Perspectives on Business Capital

Anatomy of a Technology Focused New Venture IP Rights Technology Jamie Rhodes Founder, Alliance of Texas Angel Networks Founder, Central Texas Angel Network Board member, Angel Capital Association CEO, National NanoMaterials Dr. Peter Scheurman Assoc. Vice Chancellor Research and Economic Development UC - Merced

Anatomy of a Technology Focused New Venture IP Rights Technology There are more fundamental issues than technology and IP Success = Getting this Part Right Rhodes and Scheurman

Comprehensive Concept of New Venture IP Rights Technology Market Engagement Team Motivation Vision $$$ Right… Rhodes and Scheurman

Advancing Global Entrepreneurship and Incubation. © 2015 International Business Innovation Association. All Rights Reserved. IP Rights Technology Market Engagement Team Motivation These needs change depending on the team and how they develop and execute their market engagement strategy! This is developed by the team and continually adjusted and adapted to market conditions Entrepreneur needed - Team is built by the entrepreneur Must be embodied by the team Rhodes and Scheurman

CLICK TO EDIT MASTER TITLE STYLE Advancing Global Entrepreneurship and Incubation. © 2015 International Business Innovation Association. All Rights Reserved. DIFFERING FRAMES OF REFERENCE Faculty are rewarded for their research, patents and papers. They can see results from one experiment and claim “problem solved”. Basic research is often conducted in the fashion of “here is funding, let us know when/if you discover something”. Universities own Intellectual Property. Their goal, working through the technology transfer office, is to build revenue for the university. They are often driven by the philosophy “all IP could be the next Gatorade” Angels are looking to invest in a fully formed startup that includes an entrepreneurial team with a business plan and a well defined market and product. Very few are interested in funding a business that is still trying to define its product. Often the quality of the management team is more important to investors than the quality of the technology. Startup entrepreneurs are interested in building companies with innovations that can scale into large markets. In their vernacular a solved problem implies a solution that is defined, repeatable and scalable. Angel Capital Association

DIFFERING FRAMES OF REFERENCE Why would someone invest in you? What do they want out of their investment in you? Hard lessons in early stage investment: Neat Receipts Time Pilot ShopAround.com From an active investor: “I would also like to try to help a few companies if that would be useful or to help you in some other way. I had a couple of observations. First, none of the presentations presented a good picture of how investors could make money. This is required to get interest from serious smart money.”

The Reality of StartUp Funding Charts from Angel Capital Association

The Reality of StartUp Funding Charts from Angel Capital Association 8.6M > 1M 265k 15k

The Ultimate Reality of StartUp Funding 1:72* StartUps Succeed in Raising Capital From Bill Payne & Assoc. citing Tech Coast Angels

On the Other Hand…. September, 2013

On the Other Hand… Inc 5000 Realities September, 2013

On the Other Hand… September, 2013

The Ultimate Reality: 85% of Inc companies have not received external funding!

© 2011 Purdue Research Foundation Start-Up Finance 101 Source of Early Stage Funding

© 2011 Purdue Research Foundation Considerations Going In Your choices may be limited – if its via a commercial bank, it’ll be debt and require security Are you positioned to sell equity? PPM Shares Accredited Investors Does your investor prefer debt? First in line Higher certainty Funding options for early stage ventures are often influenced by a company’s business model

© 2011 Purdue Research Foundation Access to sources vary by a company’s maturity and risk profile Founder, Family, Friends Business Angels Public Equity Markets Commercial Banks Corporate Venture Capitalists HIGH RISK START-UP MATURITY LOW RISK

© 2011 Purdue Research Foundation Friends and Family ProsCons Inexpensive source of funds Low due diligence Quick Usually founder can maintain control Can be a real motivator for founders High pressure to return investment Can cause personal financial disasters

© 2011 Purdue Research Foundation Angels ProsCons Cheaper than venture capital Low to high due diligence Can be a quick source of funding Usually founder retains control Opportunity to receive more than money Unmanaged expectations can create issues May take many investors to fund the needs of the business Often carries the same Cons as FFF money Can create exit pressures

© 2011 Purdue Research Foundation Government ProsCons Inexpensive source of funds Typically coupled with technical assistance Hard to find Modest investment amounts Unfamiliar to many investors Exposure to FOIA and state equivalent disclosure laws

© 2011 Purdue Research Foundation Commercial Banks ProsCons Inexpensive Portfolio of offerings Credibility Scalability Protective provisions may limit operating flexibility Priority claim on assets Reporting and disclosure requirements Typically bundled with other bank products

© 2011 Purdue Research Foundation Venture Capital ProsCons Credibility Can fund significant capital needs Growth friendly repayment terms Capital is accompanied with strategic and tactical assistance Expensive High due diligence Potential conflict of interests Most appropriate for big deals Capital is accompanied by strategic and tactical assistance

23 Debt and Equity (Balance Sheet) Commercial Banks Grants Gov’t Funds SOURCESSOURCES © 2005

24 Debt and Equity (Balance Sheet) Commercial Banks Grants Gov’t Funds SOURCESSOURCES Revenue, Time, Development ABC © 2005

25 Debt and Equity (Balance Sheet) Commercial Banks Grants Gov’t Funds SOURCESSOURCES Revenue, Time, Development ABC 0 $ $$ $$$ $$$$ Self Funding Friends & Family Angel Investors Venture Capital IPO/Sell/Exit © 2005

26 Debt and Equity (Balance Sheet) Commercial Banks Grants Gov’t Funds SOURCESSOURCES Revenue, Time, Development ABC 0 $ $$ $$$ $$$$ Self Funding Friends & Family Angel Investors Venture Capital IPO/Sell/Exit “No” “Maybe” “Yes” “Please” **Working Capital Loans **Fixed Asset Loans **A/R Financing *Acquisitions *P.O.Financing © 2005

27 Debt and Equity (Balance Sheet) Commercial Banks Grants Gov’t Funds SOURCESSOURCES Revenue, Time, Development ABC 0 $ $$ $$$ $$$$ Self Funding Friends & Family Angel Investors Venture Capital IPO/Sell/Exit “No” “Maybe” “Yes” “Please” **Working Capital Loans **Fixed Asset Loans **A/R Financing *Acquisitions *P.O.Financing “Maybe” N/A --State --Federal --Private © 2005

28 Debt and Equity (Balance Sheet) Commercial Banks Grants Gov’t Funds SOURCESSOURCES Revenue, Time, Development ABC Self Funding Friends & Family Angel Investors Venture Capital IPO/Sell/Exit “No” “Maybe” “Yes” “Please” **Working Capital Loans **Fixed Asset Loans **A/R Financing *Acquisitions *P.O.Financing “Maybe” N/A --State --Federal --Private © 2005

29 Debt and Equity (Balance Sheet) Commercial Banks Grants Gov’t Funds SOURCESSOURCES Revenue, Time, Development ABC Self Funding Friends & Family Angel Investors Venture Capital IPO/Sell/Exit “No” “Maybe” “Yes” “Please” **Working Capital Loans **Fixed Asset Loans **A/R Financing *Acquisitions *P.O.Financing “Maybe” N/A --State --Federal --Private © 2005

© 2011 Purdue Research Foundation Sources for More Info…

© 2011 Purdue Research Foundation31 The Process Steps Preparation Subscription Agreement Term Sheet Check processing Agreement filing Confirmations Cap Sheets!!! Considerations No soliciting No advertising Access to information Equal footing Complete and accurate No after-market sales Supplements

DIFFERING FRAMES OF REFERENCE Why would someone invest in you? What do they want out of their investment in you?

The Ultimate Reality: 85% of Inc companies have not received external funding!