Venture Capital for SMEsVenture Capital for SMEs

Joel SantosJoel Santos

PresidentPresident

Entrepreneurs School of AsiaEntrepreneurs School of Asia

What do entrepreneurs What do entrepreneurs usually need to grow the usually need to grow the

business?business?

Grow from small to medium Grow from small to medium or from medium to a large or from medium to a large

enterpriseenterprise

CAPITAL

Options to raise Capital:Options to raise Capital:

• BanksBanks

• Angel fundingAngel funding

• Venture capital Venture capital fundingfunding

What are Angel Funds and What are Angel Funds and Venture Capital Funds?Venture Capital Funds?

• Capital provided by a third-party Capital provided by a third-party investor for financing of new or investor for financing of new or growing or struggling enterprise growing or struggling enterprise without the need for collateralwithout the need for collateral

• Process of reducing Process of reducing perceived perceived risk risk to the lowest possible level.to the lowest possible level.

• Results in a partnership with an Results in a partnership with an outsideroutsider

Venture CapitalVenture Capital

• Ideal for enterprises that are Ideal for enterprises that are considered “risky” for the bank considered “risky” for the bank loansloans

• VCs are selective in investmentsVCs are selective in investments

• Rule of thumb, 1 in 100 Rule of thumb, 1 in 100 opportunities opportunities

• Usually in fast-growing, high-Usually in fast-growing, high-potential industriespotential industries

Venture Capital StagesVenture Capital Stages

Early Stage:Early Stage:Php 1M- Php 10MPhp 1M- Php 10M

• Seed Capital Seed Capital : Primarily for : Primarily for product development and market product development and market research. research.

• Start up Capital Start up Capital : Company has : Company has complete business plan, initial complete business plan, initial marketing begins. marketing begins.

• Company is ready for business Company is ready for business , , but no commercial sales yet. but no commercial sales yet.

Expansion Financing: Expansion Financing: Php 10M – Php 100MPhp 10M – Php 100M

• First Stage First Stage : Funds for full scale : Funds for full scale manufacturing and sales. manufacturing and sales.

• Second Stage Second Stage : Essential working : Essential working capital for growing receivables, capital for growing receivables, inventories, and payables. inventories, and payables.

• Third Stage Third Stage Funds for major Funds for major expansion, new products. expansion, new products.

How does it work?How does it work?• VC evaluates investment VC evaluates investment • VC invests ( stock equity or a VC invests ( stock equity or a

combination of equity and debt combination of equity and debt obligation )obligation )

• VC hope to be able to sell their equity VC hope to be able to sell their equity in 4 to 6 years, at or after an exit event: in 4 to 6 years, at or after an exit event: harvesting. harvesting.

• Through a payback formula, initial Through a payback formula, initial public stock offering (IPO), or plans for public stock offering (IPO), or plans for a merger/buyout by a major companya merger/buyout by a major company

6 Questions of VCs6 Questions of VCs

• How much can I make?How much can I make?

• How much can I lose?How much can I lose?

• Who says this will work?Who says this will work?

• Who else is in the deal?Who else is in the deal?

• How big is the market?How big is the market?

• How do I get my money out and How do I get my money out and when?when?

What VCs/ investors look What VCs/ investors look for in generalfor in general

• Business PlanBusiness Plan

• Good Management TeamGood Management Team

• Track RecordTrack Record

• Good Cash flowGood Cash flow

• Financial targetFinancial target

A Good Business PlanA Good Business Plan

• Should address the concerns of Should address the concerns of an investor:an investor:– Upside potentialUpside potential– Downside riskDownside risk– Potential dilutionPotential dilution– Liquidity issuesLiquidity issues

• payback formula, initial public stock payback formula, initial public stock offering (IPO), or plans for a offering (IPO), or plans for a merger/buyout by a major company. merger/buyout by a major company.

Management FactorsManagement Factors

• Can the current management Can the current management maintain a sustained effort?maintain a sustained effort?

• Is the entrepreneur a leader?Is the entrepreneur a leader?

• Does the team have extensive Does the team have extensive Market familiarity?Market familiarity?

• How much ROI/ROE can I get How much ROI/ROE can I get in 5 to 7 years?in 5 to 7 years?

Every VC has his own Every VC has his own criteria for investingcriteria for investing

My criteria as a My criteria as a Venture Capitalist for SMEsVenture Capitalist for SMEs

High GrowthHigh GrowthLed by Passionate EntrepreneursLed by Passionate EntrepreneursMinimal investment for big impactMinimal investment for big impact

Why invest in SMEs?Why invest in SMEs?

SMEs: Engine for Country’s growthSMEs: Engine for Country’s growth

FIC-Southeast AsiaFIC-Southeast AsiaFUND DESCRIPTIONFUND DESCRIPTION

• $ 4M (Php200M) from $ 4M (Php200M) from CanadaCanada

• Investments for growth with Investments for growth with

Php10M-Php20M per Php10M-Php20M per companycompany

• 5-7 year time frame5-7 year time frame

What do we want in What do we want in return?return?

• 30% ROE per annum30% ROE per annum

• Seat in the executive boardSeat in the executive board

• Option to appoint managers in Option to appoint managers in critical areascritical areas

• Veto power in major decisionsVeto power in major decisions

• Exit in 4-7yearsExit in 4-7years

As a Venture Capitalists we As a Venture Capitalists we would want to be partners would want to be partners in growing the business.in growing the business.

• Strategic ManagementStrategic Management

• Expertise in IndustriesExpertise in Industries

•““Door opener”Door opener”

Examples of Venture Examples of Venture Capitalist focusing on SMEsCapitalist focusing on SMEs

Iron CapitalIron Capital

• Headed by Nori PobladorHeaded by Nori Poblador• Company targets are BPO, Company targets are BPO,

Consumer Goods, Education, Consumer Goods, Education, Tourism, Healthcare Tourism, Healthcare

• Investment size per company: Investment size per company: Php 5M - Php20M Php 5M - Php20M

• Contact details:Contact details:nori_poblador@ironcap.comnori_poblador@ironcap.com

EnviroventuresEnviroventures

• Headed by Marietta FondevillaHeaded by Marietta Fondevilla

• Company targets are environment Company targets are environment related products and servicesrelated products and services

• Investment size per company: Investment size per company:

Php 10M – Php15M Php 10M – Php15M

• Contact details:Contact details:

www.enviroventures.comwww.enviroventures.com

Looking for a venue to Looking for a venue to meet Angel Investors?meet Angel Investors?

• Facilitated by Ed IsidroFacilitated by Ed Isidro• Monthly Forum to meet angel investorsMonthly Forum to meet angel investors• 6 projects are presented every forum6 projects are presented every forum• 7am every last Thursday of the Month 7am every last Thursday of the Month

in AIMin AIM• Next forum scheduled for August 31’06Next forum scheduled for August 31’06• www.philvencap.comwww.philvencap.com

Phil. Venture Capitalist Phil. Venture Capitalist Investment Inc. (PVCI)Investment Inc. (PVCI)

ForumForum

For investment proposals:For investment proposals:

joel@entrepreneur.edujoel@entrepreneur.edu

Entrepreneurs School of AsiaEntrepreneurs School of Asia

www.entrepreneur.edu.phwww.entrepreneur.edu.ph