Towards the Future of Innovations & StartUps
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Transcript of Towards the Future of Innovations & StartUps
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Agenda
What are the financing options?
How to attract and engage investors?
Deal structure and what to expect during the investment process
Innovators & Innovators
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InnovaHub
Innovator’s Ranks
Individuals that inspire through their wishes
innovation
Professionals that utilize their skills and knowledge to propose innovative solutions for a prize.
Inventors or innovators that seek to to sell,
license, or fund their inventions.
Entrepreneurs, organizations, and investors that are looking
for new ideas, solutions, or inventions.
Seeders
Solvers Seekers
Sellers
© 2013 Alexander M Orlando , DBA
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InnovaHub
Innovators’ Style
Seeders
Solvers Seekers
Sellers
© 2013 Alexander M Orlando, DBA
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InnovaHub
Innovator’s Score
Calculate your innovators score on www.innovahub.com
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A big undertaking
• Starting a business is a big commitment– Energy & Passion– Time– Financial resources (yours and your investors)
• Before thinking of financing, is worth taking a deep breath …
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Key questions about you
• Why am doing this– Make money– Lifestyle– “Change the world”
• How long do you want to commit?• What level of financial risk are you prepared
to take?
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Key questions about the business
• Be honest with yourself about the risks / unknowns– Do customers want the product / service?– Do you have the competence to build the product
and the team– Can you monetise the product / service?– How competitive is / will the space be?– How big can the overall market become?
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your idea…
question
can you do an elevator pitch?
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and an audience…
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45 Seconds!! YES 45.
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Introduction 10 sec
Problem Solved 15 sec
Your Vision 10 sec
Requirements 10 sec
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IMPOSSIBLE?
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3 keywords
describeyour idea
to
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picture your idea
an effective elevator pitch is illustrative and tangible.
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your pitch should be clearrather than being filled with …
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be concise
An effective elevator pitch containsas few words as possible and does not go into
too much unnecessary detail.
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keep your eyes shut while someone reads your text out loud and
videotape your presentation
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Overview of financing options
Angel Financing
Venture Capital
Private Equity
PublicStock Markets
Self Finance / Bootstrapping
Debt / Bank Finance
Equity FinancingNon-Equity Financing
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Self financing / bootstrapping• Financing growth from previous cashflow and personal funds• Obviously need to have cashflows…• Most good bootstrapped companies emerge from a service or consulting
companies that are productising their offering• Pros
– Bootstrapped companies almost always spend cash more effectively than equity financed companies
– Already being close to existing customers, give excellent ability to understand problems and define good solutions
• Cons– Resources for product and market dev constrained by cashflows– May miss a big opportunity if other players raise finance and invest heavily
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Debt / bank finance
• Relatively limited funds will be available ; likely to want security anyway
• Banks only lend to predictable businesses they can understand
• If your capital requirements are limited and your business is following a well trodden path, can be a useful source of finance
• Not particularly useful web or high growth tech industries
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Large PotentialMarket
Opportunity
Unique Product Or Concept
PassionateFounding Team
Pre-requisites
Intensecompetition
likely
Need to moverapidly
Implications…
Hiring
Infrastructure
VC funding supports
Rapid Product Development
Internationalisation
Partnerships
Commercialisation
Good reasons to raise equity finance
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When NOT to raise VC
Applicationis a feature
not a product
Market size istoo small
Motivation isnot financial
• Risk is not that you waste time unsuccessfully trying to raise finance …
• … real danger is that you do succeed in raising VC funds– Lose opportunity for small exit which could be personally lucrative– Lose opportunity to run lifestyle business– Get bound in to 3+ yrs work you may not enjoy
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Equity Financing
SeedEarly StageSeries A, (B)
Later Stage(B),C,D…
Pre-IPO / Buy-out
PrivateEquity
Investment Size
Potential Sources of Funds
0 - €1m
Grant-funding
University seed funds
Friends and family
Angel Investors
(Venture Capital)
€2m-€20m
Venture Capital
(Wealthy) Angel investors
€5m-€20m
Venture Capital
€30m+
Specialist Late stage tech investment funds
Hedge Funds
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Venture Capital – How the VC makes money
• Raise fund every 2-4 years– Pension funds, financial institutions and specialist “fund of fund” investors
• Invest money over 3-5 years~ 1/2 of investments lose money~ 1/3 of investments break even~ 1/6 of investments make (lots) of money
• Very small management fee on funds managed~ 1-2.5% pa
• Carry~ 20-25%x (Total Return – Total Amount Invested)
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Angels – How the Angel investor makes money• Unlike the VC the Angel invests their own money
• Much smaller absolute returns can be very meaningful to an angel
• The Angel approach is to invest small amounts at a very early stage / low valuation– €50-€250k at valuations of €500k-€4m
• Two “exits” for angel– Firm might be sold quickly for €5-10m or less where the Angel can make 2-5x money– Firm raises VC money, after which Angel typically becomes more passive but has built
up exposure very cheaply to a venture backed enterprise
• The key thing when selecting an Angel therefore is whether they can help you raise VC finance– See which Angel investors have invested with which VCs
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• Advice and Strategy• Hiring
– Developers– Country Managers– Sales– CEO / CFO / COO– Advisory Board
• Partnerships• Profile and PR• Further access to capital
• Internationalisation
• Trusted service provider relationships– Search / recruiting– Branding / PR– Finance, etc
• Exit optimisation– Knowledge / contacts
with relevant buyers– Experience with process
Venture Capital – What a good VC will add
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What does an investor look for? Technology Traction
• Can evaluate each as– Exceptional– Good / credible– Mediocre / incomplete
• Misconception that being good / credible across the board is what VCs look for– Can always add credible attributes to the mix later
• We focus on finding opportunities which rate as exceptional in one attribute
Team
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Identifying relevant VC partners
Has funds to invest
Match of Size/Stage/Geography
RelevantPortfolio
No directlycompetitiveinvestments
Excellenttrack record
Shortlist
• Do create a shortlist• Rifle is a better weapon than a
shotgun
• Similar process for identifying angels, look at VC funding press releases to identify prior Angel investors
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Getting on radar screens
• Out of the blue email is a longshot• Try to build context
– Analyse portfolio companies – are there any links there?– Analyse contact network and advisors– Analyse press coverage– Participate in blog conversations– Attend events and conferences– Relevant PR around product also helps
• VCs spend their time looking for businesses with momentum
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Sharing relevant information
• 100 page business plan not required
• 20 page ppt which clearly answers main questions is best bet– Product– Market– Business Model– Team– Competition– Product Roadmap– Technology Overview– Business Development– Financial Status
Pre - first meeting Pre - termsheet Post - termsheet
• Dialogue rather than documentation – expect lots of meetings
• Calls with current / prospective customers or partners
• Meeting broader team
• Brainstorming around strategy
• Identifying key hires post closing
• Formal presentation to VC partnership
• Some additional reference calls with partners / customers
• Personal reference calls
• Legal / accounting audit (if relevant)
• Drafting legal documentation
2-4 weeks 1-2 Months
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Types of investment• Ordinary Share investment
– Simplest form, often used by angels– All shareholders have similar rights– Company Board composed according to
• Convertible Loan– Sometimes used by both Angels and VCs– Typically when another financing is anticipated soon– Loan will convert (with a discount ~25%) into the next financing round
• Preferred Share Investment– Typical Structure used by VCs and occasionally larger Angels investing as a
group
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• Board Representation• Liquidation Preference• Participation rights• Anti-dilution rights• Element of reverse vesting• Certain control and veto rights• Period of exclusivity to close legals
Photo Source: Philip Greenspun, MIT
Venture Capital – “Typical Deal Terms”