Transcript Document

European Business Angels Network
Fueling Europe’s Growth
Introduction
EUREKA HTIP Investment Readiness webinar #2
« Raising Capital through an Effective Process »
Presented By
Paulo Andrez | EBAN President Emeritus, Business Angel
Riku Asikainen| FiBAN President, Business Angel
How to raise capital through
an effective process
Paulo Andrez
Business Angel, President Emeritus EBAN
Brussels, 17-03-2015
Executive summary
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1
Why Business Angels Exist ?
2
Business Angels do not sign NDAs in the first meeting
3
Risk mitigation
Terms of Investment
5
Valuation
5
Startups Valley of Death
6
A typical angel investment process
Deal sourcing
Investment terms
and negotiation
Deal screening
Due diligence.
Initial feedback
coaching
Company
presentations
Investment
Post-investment
support
Executive summary
✓
1
Why Business Angels Exist ?
2
Business Angels do not sign NDAs in the first meeting
3
Risk mitigation
Terms of Investment
5
Valuation
Angels do not sign NDAs in the first meeting
Main reasons for not asking a NDA to be signed by Angels
- It is a bad start by telling the Angels that you do not trust them
- Angels see tens or hundreds of business plans per year so
signing NDA’s on all of them , would put the Angel out of the
business in some weeks or months
- Some entrepreneurs like litigation and if they see an opportunity... So
Angels are very careful about signing anything when they do not know
the entrepreneur well
- In 99% of the cases, there is nothing to protect, which
makes the situation a bit ridiculous and a reason for non investment
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Executive summary
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1
Why Business Angels Exist ?
2
Business Angels do not sign NDAs in the first meeting
3
Risk mitigation
Terms of Investment
5
Valuation
Imagine that you have 100.000 euros in a safe bank,
and you have 4% of interest rate on your deposit.
Hi, My name is Zephyr,
and I want you to invest
in my new fantastic Start
Up ! I will pay you 5%
annually.
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But if the World Bank guarantees you that if
Zephyr’s new venture doesn’t pay you the 5%, they
will pay it immediately to you, would you invest ?
12
Probability of an entrepreneur
to raise money for his/her
venture
100,00%
Banks
Mutual
Guarantee
Venture
Capital
Business
Angels
Crowdfunding
Family, Friends ,
Fools & State
100
%
80,00%
60,00%
40,00%
20,00%
0,00%
0%
Mitigated Risks
100%
Risks (MELFO)
Market, Entrepreneurs, Legal, Financial & Operational
Source: Paulo Andrez
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Get out of the Comfort Zone
Reduction of
50%-90% of
the initial
project
Total Risk
of the
Project
Investors risk
Entrepreneur risk
Final Risk
of the
Project
Initial
project
Project
after risk
mitigation
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Source: Paulo Andrez
1
Risk – Market
B2C products - > reward crowdfunding
B2C can be transformed initially in B2B
B2B - Approve samples before production line is built
B2B – Get pre-orders or intentions
Find key sales managers in strategic markets, with direct
access to market
Choose suppliers that can buy the final products
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2
Risk – Entrepreneur (Team)
Add cofounder(s)
Hire Interim Manager
A Lead angel can become temporarily CEO, while founder
can become CTO or COO
Assigning difficult tasks to entrepreneur before investing in
order to assess his/her skills
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3
Risk – Legal
Subcontract a due diligence
Hire an IP attorney with international
experience to do the IP due diligence
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4
Risk – Financial
Get written quotes from main suppliers
Reduce the level of investment (by splitting the investment)
Rent instead of buy (buildings, vehicles, machines…)
Extensively use buy back options for main equipments
Use SaaS solutions (e.g. search in www.capterra.com)
Subcontract initially the production before investing hugely in a production line
Make agreements with main initial suppliers, transforming fixed cost in variable
cost. Revenue sharing.
Receiving the payments from clients to secure orders
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5
Risk – Operational
Get written statements from reliable entities confirming that
the product will perform as expected
Do not reinvent the wheel. Use standard pieces and
equipments in the products. Reduces the risk of non
performing units
Make a prototype using smart negotiations with suppliers
and eventual partners in the region
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Executive summary
1
Why Business Angels Exist ?
2
Business Angels do not sign NDAs in the first meeting
3
✓
Risk mitigation
Terms of Investment
5
Valuation
Terms of Investment
Investment terms and conditions include the following:
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Amount and use of investment;
Percentage ownership;
Equity and debt structure;
Dividend and interest (if applicable) rights;
Voting rights;
Management incentive schemes;
Exit arrangements;
Management changes;
Investor board representation;
Investor veto rights;
Reporting requirements and consequence of failure;
Costs and confidentiality; and
Steps to closing.
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Executive summary
1
Why Business Angels Exist ?
2
Business Angels do not sign NDAs in the first meeting
3
Risk mitigation
Terms of Investment
✓
5
Valuation
Priced rounds. Traditional approach.
The valuation needs to be low enough to
ensure an investor can achieve an attractive
return. It needs to high enough to keep
existing shareholders incentivised.
Valuation based on future value – illustration only
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Future enterprise value3
Degree of influence
•
Future EBITDA
3,000
Multiple2 – say
4
Future debt – say
Have a realistic valuation expectation – the
investor has to make an attractive return on
his investment
Future equity value4
Return required – say
Valuation multiples/metrics
Therefore, value today
Where there is revenue and/or profits, various
multiples or metrics can be applied to
establish a valuation
o A multiple of recurring revenue;
o A multiple of EBITDA;
o A multiple of profit after tax;
o A sector markup;
o A value for every active user/customer…
12,000
2,000
10,000
10 times
1,000
Equity amount sought – say
300
Therefore, equity stake required (300/1000)
30%
Pre-money valuation: €700k
Post-money valuation: €1 million
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€000s1
What is the value of a project ?
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% of equity in the company
How to solve the conflict of pre-evaluation?
Options (earn out) based type of investment
Final percentage of entrepreneur's
shares in the company
Final percentage of entrepreneur's
shares in the company
100%
100%
90%
90%
80%
80%
70%
70%
60%
60%
50%
50%
40%
40%
30%
30%
20%
20%
10%
10%
0%
0%
0%
200% 180% 160% 140% 120% 100% 80% 60% 40% 20%
20% 40% 60% 80% 100% 120% 140% 160% 180% 200%
% achieved of the goal
% achieved of the goal
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0%
THANK YOU!
[email protected]
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EFFECTIVE FUNDING PROCESS
Process by Finnish Business Angels Network (FiBAN)
Executive summary
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1
FiBAN introduction
2
FiBAN angel activity
3
Startup deal flow process
4
Deal flow platform (Gust)
5
Screening form
6
Pitch
7
Syndication interest
8
Term sheet
FiBAN is a association of private investors that
aims to improve the possibilities for private
persons to invest into unlisted potential highgrowth companies.
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A non-profit, private investor driven
association
Deal flow and investor match-making, training
and syndication
“European Business Angel Network of the
Year 2012”
FIBAN ANGEL ACTIVITY 2014
+450
+21M€
approved
business angel members
200 angels invested
in 238 companies
+140
+500
angel events
in 2014
potential investment
opportunities
STARTUP PROCESS
SUBMIT
SCREENING
PITCH
INVESTMENT/
SYNDICATION
www.fiban.org/submit
• Free-of-charge
• Includes investor
feedback
• Links to growth
resources
• Visible for
3 months
ca 1 week
• Companies chosen
to pitch
• In cooperation with
Finnvera
ca 3 weeks
• Short presentation
to wake investor
interest
• Sector-based and
regional events
ca. 6 weeks
• Investor
evaluation (due
diligence)
• Alone or in
group
• Capital and/or
sweat equity
(knowledge)
ca 2 – 4 months
FIBAN’S DEAL FLOW PLATFORM GUST
SCREENING FORM
PITCH
Syndication interest
TERM SHEET
FIBAN
www.fiban.org
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Questions and Answers
Next webinar:
Communicate with Investors
Speakers:
Michael O’Connor | Cork Bic CEO
Selma Prodanovic | Keynote Speaker, Entrepreneur,
Philanthropist
Date: 25th of March, 2PM CET