1. © Finance Tree ltd, 2010 Introduction to Finance for start-ups 18 October 2010 Jonathan Gold www.financetree.biz

2. © Finance Tree ltd, 2010 Finance Tree works with businesses to help them understand the needs of investors and find the right investment. 2005 NStar Corporate Finance established 2006 Finance and Business launched 2008 (April) Management Buyout and creation of Finance Tree 2009 (April) created Rivers Capital Partners 2010 Managers of the £7.5m North East Angel Fund www.riverscap.com

3. © Finance Tree ltd, 2010 3

4. No free lunch…money costs Banks Grants Other lenders (ie: UK Steel Enterprise… NESTA) FFF Venture Capital / Business Angels Sales !!

5. © Finance Tree ltd, 2010 Money costs money … part 2 Accountants CORPORATE FINANCE SPECIALISTS Legal advisors Non-exec directors Brokers, banks…

6. © Finance Tree ltd, 2010 Venture Capital / Private Equity… “Private Equity is medium to long-term finance provided in return for an equity stake in potentially high growth unquoted companies”. Source: British Venture Capital Association (BVCA) 2005 NB: Almost all are… FSA regulated collective investment schemes…

7. © Finance Tree ltd, 2010 Sources of capital of capital

8. © Finance Tree ltd, 2010 Venture capital is often a crucial element in… Getting a new business going Start-up Funding a step-change in the business Rapid organic growth or M&A Effecting a change of management or control Buy-in / buy-out / public-to-private Funding long-term development pre-revenue Typically high technology – eg: biotechnology, electronics

9. © Finance Tree ltd, 2010 Finance for Business North East Funds £25m £15m £7.5m £20m

10. © Finance Tree ltd, 2010 The investment model Time … since investment Investment in… Generating £ cash… Sale of company… or “exit “ Development & early sales (losses…) …10x return in 5 yrs

11. © Finance Tree ltd, 2010 Statistics of VC portfolios… 10 Investments 4 Fail 4 Living dead 2 Stars

12. © Finance Tree ltd, 2010 Why bother? VC should add real value to your business Recruitment of the senior team and suitable NXDs Extending your contact base of customers/partners Assisting the business to enter new markets Providing support on complex deals (eg: acquisitions) Acting as a friendly outsider in strategy debates Securing additional funding & negotiation of exits

13. © Finance Tree ltd, 2010 So is there a downside? Lose some control – –there will be another owner of your business VC will normally want a seat on your Board Full transparency in terms of information & business Typically look to agree a growth and exit strategy up front.

14. © Finance Tree ltd, 2010 Applying…process

15. © Finance Tree ltd, 2010 Value & IRR Ultimately its what an investor will pay ! Investment required Time to a given return Return the investor needs RISK Valuation Pre-investment Post-investment % ownership to give return

16. © Finance Tree ltd, 2010 Indicative timeline…end game BLUE internal RED externally driven

17. © Finance Tree ltd, 2010 Lessons from Venture capital… What are investors looking for

18. © Finance Tree ltd, 2010 POC stories 18 NE POC (venture capital) £10m4yrs 194 Investments £15.2m Leveraged private investment Scottish Enterprise(grant) £41m ~10yrs 230 projects 47 new tech companies £241m leveraged private investment West Midlands (APoC)(loan/grant) £6.32m 2yrs 283 grants 143 businesses supported £2m leveraged private investment

19. © Finance Tree ltd, 2010 Last but not least…EXITS… PLANNED from day one Fund Manager will want a well defined EXIT Investment Return to the fund from growth of company… Common exits Further investment round (someone else buys out fund) Listing on a stock exchange (IPO) Trade sale, sold to another corporation.

20. © Finance Tree ltd, 2010 EXITS… At some point the Fund Manager agrees to EXIT the investment… …and (hopefully) return any profit to the fund from the growth of the company or its value… Common exits are: Further investment round (someone else buys out fund) List on a stock exchange Trade sale, sold to another corporation.

21. © Finance Tree ltd, 2010 Investment in UK Technology companies… 2009 (BVCA performance Survey) 21 £394m in technology-related businesses (2008: £619m) Of this, three areas received the most amounts Communications – £51m (2008… £81m) Computer software – £46m (2008... £310m) Medical / Pharma – £36m (2008… £73m) Of the total amount invested Early stage – 33% (2008… 43%) Expansion –41% (2008… 31%) MBO/I – 20%(2008… 3%)

22. © Finance Tree ltd, 2010 AIM… new listings Month UKInternationalTotal January 0811112 February 08 April 2010 May 2010 641641 300300 9 4 (£74m) 1 (£5.8m) Source: LSE NB: listings in April 2010.. 2 in mining 1 in industrial metal

23. © Finance Tree ltd, 2010 Thank you… Jonathan Gold j.gold@financetree.biz Follow us on TWITTER www.twitter.com/financetree