Money Day

Assess Your Need and Readiness For Venture Capital

Content provided by Gazelles Systems

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Session Objectives

After completing this session, you will be able to:

• Determine whether your business is in need of venture capital

• Complete a gap analysis to determine your business’s funding readiness

• Conduct due diligence on potential VC partners

• Conduct internal due diligence to determine whether you are ready to make the pitch

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Positive ResultVenture Capital

Questions to Consider

1. Do I need capital?

2. How do VC’s decide?

3. How do I prepare?

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Venture Capital

Question 1: Do I need capital?

• Is it time to inject some capital into my business?

• What can I expect to gain from it?

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Purpose of Venture Capital

Capital Raised

Opportunity Capital (take advantage of

unforeseen opportunities)

Fudge Factor (because

Murphy’s Law is a law)

R&D Capital

Debt Repayment

(as approved)

Day-to-Day Operating

CapitalProject-Specific

Capital

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• What are the key points VC’s consider in their decision- making process?

Venture Capital

Question 2: How do venture capitalists decide?

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Balancing Competing Interests

THE DEAL(meeting of the

minds/compromise)

ENTREPRENEUR WANTS/NEEDS

INVESTOR WANTS/NEEDS

COMMON OBJECTIVES

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Balancing Competing Interests

COMMON OBJECTIVES

THE DEAL(meeting of the

minds/compromise)

• Maximum return

• Mitigate risk/downside protection

• Input on future and growth of the business/control

• Maximum capital/valuation

• Avoid dilution/control

• Affordable cost of capital

• Relationships and introductions

ENTREPRENEUR WANTS/NEEDS

INVESTOR WANTS/NEEDS

• Growth in the value of the business

• Additional rounds of funding at more favorable valuations

• Mutually beneficial exit strategy

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Types of Investors• Angels

• Strategic

• Commercial Lenders

• Venture Capitalists

• Private Placement Investors

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Sources of Venture Capital

• Typical institutional venture capital firms

• Corporate venture capital divisions

• Small Business Investment Companies (SBIC’s)

• Private equity funds

• Hedge funds

• Super angels and angel investing clubs

• Strategic investors

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Management Team•Background, knowledge, skills, and abilities of team members

•Individual roles and responsibilities

• How risks and problems are identified, managed, and eliminated

•Entrepreneurial personality traits of management team

Products and Services•Stage of development

•Specific opportunity

•Unique, innovative, and proprietary

•Level of control of the means of production

•Technological breakthrough or low-tech

Components of Investment Decisions

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Markets•Stage in the life cycle •Size and projected growth rate of targeted market•Marketing, sales, and distribution methods •Strengths and weaknesses of competitors•New markets, and barriers to entry •Characteristics of typical consumer

Return on Investment•Current and projected valuation and performance •Personal investment in the business•Financial acuity•Capital required•Projected return on investment (ROI)

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Components of Investment Decisions

• Share successes and pitfalls in raising capital

• Discuss the toughest questions you’ve had to answer and how you dealt with them

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Experience Sharing

• 10 Minutes

Break

Venture Capital

Question 3: How do I prepare?

• Presenting and negotiating

• Checklists

• Managing your VC partner after the deal is done

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Presentation Tipsfrom

Guy Kawasaki

• 10 Slides

• 20 Minutes

• 30-point font minimum

The 10/20/30 Rule

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10 Slides: What to Cover

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Checklists (Right Tools)

• Funding readiness

• Due diligence on VC

• Due diligence on you

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Managing VC’s After the Deal

• Over-communicate– P2P (People-to-People)

• Board meetings– Provide financial reports

early

– Dashboard handful of KPI’s

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• What can you share about presenting to VC’s?

• What was your experience during due diligence?

• How did you communicate with your board and VC’s on your board?

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Experience Sharing

Summary & Wrap-Up• Being prepared to make the pitch to a prospective investor

is one of the most critical parts of the process.

• Almost all businesses will need an infusion of capital at some point in their life cycle.

• Your due diligence needs to focus on these three questions:• Is your business funding ready?

• Do you know which investors are the right fit for your business and the opportunity?

• Is everything in place to meet the potential investor’s expectations?

• After the deal, be sure to communicate frequently to keep your investor informed and ready to help when needed.

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