Five main sources of financing for startup companies

1
Five main sources of financing for start-up
companies

• Friends Family / Individual Investors (referred
  to as angels).

2
At what stage of the business do VCs invest?
3
Who can attract VC investment?
Revenue Potential (M)
Can Raise VC
Cannot Raise VC
4
Finding the right deal is the challenge!

• Venture Capital is Equity investment in high
  risk, but high potential and high growth
  businesses
• Looking for 100 per year or higher growth
• Business has potential to dominate a market
• VC has ability to exit in the future
• VCs invest in lt 2 of the business plans they
  review

5
Due Diligence From submission to decision

• Complete process could take anywhere from 2 to 6
  months
• Initial screening and analysis can quickly
  disqualify up to 90 of submissions
• Deep due diligence is an iterative process that
  is done on 10 to 15 of the submissions
• Final investment is made on 1 to 2 of deals

6
Basic screening cuts out gt 50 of deals

• Was this company referred to me by someone I
  know?
• Does the deal fit with the stage of my fund?
• Does the deal fit with my funds focus
• Technology
• Geography
• Size of investment
• Other mandate
• Are there any potential conflicts with existing
  portfolio companies?
• Is the executive summary or business plan well
  written?

7
Initial analysis and dialogue with entrepreneur
help narrow the funnel to 10 to 15 of deals

• Management
• Are the founders serial entrepreneurs?
• Ethical or moral issues at play? (zero tolerance)
• Market
• Is the target market large enough (total
  available market gt100M)?
• Can the Company become a dominant force in its
  market?
• Is the business an enabler of future industry
  developments, and does it fit within the
  long-term structure of the industry (roadmap)?
• Product, Technology and Intellectual Property
  (IP)
• Does the company create or own anything truly
  unique and novel?
• Does the company/entrepreneur own the
  Intellectual property or are partnerships
  required
• Financial and other considerations
• Can it achieve objectives within available
  funding, and can we easily foresee where the
  syndicate can be formed?
• Can it attain 250M value (importance or market
  cap) in a reasonable time frame (5 to 7 years)?
• Is there an exit for VC down the road
• Is the business one of the half-dozen best deals
  we expect to see all year?

8
Due Diligence Trust, but Verify

• Due Diligence is Rigorous research to verify
  the companys claims and to understand the risks
• Due Diligence consists of
• Checking the accuracy of the business plan
• Collecting data by calling (perspective)
  customers channel partners, ex-bosses and
  employees.
• Validating feasibility of projections (financial,
  business, product)
• Conducting patent searches, technical studies,
  market studies.
• Reviewing audited financial statements

9
Characteristics of an A executive/team
10
We want to invest in BIG markets
11
Technology and product
Technological achievement is not a sufficient
basis for market acceptance
12
Financials and deal structure
13
Is the entrepreneur realistic about .

• . the opportunity
• Open, honest and spin-free
• . the competitive advantage
• Willing to learn and change
• . managements capabilities
• Customer focus NOT technology focus
• . deal structure terms
• The pie will grow

14

• My contact
• jennyinc_at_gmail.com
• Local angel groups
• http//www.angelforum.org/
• http//www.wutif.ca/
• Local technology associations and news
• momentum.vef.org
• www.techvibes.com
• www.bctia.org

• Recommended Readings
• Crossing the Chasm by Geoffrey A. Moore (must
  read for engineers go to market strategies for
  new technologies)
• Founders at Work Stories of Startups' Early Days
  by Jessica Livingston
• http//blog.guykawasaki.com/
• http//www.avc.com/