show me the money: preparing client companies for investment funding association of small business...
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Show Me The Money: Show Me The Money: Preparing Client Companies for Preparing Client Companies for
Investment FundingInvestment Funding
Association of Small Business Development CentersAssociation of Small Business Development CentersAnnual Conference Annual Conference San Antonio, TXSan Antonio, TXSeptember ___, 2010September ___, 2010Presented by Sandra Cochrane, Technology Business Consultant Presented by Sandra Cochrane, Technology Business Consultant
MI Small Business & Technology Development MI Small Business & Technology Development Center Center
Kalamazoo, MIKalamazoo, MI
Goals for Today’s SessionGoals for Today’s Session
• Understand the overall investment processUnderstand the overall investment process
• Recognize when a company is ready for Recognize when a company is ready for outside investment outside investment
• Know the critical communication tools clients Know the critical communication tools clients need to have before seeking fundingneed to have before seeking funding
• Outline a standard 10-minute pitchOutline a standard 10-minute pitch
• Help clients avoid investor pitch mistakesHelp clients avoid investor pitch mistakes
Overall Investment ProcessOverall Investment Process
Research and Identify Investment Options, and prepare Communication Tools
Begin dialogue with Investors starting with Investor Pitch
Proceed with Investor Due Diligence
Receive Term Sheet
Proceed with Legal Docs and Close Deal
When is a Company ReadyWhen is a Company Ready for Investment? for Investment?
• Funding landscape (who’s got money?)Funding landscape (who’s got money?)• Business plan and executive summaryBusiness plan and executive summary• Investor pitchInvestor pitch• IP protectionIP protection• Company leadership has “skin in the game”Company leadership has “skin in the game”
Investor Communication ToolsInvestor Communication Tools
Essential Investor Essential Investor Communication ToolsCommunication Tools
• WrittenWritten: Business plan that includes a : Business plan that includes a solid executive summarysolid executive summary
• VerbalVerbal: Elevator pitch: Elevator pitch
• Mathematical ModelMathematical Model: Excel-driven : Excel-driven financial modelfinancial model
PowerPointPowerPoint: Investor pitch: Investor pitch
The 10 Minute Investor PitchThe 10 Minute Investor Pitch
Investor Presentation Objective?Investor Presentation Objective?
• Educate, engage & entertainEducate, engage & entertain
• Get a NEXT meetingGet a NEXT meeting
Investor Pitch: Key PointsInvestor Pitch: Key Points
• Follow the 3 C’s:Follow the 3 C’s:
– Clear, concise and compellingClear, concise and compelling
• Answer these questions:Answer these questions:– Why this?Why this?– Why us?Why us?– Why now?Why now?
• Ask yourself “so what?” and “who cares?”Ask yourself “so what?” and “who cares?”• Goals:Goals:
– Drill down discussionsDrill down discussions– Transition into due diligenceTransition into due diligence
The 10 Minute Investor Pitch:The 10 Minute Investor Pitch:Template and GuidelinesTemplate and Guidelines
Special Thanks to Seattle Alliance of Angels for their work on this presentationSpecial Thanks to Seattle Alliance of Angels for their work on this presentation
Act I: Introduction• Cover page slide• Problem slide• Solution slide• Technology slide• Traction slide
Act II: The Business• Market slide• Competition slide• Customers slide• Sales strategy slide• Partners slide (optional)• Revenue model slide• Management slide• Advisory board slide (optional)
Act III: The Future• Milestones slide• Financials slide• Offer slide• Questions slide
Anatomy of the 10-Minute PitchAnatomy of the 10-Minute Pitch
Act1:Act1:
The IntroductionThe Introduction
Separator Slide – not to be included in your presentation
Company Name & LogoCompany Name & LogoContact InformationContact Information
DateDateAudienceAudience
PresentersPresenters
One line description of what your company doesOne line description of what your company does
The ProblemThe ProblemDefine the problem and WHO has this painDefine the problem and WHO has this pain
• GraphsGraphs• Pictures (one photo is best)Pictures (one photo is best)• Describe a problem scenario /usage case Describe a problem scenario /usage case • The goal is to get everyone nodding & The goal is to get everyone nodding &
“buying-in”“buying-in”
75-100 Million Interviews (Per
Yr)
$350 Billion Claims Related (Per
Yr)
Process is “Off The GRID”
Paper Claims File
Weeks and Months
The Problem: Recorded Claims - Example
The SolutionThe SolutionExplain your solution to the problem & why it’s Explain your solution to the problem & why it’s superior to existing alternativessuperior to existing alternatives
• How do you alleviate the “pain”How do you alleviate the “pain”
• Use multiple slides if necessary – see Use multiple slides if necessary – see “the technology” slide“the technology” slide
• Short list of feature/benefitsShort list of feature/benefits
The TechnologyThe TechnologyDescribe the basics of your product/ serviceDescribe the basics of your product/ service
• QuickQuick overview of the company’s technology overview of the company’s technology• Use lay man’s languageUse lay man’s language• Tie to “the solution”Tie to “the solution”
• Do not exceed time limitsDo not exceed time limits ( (avoid avoid in-depth in-depth technical explanations) technical explanations)
• Product photos and/or screen shots helpProduct photos and/or screen shots help
• Logical flow and architecture diagramsLogical flow and architecture diagrams
$15M Savings (Per Yr): Farmers
Insurance
24 x 7 x 365 Availability
Giant, Untapped Data Asset
Minutes
Claims Rep
Claims Rep Interview
eesInterview
eesBridgeBridge .WMA.WMA
The Solution: Digital Service - Example
Traction/ MilestonesTraction/ MilestonesShow the progress you have made to dateShow the progress you have made to date
TodayToday 200__200__ 200__200__200__200__
Proof of Concept Tech. Development / Scale-Up Launch
Incorporated Incorporated
Mgt. team in place Mgt. team in place
Provisional patent filedProvisional patent filed
Beta test Beta test
Paying customersPaying customers
Strategic channel partnersStrategic channel partners
Received A round financingReceived A round financing
Customer launchCustomer launch
Be clear about the status of product developmentBe clear about the status of product development
Act 2:Act 2:
The BusinessThe Business
Separator Slide – not to be included in your presentation
Market SizeMarket SizeDemonstrate your understanding of the size & Demonstrate your understanding of the size & composition of your target marketcomposition of your target market• Build the number from the ground upBuild the number from the ground up
– Total Total addressableaddressable market market – Use drivers relevant to your productUse drivers relevant to your product
• Show the different segmentsShow the different segments – Pie graphs works wellPie graphs works well– Explain how you prioritize the segmentsExplain how you prioritize the segments
• ““This is our initial market” (explain why)This is our initial market” (explain why)
• If you use 3If you use 3rdrd party figures, cite the source party figures, cite the source
Total Addressable Market: US home broadband usersTotal Addressable Market: US home broadband users
ages 12 to 34 who actively consume internet videoages 12 to 34 who actively consume internet video
7
2.7
4.4
22.4
8.5
14.1
14M2006
45M2011
29-34yrs18-28yrs 12-17yrs
Market Size - Market Size - ExampleExample
CustomersCustomersDemonstrate your understanding of your Demonstrate your understanding of your target customerstarget customers
• Current CustomersCurrent Customers– 83 startup companies like the following:83 startup companies like the following:
• Potential CustomersPotential Customers– Early stage technology companies between $250K & $2M in Early stage technology companies between $250K & $2M in
revenuesrevenues
Sales StrategySales StrategyExplain how you will reach your customerExplain how you will reach your customer
How do you sell your product? Direct and/or channel SalesHow do you sell your product? Direct and/or channel Sales
If directIf direct, , • How many sales people? Territories?How many sales people? Territories?• How long does it take to close a deal?How long does it take to close a deal?• Who is the key decision maker? (especially if that differs from the key Who is the key decision maker? (especially if that differs from the key
user)user)
If channel,If channel,• Who are the partners?Who are the partners?• How many are required?How many are required?• How are the territories divided? (if relevant) How are the territories divided? (if relevant)
PartnersPartners
If appropriate, describe the key players in your If appropriate, describe the key players in your value chain & their functions.value chain & their functions.
Revenue ModelRevenue Model
Show how, financially, you will make moneyShow how, financially, you will make money
Profit Before Taxes & Dep. $10,000
Average Customer Buys 10 Widgets per year @ $6,000
Average Customer is worth$60,000 in Annual Revenue
This is an example for demonstration purposes only
PbTD $1,000
OE $3,000
CoGS $2,000
Revenue $6,000
33%
50%
17%
100%
Per Customer Per Widget
CoGS & Operating Expenses $50,000
Revenue ModelRevenue Model (cont.)(cont.)
•Provide a diagram of your business environment (value chain)•Who are the stakeholders? •How are they related?
Company
LicenseHolders
Mfgrs.VAR
End User
TechnologyLicenses
LicenseRevenue
Sales Dollars
Tech. &Mfg. Fees
Components
Finished Goods & Services
CompetitionCompetitionDemonstrate your understanding of the Demonstrate your understanding of the competitive environmentcompetitive environment
• Indirect CompetitionIndirect Competition– Summarize the current alternatives (other Summarize the current alternatives (other
technologies or types of products)technologies or types of products)
• Direct Competitors Direct Competitors – List competing company 1 and an analysis List competing company 1 and an analysis – List competing company 2 and an analysis List competing company 2 and an analysis – List competing company 3 and an analysis List competing company 3 and an analysis
• Use a matrix if possibleUse a matrix if possible
Competition - Competition - ExampleExample
SpeedSpeed
Ease of UseEase of Use
PricePrice
ReliabilityReliability
ABC B Co XYZ
Management TeamManagement TeamExplain why this is Explain why this is thethe management team to management team to bring your product/ service to marketbring your product/ service to market
• Name, PositionName, Position– Prior Company, Position (VP or above), YearsPrior Company, Position (VP or above), Years– Prior Company, Position (VP or above), YearsPrior Company, Position (VP or above), Years– Entrepreneurial experience (if any)Entrepreneurial experience (if any)
• Name, PositionName, Position – Prior Company, Position (VP or above), YearsPrior Company, Position (VP or above), Years– Prior Company, Position (VP or above), YearsPrior Company, Position (VP or above), Years– Entrepreneurial experience (if any)Entrepreneurial experience (if any)
• Open positionsOpen positions– VP SalesVP Sales– Head of QAHead of QA
Advisory BoardAdvisory BoardExplain how these individuals will contribute to Explain how these individuals will contribute to your companies chance of successyour companies chance of success
• Name, Area of ExpertiseName, Area of Expertise– Company, Position (VP or above), YearsCompany, Position (VP or above), Years– Prior Company, Position (VP or above), YearsPrior Company, Position (VP or above), Years
• Name, Area of ExpertiseName, Area of Expertise – Company, Position (VP or above), YearsCompany, Position (VP or above), Years– Prior Company, Position (VP or above), YearsPrior Company, Position (VP or above), Years
• Name, Area of ExpertiseName, Area of Expertise– Company, Position (VP or above), YearsCompany, Position (VP or above), Years– Prior Company, Position (VP or above), YearsPrior Company, Position (VP or above), Years
Act 3:Act 3:
The FutureThe Future
Separator Slide – not to be included in presentation
Financial ProjectionsFinancial ProjectionsShow financially that your company is a smart Show financially that your company is a smart investmentinvestment
Five Year Projections (Millions, US)Five Year Projections (Millions, US) Assumptions:
– Avg. $__ per sale
– In Yr. 1, __customers
– Yr. 3 market share: __ %
– By Yr. 3, __% from new sales; __% & from recurring sales
– U.S. market only
– Does not include future product extensions
This is an example for demonstration purposes only
3
-0.5
100.1
40
20
80
50
120
70
-20
0
20
40
60
80
100
120
Do
llars
($
MM
)
Year 1 Year 2 Year 3 Year 4 Year 5
Revenue Income
Financial ProjectionsFinancial Projections (alternative)(alternative)
Year 1Year 1 Year 2Year 2 Year 3Year 3 Year 4Year 4 Year 5Year 5
RevenueRevenue
COGSCOGS
Gross Gross MarginMargin
OpExOpEx
Net Inc.Net Inc.
MilestonesMilestonesShow the audience what the next important Show the audience what the next important steps are for your companysteps are for your company
Secure international
distributor
Generation IIof Product
HireCFO
Series “B”Financing
MilestonesMilestones (alternative)(alternative)
Company Milestones 20__ 20__ 20__ 20__
Prototype Software
Prototype Hardware
Prototype completed
Initial results of the clinical trial
Defining production partner
Clinical trials completed
1st commercial lot production
Extended clinical trials (FDA)
FDA approval
peer-reviewed papers released
Conference presentations
Peer-reviewed papers describing extended trials
Initial distribution of units at large centers
Seed $250K A round $2.5MM B-round $3MM
Table 3: projected milestones and funding rounds
Funding RequirementsFunding RequirementsShow why an investment of $X will lead to the Show why an investment of $X will lead to the cited milestonescited milestones
Prior Funding: Prior Funding: - $ from founders, $ from outside investors, $ grants- $ from founders, $ from outside investors, $ grants
Current Round:Current Round:- Seeking $1 million ($500,000 raised)Seeking $1 million ($500,000 raised)
Use of Funds:Use of Funds:- Finish v 2.0 prototypeFinish v 2.0 prototype- Launch in xxx marketLaunch in xxx market- File patentsFile patents
Future rounds:Future rounds: - Series B of $X million expected in early 2011- Series B of $X million expected in early 2011
Exit Strategy:Exit Strategy:- Acquisition (perhaps Microsoft, IBM, Nike, or Gatorade)Acquisition (perhaps Microsoft, IBM, Nike, or Gatorade)
SummarySummary
• Experienced management teamExperienced management team• Company generated $x in revenue in Yr. 1Company generated $x in revenue in Yr. 1• Strong IP positionStrong IP position• Large and growing marketLarge and growing market• Signed partnerships with key playersSigned partnerships with key players
QuestionsQuestions
COMPANY NAME & LOGOCOMPANY NAME & LOGOCOMPANY CONTACT INFORMATIONCOMPANY CONTACT INFORMATION
It’s All About the %% & $$!It’s All About the %% & $$!
Make it Easy to Absorb & ComprehendMake it Easy to Absorb & Comprehend
Investor Pitch MistakesInvestor Pitch Mistakes(and how to avoid them)(and how to avoid them)
Mistakes 1 & 2Mistakes 1 & 2
1.1. Pitching when the company is not readyPitching when the company is not ready
2.2. Pitching to the wrong investorPitching to the wrong investor
Mistakes 3 & 4Mistakes 3 & 4
3.3. Not having a clear, concise, compelling Not having a clear, concise, compelling business plan to back up the pitchbusiness plan to back up the pitch
4.4. Not understanding the investor’s exit strategyNot understanding the investor’s exit strategy
5.5. ““I only need 1% of the market….”I only need 1% of the market….”
6. “EVERYBODY is going to need my….”6. “EVERYBODY is going to need my….”
Mistakes 5 & 6Mistakes 5 & 6
7.7. ““I have no competitors.”I have no competitors.”
8. Failing to state the pain that’s being alleviated8. Failing to state the pain that’s being alleviated
Mistakes 7 & 8Mistakes 7 & 8
9. Failing to actually state how the company is9. Failing to actually state how the company is going to make money!going to make money!
10. Not understanding the concept of tranches10. Not understanding the concept of tranches
Mistakes 9 & 10Mistakes 9 & 10
11. Building technology products, not a business11. Building technology products, not a business
12. The future exit is an IPO12. The future exit is an IPO
Mistakes 11 & 12Mistakes 11 & 12
Due DiligenceDue DiligenceA working definition:
An investigation of the company’s business, legal, financial affairs, and a verification of its assertions.
Investor outcome: An assessment of risk. An investment and partnership opportunity.
Company outcome: A substantiation of the stated value proposition. A commercialization and partnership
opportunity.
Getting Through the ChecklistGetting Through the Checklist Don’t ask the investor to modify the checklist; if
an item doesn’t apply, mark it “N/A”
Be subtle in asking about timeframe. Okay to ask: “When do you anticipate completing due diligence?” vs. “We really need the money; can you complete due diligence in 2 weeks?”
Understand that other companies are in the pipeline.
Remember due diligence is augmented
w/valuation negotiations.
Getting Through the ChecklistGetting Through the Checklist Decide on disposition of documents upon
conclusion of due diligence.
Fully disclose checklist items to avoid surprises. • Begin addressing problems• Ask for investor’s help and resources to solve
problems • Remember investor will likely assume a board
seat upon investment• If in doubt, check with company legal counsel
about whether to disclose.
Getting Through the ChecklistGetting Through the ChecklistExamples of well-managed disclosures:
Disclosure of license agreement in default
Disclosure of chief scientist leaving university
Disclosure of need to replace current CEO
Examples of non-disclosures that backfired:CEO & CSO executing concurrent employment agreements w/another tech company
License Agreement restricting commercialization. Inconsistent w/BP.
Managing Due DiligenceManaging Due Diligence Be prepared; use binders or data room. Have a “clean” IP position Select a point person to assemble documents
and answer business questions Submit documents thoroughly and quickly Work w/company legal counsel Substantiate value proposition as stated in the
BP and the pitch
