1. Startup Financing Greg Adolphe-Nazaire Dalhousie University

2. Why Startups?
Despite what is commonly thought, large corporations are not the main job providers in many countries but rather small and medium enterprises (SMEs)

3. small and medium-sized enterprises
There are 28.8M SMEs in the US
They represent :
99.9% of total businesses
97.7% of exporting firms($440 billion in exports)
63% of net new jobs created.
48% of the private sector employees
99.7 % of firms with paid employees
98.5 % of employers in high-tech industries
SMEs created 2.4 Million jobs two years following the great recession while large corporations were squandering
Source: SBA, Forbes

4. small and medium-sized enterprises
There are 1.1 million SMEs in Canada
They represent:
99.9% of total businesses
90% of exporting firms
63% of net new jobs.
69.7% of the private sector employees
Source: BDC, Innovation, Science and Economic Development Canada

5. Startups ( Some hard facts)
In both Canada and the US the average startup has a 50% chance of surviving beyond 5 years.
Why?
Costs of capital
Heavy regulatory environment
Tax
Labour costs
Unattractiveness to highly skilled talents
Lack of Liquidity

6. Costs of Capital: The long road to financing
In average one third of startups start with less than $10,000 while 88% start with a maximum of $250,000.
Although, the amount is not considerable, finding financing constitutes one of the biggest hurdles to entrepreneurs. They tend to rely on friends, family, and …fools (3 Fs).
Why?

7. Costs of Capital: The long road to financing
Although, traditional banking institutions provide 70 % of businesses credit, they won’t go near a startup because of the uncertainty.

8. Costs of Capital: The long road to financing
From a banking standpoint a business has to qualify for the 5 Cs
Character
Capacity
Capital
Collateral
Conditions

9. Financing Ecosystem
Different Types of Primary Financial Intermediaries
Commercial banks (loans, trade finance)
Credit Unions (Term loan)
Investments banks( Equity, Bonds)
Business development agencies(Equity and Term loan)
Venture Capital(Equity and Convertible Notes or Bonds)

10. Financing Ecosystem Venture Capital
Like any financial institutions VCs mobilize funds from savers to entrepreneurs but focus on emerging companies and cater to investors with low aversion to risk . They target projects seeking substantial funds for the first time but don’t qualify for standard credit criteria such as IT, life Science, IoT or renwable technologies.
Whether the fund focuses on early or late stage, VC firms go where no conventional banking institutions would.
VCs fill the uncertainty gap and attenuate the asymmetric information that is prevalent with startups.

11. Venture funds can be classified as follows:
Financing Ecosystem
Venture funds can be classified as follows:
Private independent venture funds
Captive funds (GV or MV)
Government agencies or Crown Corporations;
Business angels networks

12. What is the value proposition?
Financing Ecosystem
What are they looking for?
Highly innovative concepts
What is the market? What is the size?
How do you access the market? And how fast?
Competitive positioning
Scalability
Flexibility
Great management team
Proactivity
What is the business model?
What is the value proposition?

13. Financing Ecosystem
Why is the process different from a traditional bank?
Information highly asymmetric and risk much higher than usual

14. The process Exit Sourcing First Contact Screening process
First Contact
Sourcing
Screening process
Due Diligence
Deal Structuring
Monitor/ Mentor
Value
Exit

15. Equity and personally guaranteed loans Series C and Mezzanine debts
VC Funding Cycle
Equity and personally guaranteed loans
Series A or Frist round
Late Stage Funding
Series C and Mezzanine debts
3Fs, Grant, Gov Agencies
Early Stage
Later stage
IPO, M&A, Integration
Break even
Growth/
Profit/ Loss
Valley of Death
Expansion
Exit
Series B

16. The Exit Venture Capital have a multitude exit options : IPO Buyback
Mergers and Acquisitions
Sale to other strategic investor for synergy

17. Thank you