www.soltusgroup.com
Raising Capital In A Recession
Chris KauzaManaging DirectorMarch 27, 2009
@ChrisKauza720-318-3400
www.soltusgroup.com
» Overview / Current Market Conditions» What Do You Need & Why?» Sources of Capital» Positioning Your Company» The Pitch – Negotiation, Terms, etc.» Pitfalls To Watch out For» Wrap Up / Next Steps
Promises
www.soltusgroup.com
Who Are You?Business Growth and
Development
Capital & Business Development Sustained Expense Improvement Strategic Partnerships World Class Advisory Boards People / Process / Technology
mobilized for performance
Corporate Development andCompliance
Investment Banking (M&A, Management Buyout, Strategic Capital Development, etc.)
Financial Restructuring Business Valuation Services
(IRC 409A and FASB 123(r) / 141 / 144)
IT Operations and Strategy
Full Life-cycle IT Development and Management
Data Center Operations and Management
Operation and Project Mgmt. Outsourcing and IT Optimization
Thought Leadership: Implementation & Management
Custom Research (primary and Secondary)
Product / Market Strategy Social Media / Web 2.0
Marketing Market Feasibility Analysis
• Aerospace• Financial Services• Telecommunications• Technology• Mobile Service Delivery
• Manufacturing• Software• Internet / Online Businesses• Government• SaaS Businesses
www.soltusgroup.com
Back In Black?
www.soltusgroup.com
Free Fallin'
www.soltusgroup.com
» 61%* of Americans play video games – up 2% from last year:– 35% are online (up 2%)– 87% are PC-based (down (3%)– Xbox most popular online platform– Wii fastest growing platform
» Online Virtual Worlds growing and projected to continue growing**
» Increasing integration of Social Media and Virtual Worlds**
– Business models continue to evolve– 36% visit Virtual Worlds to play games
Pinch Me
* NPD Group** Parks & Associates reports
www.soltusgroup.com
» Bad...but still getting worse
» 20 Dentists in Minneapolis
» “I know a VC...”
» Connections – now more than ever...
» What's next?
Where Are You Going?
www.soltusgroup.com
» M&A /Consolidation / Management Buyouts
» Partnerships– Strategic
• Operating capital or market expansion– Tactical
• Outsourcing
» Increase Operating Capital to expand into new markets
» Let's see some recent examples...
If I Had A Million Dollars
www.soltusgroup.com
» Twitter:– Raised $35Million in a Series D round from
Benchmark Capital ($21M) and Institutional Venture Partners ($14M)
– Additional funds from previous investors (Spark Capital & Union Square Ventures)
» Twitter should have ~$50M in Cash on hand
» ...but what about revenue???– (...maybe I should tweet that...)
Money
www.soltusgroup.com
» Management Buyouts & M&A
» Raised $4 Million
» Digini + Vyk Games = Blade Games– Game development & China-based
outsourcing services– Development tools
» Initial Funding was provided by– California Technology Ventures (Digini)– China Seed Ventures (Vyk Games)
Join Together
www.soltusgroup.com
» Emergent Game Technologies raised $12.5M in a fifth round (5 firms involved; avg. ~ $2.5M each)
» GameFly acquires Shacknews Ltd., supported by Sequoia and Lehman
» Image Metrics (facial animation) raises $6.5M in a Series B from Saffron Hills
» Machinima raises $3.85M (MK Capital) and adds 5 new Board members
» Harmonix (Guitar Hero / Rock Band) earns $325M (to date) against their earn-out provision with Viacom
Dirty Deeds Done Dirt Cheap
www.soltusgroup.com
» Existing Portfolio Investments– ...maybe, if you're lucky...
» Management Buyouts and Mergers & Acquisition (M&A)
» VCs still looking for that 10x return– >70% want to be on Board of Directors vs. day-to-
day involvement (<5%)
» “What's Popular” (a SAFE investment)???– Renewable Energy, Education, Web 2.0, Mobility
– Infrastructure / Government Stimulus – related (shorter-term play)
– Technology (new, improvements, etc.)
Live and Let Die
www.soltusgroup.com
» How a VC assesses your relative performance in their portfolio (they hope)
» Anything you can do to credibly enhance your equity valuation?
A View To A Kill(ing)
Failures 4 0%Viable / Potential 3 15%Solid 2 50%Superstars 1 100%
Out of 10 Funded Deals
Venture Funded IRR
www.soltusgroup.com
» What specifically do you need?– cost of capital? Take a WACC at it...– structured how?
» When needed?» How structured?
– Cash– Debt / Line of Credit– Equity– Hybrid / Other (Factoring, MOUs, LOIs, etc.)
» Why do you need it? Used how?
It's A Long Way To The Top
www.soltusgroup.com
Room At The Top
Seed Foundation
Growth
Expansion / Internal Management
Business Maturity
Time
Phases of Business Maturity
www.soltusgroup.com
» Debt– Loans (Banks, SBA, “Friends & Family”)
» Equity– Angel– Institutional– Strategic– Partnerships
» Other Sources include:– Business Development Authorities– Specialty Banks– Revenue / Customers
Strangers In The Night
www.soltusgroup.com
» Evaluating the Business - “The 5 Cs”1. Character2. Capacity3. Collateral4. Capital5. Conditions
» Investors1. Cautious
Want to avoid most of what they see Typically fund only fund 1% or less of what is
reviewed Kawasaki, “Top 10 VC Lies”
Walk This Way
www.soltusgroup.com
» Looking for ways to say “NO!”– Unrealistic claims
– Spelling / punctuation / grammar – it matters
– Content / format / mathematical errors
– Incomplete / vague / unsubstantiated information
– Too defensive / aggressive• “Can I work with them?
• “Will they take care of my money?”
Desperate But Not Serious
Success Factors Company View Investor ViewManagement Team 2 1Growth Potential 3 2
1 3
Market 4 3Product 5 5
Return On Investment(ROI)
www.soltusgroup.com
» Real Numbers from Real Analysis creating Real Results!
» Financial performance is important...– Established revenue model– Cash flow– Profitability (now? Future? When?)
» ...but you also need:– Compelling and viable product– Understand market uptake– Customers who pay; pipeline– Realistic competitive assessment?)
What It Takes
www.soltusgroup.com
» Management?– Successful track record (previous exits,
sales, etc.)– Industry experience and reputation– Dedication / passion / commitment to the
business– Vision and ability to persuade– Knowledge / intelligence / skill level /
competence– Leadership and team building skills
• Best and brightest– Ability to hire well – especially key hires
Let's Stay Together
www.soltusgroup.com
» Deal Killers– Overall poor business explanation (37%)– Unrealistic projections (23%)– Weak competitive analysis (27%)– Weak / poor management team (15%)
» Know your business and what it is worth
» Committed? What should be the Investor's commitment level?
Who'll Stop The Rain?
www.soltusgroup.com
» Many mistakes are attributable to:– Owners do not understand the process
– Owners do not know how / where to look for money
– Owners may lack the necessary contacts
– Owners underestimate the time required
– Opportunity Cost• At the end of the day, you still have to
run and grow the business– Who's minding the store???
Why Can't We Be Friends?
www.soltusgroup.com
» “Recession is a prelude to Growth!”– Hyatt / Burger King / FedEx / Microsoft / CNN /
MTV / GE / Sports Illustrated / HP / Wikipedia
» Walking the tightrope– Business model vs. investor timetable– Enough runway?
• Plan cash flow for 8 – 14 months• Business goals vs. investor objectives
(objections?)
» ...but you still need to manage Cash Flow during this process...
We Gotta Get Out Of This Place
www.soltusgroup.com
» Negotiation, Terms, etc.– How to emphasize “what” when discussing
company's value
» “Walk Away” conditions?– Know before going in - “they” do
» Compromise points– “loss of equity” vs. “loss of control”– Leverage logic and emotion in the deal
process to your advantage
Hold Your Head Up
www.soltusgroup.com
» Lower your expectations...but don't “fire sale” your business– Markets are down 30% - 60% (avg.)– Know what you are worth and why
» Flexibility is key
» Alternative structures
» Integrity
So Into You
www.soltusgroup.com
» Intellectual Property– Critical for Life Sciences; Important for
Technology
» Due Diligence Items, including:– Business planning– Representation– Contingent liabilities
You Oughta Know
www.soltusgroup.com
» Terms– Anti-dilution– Control
» Equity Valuation– FASB 141 & FASB 144– 409-A / FASB 123(r)
Bad Company
www.soltusgroup.com
» How to find us– www.soltusgroup.com– Facebook:
http://www.facebook.com/pages/Soltus-Group/75340850784
– Twitter: @SoltusGroup
» Downloadable Handout– Valuation Report describing
• What is a 409-A Option Valuation• Why it matters to you / your investors• How to get the best valuation• Use discount code “GDC09”• www.soltusgroup.com/Valuation/Report
Where Do We Go From Here?
www.soltusgroup.com
Thank you!
Chris KauzaManaging DirectorMarch 27, 2009
@ChrisKauza720-318-3400
Top Related