David R Clark Director of Investment Services 1. I want to start a new venture because: a)My invention/discovery will help mankind. b)I want to build

David R ClarkDavid R ClarkDirector of Investment ServicesDirector of Investment Services

1

I want to start a new venture because:I want to start a new venture because:a)a) My invention/discovery will help mankind.My invention/discovery will help mankind.

b)b) I want to build a company dominant in the market.I want to build a company dominant in the market.

c)c) I want to get rich.I want to get rich.

d)d) All of the aboveAll of the above

Pop QuizPop Quiz

2

This show is This show is entertainment but:entertainment but:

Not far from the truthNot far from the truth

•Hard questionsHard questions•Business focusedBusiness focused•Common formatCommon format

Deal on the spot not Deal on the spot not realisticrealistic

3

©

20045

TechnologyTechnology1.1. What is the product? What is the product?

2.2. What is the value proposition?What is the value proposition?

3.3. Is there protected Intellectual Is there protected Intellectual Property?Property?

4.4. What stage of development?What stage of development?

5.5. Are there barriers to Are there barriers to development success?development success?

Equity Funding 101Equity Funding 101 Note the word “product” Note the word “product”

6

MarketMarket1.1. What is it?What is it?

2.2. How big is it?How big is it?

3.3. Is there Is there independentindependent evidence evidence of demand for your product?of demand for your product?

4.4. Who are the competitors?Who are the competitors?

5.5. What is the differentiator?What is the differentiator?

6.6. What are the barriers to entry?What are the barriers to entry?

Equity Funding 101Equity Funding 101

7

ManagementManagement1.1. Who are you?Who are you?

2.2. What domain expertize?What domain expertize?

3.3. What entrepreneurial What entrepreneurial experience?experience?

4.4. How much How much ““skinskin”” do you have do you have in the game?in the game?


8

Attractive Attractive Investment?Investment?

1.1. What is the deal?What is the deal?

2.2. When do I When do I ““cash outcash out”” and and how?how?

3.3. What are the key milestones?What are the key milestones?

4.4. What is the funding strategy?What is the funding strategy?


The “exit” The “exit”

9

Recommended Recommended Documents Documents

(In order of importance)(In order of importance)

1.1. Investor PresentationInvestor Presentation

2.2. Executive SummaryExecutive Summary

3.3. Elevator SpeechElevator Speech

4.4. One Page SummaryOne Page Summary

5.5. Business PlanBusiness Plan

6.6. Customer BrochureCustomer Brochure

10

Why a Business Plan Why a Business Plan that nobody reads?that nobody reads?

Business StrategiesBusiness StrategiesProduct DevelopmentProduct DevelopmentSales & MarketingSales & MarketingFinancialFinancialOthersOthers

Management in syncManagement in sync(Equity Funding World)(Equity Funding World)

Sell the ventureSell the ventureDue DiligenceDue Diligence

Business PlanBusiness Plan1.1. What is the technology?What is the technology?

2.2. How big is the market?How big is the market?

3.3. Who is on the Management Who is on the Management Team?Team?

4.4. Is this a good deal?Is this a good deal?

12

TechnologyTechnology

Detailed description of the problemDetailed description of the problemSet up the Value PropositionSet up the Value Proposition

What is the solutionWhat is the solution55thth grader rule grader rule

Product DescriptionProduct DescriptionFeatureFeatureFunctionFunctionBenefitBenefit

Intellectual PropertyIntellectual PropertyState of DevelopmentState of Development

Also known as the “pain” statement Also known as the “pain” statement

Note the word “product” Note the word “product”

Market NeedMarket NeedMarket SizeMarket SizeCompetitionCompetition

Direct & IndirectDirect & IndirectCompetitive ResponseCompetitive Response

DifferentiatorsDifferentiatorsPricing StrategyPricing StrategySales Strategy and processSales Strategy and processRevenue sourcesRevenue sources

MarketMarket

15

Management TeamManagement Team

Who is on the teamWho is on the teamDomain ExpertiseDomain ExpertiseEntrepreneurial ExperienceEntrepreneurial ExperienceBoard of AdvisorsBoard of Advisors

Attractive InvestmentAttractive InvestmentPro Forma P&L – 3-5 years (or Exit)Pro Forma P&L – 3-5 years (or Exit)

Assumptions driving the numbers Assumptions driving the numbers 20X in 5 years20X in 5 years

Pro Forma Balance SheetPro Forma Balance SheetCap tableCap tableFunding RequestFunding RequestPro Forma Cash FlowPro Forma Cash FlowThe The ‘‘DealDeal’’ and Liquidity Events and Liquidity EventsUse of FundsUse of Funds

Integrated timelineIntegrated timeline

Integrated Timeline ($K)

Development

Sales & Mkting

Cash Balance

Investment

Alpha Beta Production

Hire Sales Sign 1st Distr 1st Sale

$150 $350

Continued Sales

“Dry powder” “Dry powder”

What really happensWhat really happens

1.1. Read the first Read the first paragraphparagraph

2.2. Look at the Look at the financialsfinancials

$ Revenue line$ Revenue line

3.3. Look at Look at Management TeamManagement Team

Is there a Is there a ‘‘hookhook’’??

How much &How much &20X N5?20X N5?

Can they pull this off?Can they pull this off?

20

Biggest Mistakes by Biggest Mistakes by EntrepreneursEntrepreneurs

1.1. Talk too much about the Talk too much about the technology and not the business.technology and not the business.

2.2. Cannot articulate assumptions Cannot articulate assumptions driving revenue and expenses.driving revenue and expenses.

3.3. Failing to involve former Failing to involve former entrepreneurs.entrepreneurs.

4.4. No No independentindependent market validation market validation (1% fallacy; (1% fallacy; ““no competitionno competition””))

5.5. Failing to realize that investors want to Failing to realize that investors want to ‘‘cash cash outout’’ - not get a share of profits. - not get a share of profits.

6.6. Not understanding IP issues.Not understanding IP issues.

21

The Management TeamThe Management TeamVersion 1.0Version 1.0

Product InventorProduct Inventor

FinanceFinanceMarketingMarketing


ChiefChief ExecutiveExecutive

Product Product DevelopmentDevelopment FinanceFinance SalesSales &&

MarketingMarketing

Chief ExecutiveChief Executive

The key playerThe key playerOverall strategy of the ventureOverall strategy of the venture““FaceFace”” of venture to investors of venture to investors

Lead presenterLead presenter

Assemble the Management TeamAssemble the Management TeamRaise equity funding & The ExitRaise equity funding & The ExitOperationsOperations

26

Financial strategy of the ventureFinancial strategy of the venturePro FormasPro FormasFunding rounds or traunch strategyFunding rounds or traunch strategyNegotiation & Term SheetsNegotiation & Term Sheets

Financial operationsFinancial operationsCash managementCash management

Creditor management, e.g. factoringCreditor management, e.g. factoring

Expense controlExpense controlVendorsVendors

Chief Financial OfficerChief Financial Officer

Key “Pre-Money” tasks Key “Pre-Money” tasks

27

Chief Technical OfficerChief Technical Officer

““BuildBuild”” the product the productProgram ManagementProgram Management

Investor milestonesInvestor milestonesLaunch milestonesLaunch milestones

Product support strategyProduct support strategyLogisticsLogistics

IP protectionIP protectionManufacturingManufacturing

28

Chief Marketing OfficerChief Marketing Officer

Marketing strategyMarketing strategyProduct launchProduct launchMarketing communicationsMarketing communications

Sales strategySales strategyDrive revenueDrive revenueDistributionDistributionSales organizationSales organization

29


ChiefChief ExecutiveExecutive

ProductProduct DevelopmentDevelopment FinanceFinance SalesSales &&

MarketingMarketing

32

Who is the Who is the Entrepreneur?Entrepreneur?

Who on the Management Team has raised Who on the Management Team has raised equity funding before?equity funding before?How much and how many times?How much and how many times?

Who has brought a product to market before?Who has brought a product to market before?This can be done. Just get creative.This can be done. Just get creative.

33

So How Do We Do This?So How Do We Do This?

DonDon’’t not have a plant not have a planAdvisorsAdvisors

Gray hair and scar tissueGray hair and scar tissueCan become investorsCan become investors

Equity positions for managementEquity positions for managementWork for Work for ‘‘piece of actionpiece of action’’Keep it simpleKeep it simple

Realize an Investor may want to put his/her people in Realize an Investor may want to put his/her people in – especially CEO or CFO– especially CEO or CFO

Not a fiduciary Not a fiduciary

34

Board of Directors Board of Directors & Advisors& Advisors

Fill roles temporarilyFill roles temporarilyAccepted by InvestorsAccepted by Investors

Consulting rolesConsulting rolesLegal, Marketing (not Sales), Manufacturing, Legal, Marketing (not Sales), Manufacturing,

Technical, etc.Technical, etc.

Use Use ‘‘Star PowerStar Power’’ of BOD/advisors of BOD/advisorsAccess to investorsAccess to investorsMay be investors themselvesMay be investors themselves

DonDon’’t forget the Investort forget the Investor

35

Biggest Mistakes by Biggest Mistakes by EntrepreneursEntrepreneurs

1.1. No seasoned entrepreneurNo seasoned entrepreneur

2.2. No plan to fill key rolesNo plan to fill key roles

3.3. ““WeWe’’ll be able to do that once we get ll be able to do that once we get funding.funding.””

4.4. Multi-tasking to Multi-tasking to ‘‘cut expensescut expenses’’..

5.5. Failure to use Board of AdvisorsFailure to use Board of Advisors

6.6. Confusing accountants with CFOConfusing accountants with CFO’’ss

38

Milestones create Milestones create ““valuation inflection valuation inflection

pointspoints””

Milestones create Milestones create ““valuation inflection valuation inflection

pointspoints””

So What?So What?

$500K up front$500K up front• Your share - 70.5%Your share - 70.5%• Your value - $2.8MYour value - $2.8M

$500K (200/150/150)$500K (200/150/150)• Your share - 77.5%Your share - 77.5%• Your value - $3.1MYour value - $3.1M

47

So whereSo where’’s the money?s the money?

Venture CapitalistsVenture Capitalists Probably too earlyProbably too early

Angel NetworksAngel Networks Texas Angel NetworksTexas Angel Networks GUSTGUST

Government & Education Government & Education InitiativesInitiatives SBIR/STTRSBIR/STTR Texas Emerging Technology FundTexas Emerging Technology Fund Texas TransformTexas Transform

Private FundsPrivate Funds Targeted TechnologiesTargeted Technologies T3DCT3DC

Do you want to be rich?Do you want to be rich?

Do you want to be King?Do you want to be King?

Clever technology or a good idea Clever technology or a good idea is not enough.is not enough.

There must be a strong There must be a strong management team around management team around the technology.the technology.

Know the market and Know the market and competitive landscape.competitive landscape.

The objective is to sell the The objective is to sell the company.company.

The Take AwayThe Take Away

50

David ClarkDavid ClarkDirector Investment Director Investment

ServicesServicesT3DCT3DC

[email protected]@t3dc.org

51