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Funding MBAX 6100 Entrepreneurship & Small Business Funding Frank Moyes Leeds School of Business University of Colorado Boulder, Colorado
Funding Funding Your New Venture Next 3 Weeks This week: Venture Capital & private placement Next week Debt & other forms of funding Following week: Negotiating Term Sheets
Funding Today’s Agenda Locomotion presentation Funding Venture Capital Venture Capital Chris Scroggins of Sequel Venture Partners Rob Balgley of Skyetek Private Placement Doug Collier Due: Mid-term & entrepreneurship papers
Funding Venture Capital
Funding Venture Capital $21.7 billion in 2005 2,939 investments Down from $104 billion & 7,832 deals in 2000 Pool of capital invested in rapidly growing companies Private Partnerships General partners – manage Limited partners – provide funds
Funding What Are the Advantages to Venture Capital?
Funding What Are Disadvantages of Venture Capital?
Funding VC Decision Making Deal flow Less then 2% of deals are funded 1 to 2 new deals per year per partner Due diligence – in-depth investigation of the venture & you Time frame to do a deal: 3 to 12 months Entrepreneur decision making Due diligence Chemistry is key
Funding Managing VC Portfolio Companies A, B, C, & D Rounds Dry powder Each round is often staged with milestones Board of Directors Hands-on vs. portfolio approach
Funding What Do VC’s Look For?
Funding Control: Why do VC’s Often Wind-up Owning > 50% of a Venture?
Funding VC Required Return on Investment Seed 80%+ Start-Up 60% Early Stage 50% Second Stage 40% Third Stage 30% Bridge 25% ROI 5 yr. Increase 19x 10x 8x 5x 4x 3x Bygraves & Zacharakis
Funding What Are the Implications to the Entrepreneur of VC ROI? The later the stage, the better the deal The better the management, the better the deal The quicker the exit, the better the deal
Funding Why people want to be VC’s? Partnership General partners Limited partners Management fees 2% Specialize in an industry Carried interest – 80/20 Series of funds
Funding Angels Sophisticated investor who invests in early stage companies 250,000 + angels in US Invest $5 bill - $10 Bil, 20K – 30K companies annually Typical investment = $25K - $250K High net worth Usually wants to invest in industry where has experience Accessing Angels Not in the Yellow Pages Networking ACE-net.org
Funding Angels (cont’d) Advantages Early stage resource Value-added money : network, advice, commitment Disadvantages No follow-on funds Give-up equity Over-control from angel
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