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The Juice
A monthly series of thought-sparking breakfasts
at Synergy Centre, Institute of Technology Tallaght
Tuesday Mornings, 8.30 – 10.00am
Coffee & Croissants Served
Tues 19th May, 8.30am
Raising Finance
Investor Perspective: Drew O’Sullivan, Investment Mgr, 4th Level Ventures
Drew is a former Manager of the Genesis Enterprise Platform Programme in Cork and has
worked in Nova UCD as Project Manager. Drew joined 4th Level Ventures in 2007
Where he works with technology based businesses with high potential for growth on
finance and fundraising, new product introduction and IP protection, business models,
team development and export market entry.
*All breakfast briefings are free of charge but places should be reserved in advance.
Contact [email protected] or call 01-404 2083.
19 May 2009 Slide: 1
19 May 2009 Slide: 2
Investing in High Potential Start-Ups
Drew O’Sullivan, 4th Level Ventures
19 May 2009 Slide: 3
4th Level Ventures
• Founded 2002
• Fund size is €18 million
• 14 investments, 3 exits to date
• Focused on early stage technology companies
commercialising Irish university research
19 May 2009 Slide: 4
4th Level Ventures
• Invests up to €1.5 million over the life of a
company at seed and early stage
• Require a clear investment and exit strategy
which suits size of fund
• Co-invests with Enterprise Ireland (and other VCs)
• Works closely with management teams
19 May 2009 Slide: 5
5
4th Level Ventures Investee Companies
Laboratory Microfluidics
Lithium Ion Batteries
Chiral Catalyst Compounds
LED and Solar Cell Equipment Manufacturer
Medical Textiles
Video E-Rental and IPTV
Meat Traceability
LED Luminaires
Illicit Image Management Software
Digital Power Control for Computer Chips
Photonics Test Equipment
HDMI Cable Chips
Mobile phone games
Technology Development
19 May 2009 Slide: 6
What makes an investable High Potential Start-Up?
It needs to have…
1. Market
2. „People, people, people‟
3. Novel Technology/Product
4. Business Model
5. Investment Strategy
19 May 2009 Slide: 7
Market - Ideal
• Big Hairy Opportunity– Target addressable market of > €1 billion
• Customer Relationship– Validated need / priority / budget
– Customer buying process understood
• Timing– Waiting for the market is expensive – timing is
everything
19 May 2009 Slide: 8
Market - Reality
• Market small and not growing – Room for new entrant?
– Worth the fight?
• Customer “Relationship”– Over-reliance on soft positive feedback
– Need not imminent
– Champion is not key influencer
• Timing – too early
– too late
19 May 2009 Slide: 9
People - Ideal
• CEO Industry knowledge– Real experience and network in industry
knowledge and experience
– Focused on success and can bring people with them
• Team– Commercial, cohesive and flexible
management
19 May 2009 Slide: 10
People - Reality
• Wrong management team at outset– Can be impossible to fix as shares are allocated
– Unfundable
• Inexperienced Promoters– Learning on someone else‟s ticket
– No real in-depth relevant industry knowledge and experience
– No real commercial experience
– Ability to discriminate and attract the best
19 May 2009 Slide: 11
Technology/Product - Ideal
Technology/Product
• Focus on a solution to a real world problem
• Need a very significant competitive advantage
• Defensible clean IP
• Is the technology a product?
19 May 2009 Slide: 12
Technology/Product - Reality
• Too many possibilities – Too many applications does not equal risk mitigation
• Not enough of a significant competitive advantage – Start-ups have to be much much better to displace
incumbent competitors (they have capital, time, credibility….)
• Too many loose ends on IP
• Technology licence v product
19 May 2009 Slide: 13
Business Model - Ideal
• Importance of pricing, gross margins
& route to market
– Premium pricing
– Scaling potential (source of funding)
– Exit potential
• Proven business model suitable for
the industry
19 May 2009 Slide: 14
Business Model - Reality
• Under-pricing & low gross margin– Value to customer not fully understood
– Costing direct cost of sales
– Scaling and exit potential damaged
– Gross margin – “can be improved later as model evolves”
• Direct sales where price is too low to support direct sales effort
• Lead time to sales underestimated
19 May 2009 Slide: 15
Raising Finance - to build what?
• What do you want to build?
– Risk / Reward expectation of promoter
– Revenues, profitability, technical
leadership
– Potential size of company and size of
opportunity
– What will company balance sheet and
share structure look like in 4 year‟s
time?
19 May 2009 Slide: 16
Raising Finance - VC expectations
• If raising funds from venture capital - to
VC or not to VC?
– Understand venture capitalists
• Wants to invest!
• Fund manager – measured by returns
• Funds capacity, Funds focus (tech, stage, geo)
• What are value enhancing events/milestones for
business (investment rounds)
• Adding value - recruitment, market access, business
systems, other money
19 May 2009 Slide: 17
Raising Finance - Valuation
• Valuation of early stage tech companies is a function of:– Potential size of “success” - BHO
– Risk associated with company development • where is it at now
• incremental funds to achieve value milestones
– Probability of success
– Total capital needed to succeed
– Availability of capital – competition for deals and possible later investors
– “Confidence” of investor of value add
19 May 2009 Slide: 18
Raising Finance - Reality
• Family friends and…. Revenues – most common route to finance business
– few go vc route
• Inexperienced teams forget they are selling an investment opportunity– not listening to the buying signals
• Undercapitalised technology companies growing too slowly – fix it or……leave it?
