1. Breakout is an Epi-V initiative, delivered by Transitions. Module 7 – Where Angels Dare and VCs Fear to Tread Shai Vyakarnam and Simon Pratten

2. VC Investment Criteria Global sustainable under-served market need Strong management team Defensible technological advantage Believable Plans 60% IRR

3. Defensible advantage Intellectual Property Rights for example Patent Copyright Trademark Defensible market leadership against well-funded competition Niche Market share Brand Your personal values, culture, networks etc.,

4. Believable Plans – Exit Readiness Balanced Scorecard Business Plan Development Plan Marketing plan Adverts, mail shots, web-sites Sales Plans Distribution, Direct Sales Quality Plans Financial Projections Budget 60% IRR Pay back financing in third year Cash flow

5. Rule of thumb – VC 101 $1 = say 25% Post money = $4 Need 10x = $40m value of company If PE ratio is say 8 Need sales $320 to pay back VC

6. Why stages? Risk/Reward profile differ Successive dilution Typically 30% dilution each stage Investment = pre-money valuation/2 “Squeeze the Angels”

7. Case Study Chance meeting in Liverpool and shared interest Set up informal joint venture leading to NewCo Where the final exit value was not considered – but the next tranche of money was…

8. Stages so far 1996 98 2004 050607 Liverpool Hotel Coffee shop 100k60k New team Early formation of team Brainstorm Technical stuff 300 2m All Of zero 1/3 rd Of zero 8% 7.09%

9. Setting a desired exit valuation Round 1 Round 2Round 3Round 4 001 0110100 Sh1Issues shares % Sh2 Sh3 Sh4 Options 10,000,000 Seed roundAngel/early VCDevelopmentC Round

10. Entrepreneurial/creativity = hard work, poor pay, informal communication Direction = sustained growth; functional org structure,, capital mgmt, incentives, budgets and standard processes Delegation = decentralised; operational and market level responsibility,; profit centres; decisions based on periodic reviews, top management acts by exception; formal communication styles Co-ordination = Product groups; formal planning centralisation of support functions; corporate staff oversees coordination; corporate capital expenditure; accountability for ROI; lower level profit sharing Collaboration = evolutionary path; team actions for solving problems; cross functional task teams; decentralized support staff, matrix Organisation; simplified control mechanisms; team behaviour education programms; advanced information systems and team incentives Leadership Autonomy Control Red Tape Internal Growth? Larry Greiner – Growth model Recognise the realities of growth and be prepared for them Crises of… Growth through

11. Personal transitions… Optimism Pessimism Time (n years+/-) Sceptical Raised money Prototype slow Bugger – no sales yet! Business is suffering – spending too long on internal perspectives Awayday we can do it Dark nights Major client signs Hey maybe worth it It works! Aargh; Maybe; Denial of need for change; See small changes; success; reluctant acceptance; try new behaviours; makes a difference; not so bad; new behaviours are the norm…

12. To achieve desired valuations Management Team = A team/C product Customers, revenues – evidence IP Systems and procedures in places Governance Captured in the Balance Scorecard

13. Entrepreneurial business Founder TechSalesVCDirector

14. Established business Operational Top team Leader CEOSalesFieldOfficeProductionSupplies

15. Questions How will you look when you grow up?! Draw an Organisation chart as you are now And as you need to be at the time of exit What systems will you have put in place What KPIs will you have established and delivered? These are the crunch issues as you grow