peter c. freeman - angel to exitangeltoexit.com/2018-02-07-entrepreneurial-finance.pdf · 2/7/2018...
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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
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 caveats1. Diversification – at least 10 recommended2. Thorough due diligence3. 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
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 (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.
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
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 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 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
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
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
• 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.
PowerPoint PresentationSlide 2Introduction to Business PlanningEarly Stage Companies Are Good InvestmentsAngel Investments as an Alternate Asset ClassObjectives of a Business PlanPreparing to Raise Debt or Equity FinancingSlide 8Venture CapitalSlide 10Angel InvestorsCommercial BanksCrowdfundingStrategic PartnersWhat to Look for in InvestorsWhat to Look Out for in InvestorsSlide 17Questions