Transcript by Bob Creeden - Research at Carolina

BLACKSTONE ENTREPRENEURS
NETWORK
Carolina Innovation Seminar - UNC
October 4, 2012
A joint program of Duke University, North Carolina Central
University, North Carolina State University, the University of
North Carolina at Chapel Hill, and CED-Council for
Entrepreneurial Development, funded by the Blackstone Charitable
Foundation.
 Harness the collective wisdom of area
Serial Entrepreneurs
 Scour the region – on and off campuses
 Select high potential ideas in the Triangle
 Guide them to next inflection point using
EIR’s knowledge, contacts and resources
Objective – Support Innovation/Entrepreneurship resulting in
more companies and economic impact for Triangle
Unique Model
 “Portfolio” approach to building successful companies
 Each client has a lead entrepreneur in residence (EIR)
 EIRs meet regularly as a group to review and discuss
strategies/tactics for each client:
 Experience of group/team – value in collaboration
 Connections/Networks of EIRs
 Coaching Support Funds
 Deal Team from Blackstone Group assigned to Network
 Collaboration and resources of Network Partners
Current Portfolio
4
20
18
16
14
12
10
8
6
4
2
0
Prescreening Investigation
Actively
Working
Watching
Client Snapshot
5
• Tethis & Joosy Cloud
• Tethis – Water desalination for fracking industry.
• Joosy – Management of content for CDMs.
• Chris Evans, Lead EIR
• MintMarket
• Online marketplace for local food allowing chefs in the Triangle to
discover, purchase, and schedule delivery of food directly from area
farms.
• Frank Plastina, Lead EIR
• KeonaHealth
• Tech software company developing solutions for providing better access
to quality of care at a lower cost.
• Kay Wagoner, Lead EIR
• SLEDVision
• Software solution for State, Local and Education organizations to manage
and negotiate their enterprise software contracts. (Vendor Management
System)
• Lee Buck, Lead EIR
Blackstone EIRs
• Frank Plastina
• Chris Evans
• Lee Buck
• Kay Wagoner
• Kip Frey
• Peyton Anderson
• Igor Jablokov
• Kevin Bowles
• Alston Gardner
VC Market – Interesting Contrast
• New Venture Funds started in Q2 2012 at lowest
number (10) since Q1 2009
▫ Down from 12 in Q1 2012 and 14 in Q4 2011
• Returns to Funds gradually improving Q1 to Q4
▫
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1 year – 12.8%
3 year – 12.6%
5 year – 5.9%
10 year – 4.4%
vs
vs
vs
vs
13.2%
10.0%
5.3%
3.3%
Source - NVCA
Latest Numbers- Fundraising
• Venture Investments: Q2 2012 vs Q1 2012
(Billions/deals) 2nd Qtr 2012
1st Qtr 2012
Overall Invest
$7.04 - 898
$6.04 - 809
Early-Stage*
$2.10 - 410
$1.81 - 321
Seed
$.199 – 63
$.150 - 55
Sequence – 1st
$1.05 – 282
$.849 - 222
*Highest deals
since Q1 2001
PWC Money Tree
VC Survey Q2 2012
• High Confidence:
▫ Cloud computing, software, healthcare IT, new
media/social networking
• Low confidence:
▫ Semiconductors, telecom, clean tech,
biotechnology
PWC Money Tree
VC Terms Series A – Q2 2012
• Median Pre- Money:
▫ $11 million in Q2 - $9 million in Q1
• Liquidation Preference:
▫ 91.7 % at less than 1 vs Q1 at 97%
▫ 8.3% at 1x -2x vs 0% in Q1
• Participating Preferred:
▫ 32% in Q2 vs 51% in Q1 overall
 25% in Series A vs 37% in Q1
 21% were full participation and 4% were 3x cap
Cooley LLP
VC Terms Series A – Q2 2012
• Anti-dilution:
▫ 90% broad based weighted average
▫ No real change
• Pay to play:
▫ 4% in Q2 vs 6% in Q1
• Drag along provision:
▫ 71% in Q2 vs 65% in Q1 and 59% in Q4 2011
▫ Series A – 54.2%
Cooley LLP
Academic Funding Models
• Development/Grant awards:
▫ NCSU, Harvard, Utah, UNH, U. Mass
• Industry/Academic Institution:
▫ Johnson & Johnson – Mass General Hospital
▫ Merck – Flagship Ventures
▫ Incubators with Venture Groups
• Academic Institution – State – Private Donors
▫ Portland State University – tax credit for donors
• Funds:
▫ Partners Innovation Fund, Mayo, Kaiser, Ascension
▫
IT IS A CAMPAIGN – IT IS ONGOING
AND IT TAKES A LONG TIME
A Summary of Capital Sources
.
Source
Timeline
Their Goals
Your Concerns
Bank Loans
2-4
months
Payback, interest,
collateral
Rates & terms
Credit Card
0-1 month
Payments, interest
Ability to payback,
interest rates
Friends/Family
(debt or equity)
0-3
months
Success, payback
Ability to sustain
relationships, return
the $$ or make returns
Customers/
Partners
(bootstrapping)
varies
Mutual sales,
marketing and/or
product outcomes
Structure of
relationship and ability
to deliver
Suppliers/Trade
(bootstrapping)
varies
Payment relationship
Credibility, relationship
Government
Grants (for IP dev.)
6-12
months
Funding particular
initiatives
Process & timeframe
Angel Investors
4-12
months
Return on
investment, control
Strings & outside
involvement & scrutiny
Venture Investors
4-12
months
Return on
investment, control
Business growth curve,
outside involvement &
scrutiny
Equity Capital: High Growth Companies (by stage)
Stage
Crystallize
Idea &
Demostration
Demostration
Stage
Market Entry & Early
Growth
Source
Founders,
Friends and
Family
Accelerators
Individual
Angels and
Angel Groups
Angel Groups and Angel
Group Syndication
Micro-cap Funds
$25,000 to
$100,000
$100,000 to
$500,000
Investment
Funding Gap between
$500,000 and $3,000,000,
Early
Scaling
Growth
Repeatable
Growth
Most
Venture Funds
$5,000,000 and up
(initial capital may be smaller, but
exit targets higher)
Estimate exit potential based on multiples of revenue levels achieved
Use projected 4-5 year revenues to estimate exit potential
• Companies with low profits and/or revenues < $2M: arms length equity capital not interested
• Angels look for $7-10M revenue targets with room for growth
• VCs (most) need to see north of $30-40M revenue with great potential
• No “exact” rules but stage of VC fund and total capital in use will point toward exit expectations
16
Checking out ANY Investor
NETWORKING
▫ Get an introduction as high up the food chain as possible
▫ Personal network or entrepreneurial organizations
• DO YOUR DILIGENCE
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Industry focus – have they done deals in the industry
Size – average funding provided – initial, follow-on, age of fund
Stage of development – concept, revenue, team
Referral path/reputation – introductions to others
Experience, track record
Style & interaction with management – find the best fit partner
Call the CEOs of the portfolio and find out how the investor behaves
▫ GET THE RIGHT INVESTOR FOR YOUR STAGE
A VC’s Playbook
• PLAN/PRESENTATION MUST BE FOCUSED
• CLEARLY-DEFINED USER BENEFIT – ROI
• NUMBERS MUST BE SUPPORTED
A VC’s Playbook
• THOROUGH REVIEW OF COMPETITION
• SOLID DESCRIPTION OF MANAGEMENT
• DEMONSTRATE CUSTOMER/MARKET
KNOWLEDGE – TALK TO THEM BUT DON’T
TELL ME IF YOU DID NOT ACTUALLY TALK
A VC’s Playbook
• DO NOT OUTLINE THE RISKS INVOLVED
• DO NOT INCLUDE VALUATION
• TRY TO AVOID “CONSERVATIVE” OR
UNUSUAL FINANCIALS
A VC’s Playbook
• PRE-MONEY – DOES IT INCLUDE OPTION
POOL OR NOT
• CONVERTIBLE NOTES – BE CAREFUL
• GOAL OF THIS MEETING:
•
– GET TO THE NEXT MEETING
CONTACT
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•
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Bob Creeden
Executive Director
Blackstone Entrepreneurs Network
[email protected]
508.361.1914
• blackstoneentreprenuersnetwork.org