Startup Pirates BratislavaFinance & Investment
24 June 2015
Michal NešporInvestment manager
Launcher and Crowdberry
2Presentation for Startup Pirates 2015
PREDSTAVENIE
Michal Nešpor
Investment manager at the innovation studio LAUNCHER and the equity based crowdinvesting platform
CROWDBERRY.
10 years experience in front, next and in start-ups.
5 years with a VC investments firm in Vienna, Austria. Early-stage investments in AT, DE, CH and HU. CFO in a VC
funded startup, Austria / USA. Fundraising support for various startups.
LAUNCHER supports innovations, build startups and make them into real companies with international ambitions.
3Presentation for Startup Pirates 2015
AGENDA
The right time for an investment
Who is the right investor for me
Investors types and company stages
Investors overview PRE-SEED and SEED
Investors overview EARLY (VC’s)
Crowdfunding platforms
Further funding sources
Where to find non-cash support
International investors
Final recommendations
Contact
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THE RIGHT TIME FOR AN INVESTMENT
What should a startup achieve before raising funds from investors? *
Obtian market feedback (validation of primary product idea)
Develop a functional prototype
Launch / Public beta towards the target customer group
Readiness to institutionalize (company incorporation and relationships between founders)
The above should be achievable within a short time span (3-6 months), with relatively low ressource allocation (1-2 people, even next to a day-job) and with low cash investment (usually own).
* Relates to first time fundraising, not for follow-on funding rounds.
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THE RIGHT INVESTOR
What should a startup consider when choosing an investor
Invesor type, enterpreneurship or pure financial background
Investor focus (industry, stage focus, geography, investment size)
Investor strategy and network (strategic investors vs. financial return oriented investors)
Recommendations and track record (previous investments and investment experience)
Wrond investor can lead to an unsolvable or even fatal situation.
Look for smart money!
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INVESTOR TYPES AND COMPANY STAGES
START-UP CORE PRODUCT DEVEL MARKET ENTRY MARKET EXPANSION
Typical InvestorsFFF
Business AcceleratorsBusiness Angels
Business AngelsSeed VCs
Strategic Investors
VCsCorporate VCs
Strategic Investors
Growth VCsBuy-Out
Strategic Investors
Investment Size 5-50k EUR 100-500k EUR 1-5m EUR 10m+ EUR
Startup Age 0-3 months 3-18 months 18-36 months 36month+
Number of Employees 2 3-10 11-50 100+
Regional ExamplesHubRaum (PL)
Pioneers Ventures (AT)Launcher
Neulogy Seed CapitalCredo Ventures
Neulogy Venture CapitalJ&T
Penta
Global ExamplesY-Combinator (US)Seed Camp (UK)
500 Startups (US)Eden Ventures (UK)
Sequoia Capital (global)Accel Partners (global)
Index Ventures (global)
PRE-SEED STAGE SEED STAGE EARLY STAGE GROWTH STAGE
TIME
FUNDING
IdeaPrototype
PoCPublic Beta
Launch
Traction
ProfitabilityIntl. Expansion
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PRE-SEED A SEED INVESTORS
1. Own cash from savings or better, from revenue
2. FFF - Family & Friends & Fools
3. Business Angels + Entrepreneurs (e.g. from IT or other industries)
Anton Zajac Michal Truban Michal Štencl
4. Business Accelerators – Slovakia + CEE
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EARLY STAGE INVESTORS (VC)
4. Seed VCs + VCs + Corporate VCs
5. Strategic Investors (Corporations)
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CROWDFUNDING / -INVESTING PLATFORMS
6. Reward based crowdfunding
7. Equity based crowdinvesting
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OTHER FUNDING SOURCES
8. Banks – Bakning products and loans for entrepreneurs (rather rare)
9. EU funds
10. Awards
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NON-CASH SUPPORT
11. Co-working
12. Enterprise programs for startup support
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NON-CASH SUPPORT II.
13. Consulting 14. Média 15. Public agencies
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INVESTOR‘S MINDSET
It‘s all about Value (Overall, capture, measurement etc.)
When assessing opportunities:• How big is the opportunity?• The right people & structure to succeed?• What tangible evidence of the above?
But! • Not every good research project/invention becomes a good business idea, • Not every good business idea becomes a good company,• Not every good company becomes a good investment deal
Usual attrition rate: 95-98%!!!
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INVESTOR‘S MINDSET
85 - 90%
10 - 15%
1- 2%
Attrition Rate:• Not every great idea becomes a
great technology...• Not every great technology has a
great commercial application...• No every great commercial
application is a great business concept...
• Not every great business concept becomes a great company...
• Not every great company becomes a great investment deal...
• AND: not every „great“ investment deal becomes a success ;-))
Immediate Drop-Out• Management• Business model• Sector• Stage• Capital requirement• Consistency
Close View• Negotiation• Competition• Due Diligence
Investment
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INVESTOR‘S MINDSETMILESTONE CONCEPT
Diminishingrisk
Increasingvaluation
Early stageMost company resources dedicated to product development
ExpansionMost company resources dedicated to market & business development
TimeMilestone
Reduces...
illustrative
PRE-SEED
STAGE
SEED
STAGE
EXPANSION
STAGE
EARLY
STAGE
Prototype 1st CustomerSuccessful pilot Crit. mass post launch
Break Even Exit
R&D / TechRisk
Market Risk
Financial Risk
InvestmentRisk
Proof of Concept
Proof of Market
Proof of Bus. Model
Proof of Inv. Thesis
GROWTH
STAGE
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APPROACHING AN INVESTORTIMING
Some General TipsHave your docs ready (ExecSum, Inv pres, Business Case/Financial plan, etc.)Do your homework – which investor is the best for you?
Industry focusStage focusGeography
Investment size
Track record (experience!) – request and do reference calls with CEOs
Previous investment history – does the investor have a main competitor of your company in his
portfolio? Have a look!Get in shape and ready for due diligence (get your house in order)Get a recommendation – find a way in via your advisory board, business friends, conferences, networking or otherwise. Preferably, you want the investor to get to know you way before fundraising starts. Cold call should always be last option.
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INVESTORS’ DOCU – CONTENT OVERVIEWANATOMY OF A GOOD PITCH 1/3
Some General TipsAs often in life, it‘s useful to put yourself in the other‘s position…Nobody reads business plans (the plan is nothing, planning is everything)K.I.S.S.S. (Keep It Short, Simple and Sexy): What‘s well understood can be communicated clearlyGet high and stay high – don‘t get lost in the details, provide a big picture that sticks with the audienceMake information relevant, put it into context, answer the SFW... » E.g. tech is worthless, unless commercially relevant, i.e. shown to generate cash at
some time...
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ANATOMY OF A GOOD PITCH 2/3
Topic Questions to answer Common fallacies Supporting mat‘s
Problem What’s the need you address?How big, significant, urgent?Mission-critical or nice-to-have?
Solution How do you address this need?Why is this better/cheaper/unique?What value for the user/client?
Insignificant problemEngineering driven (solution seeking problem)
Commercially relevant factors neglectedDriven by feasibility, not need
Market researchCustomer interviews
Prototype
ScalabilityRoute to market and its cost not considered
Too much focus on technologyJust because something works does not mean anyone needs it
-
Data / prototypePatent listFull patent texts
Why is it unique / different?How can you defend it?Does it work? Have you proof?
How will you capture value?How do you monetize this value?Is this concept scaleable?
Tech
Business Model
Not enough focus on itNot well enough thought throughNot enough resources (€, HR…) devoted to execution
Anything of relevanceThe more specific (i.e. closer to reality, action oriented), the better
How will you sell it?What resources will you need?What drives buying decisions?
Marketing & Sales
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ANATOMY OF A GOOD PITCH 3/3
Topic Questions to answer Common fallacies Supporting mat‘s
Competition Who else is in the game?Substitutes? Industry food chain?What’s your unfair advantage/USP?
Team Who will implement the plan?Can they do it? track record?Advisors? Recruitment needs?
“Nobody offers this (yet)”Unknown competitors“Our widget can….”
All R&D, no sales / commercialNo assessment of future needs
-
Full CVsReference list
Unrealistic/intransparent assumptions (both ways)No clearly identified milestonesNo linking of risk & returnUnrealistic funding requirement (both ways – too lo/hi)
Not action-oriented
Financial Plan, esp. monthly Cash-FlowsMilestone PlanFunding requirement & use of proceeds
-Where are you now?What next?
What do you plan to achieve when?What are your assumptions?How do you measure progress?What resources do you need?What will you use them for?
Status & Timeline
Projections, Milestones
Introduction rather than summaryWritten first, rather than lastToo long
-Give a complete and concise overview of the opportunity on no more than two pages
ExecSum
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DEAL STRUCTUREKEY AGREEMENTS
Term Sheet
Short document summarising key terms of the investment. Most of the time non-binding.
Shareholders Agreement
Detailed agreement outlining certain rights and obligations of the Parties with respect to their shareholdings.
Investment Agreement
Agreement determining “mechanics, terms and conditions of the investment.
Articles of Association
Main company agreement.
Bylaws
Document regulating the company’s Board operations.
Management Agreements
Determines the relationship between the company and its management/managers.
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DEAL STRUCTUREKEY TERMS & CONDITIONS OVERVIEW
Liquidation preference
Catch-up
Anti-dilution rights
Pre-emption rights (Subscription Rights)
Transfer of Shares
Right of First Refusal
Drag-along
Tag-along
Good Leaver/ Bad Leaver
Information, Control & Decision Rights
MSOP / ESOP – Management/Employee Stock Option Plan
Representations & Warranties
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DEAL STRUCTUREDUE DILIGENCE
Purpose
Process designed to get a 360° view of the business
Evaluation of an entrepreneurs' ability to ascertain strength AND weakness
Opportunity to validate true customer demand
Beginning foundation of trust and partnership
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DEAL STRUCTUREEXIT
Exit
„Liquidation of holdings by a private equity fund. Among the various methods of exiting an investment are: trade sale; sale by public offering (including IPO); write-offs; repayment of preference shares/loans; sale to another venture capitalist; sale to a financial institution.”
Exit Options
Trade Sale – The sale of (mostly all of the) company shares to industrial investors
IPO – Listing on a public stock exchange
Sale of quoted equity – Selling shares after registration on the public market
Secondary Sale – The sale of part or all of company shares in a portfolio company to other investors (later stage VCs, Buy-out, other financial institutions etc.) or private buyers
Buy Back – A corporation or the shareholders repurchase the shares from the investor
Write-off – The write-down of a portfolio company’s value to zero. The value of the investment is eliminated and the return to investors is zero or negative
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FINAL RECOMMENDATIONS
Chose wisely! Every investor has an influence on a company.
Don‘t lose focues, building the product and the company is more important than chasing after investors.
If possible, raise more money, which will give you more runway for realizing your goals.
Don‘t get hung up too much on how much ownership you give away, look at the bigger picture.
If your business model and your company stage allows it, the best source of funding is your own cash from operations (selling your products or services).
GOOD LUCK!
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