best practices in raising venture capital to grow your business
TRANSCRIPT
This presentation, including any supporting materials, is owned by Gartner, Inc. and/or its affiliates and is for the sole use of the intended Gartner audience or other authorized recipients. This presentation may contain information that is confidential, proprietary or otherwise legally protected, and it may not be further copied, distributed or publicly displayed without the express written permission of Gartner, Inc. or its affiliates.© 2012 Gartner, Inc. and/or its affiliates. All rights reserved.
David Mitchell, Research Director
High-Tech Tuesday Webinar: Best Practices in Raising Venture Capital to Grow Your Business
"A bank is a place that will lend you money if you can prove that you don't need it." — Bob Hope (1903-2003)
"Everybody likes a kidder, but nobody lends him money." —Arthur Miller (1915-2005)
"Lack of money is no obstacle. Lack of an idea is an obstacle." — Ken Hakuta
"The safest way to double your money is to fold it over and put it in your pocket." — Kin Hubbard (1868-1930)
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Key Issues
1. The why, when, who and where of raising capital to fund growth
2. Avoiding the common mistakes and reducing the investment risk
3. Telling a compelling story
2
Poll
• What use has your company made of external funding?
- Received multiple rounds of external investment
- Received a single round of external investment
- Currently seeking external investment
- No external investment plans
3
4
The why, when, who and where of raising capital to fund growth
Transition Is the Major Reason Why Companies Seek External Capital
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Private
PublicPublic
PrivateOwnership
Product Idea Prototype
ProductPrototype
Product Volume Production
Sales Initial Sale Segment Strength
Segment Strength Global Strength
Unable to be funded organically via operating cash flow
Venture Capital Is Not the Only Funding Source
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GovernmentFriends and
FamilyCrowdfunding
Angel Investors
Venture Capital
Each different source has a different fingerprint — money amount, risk appetite,
desired returns, investment stage
Matching Your Transition to Stages of the Investment Cycle
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Seed Stage
• Company is still in the ideation phase, with no product having yet been developed.
Startup Stage
• Initial prototypes or early products have been developed.
First Stage
• Go-to-market activities have begun, and initial sales have started to be generated.
Second Stage
• Growth has begun to accelerate, and the company is becoming an established player.
Third Stage
• Continued growth has started to create profitable revenue streams, and international expansion is being considered.
Bridge Financing
• Interim funds being raised to prepare for a later equity event, such as an IPO.
Management Buyout
• Typically a debt-based acquisition of equity, in an LBO transaction.
Amount RiskPotentialReturn
Investment Stage
Government funding Small to medium Low to medium Medium to high Any
Crowdfunding Small to medium Medium to high Any Early
Angel investorsMedium to large High High
Early to intermediate
Friends and familiy Small Any Any Early
Venture capital Large High High Any
Crowdfunding Is an Emerging Alternative
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Source: http://www.nucocochocolate.co.uk/crowdfund/
Matching Your Needs to the Right VC Fund
9
Geography
Growth Strategy
Technology Type
Skills
Investment Horizon
Filters
Potential Venture Funds
Candidate Venture Funds
When You Seek External Funding Is Important
• Timing impacts several important facets:
- Ability to execute your business plan
- Valuation and negotiation
- Market sentiment and valuation
10
Summary
11
Understand Your
Transition
Match Transitions
to Investment
Stages
Filter and Qualify Sources
Shortlist and
Present
Avoiding the Common Mistakes
and Reducing the Investment Risk
12
Reducing Perceived Risk Increases Value as Well as Improving the Odds
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Some Mistakes Come Down to the Calculations That You Make
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Headroom
Large x Small
Compound Calculations
Other Mistakes Are Based on Poor Planning and Analysis
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Wrong InvestorWrong
Valuation
Poor Documentation
Poor Presentation
Poor Market Knowledge
Poor Business Plan
Business Plan Mistakes Are the Most Common and Damaging
Inadequate business plan
Not showing investors how you will spend their money and how you will generate returns for them
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Opportunity
• Description
• Size and Growth
Management Team
• Resumes
Competitive Landscape
• Companies
• Products
• Alternatives
• Enduring Advantage
Finance
• P&L
• Cash Flow
• Capitalization Table
Telling a Compelling Story
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A Commonly Used Story — In Five Chapters
Size of the prize
Runners and riders
Motorcycle cheats
Advice to the jockey
Selling the horse
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A Commonly Used Story — In Five Chapters
Size of the prize
Runners and riders
Motorcycle cheats
Advice to the jockey
Selling the horse
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A Commonly Used Story — In Five Chapters
Size of the prize
Runners and riders
Motorcycle cheats
Advice to the jockey
Selling the horse
20
But Never Forget One of the Most Powerful Influencers That You Have
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The Simple Formula to Remember …
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Show that you have a good idea that solves a problem and that addresses an unmet need; i.e., there is an identifiable market.
Show that this translates into a commercially viable product, with a business model that can generate revenue and margin; i.e., that it is commercially viable.
Show the investor that your team has the skills and expertise needed to deliver.
Show the investor that your early advantage can be sustained long enough to be able to generate growth that can continue to expand.
Everything after that is down to execution.
Recommended Reading
Marketing Essentials: Five Best Practices When Seeking Venture Capital InvestmentDavid Mitchell (G00232191)
Crowdfunding Needs MarketingDavid Mitchell (G00234050)
Predicts 2012: Marketers Must Adapt to a World That Rewards SpeedRichard Fouts, Jennifer S. Beck, David Mitchell and Neil McMurchy (G00226310)
Marketing Essentials: Four Changes Successful Emerging Providers Make to Enable Long-Term GrowthNeil McMurchy (G00211128)
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This presentation, including any supporting materials, is owned by Gartner, Inc. and/or its affiliates and is for the sole use of the intended Gartner audience or other authorized recipients. This presentation may contain information that is confidential, proprietary or otherwise legally protected, and it may not be further copied, distributed or publicly displayed without the express written permission of Gartner, Inc. or its affiliates.© 2012 Gartner, Inc. and/or its affiliates. All rights reserved.
David Mitchell, Research Director
High-Tech Tuesday Webinar: Best Practices in Raising Venture Capital to Grow Your Business