Transcript Sources of Finance

Sources of finance
Financiers and their habits
by Mr Ties van der Laan
Ties Corporate Finance
10, rue des Alouettes, L-1121 Luxembourg-Cents
Luxembourg
m +352 691 427 566, t/f +352 427 566
e [email protected], i www.ties.lu
Who am I?
After nearly ten years in Dutch venture capital
companies (ING Group) I am coaching
since 1999 entrepreneurs and management
teams to raise finance, first through LIFT
and from mid 2002 as an independent
business coach
Where to look? - depends on where you are
BUY OUT / M&A
= COMPANY'S LIFE CYCLE
= FINANCE
= FINANCIERS
Growth, profit
EXPANSION
= EXIT
M&A = Mergers & Acquisitions
IPO = Initial Public Offering
MBO = Management Buy Out
MBI = Management Buy In
IBO = Investor Buy Out
LBO = Leveraged Buy Out
RESEARCH & DEVELOPMENT
Concept
Research
Project plan
Design
Prototype
specification
Seed round
Grants, Gifts, Goods, Services, Loans, Equity (seed capital)
Public sector, Sponsors, Founder & friends & family,
Banks,
Business angels, Corporate investors, Venture capitalists.
License or sale
Growth
MBO, MBI, IBO, LBO
Third, Fourth, …..
Equity (expansion
capital), Loans
Merger, Acquisition
and Turnaround
Loans, Mezzanine,
Equity (later stage capital),
Grants
EARLY STAGE
Accelerated growth
START-UP
Marketing
Second round
Equity
(early stage capital)
First Round
Equity
(start-up capital)
Management team,
Business angels,
Corporate investors,
Venture capitalists.
(Trade) sale
Management team,
Corporate investors,
Venture capitalists.
(Trade) sale
Management team,
Corporate investors,
Venture capitalists,
Banks,
IPO.
Management team,
Venture capitalists,
Mezzanine providers,
Banks,
Institutional investors,
Public sector.
(Trade) sale, IPO,
secondary buy out
(Trade) sale, IPO,
secondary buy out
Life cycle/finance/financiers
Life Cycle Finance
Research Grants
Start-up
Equity
Early stage Seed capital
Expansion Venture capital
Buy-out/in Private equity
Turnaround Mezzanine
Loans
Financiers
Public sector
Sponsors
Founder, friends, family
Banks
Business angels
Corporate venturers
Venture capitalists
And will finish with a summary and a step-by-step plan!
Public sector
 Characteristics
 Who are they?
 What do they seek?
 How do they operate?
PS: characteristics
 (Life time) civil servants
 Public money
 Funds: from € 1 m to € 1bn
 Deals: from € 10k to several € m
 Agenda is political
 Job creation
 Stimulation economy
PS: who are they?
Governments
 Local, regional, national, European
Development agencies
Innovation support organisations
PS: what do they seek?
Prefer projects to companies
Non / pre-commercial
Universities, research centres
Prefer companies with non-profit sector
Technology driven / innovation
Young / female entrepreneurs
PS: how do they operate?
No misuse of public money:
 Auditors rules
 Bureaucratic
Writing and lobbying
May take up to 2/3 years
Give:
 “free” money: no repayment or
 “soft” loans: low interest / repayment
Prefer to match others
Limited interest after spending
Founder, friends & family
Characteristics
Who are they?
What do they seek?
How do they operate?
FFF: characteristics
NB. 1st F=Founder so your money first!
From savers to successful entrepreneurs
Own money
Small funds: from € 100k to € 0,5m
From € 10-100k
Old money: older persons (>50)
New money: younger persons (> 35)
FFF: who are they?
Close to entrepreneur
Personal relationship
Long time contact
Grandparents, aunts, uncles etc.
FFF: what do they seek?
Any industry
Objective is help not return
Information only, no control
FFF: how do they operate?
Through personal network
No due diligence
Give money, ask nothing
Could give unasked advise
Time frame in days
Hands-off even if going badly
Bankruptcy could mean end of relationship
Sponsors
Characteristics
Who are they?
What do they seek?
How do they operate?
Sponsors: characteristics
Companies
Own money
Fund: small, prefer barter deals
Deals: from € 100 - € 20k (goods/services)
Active managers (30-60)
Good network
Sponsors: who are they?
Local / regional companies
CEOs (SMEs) or marketing managers
New product (line) managers
Sponsors: what do they seek?
New customers: natural win-win
Contribute to their reputation
Show their expertise
Softly spreading their know-how
Sponsors: how they operate?
Through personal network
Strategic and thematic selection
No due diligence
Give goods /services
Ask promotion, contact details, exposure
Time frame in days, maximum weeks
Often the start of a long-lasting relationship
Banks
Characteristics
Who are they?
What do they seek?
How do they operate?
Banks: characteristics (I)
Professional lender
Loans (=lending) not equity (=investing)
(Life time) bankers
Other people’s money (3-6–3)
Funds: from € 10m to several € bn
From € 1k to several € 100m
Aged from 25 to 60
Banks: characteristics (II)
Focus on history
Risk averse, low return
Subsidiaries for asset-based finance
 Leasing (cars, computers)
 Factoring
Banks: who are they?
Commercial banks
 Local, regional and national
No private banking banks
No merchant / investment banks
Banks: what do they seek?
Any industry (mostly)
Internally organised by sector/market
Demand security or collateral
Preference for existing/mature businesses
 Lower risk bankruptcy
 Lower risk non-payment (interest/redemption)
Good entrepreneurs / managers
Banks: how do they operate?
Intake through network
Low due diligence (referrals, analysis)
Time frame depends on size of loan/office
From weeks to months
Standard contracts
Focus: interest%, repayment schedule
Regular information
Hands off unless going badly
Equity investors
General characteristics:
Focus is on future
Seek risk, expect high return
Buy shares
Temporary involvement
Seek (serial) managers/entrepreneurs
Types of equity investors
Business angels
Corporate investors
Venture capitalists
(Institutional investors)
Business angels
Characteristics
Who are they?
What do they seek?
How do they operate?
BA’s: characteristics
Successful business(wo)men
“Have been there, done that”
Invest their own money
Funds: up to € 1m, few larger
Deals: from € 15-200k, typically € 75k
Aged between 50-70 years, few younger
Driven by “giving something back”
Other agendas - fun, involvement
Profit less significant
Who are the BAs?
 Executive angel
 Active entrepreneurs, executives or consultants
 Investments between € 50k - € 100k
 Extra turnover, networking, hobby
 Job seeking angel
 Redundant executives
 Work in the € 30k - € 70k area
 Busy, active
 Retired angel
 Workaholics
 Smaller amounts (€ 15k - € 50k)
 Busy, active
What do BAs seek?
Small companies
 Mostly active in markets they know
 Growth in growing, large, empty niche markets
 In 7-10 years potential turnover >100m
 Also invest in seed phase
 Nearby
Return
 Profit through tradesale or IPO
 Dividend, interest and fees
Likeable persons
 In business (entrepreneur) and private (talk)
 Mutual trust
How do BAs operate?
Intake
 Via friends, family or business (angel) networks
 Low due diligence
The deal
 Straightforward structure
 Veto rights, minority protection, anti-dilution
 Time frame from several weeks to one month
After the deal
 Close involvement: 1-3 days/week
 Hands on unless going badly
 Business devils
Corporate venturers
Characteristics?
Who are they?
What do they seek?
How do they operate?
CV’s: characteristics
Large, operating companies
Successful, cash rich
Invest company’s money
Funds: active € 10, passive € 200m
Deals: small (< € 0,2m) or large (> € 5m)
Active managers 30-60 years old
Objective strategic: market reconnaissance
Outside (but close) to own market
Profit less important
Who are the CVs?
Market leaders (or just below) in:
 Technology (ICT: Intel, Life Science: BASF)
 Telecom (Vodafone)
 Consumer products (Unilever)
 Capital goods (Siemens)
Quoted on the stock exchange
See www.evca.com
What do CVs seek?
Active
 Small companies/individuals (in or external)
 Focussed on seed phase/technology
 Incubate until ready for VCs
 Buy when successful
Passive
 Mature businesses (MBOs, restructuring)
 Direct: partner with VC’s
 Indirect: fund of funds
 Buy or trade sale (IPO)
How do CVs operate?
Active
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Intake through investment manager
Fast decisions, little due diligence
Simple deal structure
Hands-on even when going badly
Invest for the long run (> 5 years), buy when successful
Enhance your credibility, give access to network
Passive
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Direct: passive in deal structuring (VC)
Indirect: in investment committee
Sometimes in Board of Directors or Supervisory Board
Hands-off or buy when going badly
Venture capitalists
History of venture capital
Characteristics
Who are they?
What do they seek?
How do they operate?
History of venture capital
Started in USA in early 1900
Rich families (e.g. Rockefellers) invested outside
own conglomerate as business angels
1st time distinction: ownership/management
After WOII: professional VCs
Early 60s: UK
Early 80s: continental Europe (banks in NL)
VC: characteristics
 Professional buyers of share in private companies
 Invest money of institutional investors (II)
 II = LP, fund manager = GP
 Funds: € 10m – € 15bn (!)
 Deals: € 1m – several € 100m
 Investment managers between 25–55 years old
 Dealmakers with financial background
 Objective is generating cash
 Driven by building profitable/sellable companies
Who are the VCs?
 1. Private equity vs. venture capital
 2. Evergreens (mostly captives) vs. revolving funds
 3a. Large VCs (<10 in EU)
 Funds: several € 1bn, deals: € 1m-250m
 Sector and/or region specific sections/subsidiaries
 Fund of funds
 3b. Medium sized generalists (100-200)
 Funds: € 50-300m, deals: € 1m several € 10m
 Private equity, venture capital and fund of funds
 3c. Niche VCs (< 100)
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Funds: € 10-300m, deals: € 250k-5m
Focused on technology markets or niches
Combine investors with industry knowledge
Mostly venture capital
What do VCs seek? (I)
Private equity
 90% (!) of money yearly raised
 Mature companies with turnover > € 50m
 Buy-outs mostly (MBO, MBI, IBO, BIMBO etc.)
 No market specialisation
 Return > 20%: € 10 in, 4 years later € 20m out
 Financial engineering
 Buy and build
 Sale
What do VCs seek? (II)
Venture capital
 Young companies: seed, start-up, early stage
 Large, global empty markets
 Experienced entrepreneurs
 Return > 50%: € 1m in, 4 years later € 5m out
 Growth
 Sale (trade or IPO)
Investing is trust in people
 PE = balanced management teams
 VC = entrepreneurs
How do VCs operate? (I)
Intake
 Receive more plans than read
 Introduction via network
 Selective: invest in 1% of business plans read
 Extensive due diligence: 2 to 6 months
 Market(ing), technology, management, legal, financial
 PE: mostly external specialists
 Syndicates (so no competition between VCs)
 Deal-sourcing in other regions
 Follow-on investments
 Prevent entrapment
 Control with minority share
 Cross-border only with local lead
How do VCs operate? (II)
The deal
 Sometimes complex deals
 Management option scheme
 Veto-rights, minority protection, anti-dilution
 Board representation
 Monthly or quarterly reporting
 Control over exit
 Investment committee decides
 Typically 2 months
How do VCs operate? (III)
After the deal
 Real work starts
 Frequent contact in beginning
 Support: knowledge, experience and network
 Focus on:
 Growth
 Reporting
 Exit
 Hands-off unless going badly
 No good money for bad money
 Sell healthy part of company via network
Conclusion equity investors
 BAs: money + market experience + network, long
term, < € 0,2m in small fast growing companies,
not for return only, local, hands-on
 CVs: money + market knowledge + network +
credibility, long term or short term, < € 0,2m or >
€ 5m in companies close to their market, active +
hands-on or passive + VC, buy when successful
 VCs: money + experience + network, professionals
in private mostly mature companies (PE), PE:
financial engineering & buy/build & exit, VC:
growth & exit, return only, prefer syndication with
local party, due diligence: 4-8 months
From start to finish (I)
The more steps you complete the easier it becomes
to raise finance:
1.
2.
3.
4.
5.
6.
Finalise your product (grants)
Find entrepreneur (yourself?)
Found company (own money, house, FFF)
Find business partners (sponsors)
Find customers and sell (auto-finance)
(Accelerated) growth (raise finance)
continued on next slide
From start to finish (II)
continued from the previous slide
7. Raising equity finance:
 1. Prepare business plan/presentation/pitch
 With help of dedicated professionals?
 2. Research financial world
 Business Angel Networks (BANs, www.eban.org)
 EVCA/local VCAs (www.evca.com)
 Networking
 3. Approach chosen potential investors
 With help of dedicated professionals?
8. Later stage: MBO/MBI/Turnaround
9. Raising equity finance: see 7.
10. Sell: tradesale or IPO
Where to look? - depends on where you are
BUY OUT / M&A
= COMPANY'S LIFE CYCLE
= FINANCE
= FINANCIERS
Growth, profit
EXPANSION
= EXIT
M&A = Mergers & Acquisitions
IPO = Initial Public Offering
MBO = Management Buy Out
MBI = Management Buy In
IBO = Investor Buy Out
LBO = Leveraged Buy Out
RESEARCH & DEVELOPMENT
Concept
Research
Project plan
Design
Prototype
specification
Seed round
Grants, Gifts, Goods, Services, Loans, Equity (seed capital)
Public sector, Sponsors, Founder & friends & family,
Banks,
Business angels, Corporate investors, Venture capitalists.
License or sale
Growth
MBO, MBI, IBO, LBO
Third, Fourth, …..
Equity (expansion
capital), Loans
Merger, Acquisition
and Turnaround
Loans, Mezzanine,
Equity (later stage capital),
Grants
EARLY STAGE
Accelerated growth
START-UP
Marketing
Second round
Equity
(early stage capital)
First Round
Equity
(start-up capital)
Management team,
Business angels,
Corporate investors,
Venture capitalists.
(Trade) sale
Management team,
Corporate investors,
Venture capitalists.
(Trade) sale
Management team,
Corporate investors,
Venture capitalists,
Banks,
IPO.
Management team,
Venture capitalists,
Mezzanine providers,
Banks,
Institutional investors,
Public sector.
(Trade) sale, IPO,
secondary buy out
(Trade) sale, IPO,
secondary buy out
Ties Corporate Finance
Coach
in raising finance
for the expansion of businesses
To create a winning business plan
To approach investors professionally
To negotiate with investors successfully
Contact details
Ties Corporate Finance
Ties van der Laan
10, rue des Alouettes
L-1121 Luxembourg-Cents
Mobile: (+352) 691 427 566
Fax: (+352) 427 566
Email: [email protected]
Internet: www.ties.lu