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Financiers and their habits
by Mr Ties van der LaanTies Corporate Finance
10, rue des Alouettes, L-1121 Luxembourg-CentsLuxembourg
m +352 091 427 566, t/f +352 427 566e [email protected], i www.ties.lu
Equity investors
Who am I?
After nearly ten years in Dutch venture capital companies (ING Group) I am coaching
since 1999 entrepreneurs and management teams to raise finance, first through LIFT
and from mid 2002 as an independent business coach
Where to look? - depends on where you areBUY OUT / M&A
= COMPANY'S LIFE CYCLE= FINANCE Growth, profit= FINANCIERS EXPANSION= EXIT
Growth MBO, MBI , IBO, LBO
M&A = Mergers & Acquisitions EARLY STAGE Merger, Acquisition
IPO = Initial Public Offering and TurnaroundMBO = Management Buy Out Accelerated growth Third, Fourth, ….. Loans, Mezzanine,MBI = Management Buy In START-UP Equity (expansion Equity (later stage capital),
IBO = Investor Buy Out capital), Loans GrantsLBO = Leveraged Buy Out Marketing Second round
RESEARCH & DEVELOPMENT Equity (early stage capital)
Concept Research Project plan Design Prototype First Roundspecification Equity Management team, Management team,
(start-up capital) Corporate investors, Venture capitalists, Seed round Venture capitalists, Mezzanine providers,
Grants, Gifts, Goods, Services, Loans, Equity (seed capital) Management team, Banks, Banks,Management team, Corporate investors, IPO. Institutional investors,
Business angels, Venture capitalists. Public sector.Public sector, Sponsors, Founder & friends & family, Corporate investors,
Banks, Venture capitalists.Business angels, Corporate investors, Venture capitalists.
License or sale (Trade) sale (Trade) sale (Trade) sale, IPO, (Trade) sale, IPO,secondary buy out secondary buy out
Life cycle/finance/financiers
Life Cycle Finance FinanciersResearch Grants Public sectorStart-upEquity SponsorsEarly stage Seed capital Founder, friends, familyExpansion Venture capital BanksBuy-out/in Private equity Business angelsTurnaround Mezzanine Corporate venturers
Loans Venture capitalists
And will finish with a summary and a step-by-step plan!
General characteristics: Focus is on future Seek risk, expect high return Buy shares Temporary involvement Seek (serial) managers/entrepreneurs
Equity investors
Business angels Corporate investors Venture capitalists (Institutional investors)
Types of equity investors
BA’s: characteristics
Successful business(wo)men “Have been there, done that” Invest their own money Funds: up to € 1m, few larger Deals: from € 15-200k, typically € 75k Aged between 50-70 years, few younger Driven by “giving something back” Other agendas - fun, involvement Profit less significant
Executive angel Active entrepreneurs, executives or consultants Investments between € 50k - € 100k Extra turnover, networking, hobby
Job seeking angel Redundant executives Work in the € 30k - € 70k area Busy, active
Retired angel Workaholics Smaller amounts (€ 15k - € 50k) Busy, active
Who are the BAs?
Small companiesMostly active in markets they knowGrowth in growing, large, empty niche markets In 7-10 years potential turnover >100mAlso invest in seed phaseNearby
ReturnProfit through tradesale or IPODividend, interest and fees
Likeable persons In business (entrepreneur) and private (talk)Mutual trust
What do BAs seek?
IntakeVia friends, family or business (angel) networksLow due diligence
The dealStraightforward structureVeto rights, minority protection, anti-dilutionTime frame from several weeks to one month
After the dealClose involvement: 1-3 days/weekHands on unless going badlyBusiness devils
How do BAs operate?
Large, operating companies Successful, cash rich Invest company’s money Funds: active € 10, passive € 200m Deals: small (< € 0,2m) or large (> € 5m) Active managers 30-60 years old Objective strategic: market reconnaissance Outside (but close) to own market Profit less important
CV’s: characteristics
Market leaders (or just below) in:Technology (ICT: Intel, Life Science: BASF)Telecom (Vodafone)Consumer products (Unilever)Capital goods (Siemens)
Quoted on the stock exchange See www.evca.com
Who are the CVs?
ActiveSmall companies/individuals (in or external)Focussed on seed phase/technology Incubate until ready for VCsBuy when successful
Passive Mature businesses (MBOs, restructuring)Direct: partner with VC’s Indirect: fund of fundsBuy or trade sale (IPO)
What do CVs seek?
Active Intake through investment manager Fast decisions, little due diligence Simple deal structure Hands-on even when going badly Invest for the long run (> 5 years), buy when successful Enhance your credibility, give access to network
Passive Direct: passive in deal structuring (VC) Indirect: in investment committee Sometimes in Board of Directors or Supervisory Board Hands-off or buy when going badly
How do CVs operate?
History of venture capital Characteristics Who are they? What do they seek? How do they operate?
Venture capitalists
History of venture capital
Started in USA in early 1900 Rich families (e.g. Rockefellers) invested outside
own conglomerate as business angels 1st time distinction: ownership/management After WOII: professional VCs Early 60s: UK Early 80s: continental Europe (banks in NL)
Professional buyers of share in private companies Invest money of institutional investors (II) II = LP, fund manager = GP Funds: € 10m – € 15bn (!) Deals: € 1m – several € 100m Investment managers between 25–55 years old Dealmakers with financial background Objective is generating cash Driven by building profitable/sellable companies
VC: characteristics
1. Private equity vs. venture capital 2. Evergreens (mostly captives) vs. revolving funds 3a. Large VCs (<10 in EU)
Funds: several € 1bn, deals: € 1m-250m Sector and/or region specific sections/subsidiaries Fund of funds
3b. Medium sized generalists (100-200) Funds: € 50-300m, deals: € 1m several € 10m Private equity, venture capital and fund of funds
3c. Niche VCs (< 100) Funds: € 10-300m, deals: € 250k-5m Focused on technology markets or niches Combine investors with industry knowledge Mostly venture capital
Who are the VCs?
Private equity 90% (!) of money yearly raised Mature companies with turnover > € 50m Buy-outs mostly (MBO, MBI, IBO, BIMBO etc.) No market specialisation Return > 20%: € 10 in, 4 years later € 20m out
Financial engineering Buy and build Sale
What do VCs seek? (I)
Venture capital Young companies: seed, start-up, early stage Large, global empty markets Experienced entrepreneurs Return > 50%: € 1m in, 4 years later € 5m out
Growth Sale (trade or IPO)
Investing is trust in people PE = balanced management teams VC = entrepreneurs
What do VCs seek? (II)
IntakeReceive more plans than read Introduction via networkSelective: invest in 1% of business plans readExtensive due diligence: 2 to 6 months
Market(ing), technology, management, legal, financialPE: mostly external specialists
Syndicates (so no competition between VCs)Deal-sourcing in other regionsFollow-on investmentsPrevent entrapmentControl with minority share
Cross-border only with local lead
How do VCs operate? (I)
The dealSometimes complex deals Management option schemeVeto-rights, minority protection, anti-dilution Board representation Monthly or quarterly reportingControl over exit Investment committee decidesTypically 2 months
How do VCs operate? (II)
After the dealReal work startsFrequent contact in beginningSupport: knowledge, experience and networkFocus on:
GrowthReportingExit
Hands-off unless going badlyNo good money for bad moneySell healthy part of company via network
How do VCs operate? (III)
BAs: money + market experience + network, long term, < € 0,2m in small fast growing companies, not for return only, local, hands-on
CVs: money + market knowledge + network + credibility, long term or short term, < € 0,2m or > € 5m in companies close to their market, active + hands-on or passive + VC, buy when successful
VCs: money + experience + network, professionals in private mostly mature companies (PE), PE: financial engineering & buy/build & exit, VC: growth & exit, return only, prefer syndication with local party, due diligence: 4-8 months
Conclusion equity investors
From start to finish (I)
The more steps you complete the easier it becomes to raise finance:
1. Finalise your product (grants)2. Find entrepreneur (yourself?)3. Found company (own money, house, FFF)4. Find business partners (sponsors)5. Find customers and sell (auto-finance)6. (Accelerated) growth (raise finance)
continued on next slide
From start to finish (II)
continued from the previous slide
7. Raising equity finance: 1. Prepare business plan/presentation/pitch
With help of dedicated professionals? 2. Research financial world
Business Angel Networks (BANs, www.eban.org) EVCA/local VCAs (www.evca.com) Networking
3. Approach chosen potential investors With help of dedicated professionals?
8. Later stage: MBO/MBI/Turnaround9. Raising equity finance: see 7.10. Sell: tradesale or IPO
Where to look? - depends on where you areBUY OUT / M&A
= COMPANY'S LIFE CYCLE= FINANCE Growth, profit= FINANCIERS EXPANSION= EXIT
Growth MBO, MBI , IBO, LBO
M&A = Mergers & Acquisitions EARLY STAGE Merger, Acquisition
IPO = Initial Public Offering and TurnaroundMBO = Management Buy Out Accelerated growth Third, Fourth, ….. Loans, Mezzanine,MBI = Management Buy In START-UP Equity (expansion Equity (later stage capital),
IBO = Investor Buy Out capital), Loans GrantsLBO = Leveraged Buy Out Marketing Second round
RESEARCH & DEVELOPMENT Equity (early stage capital)
Concept Research Project plan Design Prototype First Roundspecification Equity Management team, Management team,
(start-up capital) Corporate investors, Venture capitalists, Seed round Venture capitalists, Mezzanine providers,
Grants, Gifts, Goods, Services, Loans, Equity (seed capital) Management team, Banks, Banks,Management team, Corporate investors, IPO. Institutional investors,
Business angels, Venture capitalists. Public sector.Public sector, Sponsors, Founder & friends & family, Corporate investors,
Banks, Venture capitalists.Business angels, Corporate investors, Venture capitalists.
License or sale (Trade) sale (Trade) sale (Trade) sale, IPO, (Trade) sale, IPO,secondary buy out secondary buy out
Ties Corporate Finance
Business coach in raising finance
for the expansion of businesses
To create a winning business planTo approach investors professionallyTo negotiate with investors successfully
Ties Corporate Finance
Ties van der Laan10, rue des Alouettes
L-1121 Luxembourg-CentsMobile: (+352) 091 427 566
Fax: (+352) 427 566Email: [email protected]
Internet: www.ties.lu
Contact details