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Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 1
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
How to attract investors
Funding schemes and private investors
Paris
November 27th 2007
By
Uffe Bundgaard-Jørgensen, Ph.D.
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 2
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
The paradox and the problem!
• There is no lack of funding possibilities!• But there are thousands of good projects in vain seeking financing!
• Private sources of funding require a competitive risk adjusted return of capital.• But only few projects offer this return.
• Investors can only analyze very few projects.• But entrepreneurs think they read it all, do not know how to find the right investors.
• Few project are tailored to meet investor requirements.• And investors are really looking for high growth opportunities they can understand!
BUT the diagnose of the”combined paradox & problem” is:
”LACK OF CAPITAL” !
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 3
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
Sources of innovation financing.
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 4
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
Besides public support there are basically three sources for innovation financing.
• Loans– Provided by banks
• Equity– Provided by investors
• Revenues !!!– Generated from sales !
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 5
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
Different view on the same project. • If you gather 10 Bankers in a room and ask them to judge if a loan appliaction shall
be granted.– In most cases they will agreee – at least on the principles.– The loan decision is rather objective than it is subjective.– Each bank will have the capacity to process a lot of loan applications.
• But if you put 10 Investors in a room and ask them if they will invest in a project presented.
– 8 of the Investors might prefer to ”run away” while the two remaining investors might be facinated by the opportunity.
– The investment decision is rather subjective than it is objective.– In contrast to the bank, the individual Investor only has the capacity to process a few selected
deals.
• Loan applications are typically processed by standardised methods.
• Investment opportunities are assessed based on personal preferences and interest, and through a thorough and sometimes lengthy due-diligence process.
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 6
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
500 new deals/year
Screening process
250 selected deals
150 selected deals
10 min/deal
20 min/deal
75 analysed deals 4 Hours/deal
50 negotiation
5-10 investments
10 Days/deal
490 rejected deals1 month/investment
Investor questions:
If I believe in the businessplan and the budgetscan I make money?
Do I believe in the businessplan and the budgets?
Is it realistic ? Can this management deliver the promised results ?
Ok, would you like to meet us and discuss?
Are you ready to startserious negotiations.
The deal funnel
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 7
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
500 new deals/year
Screening process
2 min/deal
250 selected deals
150 selected deals
10 min/deal
20 min/deal
75 analysed deals 4 Hours/deal
50 negotiation
5-10 investments
10 Days/deal
490 rejected deals1 month/investment
Investor questions:
Do I like the businessconcept and - model ?
If I believe in the businessplan and the budgetscan I make money?
Do I believe in the businessplan and the budgets?
Is it realistic ? Can this management deliver the promised results ?
Ok, would you like to meet us and discuss?
Are you ready to startserious negotiations.
The deal funnel
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 8
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
Sector or business fit.
• If the Investor has experience from e.g. the Energy sector, he will immediately be interested if you say:
– We can cheaply store and release MW of energy in the form of hydrogen at room temperature and at atmospheric pressure – and we have demonstrated it in ”real life”!
• If his experience is from e.g. consumer goods, he will probably look elsewhere for new deals.
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 9
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
He may be attracted by bigger and cheaper flat screens !
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 10
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
… but only if the technical solution is good !
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 11
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
The product shall be easy to understand
If you are not a scuba diver, you would not know what this strange productis – and why it is good!
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 12
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
And the product shall solve a real need !
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 13
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
What troubles investors in the clean tech and energy sector ?
• How efficient is competing technology ?• How energy price sensitive is the project ?• What does it cost to protect the concept and can it be done?• How easy/difficult is it to scale up/internationalize?• Barriers from rules & regulations in other countries?• Is there a real proof of concept under realistic conditions?• Dependence on political “whims” ! • Often very capital intensive projects• Lack of understanding of barrier for market uptake
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 14
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
500 new deals/year
Screening process
2 min/deal
250 selected deals
150 selected deals
10 min/deal
75 analysed deals 4 Hours/deal
50 negotiation
5-10 investments
10 Days/deal
490 rejected deals1 month/investment
Investor questions:
Do I like the businessconcept and - model ?
If I believe in the businessplan and the budgets,can I then make money?
Is it realistic ? Can this management deliver the promised results ?
Ok, would you like to meet us and discuss?
Are you ready to startserious negotiations.
The deal funnel
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 15
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 16
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
Time line
~ € 20k - 100k
~ € 100 – 500k ~ € 500k – 5m
Round B /C
Validate innovation potential
Develop business
application
Structure / grow
business
Innovation
Risk Profile
Labs
Funding Need
Pre-Seed Seed Round ASpin out / license
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 17
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
The risk of Dilution
If more rounds of financing is expected, the early investors face the ”risk of dilution”.
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 18
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
More rounds and increase in valuation.Pre-money valuation Amount invested
Series A Series B Series C Series D
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 19
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
Pre-money valuation Amount invested
Series A Series B Series C Series D
More rounds and decrease in valuation.
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 20
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
How it should be !
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 21
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
Multiple attempts
But be prepared for this!
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 22
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
-2000
0
2000
4000
6000
8000
10000
12000
14000
16000
Year 1 Year 2 year 3 year 4 year 5
Required growth in company value
Company value (30 % IRR) or 3 times back Company value (40 % IRR) or 4 times back
Company value (50 % IRR) or 5 times back Investment (33% ownership)
What does 30% or 50 % IRR mean?
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 23
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
5 years growth requirement & ownership %
30 % IRR
40 % IRR
50 % IRR
Required company value in year 5
0
5000
10000
15000
20000
25000
30% IRR 40% IRR 50% IRR
Investor ownership 50 %
Investor ownership 33 %
Investor ownership 20 %
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 24
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
500 new deals/year
Screening process
2 min/deal
250 selected deals
150 selected deals
10 min/deal
20 min/deal
75 analysed deals 4 Hours/deal
50 negotiation
5-10 investments
10 Days/deal
490 rejected deals1 month/investment
Investor questions:
Do I like the businessconcept and - model ?
If I believe in the businessplan and the budgetscan I make money?
Can I trust the businessplan and the budgets?
Is it realistic ? Can this management deliver the promised results ?
Ok, would you like to meet us and discuss?
Are you ready to startserious negotiations.
The deal funnel
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 25
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
All examples from the
NABI discovered that the highest-cost element to municipalities wasnot the price of the bus per se, but rather the cost that came after the bus was purchased: Maintenance of running the bus over itstwelve-year life cycle. This made NABI create a bus unlikely any the industry has seen before. NABI adopted fiberglass in making its busses killing “five birds” with one stone:• Fiberglass bodies are corrosive-free• Body repair is faster, cheaper and easier• Light weight (30-35% less than steel) cut fuel consumption• Light weight allowed the use of lower-powered engines and • fewer axles
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 26
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
The NABI “blue ocean” strategy!
High
Low
InitialPurchaseprice
Corrosion Maintenancecost
Fuelconsumption
Environmentalfriendliness
Aestheticdesign
Customerfriendliness
Life Cycle cost
Average U.S. transit bus
Source: Blue Ocean Strategy, Kim & Maubogne, 2005
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 27
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
The NABI “blue ocean” strategy!
High
Low
InitialPurchaseprice
Corrosion Maintenancecost
Fuelconsumption
Environmentalfriendliness
Aestheticdesign
Customerfriendliness
Life Cycle cost
Average U.S. transit bus
Source: Blue Ocean Strategy, Kim & Maubogne, 2005
NABI would not have won any tender if they had not influenced the tender criteria from
-Product priceto
- Life cycle cost
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 28
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
ProRett examples – could ETV have been used ?
• Solar cell related project– Interesting technology– Academic inventor with limited business experience– No serious scalable proof of concept
• Recyckling project– Academic inventor with limited business experience– No serious scalable proof of concept
• Energy storage – Interesting technology– Limited competitor analysis and price sensitivity analysis– Can be turned into an investment proposal
• Biofuel project– Proof of concept outside lab missing– Limited competitor analysis and price sensitivity analysis– Business plan revised through ProRett intervention– Found investors and is now on a growth track
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 29
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
Technology verified
Market accessestimated
Competitors evaluated
Energy efficiency
documented
Capital requirement
correctlyestimated
Return ofinvestment
meeting investor
requirement
Management capabilities
Market Size
estimated
Regulatorycompliance
The ”investor puzzel” to be solved
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 30
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
500 new deals/year
Screening process
2 min/deal
250 selected deals
150 selected deals
10 min/deal
20 min/deal
75 analysed deals 4 Hours/deal
50 negotiation
5-10 investments
10 Days/deal
490 rejected deals1 month/investment
Investor questions:
Do I like the businessconcept and - model ?
If I believe in the businessplan and the budgetscan I make money?
Can I trust the businessplan and the budgets?
If it is realistic, can this management deliver the promised results ?
Ok, would you like to meet us and discuss?
Are you ready to startserious negotiations.
The deal funnel
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 31
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
500 new deals/year
Screening process
2 min/deal
250 selected deals
150 selected deals
10 min/deal
20 min/deal
75 analysed deals 4 Hours/deal
50 negotiation
5-10 investments
10 Days/deal
490 rejected deals1 month/investment
Investor questions:
Do I like the businessconcept and - model ?
If I believe in the businessplan and the budgetscan I make money?
Can I trust the businessplan and the budgets?
If it is realistic, can this management deliver the promised results ?
Ok, would you like to meet us and discuss?
Are you ready to startserious negotiations.
The deal funnel
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 32
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
Management company
InvestorInvestor
InvestorInvestor
InvestorInvestors
Fund IIFund I
Fund I
Porteføljeselssskaber PorteføljeselssskaberPortfolio CompaniesPortfolio companiesPortfolio companies Portfolio companiesPortfolio companies
PorteføljeselskaberPorteføljeselskaberPorteføljeselskaber
PorteføljeselskaberPorteføljeselskaberPortfolio companies
A typicalVC fond
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 33
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
Management company
InvestorInvestor
InvestorInvestor
InvestorInvestors
Fund IIFund I
VC Fund I
Porteføljeselssskaber PorteføljeselssskaberPorteføljeselssskaberPortfolio companiesPortfolio companies Portfolio companiesPortfolio companies
PorteføljeselskaberPorteføljeselskaberPorteføljeselskaber
PorteføljeselskaberPorteføljeselskaberPortfolio companies
Investors request not less than Libor + 8% to 10 %
Need 2 % to manage and will request 10 – 20 % carried interest
Each Fund shall receive 15 % IRR
If risk is 50 %, then each Portfolio co. shall have the potential to generate 30+ % IRR
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 34
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
Capital requirement
Seed Start-Up Development Growth M&A/Restructuring
Bank loansFFF
Business Angels Venture Funds
Corporate investors/
Large Venture Funds
IPO/Stock market
New trends in the market.
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 35
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
Understanding investors is imperative !
• There is a need to understand how investors think and why they act as they do.
• It is also relevant to know how they analyze investment opportunities.
• There is a need to understand the fund raising process – from the start – to the investment has been made and finally to the exit.
• There is a need to understand how to structure the offering to the Investor and how to make a business plan that become “the project of his dreams!” .
• There is a need to know about the most important documents, and how they play a role in the negotiation process.
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 36
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 37
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 38
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 39
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 40
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 41
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 43
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
What is considered as a good investment ?
• The business potential and strength and competence of the management team.
• Good fit with investor preferences.
• The possibility to “protect” the business concept and the growth potential.
• Substantial capital gain possibilities.
• Predictable environment = not too much depending on political decisions
• Clear and realistic exit possibilities for the investor.
Uffe Bundgaard-Jørgensen © InvestorNet - gate2growth.com 2007- page : 44
Gate2Growth is supported by the European Commission
InvestorNet - Partner in the Gate2Growth initiative
InvestorNet
Address : SCION-DTU
Diplomvej 381DK 2800 Kongens LyngbyDENMARK
Phone: (+45) 39 307 307Fax : (+45) 39 642 396Mobile: (+45) 40 521 645
E-mail: ubj@gate2growth.com
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