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pwc Patrick Silvey Paul Hodgson

Positioning for a Capital Injection: 

Positioning for a Capital Injection Strategy Business model Resourcing Target investors PEOPLE TECHNOLOGY MARKET Valuation / Building value Capital Injection

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1. The Investor

Who to approach?: 

Who to approach? Founders sweat equity <100K Seed Capital: angel/VC/incubator <500K Start-up Capital: angel/VC <8M Development or Expansion >8M Pre Initial Public Offering >8M Founders, Family, Friends, Fools Other: employees, suppliers, customers Government Grants Business Angels Venture Capital Fund Corporate Venture Capitalist Initial Public Offering

Typical Investment Criteria: 

Typical Investment Criteria Sustainable competitive advantage Quality management team Large and growing market Other investors Customers and partners Realistic and alternative exit strategies

Investor Needs: 

Investor Needs Stage of development Cashing out – exit strategies Sound financial projections & scenarios Payback/ROI Risk Mitigation

What to Look for in an Investor: 

What to Look for in an Investor Passive vs Active Industry knowledge Track record as investor Trustworthy/ referrals Contacts and network Long term relationship Capacity for follow-on funding

Inherent Conflicts: 

Inherent Conflicts *Timmons, 2000

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2. Positioning Your Business

Positioning for a Capital Injection: 

Positioning for a Capital Injection Strategy Business model Resourcing Target investors PEOPLE TECHNOLOGY MARKET Valuation / Building value Capital Injection

Add value before raising capital: 

Add value before raising capital Documentation and Presentation Government grants Intellectual Property Protection R&D Partners In principle agreements Licences Customers

Raising capital involves:: 

Raising capital involves: Building a perception Telling a simple story Justifying underlying assumptions Confidence and commitment Opportunity cost Giving up some pie, loss of control Building a business plan Negotiating the deal

People: 

People Management capability, credibility and experience Complementary management team Incentive scheme in place The CEO vs the Technical Director Alignment of objectives

Market: 

Market Size and growth rate of the global market – the opportunity Major players and competitors Strategic competitive advantage Distribution channel Promotional strategy Is there a long felt need? Target market Market analysis e.g. Porters 5 forces

Technology: 

Technology Unique nature of the technology How many trials have been done? Proof of concept Have results been published? Strong protectable IP Who owns the IP? Technology risk

The “Ask and Offer”: 

The “Ask and Offer” Financial Projections Business and IP valuation Critical negotiating tools Justifies assumptions Forces in depth research Forces decision making Makes you strong and confident

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3. The Investor Presentation

Executive summary: 

Executive summary Contact and Confidentiality The Product Business Model Target market and strategy Barriers to entry, SCA Management team Financials

A Communications Exercise: 

A Communications Exercise Stage 1 Executive Summary Grab and maintain interest Stage 2 Presentation Show your entrepreneurial faces Stage 3 Question and Answer Demonstrate deep understanding and commitment Tactical Considerations Logical flow of ideas Strategic omissions Brevity Targeted to audience Persistence Critical review by outside party Visual aids Shepherd and Douglas (1999)

A Communications Exercise contd.: 

A Communications Exercise contd. 12-15 slides, Q&A 30 minutes What is the pain? How do you solve it? Competition How to build a $100 M company Metrics for success Management team You are the “3pm meeting” Two team members present

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Top Tips

Reasons for Failure: 

Reasons for Failure Poor documentation and communication No sweat or hurt money = no commitment Weak market analysis – no customers, no financial projections Unreasonable, unmeasurable goals Lack of strategic or contingency planning Technology or regulatory changes, IP protection, Resourcing Ignoring or hiding the negatives Overemphasis on the product or technology

New Rules in Capital Raising: 

New Rules in Capital Raising Profit focussed business model Focussed market segment Must hit milestones Achieve B/E with much less money More than beta customers Operational and financial controls Prepare for exit

Tips to minimise surprises: 

Tips to minimise surprises Raise money when you don’t need it The smell of desperation is strong Learn about the capital raising process Ignorance may prove costly Know your bargaining position Be confident of your value Look for more than money from the investor Maximise benefits to the business Assume the deal will never close Don’t bet your house on it Always have a back-up source of capital Watch for a monopoly premium

PricewaterhouseCoopers Services: 

PricewaterhouseCoopers Services Strategy and business planning Review and preparation of investor briefs Financial modelling Valuation of company and IP Capital raising and investment negotiations Securing business assistance grants Private equity investment Corporate investors Venture capital

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CAPITAL RAISING Innovation CAPITAL RAISING growth Grants & Incentives commercialisation