How to Attract and Convince Investors (2014)

How to A'ract Investors, then Convince Them You're

Not A Loser.

(WORLD PREMIERE)

Erling Løken Andersen MESH + Omega Media + Listnerd, Inc.

Who am I? •  Erling Løken Andersen •  Web Designer since 1999, Internet Entrepreneur from 2005.

•  Started Biip.no in 2005, sold it for 75 mill. NOK to Egmont and TV2 in 2008.

What have I raised? Project Funds raised (approx.) Investors •  Biip.no AS 2m NOK 3 private, 1 company •  Spill.no 1.5m NOK 2 companies •  Gul Index AS 2.5m NOK 6 private •  Mobia AS 300k NOK 1 private •  Listnerd, Inc. 2m NOK 4 private, 1 company

–  Incubator: TINC by InnovaUon Norway –  Accelerator: Plug & Play Tech Camp by Plug & Play Ventures

•  Various other projects 1m+ NOK 4 private, 2 companies

Where are we? •  MESH – Oslo's premiere

innovaUon hub

•  150 entrepreneurs, 90 companies, 25 naUonaliUes

•  Founded by Audun Ueland and Anders Hordvei Mjåset in 2012

•  Offers private office spaces and coworking memberships starUng from just 1.190 kr / month.

Goal of this presentaSon 1.  Give you the tools to successfully raise funding for your

project.

2.  Professionalize Norway's entrepreneurial scene.

Tweet this!

At @meshnorway listening to @stormen

blahblahblah #siliconXord

What types of investors exist?

Private investors • Financial • Angels • Friends, fools and family (FFF)

• (Crowdfunding)

Company investors • Financial • Industrial • Accelerators

Government grants • Grants • Loans • Incubators

Own funds • Savings • Loans

Private investors Financial Looking for financial

gain. Treats the investment in a economic majer. Invests in almost any niche, as long as the opportunity is good. Not easily swayed by emoUons.

Angels Semi-‐professional

investors. Olen invests with "their gut". Tends to invest in their professional niche.

Friend

s, Foo

ls & Fam

ily

Usually not professional. Ruled by emoUon and trust. Comes with both benefits and disadvantages.

Company investors Financial Looking for financial

gain. Treats the investment in a economic majer. Includes investment companies and VC's.

Strategic / Ind

ustrial Players in a certain

niché. Olen does defensive investments. Think Facebook buying Instagram; or Electronic Arts buying Playfish in Trondheim.

Accelerators

Takes a small stake; gives you a small investment. Looking for long-‐term financial gain. Makes a lot of bets; only some of these are successful. Prepared for you to fail; but pleasantly surprised if you make it.

Nordic VC's

How do VC's work?

LP VC fund

Startup A

Startup B

Startup C

Startup D

Startup E

VC

Government grants Grants

Lots of different types of grants. Norway has stuff like Skajefunn, IFU and Etablererstøje. EU also has lots of grants; olen niché-‐specific.

Loans InnovaUon Norway,

Forskningsrådet and other governmental agencies can issue project-‐ and/or companyspecific loans.

Incubators

Doesn't take a stake in the company. Olen comes with an entrance fee. Their goal is to accelerate companies in the desired poliUcal niché.

QuesSons?

What do you need to begin?, vol. 1

Idea + Company

Business plan + budget forecast

13 slide pitch deck

Start pitching the right people

What do you need to begin?, vol. 2

Source: Pitching Hacks by Venturehacks.com

What do investors look for? •  Not neccessarily a good idea, but a good business opportunity. •  There are lots of bad ideas out there, with brilliant execuUon and massive

profits. •  What's Skeidars differenUator? Nothing, it's just well run. •  Investors look for return on their money and the highest possible certainty

of success. The chance of success in the execuUon of the idea is strengthed by a good team.

"For investors, the product is nothing."

-‐ Marc Hedlund

"It's less about the idea, more about the team behind it. Thinking outside the box is not difficult. Implemen>ng outside the box, on the other hand, is what will make or

break an idea."

-‐ Northzone.com

High-‐concept pitch.

"Summarize the company’s business on the back of a business card."

-‐ Sequoia Capital

Some examples

•  “Friendster for dogs.” •  “Tinder for Shoes.” •  “Youtube for music.” •  “Flickr for video.” •  “We network networks.” •  “The Firefox of media players.” •  “Massively MulUplayer Online Learning.” •  “The entrepreneurs behind the entrepreneurs.” •  “Create your own social network.”

QuesSons?

The Pitch Deck.

The 13 slide pitch

•  First introduced by David Rose.

•  I was taught it by Nathan Gold (www.democoach.com) based in San Mateo.

•  A simple framework for pitching to investors.

•  Many investors in Silicon Valley prefer and insist on this standarized pitch framework.

The 13 slide pitch

1.  Company logo & Opening 2.  The Problem (Business Overview) 3.  Team 4.  The Market / Market Opportunity 5.  The SoluUon (Product) 6.  Business Model 7.  Strategic RelaUonships (and customers) 8.  CompeUUon 9.  Barriers to Entry / USP 10.  (TracUon) 11.  Financial Overview 12.  Use of Proceeds 13.  Capital Request 14.  Contact info & Close

"Prac>ce makes perfect beFer: Pitch from day one. The more people you pitch your idea to, the sharper your thinking will be."

-‐ Northzone.com

AIRBNB FOR STARTUPS

Erling Løken Andersen Head of Coworking & Partner RelaUons

1 / 14

The Problem

•  Offices in Oslo are expensive.

•  They olen require 12, 24 or 36 month contracts.

•  You have to pay large up-‐front fees and guarantees.

•  Startups have lijle capital; and the lijle capital they have they don't want to Ue up.

2 / 14

Team

Erling Løken Andersen Head of Coworking & Partner Rela>ons Co-‐founded Biip.no in 2005; exit of 75m NOK in 2008.

Anders Hordvei Mjåseth CEO and Founder of MESH Co-‐founded PramPack; exit of millions to Stokke in 2010.

3 / 14

The Market

21 000 000 000

1 680 000 000

Yearly rental cost

Total commercial office space in Oslo

Office space currently in use by startups

4 / 14

•  104.000 registered businesses in Oslo and Akershus.

•  7.280 (7%) of these moves to a new office every year.

•  An esUmated 50% of these (3.640) aligns with MESH's target audience.

The SoluSon

•  MESH is a 2500 sq. m. innovaUon hub in downtown Oslo.

•  MESH houses more than 150 entrepreneurs in more than 90 companies.

•  MESH consists of a coworking department, 14 individual offices, an event space, a night club and a café.

•  At MESH, entrepreneurs gets cheap office space combined with a creaUve environment.

5 / 14

Business model

•  Coworking membership fees 20% –  Average membership fee: 2.000 NOK –  Average lifespan of member: 6 months –  Average lifeUme value of member: 12.000 NOK

•  Private office rentals 15%

•  Revenue from the eventspace and nightclub 50%

•  Corporate sponsors 8%

•  Government grants 7%

6 / 14

Strategic partnerships

7 / 14

CompeSSon

Name Niché Est. yearly revenue Profit •  Regus Norge AS Corporate 55m NOK 9,5m NOK •  MESH Startup + events 15m NOK 1,0m NOK •  Workhouse Startup 5m NOK 1,0m NOK •  Startup Lab Corporate + startup 5m NOK 0,5m NOK •  657 Norge Startup 3m NOK 0,5m NOK •  Gründernes Hus Startup 2m NOK 0m NOK

We expect that low-‐end real estate market catering specifically to startups will to conUnue to grow and that several new compeUtors will emerge in the next 3-‐5 years.

8 / 14

Barriers to Entry & Our USP

•  Difficulity finding suitable office space in downtown Oslo.

•  Labour-‐intensive startup period.

•  Difficult differenUaUon strategy; MESH has established itself as "the" innovaUon hub in Oslo.

•  Low price point for startup offices with few profitable players; only MESH is backed by night club, event space and café revenue.

9 / 14

TracSon

Featured on:

10 / 14

Financial Overview

2014 2015 2016 2017 2018

Income 15m 20m 25m 30m 40m

Expenses 14m 16m 19m 25m 32m

Profits 1,0m 4,0m 6,0m 5,0m 8,0m

11 / 14

Use of Proceeds

•  MarkeUng 1m NOK •  New hires and staff improvements 0.5m NOK •  AcquisUon of compeUtors 0.5m NOK •  Free cash pool 0.5m NOK

•  TOTAL 2.5m NOK

12 / 14

Capital request Pre-‐funding •  Funds from founders •  Establishment of the MESH house,

contracts, hires, etc.

2,0m NOK

Seed Round •  On-‐going, gives 24 month runway. •  Equity to grow the MESH house and

increase reach.

2,5m NOK

Series A Round •  Further development of the company and

brand, with possible exit to established market player.

5,0m NOK

13 / 14

AIRBNB FOR STARTUPS Erling Løken Andersen Head of Coworking & Partner RelaUons Mobil: (+47) 943 28 901 Email: [email protected]

14 / 14

Typical investment run

MVP financed by Founders

Seed Round 50 -‐ 500k USD

Series A 1 -‐ 3m USD

Series B, C and D 5m+ USD

How do I price my new idea/company?

•  Impossible to answer, but:

•  Setup a budget for the next 3 years.

•  MulUply your profit in year 2 or 3 with 8 -‐ 15x, and use that as an esUmated market cap (valuaUon) for 100% of the stocks in the seed phase of your company.

•  If you're selling 20%, the investor should pay 20% of the total valuaUon.

•  In the end, your idea or company is worth whatever somebody is willing to pay.

Venture Funding Hacks: Get tracSon before launching

•  Dropbox made a 3 minute video explaining the concept.

•  No product launched.

•  WaiUng list of 5.000 people went up to 75.000 people.

•  Funding of $1.2m USD shortly aler; then they built the product.

•  Recently raised $350m USD in their Series C; then $500m in Debt Financing.

Venture Funding Hacks: Establish an Advisory Board

•  An Advisory Board "social-‐proofs" your company and team.

•  It establishes trust, lezng investors know that other entrepreneurs and investors "vouches" for your company. Your Advisory Board can also open doors, market access and contribute to networking.

•  Advisors are typically compensated with stock opUons, ranging from 0,1-‐1%, depending on their profile (plus travel expenses to meeUngs and similar). 2-‐4 years vesUng is also normal.

Venture Funding Hacks: Go for strategic/industrial investors

•  Gezng money from the "big players" in the same niche as you is usually easier than gezng money from VC's.

•  Same-‐niche players understands the game you're in and can do defensive investments.

•  Pro-‐Up: Look for the biggest players in your niche. They might be very interested in a small stake in a company that represents "the future" of their own niche.

•  Some companies have even set up own vechicles for these kind of investments.

Venture Funding Hacks:

Do not ask for money ...or wait as long as possible.

QuesSons?

Accelerators

What are incubators and accelerators?

Plug And Play (accelerator) •  4% stake in company •  $20k USD investment (mcap of $500k USD) •  Free offices for 3 months •  Free mentoring and networking •  "Demo day" at the end (200+ investors present) •  Goal: Accelerate company and earn P&P money

TiNC (incubator) •  0% stake in company •  Roughly 60.000 NOK cost for parUcipants •  Free offices and living space in USA for 2 months •  Free mentoring and networking •  "Demo day" at the end (50+ investors present) •  Goal: Accelerate company in desired poliUcal niché

(Norwegian tech company)

Demoday

How does accelerators work?

Value of successful company

Company X

P&P invests in 100+ companies with relaUvely low valuaUon, but with high risk per company

Risk is miUgated through diversified investments; only 1 has to "take off" to jusUfy the other investments

Exit of $1b USD

The math behind accelerators •  100 investments x $40.000 USD = $4m USD •  100 investments with

4% ownership stake

•  90 of the companies fail = $0 USD value

•  9 of the companies goes okay: 9 x ($10m USD x 4%) = $3.6m USD

•  1 of the companies goes extremely well: $1b USD x 4% = $40m USD in value

Some P&P companies

The Approach

"VCs are generally bombarded by requests for mee>ngs, so a warm introduc>on helps an entrepreneur’s request float to the top

of the list."

-‐ Chris Wand

How do I approach investors?

•  Financial investors like VCs and prominent angels are pitched 100 Umes per day.

•  They will not answer. They will not return calls. They will not see your presentaUon.

•  Do not cold-‐call investors. It won't work.

•  Use your connecUons. Hustle. Network. Ask people for introducUons and recommendaUons.

•  Setup an Angellist profile. Send your pitch deck to your business partners. Talk with your friends. If you haven't got any well connected friends, get new ones.

•  Why should an angel use Ume on a presentaUon from a stranger, when his friend wants to show him "a really fantasUc product with a great team behind it"?

Investor profiles

•  Different VC's invest in different categories.

•  Check their website to make sure that your product is in the space they're operaUng in.

•  It's terribly unprofessional to approach an e-‐health focused VC with (for example) a social media product.

Do's: •  Setup an Angellist profile •  Make a great pitch deck •  Use your network •  Go to tech and network events •  Go to events related to your product •  If you believe in your product, ask for

money from your friends, fools and family. If you succeed, they'll become rich. If you fail and they get mad, they were never your true friends.

•  If a potenUal investor says "no", ask them who they would talk to next. Perhaps they have a friend interested in invesUng in the space?

Approaching – Do's and Dont's:

Don'ts: •  Don't cold call; it's a waste of

everybody's Ume. •  Don't start approaching investors

unUl you have a company; it's unprofessional.

•  Don't assume you have a brilliant idea – there are a million of them. ExecuUon is everything.

•  Don't badger people – if they say no, ask them if you can contact them when you're doing your Series A.

•  Don't approach investors outside of their investment profile (check their homepage!)

The Perfect Pitch Mail

Subject: Introducing Ning to Blue Shirt Capital Hi Steve, Thanks for offering to introduce us to Blue Shirt Capital. I've ajached a short presentaUon about our company, Ning. Briefly, Ning lets you create your own social network for anything. For free. In 2 minutes. It's as easy as starUng a blog. Try it at: hjp://ning.com We built Ning to unlock the great ideas from people all over the world who want to use this amazing medium in their lives. We have over 115,000 user-‐created networks, and our page views are growing 10% per week. We previously raised $44M from Legg Mason and others, including myself. Before Ning, I started Netscape (acquired by AOL for $4.2B) and Opsware (acquired by HP for $1.6B). Blue Shirt’s investments in companies like Extensive Enterprises tell me that they could be a great partner for Ning. We're starUng meeUngs with investors next week, and I would love to show Blue Shirt what we're building at Ning. Best, Marc Andreessen [email protected] / 415.555.1212

In summary:

Idea + Company

Business plan + budget forecast

13 slide pitch deck

Start pitching the right people

Erling Løken Andersen

Add me:

Erling Løken Andersen

@stormen

How to Attract and Convince Investors (2014)

Small Business & Entrepreneurship

Transcript of How to Attract and Convince Investors (2014)