Capital Savvy: Having investor thoughts

CAPITAL SAVVYand attractive to investors

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Understand funding

Internal planning

Attract capital

INTERNAL PLANNINGClean up your laundry

FUNDING OPTIONSDo your homework

ATTRACT CAPITALGet out there

GET EDUCATEDThis is your textbook

Educa

tion

DIFFERENT KINDS OF BUSINESSES

have completely different funding and growth strategies

Don’t try to mix and match

Educa

tion

YOUR BUSINESS

• Small business

• High growth technology business

• Physical product company

• Consulting business

SMALL BUSINESS

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

HIGH GROWTH TECH

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

PHYSICAL PRODUCT

PHYSICAL PRODUCT COMPANY

• Product is a tangible thing

• The invention is unique

• Upfront capital goes to design, patents, and manufacturing

CONSULTING

CONSULTING BUSINESS

• You sell your employees’ time and expertise

• Very little overhead necessary

• Profitable soon after opening

CAPITALis not all created equal

Educa

tion

CAPITAL OVERVIEW

• Grants and Awards

• Bootstrapping

• Debt and Loans

• Angel and Venture Capital

GRANTS AND AWARDSsource: governments and foundations

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

BOOTSTRAPPINGusing your own money

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

DEBT AND LOANSmore than just banks and loan sharks

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

ANGEL AND VENTUREequity partners

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

ANGELS• Rich people

• Probably untrained

• Various motivations

• Investing their own money

• Usually $15k to $100k

• But really it could be any amount

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

GUIDING FACTORS FOR EQUITY FUNDING

• Scalability

• The right people

• A large market

• Unfair advantage

Is equity capital for me?

SCALABILITYThe economics of your

business now vs your business when it is grown.

Analysis

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

UNSCALABLE BUSINESSES

• Consulting is always unscalable

• Anything custom

• Retail stores (unless on a grand scale)

• Food and commodities

MARKET

Analysis

MARKET ANALYSIS

Must include bottom up and top down.

TOP DOWN

• How much ice cream is sold in a cone?

• In the US?

BOTTOM UP

• How many of these can I sell in the first year through the relationships I already have?

• In the second year?

THE MAGIC #How long does it take for

your business to get to $100M in revenue?

Analysis

FUNDING PLANFinding the true hard parts

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

ADDING VALUE

• Own property

• Buy the rest of the monopoly

• Add a house

• Add multiple houses

• Add a hotel

EQUITY CAPITAL

Take capital only when the raise will get you to the next value-increasing milestone.

FIND THE EDGESAnd use them to plan real projections

Plann

ing

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.

“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.

BOUNDARIESLive between the edges

ATTRACTING INVESTORSby selling a dream

Commun

icatin

g

INVESTOR NIGHTMARES

• Looking like a chump

• Losing money

• Extended frustration

YOUR EARLY ASSETS• Founding team (advisors and board included)

• Patents (and other IP)

• Specific knowledge or thought leadership

• Relationships

• R&D/Prototype/Product

• Sales

PITCH DECKPrimary means of communication with investors

Commun

icatin

g

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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