

– Product/service and business model is understandable

– Business is scalable

– Ability to pivot

– Competitive advantage is clear and hard to replicate

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What do start-up investors look for (2)

• Market

– Market is significantly sizable to allow for growth potential

– Competitive environment is favourable

• Finances

– Investment is enough to reach important milestones

– Potential return compensates for risk

– Clear exit strategy

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How to prepare for attracting investor

• Meeting with investor is like a job interview

• “Elevator pitch” – 2 to 3 sentences of what you (plan to) do and how, what is

the market, how you make money

• 2 page maximum for a written pitch

• Business plan is not necessarily written, but definitely thought through

(note: business plan is usually a requirement for grants or funds)

• Financial forecasts – better “rough” than too detailed, but key cost drivers

known

• Investment amount should be fixed

• Investor share % to be discussed (but have an idea)

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Investor share

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Investment of LVL 100’000 for

25% share means ..

.. your 75% share is worth

LVL 300’000

What NOT to do

• Inability to easily explain your start-up in 2-3 sentences

• “no competition”, “no risks”, “we need just 1% of China market” etc.

• Fear of investor involvement

• Fear of stealing ideas

• Too much technical detail

• Spending money unnecessary

• Hockey sticks in forecasts

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Hockey stick

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Hockey stick

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Agreements with investors

• Simplest form – articles of association

• Additional terms in shareholder or investment agreement, e.g.:

– Corporate Governance - shareholder meetings, voting rights, decision making,

board membership etc.

– Exit of investment or sale by owner

– Non-compete clauses

– Options and other instruments for motivation

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Igaunija

Viru väljak 2

Tallinn, EE10111

T: +372 663 1153

Contacts

Latvija

Kr.Barona 13/15-51

Rīga, LV-1011

T: +371 2880 0880

Lietuva

Didžioji gatvė 11-16

Vilnius, 01128, Lietuva

T: +370 6700 7061

Ģirts Tihomirovs

Investment Director

T: +371 2648 0478

E: girts@capitalia.lv