Finance / Funding Sprint 14.3.2019 & 21.3.2019

Tuomas Maisala / CEO & Founder at Maisala.net Oy

Start-up Funding in a Nutshellfor Aalto Venture Program

Tuomas Maisala

19 years as a start-up advisor

300+ start-ups

20M€+ funding raised as a consultant

10 direct investments

Crowdfunding experiments

Funding Sprint Mar 14th & 21st

• Today

• Startup Funding in Nutshell

• general principles

• discussion of case Sharetribe

• overview of different sources of funding

• Instructions for next session

• Next week

• Meeting with a suitable financier (simulated)

Basic law of finance

€

How much funding do you need?

€

t

Funding mix

Debt: e.g. bank loans = low risk capital

Grants (and soft loans) = “carrot”

Equity: e.g. investments = capital at risk

What is yourmost important

source of money?Always.

Discussion: Case SharetribeHow did they get funded?

Sharetribe

• Tekes/Business Finland: TULI, Tempo, …

• Investments: Reaktor Polte, Lifeline

• Crowdfunding: Invesdor

• Indirect support:

• Startup Chile

• StartupSauna

• EIT ICT Labs

Funding of Sharetribe

2010: TULI (idea exploration grant before incorporating)2012: 40k (Tekes Tempo, grant)2013: 60k private (Reaktor) + 60k public (Tekes grant)2014: 350k private (250k Lifeline, 100k Reaktor) +

350k public (Tekes R&D, loan)2015: 500k public (Tekes YIC phase 1, grant + R&D, loan)2016: 450k public (Tekes YIC phase 2, grant + R&D, loan)2018: 1.12M crowdfunding (Invesdor) +

930k public (Business Finland R&D, loan)

Total funding 3,86M: Grants 600k

Soft loans 1,73M

Equity 1,53M

Elements for the funding mix

Public

Finnvera

BusinessFinland, ELY

FinnishIndusty

Investment

Private:Professional

Nordea, OP,Danske etc.

Accelerators?Foundations?

Angels, VCs

Private:Crowd

Funduetc.

Mesenaatti.me

Invesdoretc.

4) Crowd

1) Debt

2) Grants

3) Equity

Predictable cashflow to pay back

Low risk or strong collaterals

1) Debt = business loans

-Operates like a commercial bank but is state-owned

-Loans for ”ready” new businesses, mainly SMEs

-Various loan products for all sizes of export business

Example: Finnvera can back up to 80 % of max. 100.000 EUR business loan from a private bank for a founder-owned SME

2) Grants and Soft Loans

Why?

Which activities can be supported by public funding?

Startup Grant: personal support

Carrot to take the leapSelf-employment

Innovations and R&DJob creation & exports

Some ”political” motivations

=+

Tempo

Business Finland Tempo

• Intended for innovative start-ups and SMEs aiming to enter quickly to international markets• Requirement: 30k€ as investment or retained profits

• Typically from proof-of-concept to MVP version• 4-5 months

• Must focus on market validation, customer exploration and first international activities

Other sources of grants

• ETE Center (ELY) (regional; not relevant in the Helsinki area)

• Salary support for employing unemployed persons (appr 30 %)

• Industry-specific sources : e.g. new UNTIL, Finnpartnership and Nopef

• Few foundations

• EU: rarely viable, maybe for few start-ups that fit and pass thetight criteria

nick@ on Flickr (CC BY 2.0) “Arm Wrestling”

3) Equity

FFF,Business Angels &Venture Capitalists

FFFThey like youThey want to support youThey want you good thingsThey trust you

Business Angels

They are investing

their own assets

Personal

interestsStartup Ltd

€

Startup Ltd Startup Ltd

€€ € €

Venture Capitalists

They are professional

asset managers

- 10x return

- Portfolio

- ROI Fund 1

(limited

partnership)

VC Firm Ltd

Investor N

Startup 2 Ltd Investor 2

Investor 1

€

Startup N Ltd

Startup 1 Ltd

€

board member

Some of the Finnish VCs

Pre-seed / 50k€+

Seed / 0,5M€+

Venture / 1M€+

Corporate VCs: maybe Reaktor Ventures, Fonecta, DNA, Fortum

Foreign VCs: active mainly on larger rounds

N.B. Funds come and go with their life cycle. Some of the VCs that are ”active in events” have no active funds to make any new investments.

Very rough scale of start-up valuation

Business idea 10k€

Business plan / prototype / demo 100k€

Pilot client(s) and proof-of-concept

Real product (price, materials, support etc) 1M€

Repeatable and scalable business model

Ability to execute in the growth-phase 10M€

Unique idea and IPR may increase valuation.

Skilled, credible team raises valuation much more!

Featured image source: http://www.nonprofitlawblog.com/assets/Crowdfunding.png

4) Crowdfunding

Crowdfunding for start-ups

Forms:

Perks:sell ”invaluables” like t-shirts

Pre-order: sell consumer products (to raisefunding for 1st batch)

Microloans (= debt):pooling of small private loans, often w/o collaterals

Equity investments:group of ”mini business angels”

Examples of web services:

Mesenaatti.me

Kickstarter & Indiegogo FundedByMe

Fundu, Yrityslainat, Invesdor

Invesdor, FundedByMe,

Privanet/Around and others

Finance sprint task / homework

1) Estimate rough amount of funding that you

will need to reach profitable growth

2) Sketch your funding plan = rough path of

funding you will raise for your new venture

3) Decide what funding you are raising:

• Business angels

• Bank

• Business Finland Tempo

• Finnvera loan/start guarantee

2019 2012 2021 2022

Business Finland R&D Project

(100ke, 70% loan)

Pro

du

ct

De

ve

lop

me

nt

Bu

sin

ess

De

ve

lop

me

nt

Business Finland R&D Project 2

(150ke, 50% loan)

ELY developmet grant /EU SME Instrument (50ke)

BF Tempo

(50ke, 75%)

Sample of a Visual Funding RoadmapO

pe

rati

ng

C

ap

ita

l

Pre-seed 1FFFs 30ke

Seed 1Angels 100ke

BF YIC

Program

Phase 1 (250ke)

Sales0ke 80ke 200ke 500ke

Seed 2Angels/seed-VC 200-500ke

Proto MVP + piloting Version 1 & sales Version 2 + international business

Bankloan

Traditional table with numbers

Company X 2019 2020 2021 2022

Sales 10.000 € 400.000 € 1.500.000 € 5.000.000 €

Costs 210.000 € 800.000 € 1.500.000 € 4.000.000 €

Profit/loss -200.000 € -400.000 € 0 € 1.000.000 €

Equity XXX.XXX XXX.XXX

Debt XXX.XXX

Grants XX.XXX

Reserves/cash

XX.XXX XX.XXX XX.XXX XX.XXX

Finance sprint task / homework

4) Sketch your funding proposal to selected

first financier and approach by email:

- DL Tue Mar 19. 23.59 to tuomas@maisala.net

- topic AVP: your case name

- state who are you approaching & amount of

funding e.g. 50ke and instrument you are

applying for Tempo/loan/equity investment

- include any materials you would like to share

like pitch deck or other background materials

5) Meeting on Mar 21st (simulated 20min)

- Tuomas Maisala & Teemu Polo

What do you need for fundraising?

Credible business opportunity

Some evidence / traction

Relevant team with fire in the eyes

Understanding the play from the other side (logic of the financier)

Creative Commons © https://openassembly.files.wordpress.com/2015/07/

www.maisala.net | tuomas@maisala.net

Phone/WhatsApp +358 44 766 7000Skype: tmaisala

How did you like the Nutshell?

See you on Mar 21st!

Tempo 75 % of

R&D costs

Pre-Seed Package 80k€

Tempo project costs are 66k€ Other 14k€

Founders or FFF

investment 30k€

Grant 50k€ Equity 16k€ + 14k€

R&D Soft Loan

70 % of R&D costs

Seed Package 400k€

R&D project costs are 300k€ Other 100k€

Syndicated

investment

Debt 200k€ Equity 100k€ + 100k€

R&D Soft Loan

50 % of R&D costs

Seed # 2 Package 600k€

R&D project costs are 400k€ Other 200k€

Syndicated

investment

Debt 200k€ Equity 200k€+100k€

Debt

100k€