1. Creative Financing
for CXO Series
November 8, 2007
Juan Ramon Zarco
Magellan International
jrzarco2001@yahoo.com
703-376-4893
2. Agenda
Stage of Development
Industry or Market Sector
Geographic Location
Ownership Background
2
3. Stages of New Venture Development
Stages of Development
Seed
Early Stage (“Series A” or Tranche A)
Expansion (“Series B” or Tranche B)
Late Stage (“Series C” or Tranche C, D or E)
Exit
3
4. Dollars Stages of Development
Revenue
Net Income
0 Cash Flow
0 Time
Seed Early Stage Expansion Late Stage Exit!!
4
5. Capital Market Line
Seed Stage VC
Late Stage VC
Early Stage VC
Return
Grwth Pub Equity
Private Equity
Est. Pub Equity
T-Bonds
T-Bills
Risk
5
6. Stages of Financing
Bootstrapping
Proof of concept- <$50k
Seed Financing
(R&D Financing) - $150k
Early Stage Financing
First Customers - $1 to 5 million
Expansion
Sales and marketing - $5 to 10 million
Late Stage
Continued growth to exit - $10 to $25 million
Exit
IPO, LBO, M&A, PIPE, ESOP
6
7. Sources of Financing
Debt or Equity
Debt vs. Equity
Entrepreneur/State Funding
Friends and Family
Angel Investor
Strategic Partner
Venture Capital
Asset-based Lending; equipment lessor; venture debt, Bank
Trade credit; Factor
Mezzanine Lender; Public Debt; High Yield Paper
IPOs
Acquisition; LBO; MBO
7
8. Sources of New Venture Financing
Sources of New Venture Financing Seed Early
Stage
Expansion Late
Stage
Exit
Entrepreneur/State Fund
Friends and Family
Angel Investors
Strategic Partner
Venture Capital
Asset-based Lender
Equipment Lessor
Venture Debt
Trade Credit
Factor
Mezzanine Lender
Public Debt
IPO
Acquisition, LBO, MBO
Black shading indicates primary focus of investor type.
Gray shading indicates secondary focus, or focus of a subset of investors.
8
10. Costs of Capital
1-year 5-year 10-year 20-year
Early/Seed 38.9% -1.5% 44.7% 19.9%
Balanced* 14.7% 0.4% 18.2% 13.3%
Late Stage 10.4% -4.7% 15.4% 13.7%
All Venture 19.3% -1.3% 26.0% 15.7%
NASDAQ 8.6% -11.8% 11.2% 12.4%
S&P 500 9.0% -3.8% 10.2% 11.7%
Source: Thompson Venture Economics/National Venture Capital Association for periods ending December 31,
2004
10
11. Industry or Market Sector
Biotech Grants
Low interest loans
Medical SBA/SBIC
Government contracts
Energy
Environmental
11
12. Geographic Location
Trade zones
Foreign country economic incentives, e.g., East
Germany, Taiwan
Urban, e.g., Treasury Department financing for
urban development and jobs
12
14. Milestones to reach Creative Financing
PPM
Strategy and Tactics
True-up Accounting
EVA analysis
Management Team
Accounting and Legal Teams
“Time is of the Essence”
14
15. Final objectives
IPO or M&A?
Family Enterprise
Survival
Growth
EVA
15
16. Conclusions
Comments or Questions?
jrzarco2001@yahoo.com