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Show Me The Money: Preparing Client Companies for Investment Funding Association of Small Business Development Centers Annual Conference San Antonio, TX.

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Presentation on theme: "Show Me The Money: Preparing Client Companies for Investment Funding Association of Small Business Development Centers Annual Conference San Antonio, TX."— Presentation transcript:

1 Show Me The Money: Preparing Client Companies for Investment Funding Association of Small Business Development Centers Annual Conference San Antonio, TX September ___, 2010 Presented by Sandra Cochrane, Technology Business Consultant MI Small Business & Technology Development Center MI Small Business & Technology Development Center Kalamazoo, MI Kalamazoo, MI

2 Goals for Todays Session Understand the overall investment processUnderstand the overall investment process Recognize when a company is ready for outside investmentRecognize when a company is ready for outside investment Know the critical communication tools clients need to have before seeking fundingKnow the critical communication tools clients need to have before seeking funding Outline a standard 10-minute pitchOutline a standard 10-minute pitch Help clients avoid investor pitch mistakesHelp clients avoid investor pitch mistakes

3 Overall Investment Process Research and Identify Investment Options, and prepare Communication Tools Begin dialogue with Investors starting with Investor Pitch Proceed with Investor Due Diligence Receive Term Sheet Proceed with Legal Docs and Close Deal

4 When is a Company Ready for Investment? Funding landscape (whos got money?)Funding landscape (whos got money?) Business plan and executive summaryBusiness plan and executive summary Investor pitchInvestor pitch IP protectionIP protection Company leadership has skin in the gameCompany leadership has skin in the game

5 Investor Communication Tools

6 Essential Investor Communication Tools Written: Business plan that includes a solid executive summaryWritten: Business plan that includes a solid executive summary Verbal: Elevator pitchVerbal: Elevator pitch Mathematical Model: Excel-driven financial modelMathematical Model: Excel-driven financial model PowerPoint: Investor pitch PowerPoint: Investor pitch

7 The 10 Minute Investor Pitch

8 Investor Presentation Objective? Educate, engage & entertainEducate, engage & entertain Get a NEXT meetingGet a NEXT meeting

9 Investor Pitch: Key Points Follow the 3 Cs:Follow the 3 Cs: –Clear, concise and compelling Answer these questions:Answer these questions: –Why this? –Why us? –Why now? Ask yourself so what? and who cares?Ask yourself so what? and who cares? Goals:Goals: –Drill down discussions –Transition into due diligence

10 The 10 Minute Investor Pitch: Template and Guidelines Special Thanks to Seattle Alliance of Angels for their work on this presentation

11 Act I: Introduction Cover page slide Problem slide Solution slide Technology slide Traction slide Act II: The Business Market slide Competition slide Customers slide Sales strategy slide Partners slide (optional) Revenue model slide Management slide Advisory board slide (optional) Act III: The Future Milestones slide Financials slide Offer slide Questions slide Anatomy of the 10-Minute Pitch

12 Act1: The Introduction Separator Slide – not to be included in your presentation

13 Company Name & Logo Contact Information DateAudiencePresenters One line description of what your company does

14 The Problem Define the problem and WHO has this pain GraphsGraphs Pictures (one photo is best)Pictures (one photo is best) Describe a problem scenario /usage caseDescribe a problem scenario /usage case The goal is to get everyone nodding & buying-inThe goal is to get everyone nodding & buying-in

15 Million Interviews (Per Yr) $350 Billion Claims Related (Per Yr) Process is Off The GRID Weeks and Months The Problem: Recorded Claims - Example

16 The Solution Explain your solution to the problem & why its superior to existing alternatives How do you alleviate the painHow do you alleviate the pain Use multiple slides if necessary – see the technology slideUse multiple slides if necessary – see the technology slide Short list of feature/benefitsShort list of feature/benefits

17 The Technology Describe the basics of your product/ service Quick overview of the companys technologyQuick overview of the companys technology Use lay mans languageUse lay mans language Tie to the solutionTie to the solution Do not exceed time limits (avoid in-depth technical explanations)Do not exceed time limits (avoid in-depth technical explanations) Product photos and/or screen shots helpProduct photos and/or screen shots help Logical flow and architecture diagramsLogical flow and architecture diagrams

18 $15M Savings (Per Yr): Farmers Insurance 24 x 7 x 365 Availability Giant, Untapped Data Asset Minutes Claims Rep Claims Rep Interviewees Bridge.WMA The Solution: Digital Service - Example

19 Traction/ Milestones Show the progress you have made to date Today200__200__200__ Proof of ConceptTech. Development / Scale-UpLaunch Incorporated Mgt. team in place Provisional patent filed Beta test Paying customers Strategic channel partners Received A round financing Customer launch Be clear about the status of product development

20 Act 2: The Business Separator Slide – not to be included in your presentation

21 Market Size Demonstrate your understanding of the size & composition of your target market Build the number from the ground upBuild the number from the ground up –Total addressable market –Use drivers relevant to your product Show the different segmentsShow the different segments –Pie graphs works well –Explain how you prioritize the segments This is our initial market (explain why)This is our initial market (explain why) If you use 3 rd party figures, cite the sourceIf you use 3 rd party figures, cite the source

22 Total Addressable Market: US home broadband users ages 12 to 34 who actively consume internet video M M yrs 18-28yrs12-17yrs Market Size - Example

23 Customers Demonstrate your understanding of your target customers Current CustomersCurrent Customers –83 startup companies like the following: Potential CustomersPotential Customers –Early stage technology companies between $250K & $2M in revenues

24 Sales Strategy Explain how you will reach your customer How do you sell your product? Direct and/or channel Sales If direct, How many sales people? Territories?How many sales people? Territories? How long does it take to close a deal?How long does it take to close a deal? Who is the key decision maker? (especially if that differs from the key user)Who is the key decision maker? (especially if that differs from the key user) If channel, Who are the partners?Who are the partners? How many are required?How many are required? How are the territories divided? (if relevant)How are the territories divided? (if relevant)

25 Partners If appropriate, describe the key players in your value chain & their functions.

26 Revenue Model Show how, financially, you will make money Profit Before Taxes & Dep. $10,000 Average Customer Buys 10 Widgets per $6,000 Average Customer is worth $60,000 in Annual Revenue This is an example for demonstration purposes only PbTD $1,000 OE $3,000 CoGS $2,000 Revenue $6,000 33% 50% 17% 100% Per Customer Per Widget CoGS & Operating Expenses $50,000

27 Revenue Model (cont.) Provide a diagram of your business environment (value chain) Who are the stakeholders? How are they related? Company License Holders Mfgrs.VAR End User Technology Licenses License Revenue Sales Dollars Tech. & Mfg. Fees Components Finished Goods & Services

28 Competition Demonstrate your understanding of the competitive environment Indirect CompetitionIndirect Competition –Summarize the current alternatives (other technologies or types of products) Direct CompetitorsDirect Competitors –List competing company 1 and an analysis –List competing company 2 and an analysis –List competing company 3 and an analysis Use a matrix if possibleUse a matrix if possible

29 Competition - Example Speed Ease of Use Price Reliability ABC B Co XYZ

30 Management Team Explain why this is the management team to bring your product/ service to market Name, PositionName, Position –Prior Company, Position (VP or above), Years –Entrepreneurial experience (if any) Name, PositionName, Position –Prior Company, Position (VP or above), Years –Entrepreneurial experience (if any) Open positionsOpen positions –VP Sales –Head of QA

31 Advisory Board Explain how these individuals will contribute to your companies chance of success Name, Area of ExpertiseName, Area of Expertise –Company, Position (VP or above), Years –Prior Company, Position (VP or above), Years Name, Area of ExpertiseName, Area of Expertise –Company, Position (VP or above), Years –Prior Company, Position (VP or above), Years Name, Area of ExpertiseName, Area of Expertise –Company, Position (VP or above), Years –Prior Company, Position (VP or above), Years

32 Act 3: The Future Separator Slide – not to be included in presentation

33 Financial Projections Show financially that your company is a smart investment Five Year Projections (Millions, US) Assumptions: –Avg. $__ per sale –In Yr. 1, __customers –Yr. 3 market share: __ % –By Yr. 3, __% from new sales; __% & from recurring sales –U.S. market only –Does not include future product extensions This is an example for demonstration purposes only

34 Financial Projections (alternative) Year 1 Year 2 Year 3 Year 4 Year 5 Revenue COGS Gross Margin OpEx Net Inc.

35 Milestones Show the audience what the next important steps are for your company Secure international distributor Generation II of Product Hire CFO Series B Financing

36 Milestones (alternative) Company Milestones20__ Prototype Software Prototype Hardware Prototype completed Initial results of the clinical trial Defining production partner Clinical trials completed 1 st commercial lot production Extended clinical trials (FDA) FDA approval peer-reviewed papers released Conference presentations Peer-reviewed papers describing extended trials Initial distribution of units at large centers Seed $250KA round $2.5MMB-round $3MM Table 3: projected milestones and funding rounds

37 Funding Requirements Show why an investment of $X will lead to the cited milestones Prior Funding: - $ from founders, $ from outside investors, $ grants Current Round: -Seeking $1 million ($500,000 raised) Use of Funds: -Finish v 2.0 prototype -Launch in xxx market -File patents Future rounds: - Series B of $X million expected in early Series B of $X million expected in early 2011 Exit Strategy: -Acquisition (perhaps Microsoft, IBM, Nike, or Gatorade)

38 Summary Experienced management teamExperienced management team Company generated $x in revenue in Yr. 1Company generated $x in revenue in Yr. 1 Strong IP positionStrong IP position Large and growing marketLarge and growing market Signed partnerships with key playersSigned partnerships with key players

39 Questions COMPANY NAME & LOGO COMPANY CONTACT INFORMATION

40 Its All About the % & $$! Make it Easy to Absorb & Comprehend

41 Investor Pitch Mistakes (and how to avoid them)

42 Mistakes 1 & 2 1.Pitching when the company is not ready 2.Pitching to the wrong investor

43 Mistakes 3 & 4 3.Not having a clear, concise, compelling business plan to back up the pitch 4.Not understanding the investors exit strategy

44 5.I only need 1% of the market…. 6. EVERYBODY is going to need my…. Mistakes 5 & 6

45 7.I have no competitors. 8. Failing to state the pain thats being alleviated Mistakes 7 & 8

46 9. Failing to actually state how the company is going to make money! going to make money! 10. Not understanding the concept of tranches Mistakes 9 & 10

47 11. Building technology products, not a business 12. The future exit is an IPO Mistakes 11 & 12

48 Due Diligence A working definition: An investigation of the companys business, legal, financial affairs, and a verification of its assertions. Investor outcome: An assessment of risk. An investment and partnership opportunity. Company outcome: A substantiation of the stated value proposition. A commercialization and partnership opportunity.

49 Getting Through the Checklist Dont ask the investor to modify the checklist; if an item doesnt apply, mark it N/A Be subtle in asking about timeframe. Okay to ask: When do you anticipate completing due diligence? vs. We really need the money; can you complete due diligence in 2 weeks? Understand that other companies are in the pipeline. Remember due diligence is augmented w/valuation negotiations.

50 Getting Through the Checklist Decide on disposition of documents upon conclusion of due diligence. Fully disclose checklist items to avoid surprises. Begin addressing problems Ask for investors help and resources to solve problems Remember investor will likely assume a board seat upon investment If in doubt, check with company legal counsel about whether to disclose.

51 Getting Through the Checklist Examples of well-managed disclosures: Disclosure of license agreement in default Disclosure of chief scientist leaving university Disclosure of need to replace current CEO Examples of non-disclosures that backfired: CEO & CSO executing concurrent employment agreements w/another tech company License Agreement restricting commercialization. Inconsistent w/BP.

52 Managing Due Diligence Be prepared; use binders or data room. Have a clean IP position Select a point person to assemble documents and answer business questions Submit documents thoroughly and quickly Work w/company legal counsel Substantiate value proposition as stated in the BP and the pitch

53 Thank You! Sandra Cochrane Thank You! Sandra Cochrane


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