APPROACHING INVESTORS Accelmed Accelera6on Programme July 29 2014

Summary Overview An inconvenient truth Finding funding: dierent sources How to approach investors Conclusions

Nuvolab is a business accelerator and a catalyst of change dedicated to all the reali=es in the (Italian) entrepreneurial ecosystem. What is Nuvolab?

What is a startup?

What is a startup? An innova=ve company

A startup is temporary organiza6on in search of a repeatable, scalable business model (Steve Blank, The Startup Owners Manual) 1. Temporary organiza6on 2. In search 3. Of a business model 4. Repeatable 5. Scalable A good deni6on

A startup has a well dened lifecycle that ends with the valida=on of its (repeatable and scalable) business model. Done that, it becomes a real company. Its a journey. Temporary organiza6on

A startup is a ? and not a ! (more appropriate for successful company) beside the word business model. Credits: Steve Blank, The Startup Owners Manual Credits: Eric Ries, The Lean Startup ? ..in search...

A business model describes the ra=onale of how an organiza+on creates, delivers, and captures value (A. Osterwalder, 2010). In other words is about how a rm will make money and sustain its prot stream over =me. ..of a business model...

A repeatable business model, is a business model, which will generate cash-ow more than once. This sounds very obvious, because as it seems every business is repeatable. But this is not true. When you sell your house: this is not a repeatable business model. But of course it is a repeatable business model to sell houses of other people. Repeatability of your business model is strongly related to a specic ques=on: if your business will growth or not in the future. ..repeatable...

Scalability is the ability of a system, network, or process to handle a growing amount of work in a capable manner or its ability to be enlarged to accommodate that growth. Meaning for a business: when your revenues grow, your prots grow (more than) propor=onally (economy of scale). Scalability of your business model is strongly related to a specic ques=on: how your business will growth in the future. ..and scalable!

Not every (new) company is a (scalable) startup. A startup is not a younger/smaller version of an old tradi=onal company. Startup (=?): a temporary organiza=on in search of a repeatable, scalable business model . Company (=!): a permanent organiza=on designed to execute a repeatable and scalable business model So startups have (some) dierent needs compared to tradi=onal companies i.e. nancial needs and funding sources: Since they need =me (and money) in order to nd an answer about their business model (?) specic funding needs (especially when their business is capital intensive) Since they are high-poten=al (scalable) companies (!) specic (some6me exclusive) sources of nding / investors So what?

The startup journey: a lifecycle perspec6ve (metaphor)

The startup journey: a lifecycle perspec6ve (metaphor)

STAGE 1 STAGE 2 STAGE 3 CONSERVATION SUSTAIN SCALE EFFICIENCY VALIDATION DISCOVERY IDEA STAGE 4 STAGE 5 STAGE 6 STAGE 7 REVENUES TIME Start Launch Build Chasm Scale Maturity Source: Four Step To Epiphany (S. Blank), Startup Compass (Stanford) e Startup Lifecycle (F. Des=n) The startup journey: a lifecycle perspec6ve (product PoV)

Summary Overview An inconvenient truth Finding funding: dierent sources How to approach investors Conclusions

STAGE 1 STAGE 2 STAGE 3 CONSERVATION SUSTAIN SCALE EFFICIENCY VALIDATION DISCOVERY IDEA STAGE 4 STAGE 5 STAGE 6 STAGE 7 REVENUES TIME Start Launch Build Chasm Scale Maturity Source: Four Step To Epiphany (S. Blank), Startup Compass (Stanford) e Startup Lifecycle (F. Des=n) Startup lifecycle: take the product PoV..

FINANCIAL NEEDS 7 STAGES CASH FLOW EXPANSION MATURITY Financial needs Revenues Cumula6ve cash ow ..and combine it with the nancial PoV..

FINANCIAL NEEDS 7 STAGES CASH FLOW EXPANSION MATURITY Financial needs Revenues Cumula6ve cash ow ..where the nancial need is evident!

FASE 1 FASE 2 FASE 3 CONSERVATION SUSTAIN SCALE EFFICIENCY VALIDATION DISCOVERY IDEA FASE 4 FASE 5 FASE 6 FASE 7 Note: overlapping product and nancial perspec=ve has only didac=c purpose FINANCIAL NEEDS 7 STAGES CASH FLOW EXPANSION MATURITY Financial needs Revenues Cumula6ve cash ow Start Launch Build Chasm Scale Maturity It will persist 6ll your business model is validated or..

FINANCIAL NEEDS 7 STAGES CASH FLOW EXPANSION MATURITY Financial needs Revenues Cumula6ve cash ow The valley of death ..6ll you will exit from the market prematurely

Source: The Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By HBS (2011): Failure = liquida=ng all assets, with investors losing most or all the money they put into the company the failure rate for start-ups is 30-40%. Failure = failing to see the projected return on investment failure rate is 70-80%. Failure = declaring a projec6on and then falling short of mee=ng it failure rate is a whopping 90-95%. Classic company Tech Startup The Valley of Death

Failure rate by industry

6 Copyright 2011 Nuvolab - All Rights Reserved Fonte: http://www.chubbybrain.com/blog/top-reasons- startups-fail-analyzing-startup-failure-post-mortem/ Le 20 principali cause di morte prematura per una startup (secondo ChubbyBrain, database VC e BA) Source: h_p://www.chubbybrain.com/blog/top-reasons- startups-fail-analyzing-startup-failure-post-mortem/ The top 20 Reasons Startups Fail

1. Being inexible and not ac=vely seeking or using customer feedback 45% 2. Building a solu=on looking for a problem, i.e., not targe=ng a market need 30% 3. Not the right team 30% 4. Poor Marke=ng 28% 5. Ran out of cash 25% 6. I got this product. Now I just need a business model 25% 7. Release product at the wrong =me 20% 8. Lack Passion and Exper=se 19% 9. Do not cut your losses a la Pivot at the right =me 19% 10. A User Un-Friendly Product 16% 11. Pricing Issues 16% 12. Do not use your connec=ons 16% 13. Disharmony with Investors/Co- founders 12% 14. Lose Focus Distracted by Shiny Objects 12% 15. Burn Out 12% 16. Get outcompeted 10% 17. Be unable to A_ract Investors 6% 18. Loca=on, Loca=on, Loca=on 6% 19. Not working on it full =me 6% 20. Start the company at the wrong =me 6% The top 20 Reasons Startups Fail

So.. Startup life is a very hard thing!

SMART MONEY Competences Funding What is missing?

Verve Capital Partners (2011): what is the VC spent per capita in European countries (USA $ 67 pc) 5 groups Group 1 ($70-60): Switzerland ($69 pc), the Netherlands ($ 62 pc) Group 2 ($60-50): Sweden, Finland ($ 59 pc), Denmark ($ 53 pc) over European average ($ 35 pc). Group 3 ($40-30): UK, Ireland ($39 pc), Belgium ($33 pc), France ($31 pc) Group 4 ($30-20): Norway ($27 pc) Spain ($24 pc), Germany ($21 pc) Group 5 ($10-0): Austria ($10 pc), Portugal ($ 7 pc), Greece ($ 3 pc) andlast Italy ($ 1 pc) An inconvenient truth

Summary Overview An inconvenient truth Finding funding: dierent sources How to approach investors Conclusions

h_p://www.youtube.com/watch?v=U470xXKfDyE Lets start with a brief overview (by Kauman Founda6on)

3 F BA VC/CV IPO FINANCIAL NEEDS 7 STAGES CASH FLOW EXPANSION MATURITY Financial needs Revenues Cumula6ve cash ow Grant Customers Crowdfunding Prizes Funding your startup: (un)conven6onal sources

Founders (and their bank accounts) Customers Friends & Family (& Fools) Business angels Venture Capital Corporate Venture Crowdfunding Seed accelerator programmes Business incubators Public grants Prizes Funding sources: short list

Where to spend Team! Engineers, Product Management Product & usability Good lawyers Where NOT to spend: Big management teams Marke=ng & adver=sing Big outsourcing projects Bonuses (with some excep=ons) Travel (again, with some excep=ons) Outside sales forces Common spending pitalls Hiring too many people Hiring the wrong people Doing too many things Goldpla=ng Not geung short-term, hard returns Especially when is your money: cash is king so..

Financing growth from previous cashow and personal fund (obviously need to have cashows J) Most good bootstrapped companies emerge from a service or consul=ng companies that are produc=sing their oering Pros Bootstrapped companies almost always spend cash more eec=vely than equity nanced companies Already being close to exis=ng customers, give excellent ability to understand problems and dene good solu=ons Cons Resources for product and market dev constrained by cashows May miss a big opportunity if other players raise nance and invest heavily Self nancing / bootstrapping

Rela=vely limited funds will be available for startup; likely to want collaterals anyway Banks only lend to predictable businesses they can understand (be_er being a ! rather than a ?) If your capital requirements are limited and your business is following a well trodden path, can be a useful source of nance Not par=cularly useful web or high growth tech industries Some (public) facilita=on for startups in some Countries i.e. in Italy Fondo di Garanzia will provide (innova=ve) startups with a (public) collateral on 80% of your debt up to 2,5M (100+ startups already asked for it) Debt/ bank nance

Founders (and their bank accounts) Customers Friends & Family (& Fools) Business angels Venture Capital Corporate Venture Crowdfunding Seed accelerator programmes Business incubators Public grants Prizes Funding sources: short list

Not all startups require external funding Cash ow comes ul=mately and most importantly from customers, NOT from investors Bootstrapping in business means star=ng a business without external help or capital. Such startups fund the development of their company through internal cash ow and are cau=ous with their expenses. Generally at the start of a venture, a small amount of money will be set aside for the bootstrap process Customers / bootstrapping

Focus: bootstrapping h_p://bit.ly/bootstrapbible

Founders (and their bank accounts) Customers Friends & Family (& Fools) Business angels Venture Capital Corporate Venture Crowdfunding Seed accelerator programmes Business incubators Public grants Prizes Funding sources: short list

3F (aka Love Capital)

Founders (and their bank accounts) Customers Friends & Family (& Fools) Business angels Venture Capital Corporate Venture Crowdfunding Seed accelerator programmes Business incubators Public grants Prizes Funding sources: short list

An angel investor or angel (also known as a business angel or informal investor or angel funder) is an auent individual who provides capital for a business start-up, usually in exchange for equity. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital, as well as to provide advice to their portolio companies. Unlike the VC the Angel invests their own money Hands on approach: geographical or industrial proximity The Angel approach is to invest small amounts at a very early stage / low valua=on 50-250k at valua=ons of 500k-4m Two exits for angel Firm might be sold quickly for 5-10m or less where the Angel can make 2-5x money Firm raises VC money, ayer which Angel typically becomes more passive but has built up exposure very cheaply to a venture backed enterprise The key thing when selec=ng an Angel therefore is whether they can help you raise VC nance See which Angel investors have invested with which VCs Business angels

Digital BAN Business Angels Business angels (categories with Italian examples) Lone Business Angels Regional mul6sectoral BAN Na6onalwide BAN sectoral focus General BAN

Example: BAN in Italy www.iban.it Business angels (network): map www.eban.org

Founders (and their bank accounts) Customers Friends & Family (& Fools) Business angels Venture Capital Corporate Venture Crowdfunding Seed accelerator programmes Business incubators Public grants Prizes Funding sources: short list

A venture capital fund refers to a pooled investment vehicle that primarily invests the nancial capital of third-party investors in startup, that are too risky for the standard capital markets or bank loans. These funds are typically managed by a venture capital rm, which oyen employs individuals with technology backgrounds (scien=sts, researchers), business training and/or deep industry experience. Receive 1000s of business plans each year Read 100s of plans Meet with dozens of companies Fund a handful (1-2%) Portolio expecta=ons: 60% die or go nowhere (living dead) 30% yield 2-4x in 4-7 years 10% (hopefully 20%) are tremendous successes (e.g., 10x, 100x, 1000x!) Venture capital

The Venture Capital inves6ng process

Structure of a (generic) VC fund

Example: VCs in Italy (Who is Who map) www.italiastartup.it Venture capital: map www.evca.eu

Founders (and their bank accounts) Customers Friends & Family (& Fools) Business angels Venture Capital Corporate Venture Crowdfunding Seed accelerator programmes Business incubators Public grants Prizes Funding sources: short list

Corporate Venture Capital Deni=on: a Venture Capital rm, independent or cap=ve, which manages at least on VC Fund with the following characteris=cs: A Corporate is a cornerstone investor in the VC Fund The rm is following the PE model (exit strategy and mid to long term investment horizon) The VC Fund invests mainly in companies opera=ng in the core business area of the Corporate The Venture Capital Firm uses extensively the experience, technologies and/or market contacts of the Corporate to manage the portolio of the VC Fund Source: EVCA (2013)

Corporate VC Investment Source: Boston Consul=ng Group (2012)

Corporate Venture Capital: map by deals

Founders (and their bank accounts) Customers Friends & Family (& Fools) Business angels Venture Capital Corporate Venture Crowdfunding Seed accelerator programmes Business incubators Public grants Prizes Funding sources: short list

REWARD-BASED DONATION-BASED LENDING-BASED EQUITY-BASED CROWDFUNDING MODELS Logic: Proponent Idea Crowd Reward Target: crea=ve projects (music, cinema, design, hardware, etc.). Examples: KickStarter (USA/UK) / Eppela (ITA) Logic: Proponent Cause Crowd Altruism Target : social / cultural ini=a=ves (not for prot) Examples: Causes (USA) / Rete del Dono (ITA) Logic: Proponent Financial need Crowd Interests Target: consumer nance needs Examples: Zopa (UK) / Pres=amoci (ITA) Logic: Proponent Financial need Crowd Equity Target: startups Examples: AngeList (USA) / GrowVC (UK) / SiamoSoci (ITA) Crowdfunding Crowdfunding is the prac=ce of funding a project or venture by raising monetary contribu6ons from a large number of people, typically via the Internet.

453 ac=ve platorms (2012) 1 Million project funded $ 0,89 Billion raised in 2010 $1,47 Billion raised in 2011 $2,66 Billion raised in 2012 $5,1 Billion raised in 2013 (es=mate) Source: Google Trends - Search Volume Index: crowdfunding Crowdfunding numbers h_p://bit.ly/thecrowdfundingbible

Founders (and their bank accounts) Customers Friends & Family (& Fools) Business angels Venture Capital Corporate Venture Crowdfunding Seed accelerator programmes Business incubators Public grants Prizes Funding sources: short list

Seed accelerators are xed-term, cohort-based programs aimed at developing new startups. The accelerator programmes key elements are: -Funding, typically to the seed level ( 100% of nothing!) How to approach investors

Large Poten6al Market Opportunity Unique Product Or Concept Passionate Founding Team Pre-requisites Intense compe66on likely Need to move rapidly Implica6ons Hiring Infrastructure VC funding supports Rapid Product Development Interna6onalisa6on Partnerships Commercialisa6on Good reasons to raise equity nance

Applica6on is a feature not a product Market size is too small Motivation is not financial Risk is not that you waste =me unsuccessfully trying to raise nance real danger is that you do succeed in raising VC funds Lose opportunity for small exit which could be personally lucra=ve Lose opportunity to run lifestyle business Get bound in to 3+ yrs work you may not enjoy When NOT to raise VC

Technology Trac6on Can evaluate each as Excep=onal Good / credible Mediocre / incomplete Misconcep=on that being good / credible across the board is what VCs look for Can always add credible a_ributes to the mix later VCs focus on nding opportuni=es which rate as excep=onal in one a_ribute Team What does an investor look for

Has funds to invest Match of Size/Stage/ Geography Relevant Portolio No directly compe66ve investments Excellent track record Shortlist Do create a shortlist Rie is a be_er weapon than a shotgun Similar process for iden=fying angels, look at VC funding press releases to iden=fy prior Angel investors Iden6fy relevant VC partners

Out of the blue email is a long shot Try to build context Analyse portolio companies are there any links there? Analyse contact network and advisors Analyse press coverage Par=cipate in blog conversa=ons A_end events and conferences Relevant PR around product also helps VCs spend their =me looking for businesses with momentum Geung on radar screens

Useful sources of informa6on and inspira6on h_p://fundersandfounders.com h_ps://www.techcrunch.com h_p://startupdigest.com/

Summary Overview An inconvenient truth Finding funding: dierent sources How to approach investors Conclusions

Crisis: risk or opportunity?

half empty, half full.. Its just a maver of point of view (and awareness). (At least) now you know where is the liquid(ity)! Conclusions

Thanks for your 6me & aven6on @francingu @nuvolab francesco.inguscio@nuvolab.com www.nuvolab.com ivysoul2000 Ref: Francesco Inguscio

Summary Overview An inconvenient truth Finding funding: dierent sources How to approach investors Conclusions (Hidden) bonus track: startup pitch

Pitch: What? Pitch: Why? Pitch: For whom? Pitch: How? Pitch: some examples h_p://www.pitchenvy.com Introduc6on

Overview Problem Solu=on Team Achievements Market Compe==on Business model Economics Investment proposi=on

Problem Analysis of exis6ng and emergent customer needs; Analysis of exis6ng solu6ons and their weaknesses.

Solu6on / Value Proposi6on Descrip=on of the oering (product features/ value proposi=on) Descrip=on of benets provided and problems solved Descrip=on of sustainable compe==ve advantages (in terms of technology, product features and market needs) If it is possible, show a product image or provide examples

Team Name, posi=on Relevant experience (max 2 raws) Name, posi=on Relevant experience (max 2 raws) Organisa=onal chart Cap Table (% equity stake)

Achievements Product development milestones Incorpora=on date Personnel Revenues Metrics (web/mobile) Main customers Partnerships Funding from founders and funders Patents and trademarks Compe66ve advantages achieved

Market Iden=ca=on of target market and of relevant segments Size (in terms of /$ and number of poten=al customers) Growth rate (%)

Compe66on Main compe6tors; Main market dynamics; Main bases of compe66on; Compe66ve benchmarking.

What is your business model? (How do you make money?) Highlights on sourcing, produc=on and go-to-market strategy Posi6oning vis--vis compe==on (in terms of product features, price, clients, channels) Business Model

Economics (Euro) 2012 2013 (E) 2014 (E) 2015 (E) 2016 (E) 2017 (E) Revenues Personnel cost Marke=ng Other OPEX EBITDA EBIT

Investment proposi6on What is your nancial need? What do you exactly want from your investor? Is there any chance for a co-investment? With whom? Use of Proceeds (how are you going to allocate new funds?) Ac=vity 1 (%) Ac=vity 2 (%) Ac=vity 3 (%) Possible Exit (op+onal)

Contact name E-mail Mobile phone number Website Contacts

Pitch Examples (see www.pitchenvy.com) AirBnB Mint (Intuit $170m) Square