getting your venture "game ready" for funding

Getting Your Venture “Game Ready”

for Funding

Net Impact Conference, Silicon ValleyOctober 25, 2013

Jenny KassanCEO

Cutting Edge Capital

Drew TulchinManaging Partner

Social Enterprise Associates

Workshop Outline

I. Introduction & BackgroundII. What does it mean to be “Game Ready”

Foundational Elements to raise moneyTraditional CapitalAlternative Forms of Capital

III. Pros / Cons of Each Capital TypeIV. Fundraising Role PlayV. Discussion: Steps to Readiness

I. Introduction & Background

About You!

Who’s is in the room & interests

Why are you here?

What questions do you want answered today?***

***Ask questions as you have them anytime

About Social Enterprise Associates

Drew Tulchin, Managing Partner, MBA• Written >100 business / strategic plans• Efforts raised >$100 mil. in capital• Biz plan winner - Global Social Venture Comp; raised $1.2 mil. in social investment• Judge in national social enterprise & social business competitions

Impact Investing Focused Consulting FirmNetwork of experts offering consulting & capital raising to triple bottom line efforts- for people, profits, planet

Registered ‘B Corporation’, recognized: 2011 'One of the Best for the World' small businesses 2012 Honoree Sustainable Business of the Year

“Game Ready” Consulting Examples

SW Native Green Loan Fund: Structured term sheet that recruited $1 million in impact investment

Solar Energy Loan Fund: Wrote business plan, financial projections and located investors that led to $400 K in funding

Restore the Earth Foundation: Developed investor pitch that quantified social value of 10,000 acre wetland reforestation

Sea to Table: Coached entrepreneurs and orchestrated $1 million funding package from multiple sources

World Food Program: Devised five year plan for $400 million private sector engagement strategy

Get Us Started

Group BrainstormNew, creative capital raising forms?

II. What does it mean to be “Game Ready”?

Need Your House in Order

• Accounting: Accurate financial statements - updated at least ¼, taxes tracked, vendors paid

• Legal: Incorporation, ownership, IP, employees

• Systems & IT: Be organized, show it! Email, accounting, CRM, database, info management, online tools, etc.

• Branding & Mktg: Logo, websiteIdentity, materials

People You Need for Success

DirectManagement Team

You - CEO?CFO

CIO / CTOBiz Dev / Sales

Advisors Board Members

Key VendorsBankerLawyer

Bookkeeper/CPAITPR

Indirect

Baseline Documents

1. Business Plan Feasibility Market Analysis

2. Financial Projections & Scenarios

Fundraising – what goes here?1. Pitch packet2. Brochure / Exec Sum /

2 pager3. E-mail intro4. Website5. Social media

The Pitch Deck

Your 10 slides should be:• Nice / clean• Easy to read. Few words. Tell a story (use visuals)• Very much you• A bit different, but not too much

I believe in Guy Kawasaki’s Art of the Starthttp://blog.guykawasaki.com/2012/01/how-to-create-an-enchanting-pitch-officeandguyk.htmlhttp://bestpitchdecks.com

What is in a pitch deck? How many slides?

The Hand Off

Strategy and compliance for creative capital raising

Software tools for capital raising

Full-service law firm for social enterprise

Entity choice has an effect on capital raising

choices

Entity Options

1. Corporation (taxed Subchapter S or C)

2. Benefit Corporation / Flexible Purpose Corp3. LLC (taxed under Subchapter S, C, or K)

4. Non-profit (many kinds! 501c3, c6, etc.)

5. Cooperative (many kinds!)

Or a combination…

Traditional Forms of Capital

Types of Investments

• Common stock• Preferred stock• LLC membership interests (units)• Loans (aka notes, debt)• Revenue share/royalty – equity or debt-like• Co-op memberships• “Memberships”• Presales

Capital: Traditional Ways to Raise It

BanksAngels & VCs – Accredited investors only

• Rule 506, Regulation D• Allowed to have up to 35 unaccredited

investors under Rule 506?• New Rule 506(c) - allows public solicitation• Usually convertible notes or preferred stock• Exit via acquisition, IPO

Giant Multinational Publicly Traded

Companies

Small Independent Businesses

Employees:56 million

Production:$7 trillion

Employees: 56 million

Production: $7 trillion

TOTAL US ECONOMY:

Two equal halves

Almost 100% of Americans’ investments are in only one-half of the economy – Wall Street companies

Source: http://earnmbadegree.com/jobs-act-crowdfunding-infographic/

So, you can go to the 1% (OK…the 7%)

But, money from VCs, Angelsis scarce and comes with strings attached.

OR . . .

Alternative Forms of Capital

Direct Public Offerings

What is a DPO?

• Made to the public

• Made to unlimited # of accredited AND unaccredited investors

• Directly to investors (no middleman)

LEGAL NOW!

Legal How?

1. Federal exemptions

2. State level registrations

3. Any kind of security can be offered

4. How does this relate to Title III of JOBS Act (crowdfunding exemption)?

DPO Examples

Farm Power Northwest

• Interest paid in credits toward product

• Raising funds from California residents – multi-year offering

• Have raised over $300,000 so far

• Massachusetts Worker Cooperative (conversion from sole proprietorship)

• Offered non-voting preferred stock

• Raised $500,000 from VT & Mass residents in 2 months

• Offering common stock

• Open to Washington residents

• $100 minimum

People’s Community Market

• Offering non-voting preferred stock, discount AND gift cards

• Raising up to $1,000,000 from California residents

$800,000 + so far!

• Offered 5-year revenue sharing agreements

• Raised over $150,000 from California residents

III. Pros / Cons of Each Capital Type

Activity: List Pros / Cons of Each

Traditional• DPO• Crowdfunding• Memberships• Pre-sales& more…

Consider time, complexity, cost, paperwork needed, who funding is for, etc.

• Debenture• Private placement• GrantOthers?

Newer

Activity: Funding Match

Traditional• Debenture• Private placement• Grant

Newer• DPO• Crowdfunding• Membership• Pre-sales

Match the type of funding to the appropriate audience

Audience Type• Friends & Family• Bank• Angels• Foundations• Impact InvestorsWhich others?

VI. Fundraising Role Play

Activity: Fundraising Pitch

Form groups of 3 / 4• Pick a venture (your own, or one example)

• Choose a target market to pitch• Identify form of capital for that group• Develop pitch

What is the hook?What kind of funding & why?How much, for what?What questions would potential investors ask?

Recap: Financing 2 Cents

Foundational thoughts:• YOU must be credit-worthy • Organization needs to document why worth investment• If you don’t put skin in game, why should an investor?• Be realistic; know market based risk costs

Options:• Go to outsiders earlier than later• Self finance: bootstrap, leverage assets, watch credit card debt• Friends, Family, Fools - put in writing with real docs • Peer to Peer Lending, Crowdfunding - caveat emptor

Recap

• What have we learned?• What questions do we still have?

Questions?Answers?

Thank you!

Jenny KassanCutting Edge Capital

www.cuttingedgecapital.comjenny@cuttingedgecaptial.com

Drew TulchinSocial Enterprise Associates

www.socialenterprise.netdrew@socialenterprise.net