Part of the all day Venture Fast Track: http://www.thecapitalnetwork.org/programs/venture-fast-track/
Plan for funding: What Stage Is Your Business and What Are Your Options
Is your business an idea, in the midst of formation, or ready to raise capital? The first step to identifying what comes next is understanding the stage of your business.
Join our fundraising experts for an in-depth discussion of what options you have for funding and how to decide which ones are right for you and for your company.
Topics covered will include investment criteria, time to closing, investment range, success rates, control features, compliance requirements, and the overall costs of capital from each such source.
Experts:
- Ben Littauer – Boston Harbor Angels & Walnut Venture Associates
- Panos Panay – Sonicbids
2. Agenda
• Funding is an OUTCOME of your business
• You need to understand what kind of business
you have
– Type of business
– Business model
– Stage of business
– Gaps in your business
• You need to learn the language of finance
• But the bottom line is: if you build the business
well, the funding will follow
2
3. Types of Business
SOCIAL
VENTURE
COMPANY
• 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
NORMAL
GROWTH
COMPANY
“Small
&
Profitable”
HIGH
GROWTH
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.)
• Company can
grow fast (on-line)
or has a scalable
system
• Team often
motivated by exit
• $7-10M revenue in
5 yrs & market
size allows
significant
additional growth
• Capital efficient
total investment
$2-4M
• Exit by M&A
EXTREME
HIGH
GROWTH
COMPANY
• 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
3
4. Typical Funding Sources
SOCIAL
VENTURE
COMPANY
• Friends
family,
founders
• Charity$$
• Crowd funding
(Kickstarter,
etc)
• Impact Angels
• (Future)
Crowd funding
(portal style)
NORMAL
GROWTH
COMPANY
“Small
&
Profitable”
• Friends, family,
founders
• Debt, Bank, and
other
• (Future) Crowd
funding (portal
style)
HIGH
GROWTH
COMPANY
EXTREME
HIGH
GROWTH
COMPANY
• Angels
• Angel Groups
• Angel Group
Syndication
• Angel List
• Micro-cap Funds
• (Future) Crowd
funding (portal
style)
• Increasingly
Strategic
Corporate VCs
Early on
• Accelerators
• Individual Angels
• Micro Cap VCs
• Seed from VC
Later stages
• Venture Funds
• Strategic VCs
• Angel
Syndication
4
5. 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
• 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
• ConverOble
Debt–
really
another
form
of
equity
funding
5
6. Equity Capital
•
•
“Risk
Capital”,
shared
upside
Equity
Capital
requires
an
exit:
– IPO
&
Private
Equity
– M&A
(most)
•
VCs
invest
other
people’s
money
(from
pension
funds
etc.)
– Returns
are
measured
on
a
per
fund
basis
– Focus
find
the
best
&
adding
resources
to
aid
success
– ~$26.5B
annually,
~
3,700
new
investments
2012
•
Angels
invest
own
money
–
–
–
–
–
–
Prefer
capital
efficient
/
early
exit
opportuniOes
~$23B
annually,
~
67,000
new
investments
2012
Angel
groups
(a
dozen
greater
Boston,
two
dozen
NE)
~10-‐15%,
Informal
networks
&
one-‐Ome-‐investors
~15-‐20%,
Super
angels
~25-‐30%,
Family
offices
~35-‐45%
6
7. Alternate Sources of Funding
•
Business
Plan
CompeOOons
and
Accelerators
– Many
firms
gain
enough
for
some
product
compleOon
steps
•
Revenue
–
Best
of
all
(Bootstrapping)
– Revenue
history
opens
more
types
of
debts
– Pre-‐payments
•
Vendors,
partners
and
customers
– Including
NRE
to
build
joint
product
– Great
source
of
quick
capital
for
markeOng
or
sales
collaboraOon
•
SBIR
Grants
– ~$2
Billion
department
specific
funding
– 2
or
3
‘research’
calls
from
each
department
each
year,
must
be
used
for
research
…
then
you
commercialize
with
other
funding
•
Other
government
funding,
lots
of
“detailed”
sources
– Mass
Life
Science
&
Sustainable
Energy
–
loans
or
converOble
notes
•
Crowdfunding
– Pre-‐sales
or
(coming
soon?)
equity
7
8. Business Models - Software
Early
revenue
–
usually
more
capital
efficient
• Sokware
license
• SaaS
• SubscripOon
fees
• AcOon
or
TransacOon
fees
Later
revenue
–
usually
less
capital
efficient
• Two-‐sided
markets
• “Freemium”
• AdverOsing
• Virtual
goods
• “Big
data”
• “Eyeball
plays”
8
9. Business Models - Other
Consumer
goods
• Brand
building
• Manufacturing
• DistribuOon
Life
sciences
• Healthcare
IT
• Medical
devices
• PharmaceuOcals
9
10. High-Growth Funding
• Great
team
• Great
idea
/
innovaOon
• Large
market
• Scalability
• Great
ROI
The
choice
of
funding
can
be
cut
two
ways:
• Choose
your
business
model
based
on
preferred
funding/exit
• Choose
your
funding
based
on
preferred
business
model
10
11. Stages
• Crystal: Think out the issues
– Mostly about the TEAM, how you think, how you act, what you bring
to the party
– Mentors / advisors critical: “socialize the company”
• Demonstrate Product
– Prototype / MVP
– Early customer acceptance / purchase
• Market Entry
– Cost metrics
– Scalability
– Beware the early adopter!
• Growth
– Repeatable cost model
– “Fuel the fire”
11
12. Funding by Stage
Stage
Crystallize
Idea
and
Early
DemonstraIon
Demonstrate
Product
&
Market
Interest
Market
Entry
and
Early
Growth
Early
Scaling
Repeatable
Growth
Growth
Capital
Source
Founders,
Friends,
Family,
Grants,
Kickstarter,
etc.
Accelerators,
Individual
Angels,
many
others
now
“exploring”
Angel
Groups,
Angel
Group
SyndicaOon,
Micro-‐Cap
Funds
VCs,
Angel
Group
SyndicaOon,
Micro-‐Cap
Funds
VCs
$25K
-‐
$100K
$100K
-‐
$500K
$500K
-‐
$1M
$5M
–
as
needed
as
needed
Investment
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
….
These
2
need
sophisOcated
growth
plans
12
13. Gaps
• At each stage you need to identify the gaps that inhibit
growth
–
–
–
–
–
Product
Personnel
Promotion
Plan
Profits
• A strong investor can help with each of these
– Money addresses many problems
– Advice and mentorship solve others
– Industry connections can be key
13
14. Language
• In order to build your business, you need to speak the
language
– This is critical in thinking about your business
• Things like margins, CCA, LTV, MVP, viral coefficient
• Terms of art from your own industry
– Terms of the investment art
•
•
•
•
•
•
•
•
Equity versus Convertible Debt
Valuation
Preference
Governance
Representations
Restrictive Covenants
Cap tables
Etc, etc.
14