Navigating Angel, VC, Debit, SBIR, and Crowdfunding Options

1. The Capital Network is a non-profit (501c3) organization that provides practical, hands-on
education and personalized mentoring to help early stage entrepreneurs master the entire funding
process and successfully raise seed capital & beyond.
We know fundraising is hard so we provide entrepreneurs with:
Want to know more?
Follow us on @TCNUpdate www.thecapitalnetwork.org
The Right Network
We work with Angel Groups, VC Firms,
Accelerators, Community Organizations,
Service Providers and Seasoned
Entrepreneurs to help you succeed and grow
by increasing your chances of getting the right
kind of investment and connections.
The Right Programming
In collaboration with the investors who fund our
area’s startups, we create 40+ events a year -
workshops, roundtables, 1 on 1 mentoring and
bootcamps - that reflect the latest trends and
insights in the fundraising and startup
community.

2. thecapitalnetwork.org - @TCNUpdate
Funding 101: Pathways to
Funding Your Startup
The Angel:
Jess McLear
Launchpad Venture
Group
mclear08@mac.com
The Banker:
Jeff Griffor
Square1 Bank
The SBIR
Expert:
Laura Hales
The Isis editing
Group
The VC:
Andrew Hedin
Bessemer
Venture Partners
The
Entrepreneur:
John Fanning
Jr.
Zelgor, Inc.

3. What Type of Company Are You?
Before you can get funded,
you have to know
where to look
Before you know where to look,
you need to understand
what you are

4. What Type of Company Are You?
•The type of company you have will shape the type of
funding available to you
• Consumer mobile social software company vs
Chemistry-based life science technology product vs Equipment for
emergency deployment in disaster zones
•Changes in business model can change the funding
required
• IP licensing of new battery technology to existing players vs
build a battery distribution company with outsource manufacturing or
build a manufacturing company with, or without distribution

5. NORMAL
GROWTH
COMPANY
HIGH
GROWTH
COMPANY
EXTREME
HIGH GROWTH
COMPANY
SOCIAL VENTURE
COMPANY
• Includes all
service
businesses
• Exploiting a local
market need
• Team has ‘great
jobs’
• Growth by adding
resources one by
one
• Exit will be based
on value of cash
flow (mature biz.)
• Growth profile
ultra-scalable
• Team focus is exit
• Revenue $40M+
with lots of room for
growth (5 yr.)
• Based on $20M+
investment
• Exit targeted to IPO
or by ‘large’ M&A
event
• Goal is to fulfill a
social need
• Has mission
orientation
• Team needs to
support mission
• Growth profile
often one resource
at a time
• Exit …much
harder to find fit
• Company can grow
fast (on-line) or has
a scalable system
• Team often
motivated by exit
• $7-10M revenue in
4-5 yrs & market
size allows
significant
additional growth
• Capital efficient total
investment$2-4M
• Exit by M&A
What Type of Company Are You?

6. What Kind of Funding
NORMAL
GROWTH
COMPANY
HIGH
GROWTH
COMPANY
EXTREME
HIGH GROWTH
COMPANY
SOCIAL VENTURE
COMPANY
• Friends, family,
founders
• Debt, Bank, and
other
• (Future) Crowd
funding (portal
style)
Early on
• Accelerators
• Individual Angels
• Micro Cap VCs
• Seed from VC
Later stages
• Venture Funds
• Strategic VCs
• Angel Syndication
• Friends family,
founders
• Charity$$
• Crowd funding
(Kickstarter, etc)
• Impact Angels
• (Future) Crowd
funding (portal
style)
• Angels
• Angel Groups
• Angel Group
Syndication
• Angel List
• Micro-cap Funds
• (Future) Crowd
funding (portal
style)
• Increasingly
Strategic Corporate
VCs

7. Capital Sources: Size & Cost
Investment Size
Traditional VC
Micro VC
Equipment Financing
Angel Groups
Angels
Equity Crowdfunding
Angel List, Circle Up, etc
Corporate / Strategic
Venture
Customers
Jobs Bill Portals
Vendors
Founder
Friends & Family
Crowdfunding: etc.
Grants
Venture Debt
Bank
Loans
Personal
Loans
Private Equity
B’Plan Competition
Accelerators
Investment“Cost”

8. Revenue
Debt
• Bank
• Friends/Family
• Non-convertible note
Customer/Vendor/Partner
• Prepaid product purchases from customers
• Pay later services from vendors
• Non-recoverable engineering costs from
partners
Grants
• SBIR & other Government Grants
• Business competitions
Capital Sources
Dilutive Non-Dilutive
Equity
• Convertible Note
• Stock
• Friends, Family Investors
• Common vs Preferred

9. Capital Sources
Size of Capital
Raise: High
Time
High Risk
Low Risk
Crystallize
Ideas
Demonstrate
Product
Early Scaling Growth Sustained GrowthMarket Entry
Size of Capital Raise: Low
As you develop your company, you reduce risk for your financial partners

10. Capital Sources: Equity
Stage
Crystallize Idea
and Early
Demonstration
Demonstrate
Product &
Market Interest
Market Entry
and Early
Growth
Early Scaling
Growth
Repeatable
Growth
Capital
Source
Founders,
Friends, Family,
Grants,
Kickstarter,
etc. Government
grants, eg., SBIR
Accelerators,
Individual
Angels, many
others now
“exploring” gove
rnment grants,
eg., SBIR
Angel Groups,
Angel Group
Syndication,
Micro-Cap
Funds governm
ent grants, eg.,
SBIR
VCs, Angel
Group
Syndication,
Micro-Cap
Funds
VCs
Investment $25K - $100K $100K - $500K $500K - $1M
$5M – as
needed
as needed
These 2 need sophisticated
growth plans
This is the stage
where advice can
make you eligible
for outside
funding later
Accelerators and
a few individual
angels play here
… unless it is a big
idea
This is where
Angel Groups do
most 1st
investments

11. Equity: VC vs Angel
Angels
• Invest their own money
• Motivated to help entrepreneurs,
stay engaged
• But Return on Investment is still the
controlling metric
• Likes big returns but will often be
happy with more modest returns in a
shorter amount of time3-5 year
outlook on investments unless VCs
get involved
VC Funds
• Invest other people’s money (pension
funds, …)
• Have multi-million $ funds they need to
put to work
• Invest big and must get big returns for
their investors
• 7+ year outlook for exit returns (10-
year funds)

12. Equity: VC vs Angel
Angels
$24.6B in 2015 ~ 305,000 investors
71,000 deals:
(18,000 Seed & 32,000 Early Stage)
NE sees 12% of all US deals
Types of angels
Individuals
Organized: Funds: 16%; Network: 63%
(avg 10 deals / year)
AngelList
Informal networks & 1 time investors
Family offices
Mostly invest locally
VCs
$59B in 2015,~ 4,300 Deals
(186 seed & 2200 early stage)
12 Companies accounted for more
than 10B
Angel Syndicates (relatively new)
• Individual angels, or several angel groups investing as a unit
• AngelList syndicates
• VC-backed syndicates

13. Debt Capital
Debt Capital
• Funding based on a set schedule of
principal and interest payments that
provide a fixed return for the lender.
• Availability may be based on asset
value or cash flow or personal
guarantee.
• MUST be paid back. Not “speculative”
cash.
Sources:
• Personal Loans – Friends/Family
• Bank Loans
• SBA Loans
• Expect debt classes from Jobs Bill crowd
funding portals
• Credit Cards
• Venture Debt (usually linked to equity &
later stage)

14. Alternate Sources
Crowd Funding
• Kickstarter, Indiego-go
• Usually associated with “product”
companies
• Can come with drawbacks
Accelerators
Many incubators across the country
• May focus on specific types eg.
LearnLaunch for EdTech
•Many different models
• Non-profit, equity stake, revenue, loan
•Can be very helpful but be wary of
being of the “accelerator circuit” too
long.
*Equity Crowdfunding (new as of May 2016)
Jumpstart Micro, WeFunder
Little information so far…

15. Non-Dilutive Funding
SBIR + STTR = 3% - 3.6% of federal R&D Budget
Best for research … need other commercial $$
Pros:
•It is a contract/grant – non
dilutive
Cons:
•Long Solicitation Process
•March-in Rights
•Work with universities for
expertise
•Best to incorporate (but more
acceptance of LLCs)
•Accounting systems must be
compliant with the government
•Very competitive in some
agencies

16. Small Business Innovation Research
Grant (SBIR)
MISSION:
To support scientific excellence and technological
innovation through the investment of Federal
research funds in critical American priorities to
build a strong national economy… one small
business at a time.”
MONEY:
• ~$2.5 billion annual set aside | ~145,000
awards granted total | ~10 patents per
day generated (SBA)
• 11% of awardees have attracted another
$65 billion+ of venture capital
SBIR PROGRAM GOALS:
- Meet Federal research and development
needs
- Increase private-sector commercialization
of innovations derived from Federal
research and development funding
- Stimulate technological innovation
- Foster and encourage participation in
innovation and entrepreneurship by socially
and economically disadvantaged persons
The SBIR Program is managed by the Small Business Administration
- but is also directly administered by over 12 Agencies including:

17. Eligibility & Milestones
Eligibility is determined at time of award
- Organized as for-profit U.S. business
- Small: 500 or fewer employees, including
affiliates
- Work must be done in the U.S. (with few
exceptions)
- Company privately and individually
owned
• PI is not required to have a Ph.D./M.D
• Generally the PI is required to have some
expertise to oversee project scientifically
and technically
• Applications may be submitted to different
agencies for similar work
• Awards may not be accepted from different
agencies for duplicative projects
Milestone Driven Award Process
Phase I | Feasibility Study or Prototype - ~$150
thousand and 6 months
Phase II | Full Research and Development
Effort ~ $1 million and 24 months
Phase III | Commercialization Effort - Private
and Non-SBIR Allocated financing
5509 Total Awards in 2012
• 54% of $ to 10 States
• Phase I Awards | 64% of Awards | 24.2% of Funds
| Average Size $151,000
• Phase II Awards | 36% of Awards | 75.8% of Funds
| Average Size $718,000

18. SBIR: Overview of total $ awarded
MASSACHUSETTS

19. Conclusion
Educate yourself about all of your funding options:
• https://www.sbir.gov
- Example NSF: www.sbir.gov/agencies/national-science-foundation
- Next funding close date of Dec 6:
Advanced Manufacturing & Nanotechnology Biological Technologies, Chemical and
Environmental Technologies
• http://nvca.org
• http://www.angelcapitalassociation.org
• http://www.thecapitalnetwork.org
Non-dilutive funding is always great but not always the easiest to get
It’s all about the numbers for equity investors
Network, Network, Network
• http://www.greenhornconnect.com For startup events going on in MA