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“Funding Your Start Up”

A Lagos Angel Network POEM® Workshop

GE Garages, Victoria Island 9th July 2014

Workshop Objectives

•  Introduce the framework used by the Lagos Angel Network to evaluate investment opportunities

•  Help prepare entrepreneurs for engagement with Angel investors

The Investment Funding Value Chain!

Founder, Family, & Friends

Angels Bank Venture Capital

PE/Stock Market

About the Lagos Angel Network •  The Lagos Angel Network is committed to providing early-

stage seed funding and mentorship to early stage businesses in Lagos, Nigeria.

•  Member Angels acknowledge that anything they invest in companies through the LAN is money and time that they can afford to lose in its entirety.

•  However, they also recognize they may earn a healthy return on their investments while supporting the development of the Nigerian economy by helping new business owners grow and strengthen their start up businesses.

What are LAN Angels looking for?!

Entrepreneurs that are Investment Worthy!

with

Businesses that are Investment

Ready!

What is the LAN looking for?!Businesses that:

1.  Are based in Lagos, Nigeria 2.  Require less than N5,000,000 3.  Are less than two years old 4.  Have a team of at least 3 members (ideally commercial,

technical and operational but will consider other compositions)

5.  Can clearly show the Founder(s) have already invested their own money

6.  May have also received investment from Family and/or Friends

7.  Have a working prototype that clearly demonstrates the business model of their idea

!!!

Investment Worthy?

Investment Ready?

The POEM ® Framework !

How does the LAN know if…?!

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What’s your business vision?!

Vision: a vivid, imaginative conception or anticipation

•  Every business starts with a vision! Founders need to be able to articulate

and share their vision in a way that shows they are solving a problem, creating economic value and making an impact on the market they have chosen.

The POEM ® Framework !Angels

A tool for evaluating if your business is investment ready

Entrepreneurs

A tool to help think-through all aspects of the business building journey you are about to embark on - something you won't have the luxury of doing once you start the train.

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The POEM ® Framework !

PROPOSITION!

ORGANISATION!

ECONOMICS!

MILESTONES!

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P = PROPOSITION – what’s the value?

•  Your vision should deliver a value proposition which provides clear descriptions for the: •  Functions & Features on Offer (Customer experience) •  Target Market(s), Segment(s) & Customer Profile(s) •  Derived Benefits of Offer - WIIFM •  Alternatives and Differentiation •  Regulation & Compliance •  Competition & Substitution •  Inputs & Dependencies •  Elevator Pitch….90 second guide

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O = ORGANISATION – who and how? •  PROCESS

• BUY • PROCUREMENT & LOGISTICS  • VENDORS

• MAKE • HUMAN CAPITAL • RESEARCH • ANALYSIS & DESIGN • PROGRAMMING & DEVELOPMENT • TESTING • COMMISSIONING/LAUNCH

•  SELL • MARKETING • SALES • CUSTOMER SUPPORT • CORPORATE AFFAIRS!

•  PEOPLE •  BOARD OF DIRECTORS/ADVISORS

•  EXECUTIVE •  TECHNICAL •  COMMERCIAL •  OPERATIONS

•  NON-EXECUTIVE •  MANAGEMENT

•  SENIOR •  MIDDLE •  JUNIOR

•  STAFF •  CAREER PROFILE •  EXPERTISE & EXPERIENCE •  PERSONAL VISION/ MISSION/ OBJECTIVES •  CAPABILITIES & COMPETENCIES!

•  TECHNOLOGY •  CLIENT

•  INTIMATE, PERSONAL, DESKTOP!

TGY •  SERVER

•  APPLICATION, INFRASTRUCTURE, SECURITY, SERVICES!

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E = ECONOMICS–show me the money! P&L STATEMENT! PERIOD 1!

REVENUE! 1,000,000!

Less DIRECT COST OF SALES! 300,000!

GROSS MARGIN! 700,000!

Less OPERATING EXPENSE! 500,000!

EBITDA (Profit or Loss)! 200,000!

CASHFLOW STATEMENT! PERIOD 1!

INFLOWS!

- REVENUE! 1,000,000!

- LOANS & FACILITIES! 700,000!

- SHAREHOLDERS EQUITY! 500,000!

OUTFLOWS!

- EXPENSES! 800,000!

- INTEREST! 70,000!

- REPAYMENTS! 400,000!

NET FLOW! 930,000!

BALANCE SHEET!

ASSETS! LIABILITIES!

FIXED ASSETS! 1,300,000! PAYABLES! 300,000!

CASH & BANK! 300,000! LOANS! 700,000!

RECEIVABLES! 700,000! EQUITY!

TOTAL ASSETS! 2,300,000! PAID UP CAPITAL! 1,000,000!

RETAINED EARNINGS! 300,000!

TOTAL LIABILITIES & EQUITY!

2,300,000!

MARKET(S) •  $ SIZE? •  % SHARE? •  % INFLATION? •  DEMAND •  TRENDS!

ROI - NPV - IRR

FORECAST ASSUMPTIONS

ACTUAL

PERFORMANCE!

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•  SEED •  CONCEPT DEFINITION •  BUSINESS MODEL DEVELOPMENT •  FOUNDER, FRIENDS & FAMILY

(FFF) FUNDING

•  START-UP •  BANKABLE BUSINESS PLAN •  ESTABLISHED CUSTOMER BASE •  FULL-TIME OPERATIONAL

STRUCTURE •  ANGEL/VC FUNDING

•  GROWTH •  REVENUE, CUSTOMER & PROFIT

GROWTH •  INCREASED MARKET SHARE •  VC/PE FUNDING

•  MATURE •  COST & PRODUCTIVITY

MANAGEMENT •  NEW PRODUCTS/SERVICES •  SELF FUNDING

… and when will you get there?!

M = MILESTONES–where are you going?

•  EXIT •  ACCEPTABLE BUYER WITH AGREED VALUATION!

Investment Due Diligence (DD)!

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•  “Due Diligence” is a systematic collection of

relevant business information for the purpose of analysing the business, its vision, current status, practices, processes and policies in order to form an opinion for an investment decision.

•  Helps LAN establish you are ‘who you say you are’ and the business is “what you say it is”

Fact-based Opinion from DD!

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MANAGEMENT

Corp Governance, Entrepreneurial Vision, Track record of success, Management depth, Operational capability

FINANCES

Revenue Strengths, Credible future profitability, Acceptable Cash needs

ECONOMICS

MILESTONES EXIT

Feasible strategy, Good exit routes, Feasible –follow on investment, Satisfactory exit potential

MARKET

Product/Service Line, Competitive advantage, Market Growth potential

PROPOSITION

ORGANISATION

SECTION(( OUESTION((

Vision& What&is&your&vision&for&the&company?&Describe this vision in a way that shows how you are solving a problem, creating economic value and making an impact on the market you have chosen&

Offer Describe your product/service offering. Include the specific functions/features that make up the offer to your customers. What is the customer experience you intend to deliver?

Industry Dynamics Describe the current dynamics in the industry in which you are operating? (i.e. key trends and issues),

What is the future outlook for the industry and how will it benefit or adversely affect your startup business?

Are there any relevant regulatory compliance requirements?

Market&Sizing&& How&large&in&customers&and&value&is&the&potential&market&for&your&product&or&service?&&

How&have&you&chosen&to&segment&your&market?&Please&describe&the different customer segments you intend to attract and retain for your revenues?&

Competition&& Identify&current&and&potential&competitors&in&your&market?&What&are&their&strengths&and&weaknesses?&

Competitive&Advantage&& How do you intend to build barriers to entry for new entrants, and exploit the weaknesses you identified in the incumbents?&

&

PROPOSITION (VALUE)!

SECTION(( OUESTION((

Corporate(Structure( Is(your(company(incorporated?(When?(

What(is(the(current(authorised(share(capital?(

What(is(the(current(paid(up(share(capital?(

Who(are(the(current(shareholders(and(what(does(each(person(own?(

Corporate(Governance( Describe the current corporate governance structure in your company? Board of Directors, Board of Advisers, Management Team, Auditors and Company Secretary(

Organisation(Structure(( Provide(a(list(of(staff(in(the(organisation(and(give(a(brief(profile(of(each.(Including(their(roles(and(responsibilities(

Vacant(Roles( What(key roles still(need(to(be(filled?(

(

ORGANISATION (PEOPLE)!

SECTION(( OUESTION((

Revenue&Model& Describe&your&revenue&model&and&how&you&intend&to&earn&revenue&from&each&customer&segment&

earlier&identified?&&Include&the&frequency&of&the&revenue&steams&as&appropriate&

Capital&Invested&&&Utilisation&& How&much&capital&has&been&raised&to&date?&How&has&it&been&utilised?&

Funding&Required&&&Expected&Utilisation&&

How&much&funding&needs&to&be&raised&now?&What&will&the&funds&be&used&for?&

3&year&Revenue&and&Profit&

Projections&&

What&are&the&current&and&projected&revenue,&expenses&&and&profit&figures&over&the&next&3&years?&

Historical&Records&& Do&you&have&records&of&your&historical&revenues&and&expenditures?&Have&these&been&subjected&to&any&accounting&methods?&If&so&please&describe&their&status.&

&

ECONOMICS (RETURNS)!

SECTION(( OUESTION((

History( When(did(the(business(start(operations?(When(did(it(receive(its(first(investment?((

Growth(Strategy( How(does(the(business(plan(to(grow?(

Growth(Milestones(=(Current( How(many(customers(do(you(currently(have?((

Growth(Milestones(–(Forecast( How(many(customers(are(you(targeting(to(have(in(6(months?((If(any)(

Next(Funding(Round( When(will(the(company(likely(have(to(raise(another(round(of(funding?(

(

MILESTONES (TIMING)!

CONCLUSION!

•  The POEM ® framework provides Entrepreneurs with a model that meets the need for organising the business of their company in a form which they can use on a day to day basis.

•  Each Entrepreneurs determines the level of detail required for each particular situation they find themselves in be it operational, marketing, selling, soliciting for funding or recruiting resources POEM ® provides guidance for execution while ensuring that all critical information are included in consideration

•  Because investors don’t only come to organised pitch events and you may run into them anywhere, a simple mental model such as POEM ® that can be backed up with as much documentation as required gives you edge in todays world where a growing number of entrepreneurs are competing for a shrinking pool of capital.!

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Today’s LAN Ecosystem !

On Valuation & Fund Raising A few factors to keep in mind as you think about valuation for your business:

§  Traction - The proof of the pudding §  Reputation – What have you done before, what do people say

about you §  Revenues – Growing fast while making money §  Tracking – Determine your key performance indicators and keep

track religiously

Two fund raising strategies you may want to consider: §  Go big or go home - Raise as much as possible at the highest

valuation possible, spend all the money fast to grow as fast a possible

§  Raise as you go - Raise only that which you absolutely need

What are investors thinking?

•  Exit – how much can this company sell for, x years from now?

•  How much money will it take to grow the company to that point when someone will buy it for y amount?

•  What percentage of this company will I own? Now? Then? •  The sophisticated Investor Vs the novice Investor

ARE YOU INVESTMENT READY?

QUESTIONS?!

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THANK YOU!!

Website: www.lagosangelnetwork.net eMAIL: secretariat@lagosangelnetwork.net Twitter: @ekonetwork