capital savvy: having investor thoughts
DESCRIPTION
Entrepreneurs who understand the funding landscape and are diligent about internal company planning are better at attracting capital. There's a lot to learn before you start asking for investment. Know what you are getting into. Start here. This presentation is for the early stage founder who isn't sure what kind of capital they will need.TRANSCRIPT
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CAPITAL SAVVYand attractive to investors
Share. Tweet as you learn. @NicoleGravagna
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Understand funding
Internal planning
Attract capital
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INTERNAL PLANNINGClean up your laundry
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FUNDING OPTIONSDo your homework
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ATTRACT CAPITALGet out there
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GET EDUCATEDThis is your textbook
Educa
tion
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DIFFERENT KINDS OF BUSINESSES
have completely different funding and growth strategies
Don’t try to mix and match
Educa
tion
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YOUR BUSINESS
• Small business
• High growth technology business
• Physical product company
• Consulting business
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SMALL BUSINESS
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SMALL BUSINESS• Ex. Cupcake shop, plumbing company, retail store
• One or two owners who run it for a long time
• Maybe expand to multiple locations
• Profitable within the first or second year
• Up front capital pays for equipment or real estate
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HIGH GROWTH TECH
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HIGH GROWTH TECH
• Generally includes software or other technology
• One to five years of work before anything can be sold
• Requires $500k to $2M to create the product
• Capital generally pays developers and engineers
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PHYSICAL PRODUCT
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PHYSICAL PRODUCT COMPANY
• Product is a tangible thing
• The invention is unique
• Upfront capital goes to design, patents, and manufacturing
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CONSULTING
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CONSULTING BUSINESS
• You sell your employees’ time and expertise
• Very little overhead necessary
• Profitable soon after opening
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CAPITALis not all created equal
Educa
tion
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CAPITAL OVERVIEW
• Grants and Awards
• Bootstrapping
• Debt and Loans
• Angel and Venture Capital
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GRANTS AND AWARDSsource: governments and foundations
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GRANTS AND AWARDS
• Non-dilutive capital
• Social or Political capital
• Exposure
Pros Cons
• Applying is time consuming
• Use of funds can be limiting
• Winning is a gamble
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BOOTSTRAPPINGusing your own money
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BOOTSTRAPPING
• Freedom of use
• Non-dilutive
• Shows founder buy-in
Pros Cons• Fails to prove external
validation
• Often involves family issues
• Amount can be limited
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DEBT AND LOANSmore than just banks and loan sharks
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DEBT AND LOANS
• Non-dilutive
• Lender has no voting rights in the business
• Temporary relationship with lender
Pros Cons• Hard to find
• Must pay back plus interest
• Interest rates can be really high
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ANGEL AND VENTUREequity partners
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ANGEL AND VENTURE
• Adult supervision
• Large sums possible
• Permanent relationship
Pros Cons• A lot of work to
secure
• Butting of heads
• Must sell company in 10 years or fewer
Equit
y Capi
tal
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ANGELS• Rich people
• Probably untrained
• Various motivations
• Investing their own money
• Usually $15k to $100k
• But really it could be any amount
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VENTURE CAPITALISTS• Investing other people’s
money
• Raised a fund that they now deploy
• $100k to $50M
• Work alone or syndicate
• Will be active members of the board
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GUIDING FACTORS FOR EQUITY FUNDING
• Scalability
• The right people
• A large market
• Unfair advantage
Is equity capital for me?
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SCALABILITYThe economics of your
business now vs your business when it is grown.
Analysis
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A SCALABLE BUSINESS
• The cost of selling the product or service plummets as the number of units sold rises
• Software is inherently scalable
• And other things are too
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UNSCALABLE BUSINESSES
• Consulting is always unscalable
• Anything custom
• Retail stores (unless on a grand scale)
• Food and commodities
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MARKET
Analysis
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MARKET ANALYSIS
Must include bottom up and top down.
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TOP DOWN
• How much ice cream is sold in a cone?
• In the US?
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BOTTOM UP
• How many of these can I sell in the first year through the relationships I already have?
• In the second year?
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THE MAGIC #How long does it take for
your business to get to $100M in revenue?
Analysis
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FUNDING PLANFinding the true hard parts
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TWO LAYERS OF INFO
1. The major milestones that lead to increased company value
2. The capital needed to make those things happen
Plann
ing
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ADDING VALUE
• Own property
• Buy the rest of the monopoly
• Add a house
• Add multiple houses
• Add a hotel
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EQUITY CAPITAL
Take capital only when the raise will get you to the next value-increasing milestone.
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FIND THE EDGESAnd use them to plan real projections
Plann
ing
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THE “NOW” EDGE
• With no more business development, how much can you sell right now, per year?
• How much will it cost to make and sell exactly that? This is your minimum raise.
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“WILD SUCCESS” EDGE
• If you had all the money in the world, what is the next limiting factor?
• Use this to calculate your financials under the circumstance of wild success.
• Use these numbers to determine your max raise.
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BOUNDARIESLive between the edges
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ATTRACTING INVESTORSby selling a dream
Commun
icatin
g
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INVESTOR NIGHTMARES
• Looking like a chump
• Losing money
• Extended frustration
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YOUR EARLY ASSETS• Founding team (advisors and board included)
• Patents (and other IP)
• Specific knowledge or thought leadership
• Relationships
• R&D/Prototype/Product
• Sales
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PITCH DECKPrimary means of communication with investors
Commun
icatin
g
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THE INVESTOR PITCH• What do you do?
• How do you make money?
• How far have you gotten?
• What does the future look like?
• How much money will you need to get there?
• What’s the current deal look like?
• Who is involved?
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