Scg Non Traditional Sources Of Capital
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A presentation designed to provide an introduction to non-traditional capital for small and emerging businesses.
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Scg Non Traditional Sources Of Capital
- 1. Non-Traditional Sources of Capital Presented By: Alan D. Lewis II STONECUTTER GROUP, llc Building the Foundation for Responsible and Sustainable Enterprise
- 3. Key Terms
- 4. Traditional vs. Non-Traditional Sources
- 7. The Art of Forecasting
- 8. Legal Framework for Equity Capital Raising
- 9. Startup and Early Stage Sources
- 10. Emerging and Growth Sources
- 11. Finders and Service Providers
- 13. Conclusion
- 14. Questions and AnswersNON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 2 Presented by Alan Lewis
- 16. Outcome: A clear understanding of the opportunities and challenges involved with pursuing non-traditional sources.
- 17. Approach: Address key terms and concepts, provide an overview of selected forms, and provide references for follow-up.NON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 3 Presented by Alan Lewis
- 19. Due Diligence
- 20. Term Sheet
- 21. Closing
- 22. Debt
- 23. Equity
- 25. Shareholders
- 26. Stakeholders
- 27. Assets
- 28. Liabilities
- 29. EBIDTA
- 30. Cashflow
- 31. Debt Service
- 32. Corporation
- 33. Institution
- 34. Return on Investment (ROI)
- 35. Exit StrategyNON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 4 Presented by Alan Lewis
- 36. Traditional vs. Non-Traditional Sources DEBT Individual Lenders Non-Bank Lenders Peer to Peer Friends and Family Crestmark Capital | Prosper.com Commercial and Merchant Banks Economic Development Agencies Bank of SCV | SCV Bank VEDC | PCR SBDC ASSET BASED Individual Investors Venture Capital | Private Equity Capital Markets Pasadena Angels | Peate Ventures The Riverside Companies | OTCBB Accounts Receivable Purchase Order Inventory and Equipment Bay View Capital | Cornerstone Capital King Trade Capital TRADITIONAL NON-TRADITIONAL NON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 5 Presented by Alan Lewis
- 38. The earlier the stage the more risk, the higher expected return (e.g. Angels seek multiple – 4x)
- 39. The more established the business, or the more collateral available, the lower the risk and expected return (e.g. commercial banks seek marginal returns – 9%)
- 40. Commercial and asset based lenders are typically “balance sheet” and “cashflow” investors
- 41. Equity investors are typically “income statement” and “exit strategy” investorsNON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 6 Presented by Alan Lewis
- 43. “The Rat Race”
- 44. Other Peoples Money (“OPM”)
- 45. Rational Faith
- 46. Tastes, Requirements, and Language often Changes and Interlopes
- 47. Misconceptions
- 48. Angels and Venture Capitalists Invest in Startups
- 49. Investors Invest in Good Ideas
- 50. Investors Invest in Good Business Plans
- 51. Reality
- 52. Skin in the Game
- 54. Investors Invest in Value
- 55. Value equals Revenue, Profitability, and Net Asset ValueNON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 7 Presented by Alan Lewis
- 57. Equity Investors prefer Exponential Growth
- 58. Cashflow is Key to Growth
- 61. Match Capital Requirements to Aggressive yet Achievable Milestones
- 62. Mitigating Shareholder DilutionNON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 8 Presented by Alan Lewis
- 64. California Department of Corporations (DOC)
- 65. Securities Act of 1933, 1934, and 1940 (“the ‘XX Act”)
- 66. U.S. Securities and Exchange Commission (SEC)
- 67. Financial Industry Regulatory Authority (FINRA)
- 68. Sarbanes-Oxley (SOX or SARBOX)NON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 9 Presented by Alan Lewis
- 70. Unaccredited Investors (No more than 30)
- 71. Accredited Investors (Unlimited, <300)
- 72. Public versus Private Offering (Exemptions)
- 73. Regulation D, Rule 506 ($Unlimited)
- 74. Form D
- 75. Regulation A – Requires a registration (Up to $5m)
- 76. “Rule 504 “– No longer allowed (Less then $1m)
- 77. California Corporations Code Section 25102
- 78. Private Placement Memorandums (PPM)NON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 10 Presented by Alan Lewis
- 80. Active Role in Board and will often place Management
- 81. Significant Control in Company Decisions
- 82. Generally industry specific (e.g. internet, bio-tech, pharma)
- 83. Generally purchase approximately 51% at a Blended Value
- 84. Generally Seek ≥4x ROINON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 11 Presented by Alan Lewis
- 86. Covers gaps in cashflow
- 87. Available when other forms of Financing have been put in place
- 88. Lender bridges against future investment
- 89. Generally like “sweeteners” and “kickers” (e.g. stock)
- 90. Generally very expensive (50%+)NON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 12 Presented by Alan Lewis
- 92. Also known as “Social Lending”
- 93. New form of lending powered by the Internet
- 94. Occurs directly between individuals
- 96. Friends and family model
- 97. Prosper.com
- 98. Zimplemoney.com
- 99. Gobignetwork.comNON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 13 Presented by Alan Lewis
- 101. Sites that aggregate investors and opportunities
- 102. Investor and Investment Search Engine
- 103. Typically feature Angel Investors
- 104. Angelsoft.net
- 105. Fundinguniverse.com
- 106. Gobignetwork.com
- 107. Vfinance.com
- 108. Fundingpost.comNON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 14 Presented by Alan Lewis
- 110. Financial Buyers
- 111. Buy and Hold
- 112. Generally purchase 100% at 5x to 6x EBIDTA / Operating Income, or
- 113. 1x Gross Income less DebtNON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 15 Presented by Alan Lewis
- 115. Mergers and Acquisitions
- 116. Strategic Investors
- 117. Mezzanine Financing
- 118. Bond FinancingNON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 16 Presented by Alan Lewis
- 120. Finders
- 121. RE and Mortgage Agents
- 122. Business Brokers
- 123. Commercial Bankers
- 126. Wealth Managers
- 127. Service Providers
- 128. Attorneys (Securities and Transactional)
- 130. Advisors / ConsultantsNON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 17 Presented by Alan Lewis
- 131. Considerations Stage of Development Economic Conditions Cost of Capital Expectations Corporate Governance Accountability Transparency and Disclosure Autonomy NON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 18 Presented by Alan Lewis
- 133. Association for Corporate Growthwww.acg.org
- 135. Los Angeles Venture Association (LAVA)www.lava.org
- 136. National Venture Capital Association (NVCA)www.nvca.org
- 137. Pepperdine Private Capital Markets Reporthttp://bschool.pepperdine.edu/research/pcmsurvey/NON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 19 Presented by Alan Lewis
- 139. Less Complicated and Costly
- 140. May be Harder or Easier to Obtain
- 141. Depends on Stage and Fundamentals
- 143. More Complicated and Costly
- 144. Often Harder to Obtain then Traditional
- 145. Recommendations:
- 146. Used seasoned and licensed service providers
- 147. CPAs, CFAs, JDs, S-62, S-7, S-79NON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 20 Presented by Alan Lewis
- 148. Questions and Answers Alan D. Lewis IIPrincipal (661) 600-6140alan.lewis@stonecuttergroup.com STONECUTTER GROUP, llc Building the Foundation for Responsible and Sustainable Enterprise NON-TRADITIONAL SOURCES OF CAPITAL ©2010 Stonecutter Group, LLC SLIDE 21 Presented by Alan Lewis
Hinweis der Redaktion
- Issuer: A business that is selling corporate securities to an outside investor.Due Diligence: The forensic process investors undertake when both evaluating an opportunity and validating representations made by the issuer.Term Sheet: A non-binding summary of the terms either proposed by the issuer, or offered by an investor.Closing: The completion of a financial transaction typically involving the execution of an investor qualification questionnaire, stock purchase agreement, and issuance of stock certificates to investors.Debt: Monies borrowed in exchange for a promise to pay back (i.e. a promissory note). Generally secured with business and personal assets.Equity: The culmination of shareholder value contained in the business. Generally the businesses assets less its liabilities. Also referred to as “Net Asset Value” or “Book Value”.Corporate Securities: Ownership in a business sold to an investor in the form of common or preferred stock. Generally unsecured.Shareholders: Founders, Investors, and/or Managers who own common or preferred stock in a Corporation.Stakeholders: Creditors, Customers, and other parties (e.g. community) with a direct or indirect interest in a business.Assets: Items the firms owns or substantially controls whether fixed, current, tangible, or intangible. (e.g. Property, Plant, Equipment, Furniture, Fixtures, Cash, Securities, Receivables)Liabilities: Obligations to pay creditors, or other liens or encumbrances that effectively reduce the value of the businesses assets. (e.g. Payables, Debt, Judgments)EBIDTA: Earnings before Interest, Depreciation, Taxes, and Amortization. Effectively the actual net operating profit (base cashflow) of the company before certain tax related accounting expenses are applied. Also known as Operating Income, Income from Operations, Net Operating Income (NOI).Cashflow: Monies available, after normal expenses, to the company for financing and investing activities. Generally used to determine a business’s ability to grow, take on debt payments, and/or pay dividends.Debt Service: Payments of principle and interest towards accrued debt. Corporation: The generally accepted legal instrument (entity) used to provide tangible ownership in and management of a business that involves outside investors.Institution: A legally organized group such as a fund, investment bank, or commercial bank that makes direct investments on behalf of its shareholders. As opposed to an individual, or small informal group of angels.Return on Investment (ROI): The expected amount of payback to an investor over a given period of time. Typically calculated less the original investment (e.g. $4m return on $1m would equal a 3x ROI).Exit Strategy: An event that will enable the founders and/or investors to recoup their investment such as a public offering, acquisition, or follow-on financing.