Funding Options for Early-Stage Companies

1. Funding Options for Early Stage Companies April 30, 2013

2. Today’s Panel •  The Angel: Jean Hammond; Launchpad, Golden Seeds, Hub Angels, & LearnLaunch, Board TCN, jean@jph-‐associates.com •  The Venture Capitalist: Tim Wright, Partner, Grand Banks <twright@grandbankscapital.com> •  The Banker -‐Dan Allred , Silicon Valley Bank, Board TCN, dallred@svb.com •  Grants & Programs Expert – Larry Nannis; Katz Nannis + Solomon P.C. (KNS) CerXﬁed Public Accountants and SBANE LNannis@knscpa.com •  The Entrepreneur: Raj Aggarwal, CEO LocalyXcs, raj@localyXcs.com 3

3. Agenda •  Quick Overview Funding Sources – Jean •  Focus in on Government Support – Larry •  View from the VC -‐Tim •  View from the Bank – Dan •  How it Really Works -‐ Raj •  Q and A 4

4. Funding the Company Before you can get funded, you have to know where to look Before you know where to look, you need to understand what you are 5

5. Entrepreneurship comes in many types NORMAL GROWTH COMPANY HIGH GROWTH COMPANY EXTREME HIGH GROWTH COMPANY SOCIAL VENTURE COMPANY •  Includes all service businesses •  Exploiting a local market need •  Team has ‘great jobs’ •  Growth by adding resources one by one •  Exit will be based on value of cash flow (mature biz.) •  Growth profile ultra-scalable •  Team focus is exit •  Revenue $40M+ with lots of room for growth (5 yr.) •  Based on $20M+ investment •  Exit targeted to IPO or by ‘large’ M&A event •  Goal is to fulfill a social need •  Has mission orientation •  Team needs to support mission •  Growth profile often one resource at a time •  Exit …much harder to find fit •  Company can grow fast (on-line) or has a scalable system •  Team often motivated by exit •  $7-10M revenue in 5 yrs & market size allows significant additional growth •  Capital efficient total investment $2-4M •  Exit by M&A 6

6. What Type of Company Are You? •  In many cases the nature of the business decides the type of company … •  In others, changing how you bring the product to market can really aﬀect the cost of scaling and the funding requirements •  Example: license new baiery technology to exisXng players vs build a baiery company with outsource manufacturing or build a manufacturer •  Every company’s ﬁnancing path is unique 7

7. All Financial Partners Are Specialists •  Funding comes in disXnct flavors; all financial partners are specialists •  To understand who to approach and when to get to them takes really understanding what they specialize in. You need to match type of company to the type of funding partner •  Different types of funding partners specialize in different levels of risk, so apply different funding criteria •  Most basic rule: the more risk a funding partner takes, the more return (and control) they are going to require 8

8. What Do We Mean By “Risk” Examples of things that make a company risky to a ﬁnancial partner: •  Your company is early stage •  You need more money, now or down the road •  You are a new entrepreneur •  You have unproven technology •  You need to raise equity instead of asset backed debt with obligaXon to repay •  You are chasing a new unproven market •  You have less IP or defensibility •  Your business does not have high growth •  You have a longer path to exit •  You have fewer exit opXons 9

9. Growth and Maturity Reduce Risk 10 Size of Capital Raise: High Time High Risk Low Risk Crystallize Ideas Demonstrate Product Early Scaling Growth Sustained Growth Market Entry As you develop your company, you reduce risk for your ﬁnancial partners Size of Capital Raise: Low 10

10. How Can We Build Value and Reduce Risk? What type of company should we build ? Stage-appropriate growth-oriented strategy Flexible, High- Performance Team - that can grow & change IP & Differentiated Product Bookkeeping & Accurate Accounting Legal Structure Boards Governance Partners: manufacturing, development, distribution, etc. Deep Market Understanding & Marketing Execution Profitable Business Model Outer ring: this is how you grow. By growing, you prove the market, REDUCE RISK, and earn access to different financial partners 11

11. Capital Sources: Size & Cost Investment Size Investment “Cost” Traditional VC Micro VC Equipment Financing Angel GroupsAngels Angel List, etc Corporate / Strategic Venture Customers Jobs Bill Portal Vendors Founder Friends & Family Crowdfunding: etc. Grants Venture Debt Bank Loans Personal Loans Private Equity B’Plan Competition Accelerators 12

12. Match Funding Sources NORMAL GROWTH COMPANY HIGH GROWTH COMPANY EXTREME HIGH GROWTH COMPANY SOCIAL VENTURE COMPANY •  Friends, family, founders •  Debt, Bank, and other •  (Future) Crowd funding (portal style) Early on •  Accelerators •  Individual Angels •  Micro Cap VCs •  Seed from VC Later stages •  Venture Funds •  Strategic VCs •  Angel Syndication •  Friends family, founders •  Charity$$ •  Crowd funding (Kickstarter, etc) •  Impact Angels •  (Future) Crowd funding (portal style) •  Angels •  Angel Groups •  Angel Group Syndication •  Angel List •  Micro-cap Funds •  (Future) Crowd funding (portal style) •  Increasingly Strategic Corporate VCs 13

13. AlternaXve Sources of Capital •  Business Plan CompeXXons and Accelerators •  Many ﬁrms gain enough for some product compleXon steps •  Revenue – Best of all (Bootstrapping) •  Revenue history opens more types of debts •  Pre-‐payments, etc. •  Vendors, partners and customers •  Including NRE to build joint product •  Great source of quick capital for markeXng or sales collaboraXon •  SBIR Grants •  ~$2 Billion department speciﬁc funding •  2 or 3 ‘research’ calls from each department each year, must be used for research … then you commercialize with other funding •  Other government funding, lots of “detailed” sources •  Mass Life Science & Sustainable Energy –loans or converXble notes 14

14. Debt Capital: Repayment •  Debt Capital –  Funding based on a set schedule of principal and interest payments that provide a ﬁxed return for the lender. Availability may be based on asset value or cash ﬂow or personal guarantee •  Sources: –  Personal Loans – Friends/Family –  Bank Loans –  SBA Loans –  Expect debt classes from Jobs Bill crowd funding portals –  Credit Cards –  Venture Debt usually linked to equity 15

15. Equity Capital: Shared Upside (VC / Angels) •  Equity Capital requires an exit: –  IPO & Private Equity –  M&A (most) •  VCs invest other people’s money (from pension funds etc.) –  Returns are measured on a per fund basis –  Focus is on finding the best as fast as possible and adding resources to aid success –  ~$26.5B annually, ~ 3,700 new investments 2012 •  Angels invest own money –  Prefer capital efficient / early exit opportuniXes –  ~$23B annually, ~ 67,000 new investments 2012 –  24 New England, 10 greater Boston •  Angel groups ~10-‐15%, •  Informal networks & one-‐Xme-‐investors ~15-‐20%, •  Super angels ~25-‐30%, •  Family offices ~35-‐45% 16

16. Close Up: Extreme High Growth vs High Growth Capital Needs Time High Risk Low Risk Formal Venture Capital M&A or IPO Crystallize Ideas Demonstrate Product Early Scaling Growth Sustained Growth Angel Group (or Micro-cap) Syndication Angels or Accelerators or Micro-cap funds Angels or Accelerators or Micro-cap fundsBusiness Angels Market Entry M&A Later VC Rounds Extreme High GrowthHigh Growth Friends, Family & Founders Friends, Family & Founders 17

17. Grants, etc Funding Options for Early Stage Companies 18

18. SBIR/STTR Program SBIR + STTR = 3% -‐ 3.6% of federal R&D Budget Best for research … need other commercial $$ •  Pros: –  It is a contract/grant – non diluXve •  Cons: –  Long SolicitaXon Process –  March-‐in Rights –  Work with universiXes for experXse –  Best to incorporate (but more acceptance of LLCs) –  AccounXng systems must be compliant with the government –  Very compeXXve in some agencies KATZ NANNIS + SOLOMON, PC CERTIFIED PUBLIC ACCOUNTANTS BUSINESS ADVISORS www.knscpa.com 19

19. KATZ NANNIS + SOLOMON, PC CERTIFIED PUBLIC ACCOUNTANTS BUSINESS ADVISOR CONSULTANTS lnannis@knscpa.com DOD HHS NASA DOEnergy NSF USDA DOC EPA DOT ED NIST DHS DOEducaHon SBIR/STTR ParXcipaXng Agencies Web site address at SBA for the agencies’ SBIR links: http://www.sbir.gov/federal_links.htm Innovation Development Institute www.inknowvation.com 20

20. www.masslifesciences.com •  Small Business Matching Grant Program •  Competitive Program - $500k Matching Funds •  Life Science Accelerator Program •  Loan up to $750k 5 year 10% with warrant coverage www.masscec.com •  Various projects centered around Clean Energy •  $40,000 grants with Tech Transfer Center •  Dealings with ARPA-E program •  Supplementary Funds SBIR/STTR ParXcipaXng Agencies (cont’d) 21

21. Massachusetts Technology Transfer Center www.mattcenter.org Mission is to support technology transfer activities between research institutes and companies in Massachusetts. •  Fund researchers at universities •  Move their inventions to development •  Development of the feasibility in specific industry applications •  Small and Medium Massachusetts manufacturers •  Term loans and working capital loans •  Contract and purchase order financing •  Targeted technical assistance-50% paid by MGCC SBIR/STTR ParXcipaXng Agencies (cont’d) 22

22. Web site for entrepreneurs is: http://www.sba.gov/starting_business/ index.html Web site for lending programs is: http://www.sba.gov/financing/ index.html 7(a) Loan Program Disaster Recovery CDC / 504 Program Micro Loans Small Business Investment Companies Services Specific Territories Management Consulting Start-up Consulting Business Plan Development Financing Plan Development Low Cost Training Programs Procurement Technical Assistance Center Mass Export Center SBIR/STTR ParXcipaXng Agencies (cont’d) 23

23. www.mass-ventures.com •  Normally fills a gap in Angel or Venture Round, Seed / 1st •  Massachusetts-based companies •  $250,000 - $500,000 •  State-funded VC •  START Program- Phase II Matching Grant Program •  Initially $6M as part of bond fund •  10 at $100k; 5 at $200K; 2 at $500K in first year •  2nd year of program – first 100K applications are over SBIR/STTR ParXcipaXng Agencies (cont’d) 24

24. AddiXonal Resources Commonwealth of Massachusetts www.mass.gov/bizteam Smaller Business Association of New England www.sbane.org Association of Corporate Growth www.acgboston.org City of Boston Resource Guide www.cityofboston.gov/dnd/obd/BRG/A_intro.asp States of NH, CT, RI,VT, ME Doing Business Guides www.nh.gov/businesses/doing.html www.ct.gov then go to “Doing Business” www.ri.gov/business/ vermont.gov/doing_business/business.html www.maine.gov/portal/business/small_bus.html 25

25. 26

26. Example VC & Angel Deal Metrics •  Time to closing •  Investment dollar range •  Success rate – How narrow is the funnel? •  Accept/require Credit Support / Guarantees •  Total # of Similar Sources •  Aﬀected by general economic condiXons? •  Dry Powder / Secondary Capital Reserved? 27

27. Return on Equity Return on Debt Income High Return NON PROFIT ORGANIZATION Capital Source View Debt- Pay it back Fixed Amounts Equity – Ownership stake % of Future Value Charity $$ Impact / Tax Write oﬀ NORMAL GROWTH COMPANY HIGH GROWTH (COMPANY) EXTREME HIGH GROWTH (COMPANY) Risk / Return SOCIAL VENTURE COMPANY 28

28. If You Cannot Reduce Risk, You’ll Pay More For Your Capital •  Examples of ways riskier companies airact risk capital: –  offer more shares (beier price) –  have collateral (pledges, guaranXes) –  offer beier conversion terms (price) –  offer more control (board seats, voXng agreements) –  go a~er an extreme high growth market: •  massive potenXal •  possibly faster path to exit •  possibly more exit opXons 29

Funding Options for Early-Stage Companies

Estás leyendo una previsualización.

Eche un vistazo a continuación

Funding Options for Early-Stage Companies

Más Contenido Relacionado

Presentaciones para usted (20)

Similares a Funding Options for Early-Stage Companies (20)

Más de The Capital Network (20)