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Page 1: Capital Savvy: Having investor thoughts

CAPITAL SAVVYand attractive to investors

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Page 2: Capital Savvy: Having investor thoughts

Understand funding

Internal planning

Attract capital

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INTERNAL PLANNINGClean up your laundry

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FUNDING OPTIONSDo your homework

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ATTRACT CAPITALGet out there

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GET EDUCATEDThis is your textbook

Educa

tion

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DIFFERENT KINDS OF BUSINESSES

have completely different funding and growth strategies

Don’t try to mix and match

Educa

tion

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YOUR BUSINESS

• Small business

• High growth technology business

• Physical product company

• Consulting business

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SMALL BUSINESS

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SMALL BUSINESS• Ex. Cupcake shop, plumbing company, retail store

• One or two owners who run it for a long time

• Maybe expand to multiple locations

• Profitable within the first or second year

• Up front capital pays for equipment or real estate

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HIGH GROWTH TECH

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HIGH GROWTH TECH

• Generally includes software or other technology

• One to five years of work before anything can be sold

• Requires $500k to $2M to create the product

• Capital generally pays developers and engineers

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PHYSICAL PRODUCT

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PHYSICAL PRODUCT COMPANY

• Product is a tangible thing

• The invention is unique

• Upfront capital goes to design, patents, and manufacturing

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CONSULTING

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CONSULTING BUSINESS

• You sell your employees’ time and expertise

• Very little overhead necessary

• Profitable soon after opening

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CAPITALis not all created equal

Educa

tion

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CAPITAL OVERVIEW

• Grants and Awards

• Bootstrapping

• Debt and Loans

• Angel and Venture Capital

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GRANTS AND AWARDSsource: governments and foundations

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GRANTS AND AWARDS

• Non-dilutive capital

• Social or Political capital

• Exposure

Pros Cons

• Applying is time consuming

• Use of funds can be limiting

• Winning is a gamble

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BOOTSTRAPPINGusing your own money

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BOOTSTRAPPING

• Freedom of use

• Non-dilutive

• Shows founder buy-in

Pros Cons• Fails to prove external

validation

• Often involves family issues

• Amount can be limited

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DEBT AND LOANSmore than just banks and loan sharks

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DEBT AND LOANS

• Non-dilutive

• Lender has no voting rights in the business

• Temporary relationship with lender

Pros Cons• Hard to find

• Must pay back plus interest

• Interest rates can be really high

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ANGEL AND VENTUREequity partners

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ANGEL AND VENTURE

• Adult supervision

• Large sums possible

• Permanent relationship

Pros Cons• A lot of work to

secure

• Butting of heads

• Must sell company in 10 years or fewer

Equit

y Capi

tal

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ANGELS• Rich people

• Probably untrained

• Various motivations

• Investing their own money

• Usually $15k to $100k

• But really it could be any amount

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VENTURE CAPITALISTS• Investing other people’s

money

• Raised a fund that they now deploy

• $100k to $50M

• Work alone or syndicate

• Will be active members of the board

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GUIDING FACTORS FOR EQUITY FUNDING

• Scalability

• The right people

• A large market

• Unfair advantage

Is equity capital for me?

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SCALABILITYThe economics of your

business now vs your business when it is grown.

Analysis

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A SCALABLE BUSINESS

• The cost of selling the product or service plummets as the number of units sold rises

• Software is inherently scalable

• And other things are too

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UNSCALABLE BUSINESSES

• Consulting is always unscalable

• Anything custom

• Retail stores (unless on a grand scale)

• Food and commodities

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MARKET

Analysis

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MARKET ANALYSIS

Must include bottom up and top down.

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TOP DOWN

• How much ice cream is sold in a cone?

• In the US?

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BOTTOM UP

• How many of these can I sell in the first year through the relationships I already have?

• In the second year?

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THE MAGIC #How long does it take for

your business to get to $100M in revenue?

Analysis

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FUNDING PLANFinding the true hard parts

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TWO LAYERS OF INFO

1. The major milestones that lead to increased company value

2. The capital needed to make those things happen

Plann

ing

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ADDING VALUE

• Own property

• Buy the rest of the monopoly

• Add a house

• Add multiple houses

• Add a hotel

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EQUITY CAPITAL

Take capital only when the raise will get you to the next value-increasing milestone.

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FIND THE EDGESAnd use them to plan real projections

Plann

ing

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THE “NOW” EDGE

• With no more business development, how much can you sell right now, per year?

• How much will it cost to make and sell exactly that? This is your minimum raise.

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“WILD SUCCESS” EDGE

• If you had all the money in the world, what is the next limiting factor?

• Use this to calculate your financials under the circumstance of wild success.

• Use these numbers to determine your max raise.

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BOUNDARIESLive between the edges

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ATTRACTING INVESTORSby selling a dream

Commun

icatin

g

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INVESTOR NIGHTMARES

• Looking like a chump

• Losing money

• Extended frustration

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YOUR EARLY ASSETS• Founding team (advisors and board included)

• Patents (and other IP)

• Specific knowledge or thought leadership

• Relationships

• R&D/Prototype/Product

• Sales

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PITCH DECKPrimary means of communication with investors

Commun

icatin

g

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THE INVESTOR PITCH• What do you do?

• How do you make money?

• How far have you gotten?

• What does the future look like?

• How much money will you need to get there?

• What’s the current deal look like?

• Who is involved?

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