Guide to startup investment

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  • 1. Masterclass Investments Startup Festival Friday 22 November 2013
  • 2. Agenda (1) 14:00 Introductions 14:30 About investments: technical and practical - Pecking order of Finance - Type of investors - Investment process - Some advice
  • 3. Agenda (2) 15:15 Case part 1: preparation 15.45 Case part 2: negotiation 16:30 Case part 3: evaluation 17.00 Wrap up and drinks at the bar
  • 4. Introductions
  • 5. Niek Huizenga Founder of startups Advisor strategy & investments Lecturer entrepreneurship Traveller (South Africa, Benin, Uganda, Tanzania, Silicon Valley) Contact:
  • 6. What is finance? Verb: provide funding for a person or organization
  • 7. Who needs investment?
  • 8. Pecking order of finance Own money Gift / subsidy Loan Normal loan Subordinate loan Convertible loan Equity
  • 9. Trust driven funders
  • 10. Fact driven funders They manage money of others and have ROI as the main goal Focus on evidence: Business opportunity Tractions Team, team, team The ideal investment has: A working product A growing market A launching customer An experienced team
  • 11. Funding stages 1. Pre Seed: 2. 3. 100k to 500k (angels, crowd) Prototype stage, first customers, first employees Series A/B/C: 500k to 5M (VC) 4. Idea stage, searching for business model, founding team only Seed: 10k to 50k (own money, FFF) Scaling stage, growing revenue, growing team Exit: .. (IPO, acquisition) Serious challenger in the market
  • 12. Funding stages
  • 13. The search for funding (1) Do you have the ambition? Can your startup become a real business? What stage you are in? Define your risk profile? How much funding you need? What are you willing to share / give away? What do you need besides funding?
  • 14. The search for funding (2) 1. Make your materials: one pagers, slide deck, business plan 2. Make a list of potential funders (desk research) 3. Visit events where you can meet potential funders (field research) 4. Approach the least appealing funders first and practice 5. When you have enough feedback and confidence, approach the most appealing funders Be critical to yourself, if you do not find investors interest maybe it is because of you!
  • 15. Making the deal: Term Sheet Negotiate the terms for funding Valuation Type of stock Dividends Anti Dilution Rights Governance Vesting conditions Management and CEO replacement Ambition for exit Confidentiality Termination conditions Other. If no experience: always get an advisor!!
  • 16. Making the deal: Due Diligence Due diligence Product Market Team Financial Do your own due diligence!
  • 17. Making the deal: Bring in the lawyers! Paperwork Participation agreement Shareholders agreement Guarantees and disclosing Management agreement Company constitution Representations Warranties Etc. etc. etc.
  • 18. Making the deal: Champagne!! Closing Day at the notary! Lot of signatures! Dont forget to celebrate!!
  • 19. Some advice The investment process will take 6 to 18 months. Put everything on paper and assume worst case scenarios. Never sign anything until you fully understand. Do not give away too much in the pre seed / seed stage. Negotiate fair and respectful, the investor will be your future partner. Remember: you can only give away shares once.
  • 20. Case: Aerospace Investment Part 1: Preparation (20 minutes) - Form groups of 2 (founders versus investors) - Choose your counterpart - Each group discusses their own targets and negotiation strategy Part 2: Negotiation (45 minutes) - Start negotiating. - All substantive terms need to be negotiated. - No deal when BATNA is below 45 points. - Do not forget to evaluate the process. Part 3: Evaluation (45 minutes) - Each groups shares their Score Sheet and Process Evaluation. - Scores are evaluated. - Practical experiences are shared.
  • 21. Substantive Terms Valuation / equity percentage Type of stock Common Preferred: convertible or redeemable (also callable) Dividends Anti Dilution Rights / First right of refusal Board Members Vesting of Shares CEO Replacement Provision No Shop Provision