1. Brandon S. Cohen, Associate Lecturer College of Business and Innovation University of Toledo ST-S Suit 1010 419.530.5689

2.  Overview (30,000 Feet)  Business Model  Elevator Pitch  Financial Statements (Historical v. Proforma)  Sources and Uses  Valuation and Cap Table  Funding Sources ◦ Grants ◦ Friends and Family ◦ Angels ◦ Venture Capital ◦ Private Equity ◦ Peer-to-Peer Networks, “Crowdfunding” and Bootstrapping  Exit Strategy

3.  Fundraising is a process  Investor types have different investment criteria – know the criteria for each investor type  Big Money investors desire to mitigate risk ◦ Business Risk - e.g. Is the entrepreneur experienced? ◦ Technology Risk – e.g. How far along is the technology to market; is there IP to protect the “invention”?  Big Money investors in the face of significant risk will demand a high ROI  What type of investment are you selling: Debt, convertible debt, common stock, preferred shares – each type of investment has a different impact on the company and founders ownership position

4.  Three to five sentence pitch that can be given in 1 to 2 minutes to describe your business, its value proposition and why the market will pay you for your product. ◦ Why is this important?

5.  Investors generally will invest in an understandable and scalable business model ◦ Number 1 criteria: Show the investor how you intend to make money. ◦ Generally, between $2mm and $4mm in revenue, the business has a functional and proven business model. Raising money at this point is less about do you have a business model that can work and more about how fast can you grow. Business Model Canvass  Value Proposition: What are you building, for who and why?  Customer Segments: Users, influencers, recommenders, decision makers, economic buyers and saboteurs.  (Sales/Distribution) Channels: Direct, Indirect, OEM etc.  Customer Relationships: Sales cycle and how do we get customers into the sales channel.  Revenue Streams: Strategy to generate cash from each customer segment (upfront fees, licensing, subscription).  Key Resources: What physical, financial, human or intellectual assets do you have available to make your company successful.  Key Partners: External companies whose products are services combine with your value proposition to create a complete solution to satisfy your customer.  Key Activities: What are you doing everyday to make your business successful. (In this class, develop value proposition, identify customer segments, create surveys, contact customers)  Cost Structure: What are the costs involved in delivering your product and or service – both fixed and variable; what is the gross profit margin per unit!!!

6.  http://www.businessmodelgeneration.com/d ownloads/business_model_canvas_poster.pdf http://www.businessmodelgeneration.com/d ownloads/business_model_canvas_poster.pdf

7.  Income Statement, Balance Sheet and Statement of Cash Flows  Historical ◦ Why is this a challenge for an early stage business?  Proforma ◦ Why is this a challenge for an early stage business, especially one where the product is not yet fully developed and the lead time to market is in the not so foreseeable future – like a biotech invention?

12. SourcesYear 1Year 2 Revenue$104,000$320,000 Investment (Desired)$500,000$1,000,000 Total$604,000$1,320,000 Uses Salaries$0$460,000 Marketing$20,000$15,000 Equipment$50,000$250,000 Working Capital$534,000$595,000

13.  How does one value a business?  The pre-money valuation and post money valuation are important because it lets the current owners know how much of the business they still own after the investment.  What is the market willing to absorb?  Discounted Cash Flows (based on proforma)?  Book Value (Accounting measure, never good for the owner)?  Market Research on comparables?

15.  Grants – Local, state and federal (non-dilutive, what does this mean and thus why is it good for business owners?)  “Accredited Investors”  State Blue Sky Securities Laws… When raising money in a particular state, you must understand the laws of that state regarding selling unregistered or registered securities  Friends and Family: Rich aunt, loving mom, skeptical dad  Angels: Usually wealthy community members looking to help people and the community  Venture Capital: Mercenary investors looking for significant ROI on investment (often found in big cities where talent and wealth concentration exists)  Private Equity: Similar to Venture Capital, generally more hands on and looking to integrate your idea with other portfolio owned businesses (sometimes exit partner)

16.  Peer to Peer Lending: Alternative financing options for businesses from unrelated third parties, often completed through the internet. ◦ Unsecured or secured loans – may or may not involve a personal guaranty… ◦ These loans are often then resold into the market after securitization (multiple, similar loans are bundled and then sold in a secondary market as a security)… ◦ Example: Multi-year equipment lease ◦ Lower default rate among borrowers leads to lower interest rates than credit card transactions  Crowdfunding: Raising small amounts of money from a large number of people, usually through the internet, to help fund a business. ◦ Reward-based crowdfunding: entrepreneurs pre-sell their product/service to launch business without incurring debt or selling equity (easier/no securities laws to deal with). ◦ Equity-based crowdfunding: the funder gets unlisted company shares in exchange for the money pledged. ◦ $5.1bn industry in 2013, most notable through Kickstarter.  Bootstrapping : “Beg, borrower, cheat, steal…” Just kidding. Examples: Credit card (bad); using income from a job (ok); Get it free when possible (good, guerilla marketing); Non-traditional funding, such as Invoice Factoring or Purchase Order Financing (great because you have a sale, but expensive)

17.  How do your investors get their money back? The private company’s stock is not readily marketable and cannot be easily sold. Thus, the company founders or management must outline how the private investors get repaid.  Operating entity: Pay back investors out of company revenue growth and corresponding net income (least desired (from venture capital), least pitched)  Acquisition target: Pay back investors from a third party buyout (e.g. Facebook acquires WhatsApp, and the WhatsApp investors get paid out back with Facebook shares which are readily marketable securities on a stock exchange)  Initial Public Offering: Offer shares to the public through a stock exchange (e.g. Twitter sells shares to the public, a year later it’s a $25bn entity and its initial shareholders are not big winners)