VanFUNDING 2016: Capital raising options for startups on small business financing (Evans & Evans...

Financing Options For Small

Businesses

Jennifer Lucas, MBA, CBV, ASA

Managing Partner

Evans & Evans, Inc.

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Evans & Evans, Inc.

Our expertise ranges from start up organizations in the process of developing their business plans and strategies to well established multinational corporations. Since 1989 we have worked with clients in a broad range of sectors locally, regionally and internationally, delivering timely, accurate and cost-effective corporate finance solutions.

EVANS & EVANS, INC 1610 – 400 Burrard St. Vancouver, BC V6C 3A6 T:(604)408-2222 F:(604)408-2303 [email protected]

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Who Am I?

• MBA, CBV, ASA with over 17 years of experience in valuation, due diligence, fairness opinions and strategic planning

• Supported numerous go public and M&Atransactions


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Financing EcoSystem

• Multiple private and public options available

• Which option is best for you depends on:

▫ How much you need

▫ When you need it

▫ What you are using it for


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Sources of FundingIncreasing Levels of Due Diligence

0$ $50K $100K $500K $1.5M $3.0M $5.0M $10.0M

Self –Fund / Grants

NRC / IRAP

Angels / IRAP. SR&ED

Angels,, Series A, VC

PR, Series B, Go Public

PE, M&A

Friends & Family

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Private Financing

• Pros

▫ More flexibility – no need to seek regulatory approval

▫ No exchange / reporting costs

▫ More autonomy for management

• Cons

▫ Ability to attract and retain larger investors can be limited

▫ Limited ability to use stock for acquisitions

▫ Lack of liquidity for investors

▫ Need a clearly defined exit strategy


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VC Math

• Earlier stage deals than Private Equity

• Venture Funds Returns in 10 deals

▫ 2-3 winners providing 3x – 10x return

▫ 4-6 break even or limited to no liquidity

▫ 2-3 complete loss


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Private Equity

• Invest directly or though limited partnerships

• Typically a 5 – 7 years investment horizon

• Generally looking for established companies with positive cash flow or EBITDA

• Considered “financial buyers”

• Some may bring management expertise

• Equity return expectations of >25%


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Public Financing – IPO/RTO/CPC

• Pros▫ Access to Capital beyond cash flow▫ Use stock for future acquisitions▫ Public valuations can exceed private▫ More liquidity▫ Generally more leverage available▫ Increased credibility▫ Incentives for employees

• Cons▫ Takes time (9-12 months)▫ Management commitment to process▫ Expenses – audit, legal, continuing disclosure▫ Public scrutiny▫ Supporting the stock in the market


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Costs of Financing

• Legal

▫ Subscription agreements, offering documents, shareholder agreements

• Audit

▫ May be required for funds, VCs or larger investors

• Finders’ Fees

▫ % paid out to advisor

Depending on transaction can be 10% - 15% of gross proceeds


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What do you Need?

• Business Plan / Executive Summary

▫ Clearly articulate the opportunity

• Clean Structure

▫ Established company with ability to issue shares

• Use of Proceeds

▫ What are you using the money for

▫ Milestones if appropriate


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Money vs Smart Money

• Some investors bring only money

▫ Institutions, friends, family, some funds, Angels

• Other Investors bring expertise / assistance

▫ Angels, VCs, some PE firms

▫ Business, marketing or technical expertise

▫ Help grow the business in more ways than working capital


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What are you worth

‘Nothing is more difficult then figuring out what a

small business is really worth.

After all these years it remains a very difficult problem for me”

Mr. Warren Buffet, October 2003


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PRICE IS WHAT YOU PAY, BUT VALUE IS

WHAT YOU GET”

• Price is what is negotiated in the actual market

• Value is a theoretical (notional) calculation of the net benefits of the investment

• Only time tells if the Price was right!

Mr. Warren Buffet, October 2003


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Value Drivers

• Unique product / service / technology

• Early customers / revenue

• Protection (IP/Patent/Contract/User Base)

• Management team

• Deal structure

• Promise of quick exit


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Price Considerations

Bargain Prices Higher Prices

• Vendor has to sell

• Limited funding available to purchaser (i.e., limited leverage of asset)

• Lack of knowledge/poor negotiations by vendor

• Market conditions

• Strategic purchaser that enjoys synergies

• Non-cash consideration

• Contingent consideration

• Market conditions

• Lack of knowledge/poor negotiations by vendor


Questions?


VanFUNDING 2016: Capital raising options for startups on small business financing (Evans & Evans...

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Transcript of VanFUNDING 2016: Capital raising options for startups on small business financing (Evans & Evans...