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Startup Investor Workshop (Beginner Session) | Brightspark & OurCrowd

Slides and notes from the MaRS Startup Investor Workshop. The event took place on September 26th, 2016 and featured Mark Skapinker from Brightspark, David Shore from OurCrowd and Salim Teja from MaRS.

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Startup Investor Workshop (Beginner Session) | Brightspark & OurCrowd

  1. 1. LEGAL DISCLAIMER The information contained in this presentation is provided solely for informational purposes and does not constitute an offer or solicitation of investment in any Brightspark or OurCrowd limited partnership related to any companies. Anything contained in this presentation should not be construed as creating a presumption by you, Brightspark or OurCrowd that you are an accredited investor. We make no representation or warranty, express or implied, with respect to any data provided to you regarding any information provided by the companies on its web site or in this presentation, and will not be liable in any way to you or to any other person for any inaccuracy, error or omission of any company data. Please be aware that investments in early stage companies contains a high level of risk and you should consider this prior to making any investment decisions. Learn more: www.brightspark.com/risk www.ourcrowd.com/disclaimer
  2. 2. STARTUP INVESTING IN CANADA NACO report (2015) 1,700 active individual investors 283 investments $133.6 million Since 2010 Nearly 200 exits Totaling $20 billion Approximately 500,000 accredited investors Investment models are evolving
  3. 3. ABOUT RISK It’s no secret – Investing in startups is risky. High risk = high reward, but be prepared for the possibility of losing your entire investment. A few ways to mitigate risk: • Diversify your investments across a portfolio • Invest alongside experienced people • Invest in an industry that you know • Invest with trusted vehicles • Do proper due diligence
  4. 4. ACCREDITED INVESTORS IN CANADA To qualify as an accredited investor in Canada, individuals or entities must meet at least one of the following requirements. Not sure if you qualify? Check with the Ontario Securities Commission: www.osc.gov.on.ca
  5. 5. WHAT IS A STARTUP? A startup maintains a fluid culture and mindset and it has not achieved most of the following: acquisition by a larger company, revenues exceeding $20 million, more than one office, more than 80 employees, and founders who have personally sold shares. www.startupcommons.org
  6. 6. SERIES A, B, C FUNDING Seed capital - When? At the very beginning - Who? Risk-loving type of investor - Why? Market research and development work, first few employees, build product and launch at target audience Series A - When? After the business has shown track record - Who? Traditional VC firms and investors - Why? Optimize the product and user base. Scale across markets. Series B - When? After development stage – ready for next level - Who? Led by key players specialized in Series B - Why? Talent acquisition, taking the business to the next level Series C - When? Later stage - Who? Hedge funds, investment banks, PE firms, etc. - Why? Perfecting, continuing to scale fast and wide
  7. 7. EXITS & RETURNS Mergers & Acquisitions Occurs when a small company gets bought-out by a larger one. In general, the purchasing money is divided up by pro-rata between shareholders. Initial Public Offering (IPO) When a startup grows large enough and has significant revenue, it may seek an IPO. The company registers its shared on the public market so that its equity can be traded publicly – this freed up earlier investors to sell their stock, ideally for much more money than their original purchase price. Soft Landings Exit opportunities for companies to avoid falling out of the market – these usually do not confer large returns for investors, but allow them to get at least a portion of their money back. Capital Gains An increase in the value of a capital asset that gives it a higher worth than the purchase price – the gains is not realized until the asset is sold, and must be claimed on income taxes.
  8. 8. MUST-KNOW DEFINITIONS Equity The value of an asset less the value of all liabilities on that asset. In the context of investing in startups, it usually means stock/shares in a private company (private equity). Securities Includes all types of equity and debt instruments and rights in and to them. Options A security granting the holder the right to purchase a specified number of a company’s securities at a designated price at some point in the future. Shares Units of ownership interest in a corporation or financial asset that provide for an equal distribution in any profits in the form of dividends. • Common shares: may benefit shareholders through appreciation and dividends, making it riskier than preferred stock. Usually comes with voting rights, giving shareholders more control over the business. May come with pre-emptive rights. • Preferred shares: Does not offer appreciation in value or voting rights in the corporation. Typically has a payment criterial a dividend that is paid out regularly. Takes priority over common stock, if the business goes bankrupt preferred shareholders receive payment before common.
  9. 9. MUST-KNOW DEFINITIONS Upround/Downround Pre-investment valuation of a company prior to a round of financing. • Upround = when a company’s value has increased from the valuation • Downround = due to a lower valuation of the company. Result in dilution of shares and reduce the equity position of the company’s founders relative to investors in the downround Syndicate A temporary professional financial services group formed for the purpose of handling a large transaction. Syndication allows companies to pool their resources and share risks. Limited Partnership (LP) When two or more partners unite to jointly conduct a business in which one or more of the partners is liable to the extent of the amount of money he or she has invested. LPs do not receive dividends, but enjoy a direct access ot the flow of income and expenses. General Partnership (GP) A general partnership is an arrangement by which partners conducting a business jointly have unlimited liability, which means their personal assets are liable to the partnership's obligations.
  10. 10. MUST-KNOW DEFINITIONS Internal Rate of Return (IRR) Interest rate that will bring a series of cash flows (positive and negative) to a net present value of zero – or to the current value of cash invested.
  11. 11. IMPORTANT DOCUMENTS Capitalization (”cap”) table A spreadsheet or table that shows ownership stakes in a company – including equity share, pref shares, and options, and the various prices paid by stakeholders for these securities. Gives an at- a-glance view of the capital structure of a company. Shareholders Agreement An arrangement among a company’s shareholders describing how the company should be operated and the shareholders rights and obligations. Also includes information on the regulations of the shareholders’ relationship, management of the company, ownership of shares and privileges and protection of shareholders. Term sheet A nonbinding agreement setting the basic terms and conditions under which an investment will be made. Serves as a template to develop more detailed legal documents.
  12. 12. VEHICLES FOR INDIVIDUAL INVESTORS
  13. 13. BRIGHTSPARK VENTURES PROVEN EXPERTISE & UNPARALLELED NETWORK  20+ years of VC experience, 30+ tech, software & entrepreneur experience  Delrina was the grandfather of the tech industry in Canada  Many of the best VCs and successful CEOs in Canada “seed” out of Brightspark  Repeat entrepreneurs gravitate to us – If there are great deals out there, we see them first!  Dealflow is approx. 5-7 deals a year – We seek quality over quantity  80% of our work happens after a deal is closed, growing companies We curate the 1-2% best deals from high-growth potential early stage tech companies Brightspark-managed fund set up per deal and invests in every deal, manages due diligence, co-investments, and overall portfolio Accredited Investors gain insider access to the best deals and invest on a per deal basis alongside top institutions and funds
  14. 14. OURCROWD Highly selective deal flow: OurCrowd’s team of investment professionals sees 150-200 new opportunities every month, meets 20-30 management teams and, after an in depth due diligence process, selects on average 2-3 to invest in. Access to internal investment rounds: Our team leverages its extensive network to proactively identify and pursue companies we want to invest in, gaining access to investment rounds that are closed to other new investors. Full transparency: OurCrowd invests its own capital alongside our investors in every investment, at the same terms we negotiate with the company.
  15. 15. YOUR INVESTMENT THESIS A roadmap that can discipline you to invest only in the companies that conform to your individual philosophy. • What company qualities are important to me? • High return potential? • Industry? • Competition? • What team/entrepreneurs do I want to invest in? • Serial entrepreneur? • High respected? • Company size • Other • Timeframe • Stage • Amount • Co-investing? • Markets and trends • Canadian vs international
  16. 16. OURCROWD’S INVESTMENT THESIS Unicorn? Team Market Value Prop Traction Sponsorship Valuation
  17. 17. BRIGHTSPARK’S INVESTMENT THESIS Stage Team Market Price
  18. 18. INVESTING IN CANADA VS INTERNATIONALLY Investing in Canada: GREAT Dealflow, better than ever before Mature infrastructure Proximity to USA Amazing universities, and talent pool Close to home Build our industry
  19. 19. INVESTING IN CANADA VS INTERNATIONALLY Investing abroad: Currency / tax considerations “Hot” location Valuation differences Local tech trends Israel - A case study
  20. 20. ISRAEL – FINANCING / EXITS
  21. 21. Bloomberg Israel VC-backed exits break 10-year record 2015 Israeli high-tech exits up 16 percent from 2014 proceeds; VC-backed exits reach $4.98B Globes Israeli VC 2015 fund raising up to $1.5B 18 venture capital funds closed capital in 2015, and 4 funds raised more than $100 million each, IVC-KPMG reports Israel21C 2015 was red-hot year for Israeli tech scene End-of-year exit reports show rise in investments in a dazzling market 2015 Exits: $9.02B Microsoft spends over $1B on five acquisitions Marquee exits:Welcoming some newcomers to Israel: $810M, Mellanox $600M, Merck $510M, XIO 2015 Invested: approx. $5B ISRAEL IS BOOMING
  22. 22. ISRAEL: THE START-UP NATION, IS AT THE FOREFRONT OF INNOVATION • Highest # of startups per capita1 • #1 R&D as % of GDP 2 • #1 Researchers per capita 3 • #3 Scientific & Technical Journal Articles, per Capita4 Source: 1) “Start-Up Nation”, 2,3,4) World Databank population (mm) World Rank ICT % of total services exports World Rank Researchers per Capita World Rank Expenditures for R&D (% of GDP) World Rank Israel 8.2 109 63.1 9 8282 1 4.21 1 Canada 35.5 51 42.8 21 4490 21 1.62 28 Korea, Rep. 50.4 41 19.1 96 6457 6 4.15 2 United States 318.9 16 22.8 80 4019 12 2.81 10 24 Israel: The Start-Up Nation, is at the forefront of Innovation
  23. 23. ISRAEL RANKS VERY HIGH ON COMPETITIVE INDEX (INNOVATION) Source: WEF, 2015 Global Competitiveness Report 25 Capacity for innovation Quality of scientific research institutions Company spending on R&D University- industry collaboration in R&D Gov’t procurement of advanced tech products Availability of scientists and engineers PCT patents, applications/mil lion pop. Israel 3 3 5 7 8 8 5 Canada 23 18 26 19 55 10 19 Korea, Rep. 24 27 21 26 24 40 7 United States 2 4 3 2 11 4 11 Israel ranks very high on Competitive Index (Innovation)
  24. 24. ISRAEL: THE START-UP NATION, IS AT THE FOREFRONT OF INNOVATION • Russian immigration in the 90s • Yozma program to create a VC industry • Mandatory military service • CHUTZPAH 26 Why has Israel become a tech leader?
  25. 25. Between 2005 and 2015, these companies all bought at least one Israeli start-up. WHY ISRAEL? 27
  26. 26. NASDAQ/NYSE LISTINGS - EXITS Canada 220 Israel ~150 China 192 USA 7600 France, 8 Germany, 10 Switzerland, 14 UK, 11 Korea, 1 Japan, 1 India, 14 28 NYSE/NASDAQ listed companies
  27. 27. CANADA VS ISRAEL Canada Israel The Prime Minister The Right Honourable Justin Trudeau Bibi Failure Find something else to do A learning experience Most often-used expression Sorry Sababa National Symbol The Beaver Sabra fruit Sport Hockey Startups Weather Hockey, Awesome hockey, Hockey in shorts, 3 weeks crappy hockey Hot, Bloody hot, Really freaking hot, Ahhhh 29
  28. 28. AVOID THESE COMMON MISTAKES Waiting too long before investing for the first time Spreading yourself too thin Putting all your eggs in one basket Asking the wrong questions Ignoring red flags Hype / Fear of missing out Incorrectly manage your expectations Market Timing
  29. 29. Q&A

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