Investment and fundraising for startups
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Everything you need to know about an investment and fundraising for start-ups. The presentation covers all different sources of financing for high growth companies: - Bootstrapping and the four Fs - Angel investors - Startup accelerators - Venture capital funds - Investment documentation - Alternative funding sources (crowdfunding, etc.) - Grants and incentives In the presentation you will also find some basics how to prepare your investment documentation and how to pitch to venture capital investors.
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Investment and fundraising for startups
- 2. BLAZ KOS • 10+ years working with start-ups • Management of university incubator, technology park and business angel network • Management of two start-up accelerators and co-working space • PODIM Conference – one of the biggest conferences in Alps-Adriatic region • 600+ lectures in CEE • Mentored over 300 start-ups • Two handbooks about startups, 1500+ pages on two blogs I am on a life mission to make the world a more innovative, organized and transparent place to be by helping individuals, organizations and communities achieve their peak potential and an entirely new level of performance.
- 3. www.AgileLeanLife.com An entirely new level of personal performance.
- 4. Investors will smell uncertainty on you.
- 5. Bootstrapping / Retained Earnings • Internally Generated Funds • You reinvest money in growth of the business Grants and support on offers • Tenders • Incubators, technology parks, … Debt financing • Credit, leasing, factoring, franchising… Equity financing • The investors becomes co-owner Crowd funding
- 6. Personal Bootstrapping • Personal savings • Maximize credit cards • Keep the day job (until first customers) • Use personal computer, car and offices • Minimal salary when you start a business
- 7. Company Bootstrapping • Side projects • Consulting services • Partnerships • Understaff / Volunteer Help • Guerrilla Marketing & PR • Trade credits • Advanced payments • Lease Don‘t Buy
- 8. Grants and support on offers Infrastructure Incubators Technology parks Business plan competitions Tenders Municipality level National level Regional level EU level
- 9. Debt financing • Banks look at the company history • Cash flow • Insurance (assets, surety) • No added value • Influences your cash flow • Start-ups • No history • No assets
- 10. Crowd funding • Reward • Donation • Investment • Loan • Pre-order
- 11. Equity financing • 4F - founders, friends, family, fools • Startup Accelerators • Business Angels • Venture Capital Funds • Private Equity Funds • Stock Exchange
- 12. FFFF Founders • Put your money where your mouth is • Sweat and tears Friends • Not always wise • Don’t mix business with pleasure Family • Financial and moral support • Big difference between US and EU Fools • You can probably always find a fool ;) Oh, really?
- 13. Startup Accelerators • Competition • Micro Funds for small equity • 10.000€ – 50.000€ / 5% - 10% • Training and mentoring • Pitching for bigger investment
- 14. Business angels • High net worth individuals • High emotional incentive • Smart money • Business / sector know how • Experiences • Social capital • Drive to create companies • Not all angels are alike • Industry • Business background • Active / Passive MVP / Traction 50k€ - 500k€
- 15. Venture Capital Funds • It’s a FUND with hired management team • Management team are usually also partners in the fund • Strict Investment policy • Investments in later stages (in CEE region) • Expansion capital • Higher investment size: 1 mio € to 3 mio € • Different type of funds: Sector, Geography, Stage of development
- 16. What do they look for? • Innovative idea: Problem, pain, solution • Business model: Scalability, profit margins etc. • Big market: Potential for Explosive Growth • Top executive team with strong leadership • Exit strategy Enthusiasm: Spark in the eye Expertise: Sector and business knowledge
- 17. What do they look for? Good signs • Unfair advantage • Disruptive technology • High profit margins • Short sales cycle • Repeated sales • Recession proof Sectors • IT and telecommunications • Web startups • Medical • Clean tech Bad signs • No core competence • Dominant players on the market • Price driven competition • Low profit margins • Long sales cycles Sectors • Retail • Restaurants • Services
- 18. It Matters Whom You Marry • You have to be 100% sure you want to get married • Meeting point • Networks, conferences (20%) • People you already know (80%) - Trust • Good sales pitch • Chemistry (!) • Same vision • Trust • Contribution into relationship • Signing the contract • Divorce
- 19. Syndication • More angels/VCs invest in one company • Lower risk for the investors • Lead investor and co investors • Lead investor should speak for the whole syndicate Cons • Coordination • Too many shareholders • Passive investors • It takes longer to make key decisions Pros • More added value and help • More contacts and reputation • More money and less pressure
- 21. Short Description of Your Business • Elevator Pitch • Few paragraphs you can e-mail or explain to potential investor in a few minutes • What does your company do? • So what? • Example… • What do you want?
- 22. Business Plan PPT Presentation COMPANY PURPOSE • Define the company/business in a single declarative sentence. PROBLEM • Describe the pain of the customer (or the customer’s customer). • Outline how the customer addresses the issue today. SOLUTION • Demonstrate your company’s value proposition to make the customer’s life better. • Show where your product physically sits. • Provide use cases. WHY NOW • Set-up the historical evolution of your category. • Define recent trends that make your solution possible. MARKET SIZE • Identify/profile the customer you cater to. • Calculate the TAM (top down), SAM (bottoms up) and SOM. COMPETITION • List competitors • List competitive advantages PRODUCT • Product line-up (form factor, functionality, features, architecture, intellectual property). • Development roadmap. BUSINESS MODEL • Revenue model • Pricing • Average account size and/or lifetime value • Sales & distribution model • Customer/pipeline list TEAM • Founders & Management • Board of Directors/Board of Advisors FINANCIALS • P&L • Balance sheet • Cash flow • Cap table • The deal
- 23. Key things for investor • The problem • The size of the opportunity • Strength of the team • Level of competition • Your competitive advantage • Plan of attack • Current status • Milestones • Financials
- 24. 20 min presentation to VC on a meeting 3 min presentation to super angel 7 min presentation on conference
- 25. • Business Plan • No one reads them • Investors prefer demos, MVPs, prototypes, traction • Necessary document for some investors • Executive Summary • One to three page description of your business • Private placement memorandum (PPM) • For investment bankers not VCs Other Fund-Raising Materials
- 26. • 100% of them are wrong • Nevertheless you must understand the financial dynamics of your business • Think innovation accounting and key metrics • Assumptions underlying the revenue forecast • Monthly burn rate Detailed Financial Model
- 27. MVP, DEMO, PROTOTYPE, BETA,… + TRACTION
- 28. Best way to get to the VC is with help of your fellow entrepreneurs or ask for an advice.
- 29. General Advice • Decide what you want • Do your homework - RESEARCH • Prepare all the necessary documentation • Make awesome first impression • Network, network, network • Do the follow up • Get the lead investor • Push, push, push • Listen to your gut instinct
- 30. Disadvantages of VC Financing • It’s the most expensive sort of money • The cheapest is the one you can get from your customers • All the shareholders have rights • You will rarely hear NO • Nobody know what’s going to be next big thing • But NO really means NO • It takes a lot of energy & time • Getting an investor is a hard work
- 31. Biggest mistakes • Hiding your idea or having more than one idea / Don‘t ask for NDA • Having just an idea / Being solo founder • No fundraising materials • No competition attitude • To technology oriented (on patent for example) • Just top down analysis (1% of Chinese market) • Having to much faith in viral marketing • No focus or no full commitment • Financial forecasts are really conservative • Not telling the truth (we have contracts etc.) • Expecting too much too fast
- 32. Due Diligence Investigation of the business Technical: Intellectual property, risks, etc. Financial: Debt, past financials, etc. Legal: Contracts Sales: Talking with potential clients People: Track record Time spend on due diligence is in strong connection with the quality of the deal