Raising Money in Small Companies November 11, 2004
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Raising Money in Small Raising Money in Small CompaniesCompanies
November 11, 2004November 11, 2004
Dale H. MunkDale H. Munk
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Raising Money in Small Raising Money in Small CompaniesCompanies
November 11, 2004November 11, 2004
One Man’s ViewOne Man’s View
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BackgroundBackground-Farmer from Southern Idaho-Married, Five Children-MBA from the Other School in Utah-Business Locations Boston, San Diego and Provo-Focused on Small to Medium Sized Companies /
Troubled
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MoneyMoney
-Almost All Businesses Need It
-You Need Much More than You Think
-Bad Things Happen if You Can’t Get It
-Survive or Capitalize on Opportunities
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Three Primary Three Primary Sources of FinancingSources of Financing
-Venture Capitalists
-Angel Investors
-Strategic Partners
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Three Primary Three Primary Sources of FinancingSources of Financing
-Venture Capitalists
-Angel Investors
-Strategic Partners
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Dramatic UpheavalDramatic Upheaval
-First Quarter, ’00 the Zeneth-$29 Bil
-Last Quarter-$5.9 Bil
-Last Quarter at-Q4, 1998 Levels
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Dramatic UpheavalDramatic Upheaval
-In Q1 2000, Invest in Any Crazy Idea
-Today, Better Have a Great Plan
-Startup Investments are Sparce
-Old Deals are on Life Support
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Vulture CapitalVulture Capital
-Waiting to Pick the Bones
-Greed and Fear-Mostly Greed
-Demand 50%-70% of the Company
-Ruthless with Management
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A Kinder, Gentler A Kinder, Gentler ViewView
-Providing Fuel for Ideas
-Facilitate the Advancement of Technology
-Take Big Risks / Should Get Big Rewards
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Vulture Capital ScenarioVulture Capital ScenarioLocal Current ExampleLocal Current Example
-Three Founders Raied $2 Mil from Friends and Family
-Worked Like Dogs for Eight Years
-Suffered
-Went to VCs for Rescue
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Vulture Capital ScenarioVulture Capital ScenarioLocal Current ExampleLocal Current Example
-Took 60%, 25% and 25% in Three rounds
-Founders Now Hold 1.2% But are at the Bottom of the
Waterfall. Will Get Nothing
-Lost Their Jobs to Boot
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Qualify for Venture CapitalQualify for Venture CapitalIf You HaveIf You Have
-A Credible Management Team
-A Large Market
-A Great Idea With a Great Bus Plan
-A Credible Exit Strategy
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Qualify for Venture CapitalQualify for Venture CapitalIf You HaveIf You Have
-Ability to Provide 5-10 X Investment
-Over 3-5 Years
-Implying Ability to Create $50-100 Mil Valuation
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How They Think?How They Think?
-Philosophy of 3 of 10 is Good Enough
-A Few Losers, A Few Winners, A few Marginal
-Parametric Technologies
-It is About Managing Risk
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Managing RiskManaging Risk
-Take Controlling Position (50%-70%)
-Invest in Seasoned Management
-Conduct Extensive Due Diligence
-Invest Small Amounts in Many Deals
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Managing RiskManaging Risk
-Insist on Preferred Stock, Liquidation Preferences, Anti-Dilution
Provisions and Dividends
-Require Board Seats
-Seek Veto Power on Major Decisions
-Get in Your face
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Where Do They Get Their Where Do They Get Their Money?Money?
-Wealthy Individuals
-Insurance Companies
-Pension Funds
-Other VC Funds
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Venture CapitalVenture Capital
-About 700 (1300) in the US
-Industry Preference
-Geographic Preference
-Round / Class Preference
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Venture CapitalVenture Capital
Questions?
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Three Primary Three Primary Sources of FinancingSources of Financing
-Venture Capitalists
-Angel Investors
-Strategic Partners
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AngelsAngels
-Wealthy Individuals
-Diversifying Their Own Portfolios
-Usually Not Part of Organized Group
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AngelsAngels
-More Hands Off than VCs
-Less Sophisticated Risk Evaluation
-Move More Quickly
-Easier to Control
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AngelsAngels
-Pay Higher Price
-Willing to Do Seed
-Invest Smaller Amounts
-Less Staying Power
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AngelsAngels
Questions?
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Three Primary Three Primary Sources of FinancingSources of Financing
-Venture Capitalists
-Angel Investors
-Strategic Partners
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Strategic PartnersStrategic Partners
-Investments Leverage Their Own Business Initiatives
-ROI Not Measured by Money on Money
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Strategic PartnersStrategic Partners
-Cost of the Money is Lowest
-Other Benefits: Validation, Testing, Marketing Help, Rollout
-In Your Face for All the Right Reasons
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Strategic PartnersStrategic Partners
Questions?
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Keys to Raising MoneyKeys to Raising Money-Assemble a Good Management Team
-Pursue a Good Idea / Test, Validate, Study it Out
-Quadruple Best Cash Needs Estimates
-Be Persistent-Hang In There
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Raising Money in Small Raising Money in Small CompaniesCompanies
March 2, 2004March 2, 2004
QuestionsQuestions