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Introduction to Community Development Venture Capital
A workshop presented by the Community Development Venture
Capital Alliance
Structuring the Investment and Adding Value After the
Investment
New Markets Venture Capital Fund (NMVC)
www.SouthAppFund.com
Rural Business Investment Company Fund (RBIC) www.meritusventures.com
Structuring the Investment
Value of Company
Pricing designed to achieve 10X return
Amount to be Invested
Invest $1.0 Million in XYZ Corp to get 10X return, how much (%) of company will we need?
Need to get $10.0 Million at Exit
Exit Value estimated at $60 Million
Need to own 17% of company ($10M/$60M)
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Term Sheet: Overview of Basic Terms
Security – Convertible, Participating Preferred
Amount of Series
What are Use of Funds?
Capitalization – Pre & Post Money Cap Tables
Dividends
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Term Sheet: Overview of Basic Terms
Anti-Dilution
Exempt Issues, e.g. Management
Registration Rights
Rights of First Refusal
Tag-along Rights
Drag-along Rights
Unlocking Provision
Pre-emptive Rights
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Redemption Rights 4-5 Year Period
Board of Directors Usually no more than 5 Directors
Employment Agreements
Affirmative Covenants of Issuer D&O Liability Insurance
Key Person Life Insurance
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Term Sheet: Overview of Basic Terms
Negative Covenants of Issuer Common Dividends
Change Organization Structure
Loan or Guaranty
Redeem Outstanding Stock
No Change in Management Control
Compensation
New Subsidiary
Capital Expenditure
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Term Sheet: Overview of Basic Terms
Cure if Breach PROXY
Exclusivity
Due Dilligence Historical Financial Statements, 3 years
Financial Projections, 3 years
Capital Structure
Product & Customer Information
Competition
Marketing, Sales & Distribution Information
Research & Development
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Term Sheet: Overview of Basic Terms
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Definitive Documents
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The Deal is Done – Very Best Time Before Exit
Firestone Board of Director
OVC Board of Director
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Investee Board of Director Management
Responsibilities of a Board Member When does a board member serve the Company
When does a board member serve the secured and unsecured creditors?
Contrast between board member responsibility and shareholder responsibility
Example: Tricycle
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Investee Board of Management
Board of Directors Meetings Regular – calendar for year
Committee Assignments
Compensation
Audit
Consistent Review of Monthly Results
Backlogs
Visibility of the next month
Insist on Formal Minutes
Hold management accountable
Always be Prepared
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Post Investment Activities
Treasurer Activities
Working Capital
Bank Relationships
Consulting Activities
Strategic Plan
Marketing
Management
Financial Forecast
Cash Management Plan
Vendors
Customers
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Post Investment Activities
Workouts When is this necessary?
First step
Desired result
How long does this take?
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Post Investment Activities
http://meritusventures.com/resources/
Sample Due Diligence Checklist
Sample Business Plan Outline
Financial Glossary
Business Research Resources
Online Technology and Finance Periodicals
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Useful Links
“Investing With Vision”
Ray Moncrief
Fund Manager
P.O Box 1738 1-606-864-5175
London, KY 40743 lrmoncrief@khic.org
WWW.KHIC.ORG
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