Raising equity funds Preparing the Pitch Perfecting Your... · NEVER say you have no competition...

Raising equity funds

Preparing the Pitch

Gerry Barañano

Tech Futures Group

Discussion Points

• Introduction of Tech Futures Group

• Equity spectrum

• First understand this

• Know your audience: Family, Angels, Venture Capital

• Best funding source: Angels or VCs?

• Pitch itself— clear, compelling, credible

• Sample pitches – original!

• AirBnB

• Mint

2

Non-Profit - Providing 100% FREE Business Advice

Takes no equity

Accepts no cash

A program of the Small

Business Development Center

(SBDC)

3

What Is Tech Futures Group

Sponsored and funded by:

Funding Constraints Limits TFG To

Great Advisors Only 4

Office

spaceCash for

equity

Program

Training

Limited

Time Period

Just Great Advisors!✓

Capital Infusion:

Debt

Equity

Government Grants

Jobs

Revenue

3

How Is TFG Measured?

How Does It Work

Submit an application online1

Internal application review2

EIR pairing 3

Specialty advisors brought in by EIR to assist4

Client reports milestones and provide success story 5

4

TFG Advisors – Work as a Team

Client

Entrepreneurs In Residence

Patent

Attorneys

Financial Models Grants – SBIR

Manufacturing

5

Business Advisory Board8

Advising Expertise TFG Advisors

CEO Business Strategy ✓

Intellectual Property ✓

Fundraising and Pitch preparation ✓

Manufacturing ✓

Private Equity & Financing ✓

Financial Modeling ✓

Business Development ✓

Go-To-Market ✓

Government Grants ✓

Economic Impact

Since

6/2012

Capital

Funding

Clients

Advised Revenue Jobs

TOTAL $123.5M 376 $97.9M 1,376

Economic Impact: Since Inception (6/2012)

Year

Capital

Funding

Clients

Advised Revenue Jobs

2016 $39.39M 83 $43.1M 615

Economic Impact: Year 2016

6

BIO – Gerry Barañano

• Extensive operating experience

• GM, Sales and Marketing

• Broad technology industry experience

• Multiple start-up experiences

• Strategic Business Development Consultancy

• Yale Undergraduate; Stanford MBA

10

Equity Spectrum 11

Other Options (not covered here)

Corporate investment

Government grants

Client contracts – Engineering contracts

• Easier to obtain capital with

less documentation

• More negotiating power

• Less money

• More documentation

is required

• Less negotiating power

• More money

Friends & F

amily

Crowd-

fundingAngel

Investors

Venture Capitalist

Angel Group

Accelerator

<$100K $50-$100K $75-$125K $250-$1M+ $2M+

First, Understand the Audience

Purpose of pitch: Stimulate Interest, Get the next meeting

Communicate “enough”, not everything

Mind of an Investor

Greed Fear

Will this team make me $$

Big problem? Big market?

Can I trust them?

Spend lots of time with them?

What will my partners think?Can I make $$?

How much $$?

Acquirer?/IPO?

Investor Mind: Money

Unmeet need

Large growing market

We have the solution

13

What you pitch:

Is there $ to be made?

What investors hear:

Right team?

Know how to make $$

Financials look good

Are these the right

people to execute and

make me $$?

How much $$?

First, Understand This

Body language trumps words

What people hear:

Words – ⅓ or less

Body language – ⅔

Mechanics of the Actual Pitch

PAUSEand let the message sink in

The right word may be effective,

but no word was ever as effective as

as a rightly timed pause. Twain

Be confident, enthusiastic

Engage with audience

Tell a story

First, Understand This

THREE KINDS OF INVESTORS

• Friends, Family (and Fools)

• Angels – Individuals

• Venture capital and Angel groups

16

FRIENDS AND FAMILY (and FOOLS)

CHARACTERISTI

CS

FFF COMMENTS

Motivation Relationship Help a friend or family member

Difficulty to obtain Relationship based Does your rich uncle like you?

Can be easy and quick.

Size of investment Small

$5,000 +

Varies by pocketbook size – typically small

Stage / Maturity of

Company

Very early

Seed money

Willing to accept high risk

Risks: Team (execution), Tech, Product, Market

Due diligence

Contract

Minimal Little due diligence

Handshake deal – not recommended

Decision process Can be quick

Talk to spouse

Minimal

Excitement often seals the deal

Returns Varies Minimum: 3-5X over 3-5 years

Preferred: 10X over 3-5 years

Time to exit Patient Can be very patient money.

3-5 years is ideal

Control Typically little May not want any

May lack business knowhow

Valuation Set later Best to set at a later round

17

KNOW YOUR AUDIENCE: ANGELS

Accredited investor

• Must have $1M assets outside home + $200K income

Motivation –

• Keep active

• Use knowledge / expertise

• Help next generation

• Return on investment

Invest early where can play an active role

High comfort with risk

Work in formal and informal groups

• Increase knowledge and reduce risk

200,000 active investors in U.S.

Clustered geographically

Fund fewer than 1 out of 40 businesses that apply

18

ANGEL INVESTORS

CHARACTERISTI

CS

ANGEL COMMENTS

Motivation Personal interest Active / retired; tech interest; business

experience

Difficulty to obtain Medium Easier: Personal networks; Lawyers, Board, etc.

More difficult: Group of Angels

Size of investment $10,000 –

$100,000

Few higher

Individuals: $10,000 – $100,000 personal

money

Angel Groups: <$1,000,000

Stage / Maturity of

Company

Very early Willing to accept high risk

Attracted to unique innovations where are expert

Due diligence

Contract

Can be minimal

Simple or

Complete

Individual: Less thorough; simple contract

Angel Groups: Sophisticated; thorough contract

Decision process Can be quick Individual: Typically quick (talk to spouse)

Angel Groups: Prolonged

Returns Varies Desire 10X

But, total valuation at exit often lower

Time to exit Patient Preferred: 3-5 years (individuals longer)

Longer time frame if require follow on

investments

Control Typically little May want a board seat but not control

19

VENTURE CAPITLIST:

MANAGERS AND FUNDS

Managers of venture capital funds

• Professional – it’s a job

• Paid on return of investment

• Many are successful entrepreneurs

• Highly educated, very driven

• Technically knowledgeable

Venture Capital Funds

• Professionally managed investment funds

• Structured as limited partnerships

• Often take portfolio approach

• Paid from management fees and carried interest

• Thorough due diligence

$87 billion invested in 2014

Fund fewer than 1 in 100 plans

20

VENTURE CAPITAL / ANGEL GROUPS

CHARACTERISTI

CS

VC COMMENTS

Motivation Returns Professionally manage fund; Portfolio approach;

Focus is total return to investors

Difficulty to obtain High Receive 100s of pitches per year

Busy with finding next deal; helping portfolio

clients

Size of investment Varies by round Seed = $500K; A = $1.7M;

B = $8M; Later = $20M

Stage / Maturity of

Company

Varies by round Want to invest in later rounds

Due diligence

Contract

Thorough

Complex contract

Evaluate: Team, Tech, IP, Market, Scalability,

Exit

Very complex – check with experienced attorney

Decision process Slow and

deliberate

Buy-in from several partners

Knife edge between fear and greed

Returns 20% - 30%

annual (10X over

5 years)

20% of investments provide 80% of the return

Every investment must be a potential big winner

Time to exit Typical 10 years

Range: Broader

Earlier rounds have longer times to exit

Must exit at a high muttiple

Control Required Board seat is typical

21

BEST FUNDING SOURCE: ANGEL OR VC?

Angels are best for:

• Early stage

• Require <$1M to prove tech, business model, market and

customer discovery, gain traction

• Short term need

• Market potential <$500M, thus exit size is smaller

• Exit in 2 to 5 years

• Founder wants to maintain control of business

VCs are best for:

• Later stage with less risk in tech, team, market adoption

• Require >$3M to prove tech, business model, market

• Require follow on investments of $5+M

• Business scales to very large size

• Market potential is huge; large exit possible

• Exit in 10+ years

• Willing to be replaced by professional managers

22

THE PITCH ITSELF

Clear

Compelling

Credible

23

TRADITIONAL PITCH: DOZEN SLIDES

1. Company logo slide with tagline

2. Team

3. Problem or Unmet Need

4. Market Analysis

5. Your solution – product, technology, demo

6. Competitive differentiation – IP, timing, other

7. Barriers to Entry

8. Positioning

9. Business / revenue model

10.Go-To-Market strategy; customer traction

11.Financial Projections

12.Capital Request

13.Use of Proceeds

14.Contact Info and Close

24

Slide #1: COMPANY NAME and LOGO25

ABC Company Name

& Logo

Entrepreneur Name

President and CEO

Perhaps the most important slide!

Slide #1: COMPANY NAME and LOGO26

ABC Company Name

& Logo

Entrepreneur Name

President and CEO

Elevator Pitch

Explain what you do

In which compartment of their brain do you fit?

Slide #2: TEAM27

CEO – background and career highlights

CTO – Technologist extraordinaire

VP Sales and Marketing – Knows industry, lots of contacts

Board of Advisors – Big names believe in company

Makes your company look bigger and better

Purpose of Slide:

Why we are the team to succeed

Holes in the team are OK!Just let them know that you recognize there are holes in y

our team

Slide #3: UNMET NEED28

Succinct description of business opportunity

Problem statement – Connect with a story or use case

Everyone should be nodding their heads

Market trends leading to opportunity

Customer validation

How did you validate – customer stories (real names)

Purpose of Slide:

It’s a big problem with a big exit

Slide #4: MARKET ANALYSIS29

Forecast market size (bottoms up is better)

• TAM – Total Available Market

• SAM – Serviceable Available Market

Which sliver will you own and why

• Growth rates

Market dynamics

• Regulations, new technology, competition

Purpose of Slide:

We know the larger market and our (first) sliver

Slide #5: SOLUTION – TECH AND PRODUCT30

Describe product / technology

Unique attributes and features

Describe the value proposition – How do you know?

Benefits to users; How do you alleviate pain?

Stage of development

Prototype, testing completed

Market traction

Purpose of Slide:

Our solution solves the problem and works

Show Picture

s

Slide #6: WE BEAT THE COMPETITION31

NEVER say you have no competition

Name your competitors

• Who uses them – market share and growth

• Why you are better (not why they are bad)

Always include the current solutions customers are using

Summarize your competitive advantage

• Why you can maintain this advantage

Purpose of Slide:

We know the competition and we are much better

Slide #7: OUR UNFAIR ADVANTAGE32

Barriers to competition

• Intellectual Property – Patents

• Third party substantiation, credibility

• Trade secrets

• Special relationships

• Meet new regulations

Purpose of Slide:

We beat the competition today and tomorrow

Slide #8: POSITION AGAINST COMPETITION33

How are you different?

Compare against familiar players

Purpose of Slide:

We’ve thought of how to position our product

YOUThink about what to put

in the X and Y axis

(Should be what your

customers care about.

And, what makes you look goo

d!)

Slide #9: HOW WE MAKE MONEY34

How we will make money

• Who pays you

• What channels

• Gross margins

What do you sell

• Product

• License

• Subscription

• Freemium model

Purpose of Slide:

We know how to make money (lots of it)

Slide #10: GO-TO-MARKET STRATEGY35

First customers

• Who are they in some detail

Channels – How will reach customers

• Sales and distribution channels

• Direct sales, VAR, Distributors

Customer acquisition cost

Strategic partnerships and traction to date

Purpose of Slide:

We know how to find and sell to real customers

Prioritize

Slide #11: FINANCIAL OVERVIEW36

Purpose of Slide:

We understand our business model

$MM Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

Unit Sales 0 9 862 1679 2934

HeadCount 5 5 8 13 15

Revenue 0 0.03 2.9 6.0 10.7

Gross Profit 0 0.02 1.5 3.2 5.7

Gross Margin

%

49 49 49 50 51

Operating

Expenses

0.8 0.7 1.5 1.9 2.5

EBITDA -0.8 -0.7 0 1.2 3.2

Net Income -0.8 -0.7 0 0.9 2.2

If there is real investor interest,

this slide will be scrutinized in the room.

Be prepared!

Slide #12: REQUEST FOR CASH37

What we need today – based on the last slide

• And for how long

What we will need later to be profitable

• Perhaps in stages

What we will deliver for the investment

• Risk reduced – technological, market acceptance, etc.

Purpose of Slide:

We know what we need and we’ll deliver

Slide #13: USE OF PROCEEDS38

What we’ll use the money for

• Engineering, manufacturing, sales, marketing

• Headcount required

• Other expenses

Purpose of Slide:

We’ve thought through what we need

Slide #14: SUMMARY AND CONTACT39

Sell the team

Re-state market potential

Emphasize Competitive Advantage

Describe ROI

Add your contact information

Purpose of Slide:

Summary

EXAMPLES OF TWO GOOD PITCHES

AirBnB

Mint

40

AirBnB Original Pitch41

Mint Original Pitch56

FINAL WORDS

Know how much money you need today

And to profitability

Decide angel or VC

Research – know everything about the investor / company

Get to know and feel comfortable with principals

Cater pitch to particular investor or VC firm

Practice, practice, practice

73

THANK YOU!

Tech Futures Grouphttp://www.techfuturesgroup.org

Gerry Barañanogerry@techfuturesgroup.org