peter c. freeman - angel to 2/7/2018 ¢  venture capital venture capital (continued)...

Download Peter C. Freeman - Angel To 2/7/2018 ¢  Venture Capital Venture Capital (continued) Venture capital

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  • Peter C. Freeman has over 40 year’s experience in financial management, creating financial infrastructure and raising capital for established, startup, and turnaround companies. He is an active angel investor and member of the Keiretsu Forum, where he chairs the Clean-Tech Sub-Committee. Peter received an MBA in Finance at the University of Chicago and a BA degree in Economics from Amherst College. He is an Adjunct Professor of Finance and Accounting at Golden Gate University.

  • Introduction to Business Planning  There has never been a better time to

    start a business!  This time it’s different

     Fewer resources required  Ecosystem to support new ventures is more robust  Capital is generally available

     Being your own boss provides more job security.  The same principles apply to both early stage and

    established companies.

  • Early Stage Companies Are Good Investments  Asset values are considered excessive in all public

    markets.  Established companies struggle to achieve growth.  There is heightened interest in the “next-new-thing”.  But by the time a company goes IPO, most of the

    value has been achieved.  Angel investments provide an opportunity

    to participate in a very attractive alternate investment class.

  • Angel Investments as an Alternate Asset Class • Historical returns are quite good – ROI 24% and 2.4X (

    R. Wilbanks & Kaufman Foundation, 2007) • However, this hs several very important caveats 1. Diversification – at least 10 recommended 2. Thorough due diligence 3. Active not passive participation  Able to be very well informed – insider information

     But high risk with high (potential) returns  Illiquid – 3-10 year investment horizon

  • Objectives of a Business Plan • A business plan provides guide or roadmap for

    execution of the necessary steps the enterprise should complete to achieve its goals.

    • In addition, it imposes a discipline on the management team to think about its goals and how best to achieve them.

    What do you want to be when you grow up?

  • Preparing to Raise Debt or Equity Financing

  • 13-8

  • Venture Capital

    Venture Capital

     Is money that is invested by venture capital firms in start-ups and small businesses with exceptional growth potential.

     There are about 875 venture capital firms in the U.S.  Venture capital firms are limited partnerships of money managers who

    raise money in “funds” to invest in start-ups and growing firms.  The funds, or pool of money, are raised from wealthy individuals, pension

    plans, university endowments, foreign investors, and similar sources.

  • Venture Capital

    Venture Capital (continued)  Venture capital firms fund very few entrepreneurial firms in

    comparison to business angels.  Venture capitalists are looking for the “home run” and so reject the

    majority of the proposals they consider.  A distinct difference between angel investors and venture capital firms is

    that angels tend to invest earlier in the life of a company, whereas venture capitalists come in later.

     Venture capitalists invest money in start-ups in “stages,” meaning that not all the money that is invested is disbursed at the same time.

  • Angel Investors

    Who are angel investors?

     Most are self­made entrepreneur millionaires  Many are in their 40s and 50s  Most are well educated  95% have college degrees from four­year colleges  51% have graduate degrees (44% are in a technical field and 

    35% are in business or economics)  96% are men

    14-11

  • Commercial Banks

    Banks

     Historically, commercial banks have not been viewed as a practical source of financing for start-up firms.

     This sentiment is not a knock against banks; it is just that banks are risk averse, and financing start-ups is a risky business.

     Banks are interested in firms that have a strong cash flow, low leverage, audited financials, good management, and a healthy balance sheet.

  • Crowdfunding

    Crowdfunding

     Crowdfunding is the practice of funding a project or new venture by raising monetary contributions from a large number of people (the “crowd”) typically via the Internet.

    Types of Crowdfunding Programs  Rewards-based crowdfunding allows entrepreneurs to raise money in

    exchange for some type of amenity or reward.  The most popular rewards-based crowdfunding sites are Kickstarter,

    Indiegogo, and RocketHub.

  • Strategic Partners

    Strategic Partners  Strategic partners are another source of capital for new

    ventures.  Many partnerships are formed to share the costs of product

    or service development, to gain access to particular resources, or to facilitate speed to market.

     Older established firms benefit by partnering with young entrepreneurial firms by gaining access to their creative ideas and entrepreneurial spirit.

  • What to Look for in Investors  Seek investors who:

     Are considering new financing proposals and can provide the  required level of capital

     Are interested in companies at the particular stage of growth  Understand and have a preference for investments in the 

    particular industry  Can provide good business advice, moral support, and has 

    contacts in the business and financial community  Are reputable, fair, and ethical and with whom the 

    entrepreneur gets along

    14-15

  • What to Look Out for in Investors  Attitude

    Getting through to a general partner in the investment  firm is an ordeal

     Investor thinks he or she can run the business better than  the lead entrepreneur or the management team

     Over commitment

     Investors who indicate they will be active directors but  who also sit on the boards of six to eight other startup  and early­stage companies or are in the midst of raising  money for a new fund

    14-16

  • Strategic Partners

    • Biotech firms often partner with large drug companies to conduct clinical trials and bring new products to market. • The biotech firms benefit by obtaining funding from their partners, and the partners benefit by having additional products to sell.

  • Questions 18

    PowerPoint Presentation Slide 2 Introduction to Business Planning Early Stage Companies Are Good Investments Angel Investments as an Alternate Asset Class Objectives of a Business Plan Preparing to Raise Debt or Equity Financing Slide 8 Venture Capital Slide 10 Angel Investors Commercial Banks Crowdfunding Strategic Partners What to Look for in Investors What to Look Out for in Investors Slide 17 Questions

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