Presentation from Ideas to Deals Live on August 27, 2009

1. Ideas to Deals
Building an Investment Ready
Business
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2. “In preparing for battle I have
always found that plans are
useless, but planning is
indispensable.”
- Dwight D. Eisenhower
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3. Build A Business
Make Meaning
Make a difference
Make Value
If you succeed in building a business,
either funding sources will be fighting
to give you money or you won’t need
their money.
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4. Key to Writing an Operating Plan
Do it for you.
Keep it simple.
Keep it real.
Internalize it.
Work it.
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5. The key to funding is knowing your
business and being honest about
what you have.
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6. Can you answer this:
What do you do?
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7. OK…
Can you put it in a box
and sell it?
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8. What kind of Business Do
You Have?
Scaleable, Exponential Growth,
Defined Exit?
Heavy Service Component, Slow/high
Growth, No Exit?
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9. Who is out there to buy our
Product?
How do we get them to buy our
product?
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10. Valuation
What is it all Worth?
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11. Key Valuation Issues
Valuation of early-stage companies is a little
short of random.
Valuation is negotiated, there are no hard
numbers especially for early-stage companies.
Provide a good projection of future value at a
potential, future liquidity date and discount
back.
Know comparables…What other companies,
similar to yours, have generated what multiples
of sales at liquidity.
Build value as you build the company ~ Focus
on “Value Inflection Points”.
Focus on dollars not percentage
10% of a $20 million company is worth more than
100% of a $1 million company.
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12. Suggestions for CEO’s
Know what investors look for and expect.
Make sure you and the investors are on the
same page. Good investors will want you to
have a fair percentage of the company.
Know why these things are important to
investors.
Understand the factors that influence value
Anticipate investor questions.
Look at competitive deals.
Learn from the process ~ Listen well
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13. Cap Table Example
Pre Investment
Unit Holders Issued Valuation Pre-investment Post-investment
John Doe 500k $500k 25% 19%
Bill Smith 400k $400k 20% 15%
Jane Brown 800k $800k 40% 31%
ESO Pool 300k $300k 15% 15%
Note…ESO does not dilute
Total Issued $2 mil $2 mil 100% 80%
Post Investment
Investors 500k $500k 0% 20%
Total Issued $2.5 mil $2.5 mil 25% 100%
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14. “Cram Down” Example
Pre Investment
Unit Holders Issued Valuation Pre-investment Post-investment
John Doe 481,250 $240,625 19% 11.5%
Bill Smith 381,250 $190,625 15% 9.5%
Jane Brown 781,520 $390,625 31% 19%
ESO Pool 375,000 $187,500 15% 15%
Investors 481,250 $240,625 20% 11.5%
Total Issued $2.5 mil $1,250,000 100% 62.5%
Post Investment
Investors Rd 2 1,500,000 $1,250,000 0% 37.5%
Total Issued $4 mil $2.5 mil 100%
$750,000 raised at $.50 per share; decrease in valuation of 50%
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15. 15

16. Friends, Family, Founder
Bootstrapping is building the business from
internally generated funds.
• You need to establish a foundation for your
business.
• Build credibility and show that your business has
customers and a product that people want to buy.
• Focus on customers and cash flow.
• Work hard and be creative in seeking ways to drive
revenue while holding expenses down.
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17. Angel Investors
Angel investors are high net worth
individuals who are interested in investing in
emerging businesses.
Two Types of Angel Investors
Professional
Strategic
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18. Professional Investors
The underlying reason that they will
invest is return on their investment.
They invest in spaces they know.
They invest with people they know
They invest based on referrals from
people they know.
Invest based on due diligence.
Will require professional terms.
Looking for a big payout based on a
liquidity event.
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19. Strategic Investors
More interested in the product than
the business.
Invest based on gut reaction.
May take common stock
May not look for a liquidity event.
May be the friends in FFF (or referred
by FFF)
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20. Key points About Investors
If you take someone else’s money
you have a partner. They will want to
have some influence on the company
to protect their investment.
You will probably have to relinquish
some level of control over the
company.
If you are unwilling to share
leadership of the company, investors
are not the option for you.
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21. Institutional Venture Capital
The only reason that they will invest is return
on their investment.
They only invest in spaces they know.
They only invest with people they know
They only invest based on referrals from
people they know.
Invest only based on due diligence.
Will only require professional terms.
They are only looking for a big payout based
on a liquidity event.
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22. Seeking Investors
Investors invest in people and
teams that can execute.
“A” teams with “B” markets will generally
beat “B” teams with “A” markets.
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23. Investor Business Plan Summary Format
Summary should be “concise”
Summary should provide a clear description of
the problem you solve.
How you solve it.
Your business model.
The underlying magic of your product.
Defensibility of your product.
Summary should be no more than “four-pages”.
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24. Pitching
Question: How can you tell if
an entrepreneur is pitching
their business?
Answer: Their lips are
moving.
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25. Tips for Pitching
Explain what you do in the first minute.
“Clearly” explain what you do in the first
minute.
Articulate the problem in the market and
what you do to solve it.
Purpose of a pitch is to “stimulate interest” not
to close the deal.
Keep it tight. 10 slides, 20 minutes, 30
point font.
Speak to the audience’s interest.
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26. Pitching Plan
Title Slide: This is where you tell what you do and give a
simple to understand example.
Problem: Describe the pain you are alleviating for your
customers.
Solution: Show how you solve the pain.
Business model: Explain how you make money.
The advantage you have: Why are you different than
everyone else?
Marketing and Sales: "Clearly" tell what your sales strategy
is. Do not forget to discuss your pricing.
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27. Pitching Plan
Competition: Show there is enough of a market available to
buy your product even with the competition.
Management Team: You need to convince the investor that
you have the team that can execute and will succeed.
Financial Projections: You need a simplified, clear slide here.
You need to justify your numbers.
Current Status/Future Status: Show your use of funds and
how that will drive the growth of the company. You do need
to discuss exit options. Who are buyers and when. Don't
hem-haw around. show the investor that they can not only
expect the company to succeed (which is about you) but
also that they can expect a return in a certain time frame
(which is about them).
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28. Investors’ Interest
How are you going to make
money?
How are you going to generate my
return?
Are you capable of “executing”?
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29. Don’t When Speaking to Investors.
Don’t try to BS the investor because they
see through it.
Get your value proposition across early in
case you don’t get to the end of the
presentation.
Don’t get bogged down on the mechanics of
the product. Early on the investor will
assume it works as you say it will.
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30. Don’t When Speaking to Investors.
Don’t ask for an NDA at initial
meetings!!!
Real investors are not in the business of
stealing ideas and trying to develop them.
You control what is in the summary and
initial pitch. You don’t need to disclose
the “secret sauce” at this point.
Investors will sign an NDA prior to due
diligence.
Get over it…You’re not that special
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31. Recommended Readings
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32. Resources for Assistance
Ohio Small Business Development Center
http://sbdcfreeadvice.ning.com,
614-287-5294
TechColumbus
www.techcolumbus.org,
614-487-3700
Ideas to Deals Blog
www.ideas2deals.typepad.com
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33. Everything is always impossible
before it works.
That is what entrepreneurs are all
about – doing what people have told
them is impossible.
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34. For Information on SBDC Activities
The Ohio SBDC at Columbus State
p. 614-287-5294
http://sbdcfreeadvice.ning.com
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35. “Pitching the Dream”
Mark Butterworth
Innovation4ward

36. Agenda
What investors looking for
The pitch
Deal structure
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37. Angels – Looking For
A company where they believe can
add value and make money (and
have fun)
An industry they understand and
good management team
Invest based on: Chemistry
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38. Venture Capital – Looking For
A company where they can make lots
of money (fun is not a factor)
Big markets, sustainable
differentiation and good management
Invest based on: Management team
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39. Good Management – Ideal
Experience in a start-up or launching
a product within a large company
Domain knowledge
Relationships with key customers
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40. Good Management – Other
Broad vision
Ambitious
Tremendous energy
Good listener
Adaptable
Know that they don’t know everything
Hire people better than themselves
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41. Investment Criteria: Other
Sales and marketing strategy
Competition
Technology
Financials
Exit strategy
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42. The Investor’s Mindset
Their time is more important than
their money
You must manage the process!
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43. First Meeting – Angel Investors
Goal: Get a second meeting not a check
Format: Short, non-technical PowerPoint
Message: Within the first three minutes:
The problem you are solving,
How you solve the problem, and
That you have the management team to
execute
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44. First Meeting - Other
Do not assume:
they have read the plan
that you will get through presentation
The product or technology is only 5%
of the pitch in the first meeting
One page summary financials
Assumptions more important than
numbers
How the investor will make money!
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45. After The First Meeting
You must manage the process
Anticipate the investors needs
Submit your own Due Diligence
Review Manual
Don not tell them “it is in the
business plan”
Opportunity to customize to their “hot
buttons”
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46. Deal Structure
Individual Angels:
Security: Common stock
Exit: Share buy-back, Sale or IPO
Return: 15% to 20%
Valuation: reasonable
Organized Angel Funds and Venture
Funds:
Security: Preferred stock
Exit: Sale or IPO
Return: 30%+ compound annual
Valuation: Tough but fair
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47. Preferred vs. Common Stock
Common Investors and management have same
rights
Preferred has additional rights:
Liquidation preference – get their money back first
• Anti-dilution provisions – protection against
reduction in valuation
• Redemption – investment plus dividends back at
predetermined time
• Dividends – 5% to 8% annually
• Veto over strategic decisions (sale, liquidation, IPO)
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48. Resources:
Gerald A. Benjamin and Joel Margulis. Finding Your
Wings (How to Locate Private Investors to Fund
Your Venture). New York: John Wiley & Sons, Inc. ,
1996.
David Gladstone. Venture Capital Handbook (An
Entrepreneur’s Guide to Obtaining Capital to Start a
Business, or Expand an Existing Business).
Englewood Cliffs: Prentice Hall, 1998.
Pratt’s Guide to Venture Capital Sources. New
York: Securities Data Publishing, 2000.
www.pwcMoneyTree.com
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49. For Information on SBDC Activities
The Ohio SBDC at Columbus State
p. 614-287-5294
http://sbdcfreeadvice.ning.com
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