Kurt's Class Presentation 3

8/7/2019 Kurt's Class Presentation 3

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Funding Sources and Business Plans

Identify the funding audience What is your ask? If you are asking for 10 Million,

your plan must support it. If you are asking for250k, your plan must support it, PLUS follow on.

Match the investor. Dont ask a VC for 20k.

Identify the goal of the business plan Is the goal to solicit a partner? Investment?

Strategic Alliance?

Is it a feasibility plan or a business plan? Presentation is the same, the data change.


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Important Data

1/40 Startups get Angel Funding

1/400 Startups get VC Funding

The market reward better or worse, not good

or bad.


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Common Map for Investors andFounders


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Avoid the Frustration!Right Funding Mechanism, Right Time

VC Huge Market IP Serial Entrepreneur Customers

If you do not havethese, you willprobably not get

fundedand mayspend years to findout that you targetedthe wrongmechanism

Micro Loan Funds Building the company Pilot project May have IP

A feasibility plan mightbe sufficient to apply


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Types of Funding

Non-DilutiveLoans and Grants, not

selling a stake in thecompany

Friends and Family Credit Card

SBIR

DilutiveMaking less

concentrated Angel

Venture Capital


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Non-Dilutive Funding

SavingsCredit Cards

Home Equity

Family and Friends

Grants SBIR/STTR

Business Plancompletion

Business AcceleratorsBanks

Commercial/Traditional

Private Banks

SBA Credit Unions

Leasing Companies

Customers

(Bootstrapping)


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Bootstrapping (Customers)

50% of companies that are denied by the PSFget denied due to lack of Market or Customerdata.

-SourceSteven

Blank


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Who can help

Biotechnology Business ConsultantsLisa or Andrea803 N. Main St.Ann Arbor, MI [email protected]: 734-930-9741Fax: 734-930-6629Website: http://www.bioconsultants.com

Michigan Small Business & Technology Development CenterMI-SBTDC State HeadquartersTechnology Business Resource Consultant510 West Fulton Street

Grand Rapids, MI [email protected]
mailto:[email protected]://www.bioconsultants.com/mailto:[email protected]:[email protected]://www.bioconsultants.com/mailto:[email protected]


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Micro Loan Funds

FIRST STEP FUND

$10 - $50 thousand dollar loansPromissory and Convertible Notes with warrantsPersonal guaranteeInnovative companies in Detroit metroFunding from New Economy InitiativeSubmission:

10 page business planMulti-year financial projections, including currentbalance sheet

Bios of founder(s) and management team


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Micro Loan Funds

Ann Arbor Micro Enterprise fund (Spark)

Justifiable Incremental loan amount ($2, 000 to$10,000)-focused on milestones

Reside in Ann Arbor or surrounding communityPromissory and Convertible Notes with warrantsSubmission:Feasibility plan

Advisor and match from community businessowner

Multi-year financial projections, including currentbalance sheet


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. .ww hennesseycap com

Private Banks

Factoring is the sale of accounts receivable or invoices at a discountto a factor to obtain immediate cash.

Asset-based lending is a credit line based on various asset classessuch as accounts receivable, inventory, equipment or real estate.Asset-based lending is often viewed as a stepping stone totraditional bank financing, with loans focused on the value of theasset and not solely on a company's cash flow.

Higher Interest Rates

No Equity

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http://www.hennesseycap.com/http://www.hennesseycap.com/http://www.capitalfundingfinancial.com/http://www.capitalfundingfinancial.com/http://www.capitalfundingfinancial.com/http://www.hennesseycap.com/


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Leasing

Sale Lease BackPull Equity out of Equipment You ALREADY

OWN!!

If you have purchased equipment within the last90 days, you can still apply to finance it andkeep the working capital in your business.

Leasing as a Sales Tool Market Your Products to End Users Get Money Up Front Simple Process No Cost to YOU! Shortens Sale Cycle

The Wilson Group
http://www.the-wilson-group-llc.com/http://www.the-wilson-group-llc.com/http://www.the-wilson-group-llc.com/


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Equity

Equity is ownership in a business in theform of capital stock

Two kinds of capital stock: Common and Preferred

Basic right: vote to elect the governing board Preferred stock has greater (more) rights than common

Get paid first upon liquidation Board Seat

Founders get common stock, investors usuallyget preferred stock

Wh h h b i i i


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What happens when you bring in equityinvestors?

Impact to current equity stakeholders:

Dilution

Changes in governance

Potentially new management

Capital to accelerate development

Access to broader network

Added business insight


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Forms of Business Organization

All businesses must adopt some legal configuration that defines the rights andliabilities of participants in the business ownership, control, personal liability,life span, and financial structure. This decision will have long-termimplications, so you want to consult with an accountant and attorney to helpyou select the form of ownership that is right for you. In making a choice,you will want to take into account the following:

Your vision regarding the size and nature of your business. The level of control you wish to have.

The level of structure you are willing to deal with.

The businesss vulnerability to lawsuits.

Tax implications of the different organizational structures.

Expected profit (or loss) of the business.

Whether or not you need to re-invest earnings into the business.

Your need for access to cash from the business for yourself.

Four basic legal forms of organization:Sole Proprietorship; Partnerships; Corporations; Limited Liability

Company


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Organization Types

SoleProprietorship

GeneralPartnership

Limited LiabilityPartnership1

LimitedLiabilityCompany

S Corporation C Corporation

Life Limited to life ofproprietor. Can sell orgift assets to another

person.

Generally set up for aspecific agreed term;usually will beterminated by death,withdrawal,insolvency, or legaldisability of a general

partner

Generally set up for aspecific agreed term;usually will beterminated by death,withdrawal, insolvency,or legal disability of ageneral partner

A dissolve datemust be stated atfiling

Perpetual life Perpetual life

Legal Liability Unlimited Unlimited Limited Limited Limited Limited

Acquisition ofCapital

Limited to whatproprietor can raise

Limited to partnercontributions


Limited to membercontributions

Limited in that there canonly be one class of stockoutstanding, but thecorporation could sell

bonds or more stock solong as that would not beconsidered a second classof stock

May sell stock orbonds to the public

Management All decisions byproprietor

Usually all generalpartners are active

Governed by thepartnership agreement

Usually managedby members, butcan have separatemanagers.

Much flexibility. Controlusually exercised byofficers and directors.

Much flexibility.Control usuallyexercised by officersand directors.

Kauffman Foundation forEntrepreneurship

. .www kauffman org


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Organization Types

SoleProprietorship

GeneralPartnership

Limited LiabilityPartnership1

LimitedLiabilityCompany

S Corporation C Corporation

Life Limited to life ofproprietor. Can sell orgift assets to another

person.

Generally set up for aspecific agreed term;usually will beterminated by death,withdrawal,insolvency, or legaldisability of a general

partner

Generally set up for aspecific agreed term;usually will beterminated by death,withdrawal, insolvency,or legal disability of ageneral partner

A dissolve datemust be stated atfiling

Perpetual life Perpetual life

Legal Liability Unlimited Unlimited Limited Limited Limited Limited

Acquisition ofCapital

Limited to whatproprietor can raise



Limited to membercontributions

Limited in that there canonly be one class of stockoutstanding, but thecorporation could sell

bonds or more stock solong as that would not beconsidered a second classof stock

May sell stock orbonds to the public

Management All decisions byproprietor

Usually all generalpartners are active

Governed by thepartnership agreement

Usually managedby members, butcan have separatemanagers.

Much flexibility. Controlusually exercised byofficers and directors.

Much flexibility.Control usuallyexercised by officersand directors.

Kauffman Foundation forEntrepreneurship

. .www kauffman org


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Angels and Venture Capitalists

Angels

High Net Worth Individuals

$25,000 to $2,000,000investmentsPersonal money

Reasonable returnGive back to society

Stay engaged in industryMentor/SocialPersonal satisfaction

Venture Capitalists

Partnerships

$1 to 20 million investments

Other peoples money

HIGH Return on Investment(ROI)

Its a business


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Valuation

,al ua ti o n i s an A rt n o t a S c ie nc e,a l u a t i on i s an Ar t no t a S ci e n c e

ased on required Return of Capital or IRRarket conditions

ultiplesalesEBITDA

ash Flowook Value

ecent Competitor Acquisition Price


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Pre- and Post- Money

What is the company worth today? Pre-Money

What is the company worth after aninvestment? Post-Money

Pre-Money Investment Post-Money

IP, Product,Mgt

Cash Valuation

$1,000,000 $500,000 $1,500,000

100%ownership

66.66%ownership


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What to look for in an investor?

Market or industry focus and experienceAmount of money that they will typically invest

What stage of business do they invest in

(Homework beforehand) Whatrestrictions/requirements do they have towork on

Their successes (easily found online) are an

indicator of investment profile


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What investors look for in companies?

A reasonable ROIA serial entrepreneur

Customer or market data

Finances, finances and financesThey listen to each other, when you talk to

one, you talk to all

At the end of DD, then they bet on the Jockey,

but the horse gets you to the race track.


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Wrapping up

We have discussed sources of funding andstages of business growth

We have discussed pitfalls to avoid

We dispelled the myth that there are no gooddeals/funding

It is time to put the lessons to action Where do you get funding? It depends.


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Figuring Out Your Capital Requirements

Step #1 Financially model your business (5-yearprojections)

Step #2 Take very conservative scenario, andcalculate the

cumulative negative cash flow = your totalcapital requirements

Step #3 Break down total capital requirementsinto logical

rounds/tranches (timing and $ amounts), with

milestones for each

Cash Flow $0 Time

Cumulative negative cashflow= total capital requirements+

--Break even point

- ,Copyright 2003 2006

CompanyCrafters LLC


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Case Study


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Who are these guys?


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These guys?


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This?


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And this?


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Who is this?


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Funding Exercise

Bootstrapping Identify who has

provided feedbackon your product orservice

Describe userexperience (w/oproduct)

Day in the life of buyer(w/o product)

Process they wouldneed to go throughto buy and benefitfrom your product

Funding Sources FFF

The Market (See )

Business PlanCompetitions

Grants

Loans

Equity Investors

Identify Milestones to

Funding

Kurt's Class Presentation 3

Documents

Transcript of Kurt's Class Presentation 3