getting equity financing from - firstangels...

Getting Equity Financing from

Sandra A. C. Glasgow, Founding

Member/Manager

Copyright FirstAngelsJA 2017 1

Presentation to the Jamaica Manufacturers’ Association’s Equity Forum

19 July, 2017

Why Does Jamaica Need an Angel Investor Network?

• Economy characterised by perennially low growth and high debt

• Despite challenging IMF programme, Jamaica is likely to experience low growth over the medium term

• Significant economic growth will only come from private sector-led, entrepreneurial activities

• Key stakeholders have been working to strengthen the ecosystem for venture financing of high potential growth companies


FSC Definition:

Accredited Investor• Financial position of investor:

• “Any individual whose net worth exceeds JA$50,000,000.00 or

• a corporation over 90% of the voting shares of which are owned by such an individual

• a trust of which such an individual is the sole primary beneficiary

• Individual who had an income before taxes in excess of JA$10,000,000.00 in each of the two most recent calendar years

• Assumption:• Knowledgeable – capable of due diligence

• Can afford to lose invested funds

4Copyright FirstAngelsJA 2017

Attributes of Angel Investors


Profile of FAJ Members


22

76%

7

24%

FAJ Membership, by Gender as at June

30, 2017

Male

Female 19

66%1…

5

17%

4

14%

FAJ Membership, by Status as at June 30,

2017

Active business

persons

Retired

Executives

Professionals

8

28%

21

72%

FAJ Members, by classification as at June 30, 2017

Associate Members

Investor Members

What Motivates Them to Become Angel Investors?

• Help entrepreneurs

• Stay engaged – using skills and experiences to help other people build businesses

• Give back to the community/country

• An active form of investing – not just watching markets

• Return on Investment is the metric


What Do The Angels Do?• Invest money in seed, startup and

early stage companies

• Invest time in entrepreneurs and

their companies

oBusiness acumen

oMentoring and coaching

oServe on boards

oMake business introductions


9Courtesy: Angel Capital Association

Copyright FirstAngelsJA 2017

How Angels Integrate Exits as

Part of Their Portfolio Strategy

• VCs tend to exit in 3-5 years (assume 5)

• Angels invest earlier and expect to exit in 5-7

years (assume 7)

• A balanced angel portfolio contains ten

companies.

• Consequently, angels should invest in 2-3

companies per year

o Build to ten company portfolio gradually

o A portfolio of companies in all stages of development

o Good balance for investors time


Why Angels Join a Network

• Investing as a solo is hard

• Process is time-consumingo Deal sourcing

o Reading plans

o Due diligence

• Due diligence is difficult o Finding vertical experience

o May require using outside experts

• Legal support is expensive


Investing Through FirstAngelsJA

• Network is Manager-led; sharing the work

eases the pain

• Variety of vertical experience available

• Standardised processes and term sheets

• Deal flow encouraged, entrepreneur-friendly

• Pick and choose the deals we like that are “in

the wheelhouse” of members

• Camaraderie among like-minded people who

already know each other and do business

together


Balancing Competing Interests

Growth of the value of the business

Additional rounds of $

at more favourable valuations

Mutually beneficial

exit strategy

Common Objectives

Entrepreneur wants/needs• Maximum capital/valuation• Avoid dilution; loss of control• Affordable cost of capital

Investor wants/needs• Maximum return• Mitigate risk/downside

protection• Input on future &• growth of the

business/control



REGISTERED

FAJ’s Deal Flow Process

APPLIED1-DAY

WORKSHOPSCREENING

PRE PITCHCOACHING

PITCH TO ANGELS

FACTUAL DUE DILIGENCE

NEGOTIATE TERM SHEET


LEGAL NEGOTIATIONS

CAPITAL CALL

REGISTRATION EMAIL TO

ENTREPRENEUR

DECLINE DECLINE DECLINE

DECLINE

DECLINE

DECLINE

DECLINEDECLINE

DEAL COMPLETION

DECLINEDECLINE

POST INVESTMENT

16


17


18



May-15 Aug-15 Oct-15 Jun-16 Jan-17 Feb-17 Mar-17 Apr-17 Total

$105,400

$49,600

$95,000

$181,803

$180,000

$78,740

$50,000

$76,000

$816,543

USD INVESTMENTS MADE

Creating a Winning Business Plan and Pitch Deck

Copyright © First Angels Jamaica Limited. This presentation is not to be shared without the prior , written permission of FirstAngelsJACopyright FirstAngelsJA 2017 22

Most business plans are fundamentally flawed


Unrealistic assumptions; information is not credible (Lots of guesstimates, pie-in-the-sky thinking; no market research)

Entrepreneur and management team lack credibility (What have they done in the past that gives an investor comfort that they can make this work?)

The Founders do not understand investor expectations and requirements (Have they taken the time to educate themselves?)



No unique selling point or unfair advantage (Where’s the innovative element? Who wants to invest in a mundane business?)

No route to market (Companies without strong sales and marketing strategies fare poorly in getting angel funding)

No evidence of demand (Is there ANYBODY who has indicated that they WILL buy? Any revenue so far?)



No credible business model

Not high growth (Then clearly does not qualify for angel investment)

No consideration of exit (essential for an angel investment)

Business Models vs Business Plans


• Not the same

• The Business Model is the core concept on which the business plan is built

• Many business plans gloss over the business model in favour of lengthy financial projections and operational details

• Without a solid business model, these projections and details are premature

The 9 Building Blocks of your Business Model


Key Activities

Key Partners

Key Resources

Customer Relationships

Customer Segments

Value Proposition

Channels

Revenue Streams

Cost Structure Source: Business Model Generation Alexander Osterwalder & Yves Pigneur

• The Angels are your AUDIENCE

• You must CAPTURE THEIR ATTENTION in the first 60

seconds

• Show your PASSION for the venture

• Maintain EYE CONTACT

• No more than 12 -16 slides

• Be CONCISE

• Deliver your presentation in 10 minutes

• Tell your story and make it a COMPELLING

one

• Help the Angels get a PICTURE in their heads

The Art of the Pitch


The Art of the Pitch

• Depends on the clear & defendable presentation of an opportunity (big problem + big market), your plan for addressing it (your solution) and identifying the team that is uniquely positioned to do so.


31

Who else says this deal is viable?


The Pitch: Table of Contents

1. Title Slide

2. Market Problem

3. Your Solution

4. Business Model & Sales

5. Market Demand

6. Competition

7. Growth Opportunity

8. Management Team

9. Financial Projections

10. Financial Projections Chart

11. The Ask & Use of Funds

12. Company Milestones

13. Risk Assessment

14. Exit Strategy

Resources:Angel Capital Foundation • Angel Resource Institute • Ohio TechAngels The Entrepreneur’s HandbookTechColumbus


1. Title Slide

Introduce yourself and your role in the

business

Feature company name/graphics

Deliver your two-line elevator pitch

Share a brief company history

State why you are there

Spend less than 2 minutes on this slide


2. Market Problem

Clearly communicate the “pain/problem” in the market

and lay the foundation for the following slides

Provide two example that relate to your solution’s

“unfair advantage”

Include these key points

• How do you know there is a “problem” in the market?

• What is the size of the market?

• What are the market needs? How does it change and grow over time?

• What is the cost of the problem?


3. Your Solution Discuss how your product or service solves the

marketplace problem for customers Sprinkle in your personal experience from talking with

customers Do not get mired down in the technology Focus on customer benefits

Include these key points:• The Offering - What specifically are you offering to whom?

What’s your differentiator or unique competitive advantage? Team, relationships, IP, new insight?

• Clearly quantify three or four key benefits you provide, and who specifically realizes these benefits.

• Highlight the elements of your business that give you potential for leverage and scale as you grow.


4. Business Model and Sales

Describe how your product or service

generates revenue for the company

Keep the explanation simple

Include these key points:• How do you charge?

• What is your pricing strategy?

• What is your channel strategy for reaching initial customers?


5. Market Demand

Quantify the market by size, segments, and

sales

Avoid sky-high numbers; ensure they are

realistic

Characterize the key attributes of target

customers

Show the urgency of the product or service

needed


Your Product or Service

vs.

Competition

6. Competition

Create a comparison chart of competitors

Include large and small companies, those who are established and better know as well as the up-and-comers

Describe what it will take for customers to change

from what they are using today

Describe your strongest barriers to competition


7. Growth Opportunities

Describe the company growth potential

Avoid over-reaching with the growth figures

Use your research to illustrate the nature of market growth

Specify the milestones that will produce positive (or improved) cash flow


8. Management Team Show the strength of your team as individuals and

evidence of how effectively you work as a team

Use concise bullet points to highlight key experience

Indicate full-time/part-time

Highlight current Board of Advisors/Board of Directors

Include these key points:

• Entrepreneurial experience

• Years in target markets

• Functional expertise

• Experience with start-ups, acquisitions and IPOs


9. Financial Projections

Focus on the bottom line. How much capital is needed to reach breakeven and profitability?

Match critical milestones to capital needs

Base projections on assumptions generated from market study and analysis

Project realistic revenues

You must be able to explain:

• Short-term market adoption and penetration

• “Hockey stick” growth

• Margins greater than the norm

• Extended periods of negative cash flow


10. Example: Financial Analysis

Latest

Actual

Financials

Projected

Year 1

Projected

Year 2

Projected

Year 3

Projected

Year 4

Projected

Year 5

Revenue ($'000) 128 1,200 5,400 13,600 24,300 36,000

Cost of Goods Sold ($'000) 82 650 2,200 5,200 9,100 13,300

Gross Profit ($'000) 46 550 3,200 8,400 15,200 22,700

Gross Profit % 35.9 45.8 59.3 61.8 62.6 63.1

Operations/G & A ($'000) 151 540 1780 3600 6300 8100

Profit/(Loss) Before Tax ($'000) (105) 10 1420 4800 8900 14600

Profit/(Loss) Before Tax (%) -82% 0.8% 26.3% 35.3% 36.6% 40.6%Copyright FirstAngelsJA 2017

4343

11. The Ask and Uses of Funds

Outline the capital needed to achieve profitability

Represent capital needs/uses by round matched to key milestones to be completed

Highlight in a sentence the risks associated with key milestones

Include a current Capitalisation Table

Identify the current burn rate


12. Company Milestones

Include a milestone chart to illustrate past and future business and financial accomplishments

This chart will tie to all milestones, assumptions, sources and uses of cash that have been expressed in the presentation

Include these key milestones:• Company formation• Technology or product achievements• Past and future capital rounds• Break-even and cash flow• Exit


12. Example: Company Milestones Chart

Jan

- M

ar

Apr

- Ju

n

Jul -

Sep

Oct

- D

ec

Jan

- M

ar

Apr

- Ju

n

Jul -

Sep

Oct

- D

ec

Jan

- M

ar

Apr

- Ju

n

Jul -

Sep

Oct

- D

ec

Jan

- M

ar

Apr

- Ju

n

Jul -

Sep

Oct

- D

ec

Company Formed ●

$30K Proof of Concept ●

Product Prototype ●

$100K Seed Round ●

Field Tests ●

$500 Angel Round ●

Positive Cash FLOW ●

$2M VC Round ●

$50M Annualised Revenue ●

IPO/Acquisition ●

2014 2015 2016 2017


13. Risk Assessment

Potential investors know that entrepreneurial companies are risky

Share your risk assessment with potential investors as honestly as possible

Segment risk by product, market, operation, finance, and execution

Strike a balance between optimism and realism


14. Exit Strategy

Realistically relay the specifics of your exit options

Acquisition

Identify at least two potential buyers and why they would be interested

Describe recent comparable transactions, if any

Express any current relationships with potential acquirers

IPO

Describe recent comparable offerings, if any

Be prepared to explain why your company could be an IPO candidate


Finalising the Investment

Copyright © First Angels Jamaica Limited. This presentation is not to be shared without the prior , written permission of FirstAngelsJACopyright FirstAngelsJA 2017 50


REGISTERED

FAJ’s Deal Flow Process

APPLIED1-DAY

WORKSHOPSCREENING

PRE PITCHCOACHING

PITCH TO ANGELS


NEGOTIATE TERM SHEET


LEGAL NEGOTIATIONS

CAPITAL CALL

REGISTRATION EMAIL TO

ENTREPRENEUR

DECLINE DECLINE DECLINE

DECLINE

DECLINE

DECLINE

DECLINEDECLINE

DEAL COMPLETION

DECLINEDECLINE

POST INVESTMENT

#8

#8


What’s in a Term Sheet?• The Business

• The amount of

Investment

• The Investors

• Pre-money valuation

• Types of Shares (ordinary,

Preferred)

• Conditions Precedent

• Target Completion Date

• Investment disbursement

(is it tranched?)

55

• Anti Dilution

• Board Structure

• Protective provisions

(Minority protections)

• Information Rights

• Drag Along/Tag Along

• Warranties

• Transaction Costs

• Exclusivity Period

• Confidentiality


#9

Source: Nelson Gray 56Copyright FirstAngelsJA 2017

57Source: Nelson GrayCopyright FirstAngelsJA 2017

Warranties and Disclosure• A Warranty is a contractual representation or

assurance as to the condition of the company or,

promises made by the Founders and/or shareholders

• If the warranties turn out to be wrong, the investors

may make claims on the warrantors

• The Disclosure letter is used to disclose matters which

are, or may be, inconsistent with the warranties

61Source: Nelson Gray Copyright FirstAngelsJA 2017

You Need to Demonstrate That You Know…..


Coaching and Mentoring• Due Diligence should

result in a positive view of

the company, the

Founders and the team

65

• Mentoring provides support to

develop a better business plan

• It should be a positive learning

experience

• If it becomes adversarial, the

investor is thinking….”is this CEO

really coachable?”


At the end of the Day, whatever the Due Diligence

Results Suggest:

67Source: Nelson Gray Copyright FirstAngelsJA 2017


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