How to find fund for start-up companies. A presentation from Lotus 9 - conference about startups. Website: http://www.aiesec.lv/lotus

1. Where to get money?
Riga, 15 December 2012

2. About Capitalia
• Capitalia is a leading investment and financial CAPITALIA OFFICES
advisory company in the Baltic States,
TALLINN
specializing in working with small and medium
sized businesses.
• Largest non-bank micro lender in the Baltic
States, venture capital and mezzanine investment
manager.
• With offices in Latvia, Lithuania and Estonia, RIGA
employs 10 investment and finance specialists.
• Financially supported more than 200 companies
with total managed loan and venture capital
investment of over LVL 10 millions. VILNIUS
• Market-leading experience mergers and
acquisitions, valuation and financial advisory to
small and medium sized businesses.
2

3. Sources of financing
company
idea start-up early growth growth mature
stage
founders, friends, family
and grants
private investors/
business angels, seed funds
sources of
venture capital funds
financing
alternative loans
(mezzanine)
public markets,
commercial banks
3

4. Risk and return decreases with maturity
idea start-up early growth growth mature
founders, friends, family
0-∞ and grants
private investors/
30-100% business angels, seed funds
20-50% venture capital funds
alternative loans
15-30%
(mezzanine)
10-20% public markets,
or less commercial banks
4

5. Founders, friends, family
www.dilbert.com
5

6. Grants
• Grants are like subsidies – ‘free’ money, but you have to meet their criteria
• Altum (Hipotēku banka), subsidized loans for start-ups | altum.lv
– loan up to LVL 54’000, with grant up to LVL 5’600
• Nodarbinātības Valsts Aģentūra, funding for unemployed | nva.gov.lv
– LVL 2’000 + 6 month salary
• Lauku Atbalsta Dienests, funding for agriculture and similar | lad.gov.lv
– various grants depending on type of business
• Atsperiens, funding program by Riga Council and Swedbank | riga.lv
– up to LVL 8’000
• Ideju Kauss, business plan competition | idejukauss.lv
– prize fund LVL 10’000
• Investment and Development Agency of Latvia, various grants | liaa.gov.lv
6

7. Grants (2)
• Business incubators typically provide subsidized space and services, and
non-monetary benefits (networking, advice)
– University business incubators, technology transfer centers
– Creative Andrejsala, in Riga | creativeandrejsala.lv
– TechHub, in Riga | techhub.lv
– MADARA inkubators, in Riga | madaracosmetics.lv
– Rīgas reģiona biznesa attīstības inkubators, in Ogre, Limbaži, Tukums | rrbai.lv
– Jelgavas Biznesa Inkubators, in Jelgava, Jēkabpils, Aizkraukle, Dobele | jic.lv
– Mangus, in Cēsis, Madona, Lielvārde | magnus.lv
– Valmieras Biznesa un inovāciju inkubators, in Valmiera and Gulbene | vbii.lv
– Rēzeknes biznesa inkubators, in Rēzekne, Daugavpils, Balvi, Preiļi |
idejuviesnica.lv
– Līvānu Inženiertehnoloģiju un inovāciju centrs, in Līvāni | liic.lv
– Kurzemes Biznesa Inkubators, in Liepāja, Kuldīga, Saldus | kbi.lv
– Ventspils Augsto tehnoloģiju parks, in Ventspils and Talsi | vatp.lv
7

8. Private investors / business angels
• Business angels are generally wealthy individuals with business experience
• Invest for shares in company, often offer hands-on help
• Usually flexible on exit horizon
• Pardodbiznesu.lv, the largest website for attracting investments and selling
companies | pardodbiznesu.lv
• Connect Latvia, connecting entrepreneurs and investors | connectlatvia.lv
• Seed Forum, connecting entrepreneurs and investors | seedforum.org/latvia
• Latvijas Privāto Investoru Asociācija, business angel network |
biznesaengeli.lv
• Industry experts and successful entrepreneurs
8

9. Seed funds
• Invest in early stage companies, for finalizing prototypes and starting
business activities
• Take shares in the company
• Often anticipate further investment rounds
• Imprimatur Capital Seed Fund (up to EUR 100’000) | icfm.lv
• New funds about to be established via Latvian Guarantee Agency | lga.lv
9

10. Venture capital
• Invest in start-up and expansion stage companies
• Take shares in the company, often more complex structures
• 4-6 year exit horizon
• Imprimatur Capital Technology Venture Fund (up to EUR 1 mil) | icfm.lv
• BaltCap Latvia Venture Capital Fund (up to EUR 3 mil) | baltcap.com
• AB.LV Private Equity Fund 2010 | ab.lv
• Noninstitutionalized venture capital:
– Capitalia | capitalia.lv
– ZGI Capital | zgi.lv
– Eko Investors | ekoinvestors.lv
• New funds about to be established via Latvian Guarantee Agency | lga.lv
10

11. Other useful contacts
• REA Mentoru klubs, network of business mentors | mentoruklubs.lv
• Līdere, network of business mentors | lidere.lv
• Jauno Uzņēmēju Centrs, free business consultations | jaunaisuznemejs.lv
• Startup Sauna, tech project accelerator | startupsauna.com
• Garage48, tech project ‘hackathon’| garage48.org
11

12. What do start-up investors look for
• Team
– Core team is complete and meets the needs of the business
– Team has prior experience in the field
– Personality chemistry factor
– Team works philosophies that investor encourages (ethics, diligence, frugality)
• Product and business operations
– Product/service and business model is understandable
– Business is scalable
– Ability to pivot
– Competitive advantage is clear and hard to replicate
12

13. What do start-up investors look for (2)
• Market
– Market is significantly sizable to allow for growth potential
– Competitive environment is favourable
• Finances
– Investment is enough to reach important milestones
– Potential return compensates for risk
– Clear exit strategy
13

14. How to prepare for attracting investor
• Meeting with investor is like a job interview
• “Elevator pitch” – 2 to 3 sentences of what you (plan to) do and how, what is
the market, how you make money
• 2 page maximum for a written pitch
• Business plan is not necessarily written, but definitely thought through
(note: business plan is usually a requirement for grants or funds)
• Financial forecasts – better “rough” than too detailed, but key cost drivers
known
• Investment amount should be fixed
• Investor share % to be discussed (but have an idea)
14

15. Investor share
Investment of LVL 100’000 for
25% share means ..
.. your 75% share is worth
LVL 300’000
15

16. What NOT to do
• Inability to easily explain your start-up in 2-3 sentences
• “no competition”, “no risks”, “we need just 1% of China market” etc.
• Fear of investor involvement
• Fear of stealing ideas
• Too much technical detail
• Spending money unnecessary
• Hockey sticks in forecasts
16

17. Hockey stick
17

18. Hockey stick
18

19. Agreements with investors
• Simplest form – articles of association
• Additional terms in shareholder or investment agreement, e.g.:
– Corporate Governance - shareholder meetings, voting rights, decision making,
board membership etc.
– Exit of investment or sale by owner
– Non-compete clauses
– Options and other instruments for motivation
19

20. Contacts
Ģirts Tihomirovs
Investment Director
T: +371 2648 0478
E: girts@capitalia.lv
Latvija Lietuva Igaunija
Kr.Barona 13/15-51 Didžioji gatvė 11-16 Viru väljak 2
Rīga, LV-1011 Vilnius, 01128, Lietuva Tallinn, EE10111
T: +371 2880 0880 T: +370 6700 7061 T: +372 663 1153