Raising Capital: Angel Investors, Venture Capital and Crowdfunding

www.viea.ca #VISummit

Raising Capital: Angel Investors, Venture Capital

and Crowdfunding

by Alixe Cormick

Venture Law Corporation

October 29, 2015

@AlixeCormick www.viea.ca #VISummit

Disclaimer

• Information purposes only: The materials and information contained in this presentation are intended to provide information (not advice) about equity crowdfunding and related matters. You should not act on this information presented without first consulting with an attorney.

• No Attorney-Client Relationship Created: This information on this presentation is not intended to create, and receipt of it does not constitute, an attorney-client relationship having been created by us with you or anyone else. Do not send us confidential information until you speak with us and receive our authorization to send that information to us. The act of talking to us informally or sending an email to us will not create an attorney-client relationship. If you are not currently a client of Venture Law Corporation, your email will be not considered privileged and may be disclosed to other persons. We promise, however, to keep your name confidential unless you tell us otherwise when talking to any regulators or third parties about securities law matters.

• No Warranties: The information provided in this presentation is provided “as is”. We make no warranties, representations, or claims of any kind concerning the information presented is complete. We are not responsible for any errors or omissions in the content of this presentation or for damages arising from the use of the information provided under any circumstances.


Outline of Discussion

• How are Private Canadian Companies

Raising Capital?

• Current Securities Law Rules You Can Use When Raising Capital.

• How to Assess Your Outside Capital Raising Potential.

• Create a Solid Capital Raising Plan.

• Closing Comments.

How are Private Canadian Companies Raising Capital?

Canadian Statistics From 2014 • Traditional Sources

– Friends, Family& Business Associates: Unknown

– Angel Investors: $90.5M; 237 deals; 1,700 angels – 80% 2 sectors IT/LifeSciences

– Venture Capital Funds: C$1.9B; 379 deals (72 BC) – 80% IT/LS (15% cleantech/agra)

•Crowdfunding – (From Just Two Sources in 2014)

– Kickstarter: US$27.65 M pledged; 170,017 backers

– Equitynet: US$200M


How are Private Canadian Companies Raising Capital?

Round Amount Purpose Pre-$ Valuation

$ Sources % of Business

Pre-Seed

$25,000 to $300,000

Build & test MVP/Proof of Concept/R&D

$100,000 to $1M

Bootstrap/FFB/ Crowdfunding/Gov Grants

5% to 25%

Seed $300,000 to $1M

Beta Test/Launch Product/Proof of Product Solution Fit

$1M to $3M Angels/Crowdfunding/Seed VCs/Co-investment funds

10% to 50%

Super Seed $1M to $2M Working Business Model/ Proof of Product Market Fit/Product Traction

$3M to 10M Angels/Seed VCs/Crowdfunding/ Strategic Investors

10% to 50%

Series A $2M to $30M

Scale customer acquisition and revenue

$10M to 100M

VCs/Family Offices/ Crowdfunding/Instit-utional/ Strategic Investors/AltFin Platforms

20% to 50%


Current Securities Law Rules You Can Use When Raising Capital

• Private Issuer Exemption

• Friends, Family & Business Associates

• Accredited Investors

• Offering Memorandum Exemption

• Start-Up Crowdfunding Exemption




Private Issuer Exemption: (Available in every province & territory in Canada but Ontario version has differences)

• no limit on how much an issuer may raise;

• available to all issuers regardless of business sector or residency;

• no investment cap on investors;

• Investor be one of the following: – Director, officer or employee of issuer; or

– Close personal friend, family member or business associate; or

– Accredited Investor.

• Can no longer use exemption if you have 50 shareholders.

• You do not become a reporting issuer if you have more than 50 shareholders.



Accredited Investor Exemption: (Available in every province & territory in Canada)



• no investment cap on investors;

• Investor must meet income, financial asset or net asset test: – annual income of $200,000 individually or $300,000 with spouse; or

– net financial assets of $1 million+ excluding home; or

– net assets of $5 million+.

• US accredited investor exemption Rule 506 similar to Canadian version.



Offering Memorandum Exemption: (Available in every province & territory in Canada, but ON. ON considering)



• offering memorandum and financial statements required;

• AB, SK, MB, QU, PEI, NU, YK or NWT residents if investing $10,000+ must be an eligible investor based on: annual income ($75,000 individually or $125,000 with spouse); or net assets ($400,000); or a close friend, family or business associate; or have obtained advice from an eligible adviser on suitability.



Start-Up Crowdfunding Exemption: (BC, SK, MB, QU, NB, and NS )

• issuer may raise $500,000 in two separate offerings in 12 month period;

• investor has 12 month cap of $1,500 per issuer in 12 month period;

• issuer and investor both must reside in jurisdiction; • not available to reporting issuers or investment

funds; and • portal cannot be related to issuer of securities.

How to Assess Your Outside Capital Raising Potential

Assess your readiness to raise capital in general: • Do you have a solid business plan in place? • Are your financial statements in good shape? • Are you ready to give up a certain amount of control? • Do you have a team of directors, officers, consultants who are

supportive and can help with raising capital?

Assess your business: • Life cycle stage and industry of your company? • Funds for consumption or production in business? • How fast is your company growing? Is it scalabe? • Is your business and value proposition one easily understood? • Is milestone you are raising money for attractive to investors? • Is there an attractive exit/win for investors? Tip: Campaigns with business plans raise 50% more .


How to Assess Your Outside Capital Raising Potential

Assess your team: • Do you have a team who are capable, committed and credible? • Is your team 100% into you raising capital and willing participants? • Is there a compelling spokesperson on your team? Assess your network: • Do you have friends and family who will support your business? • How large is your social network offline? • Are you active and have a network on Facebook, Twitter, LinkIn,

Google+, etc.? • Is there a natural community of interest for your business?

Tips: (1) Crowdfunding campaigns with teams raise 80% more money. (2) Most campaigns that meet their funding goal raise about 30% or more of their

funds from their immediate network.


Create a Solid Capital Raising Plan

• Determine your key milestones or inflection

points that will impact your value

• What is the minimum amount you need to get to each point

• What non-dilutive sources of capital are available to you at each stage?

• Identify what you want to offer investors


Create a Solid Capital Raising Plan

• Make a list of contacts that can help

• Old school versus new school capital raises

• Identify potential investors or credible market intermediaries

• Sample, track, learn, and improve what you are doing to raise capital

• Keep all doors open


Must Haves for Raising Outside

Capital • Tax credits

• Small Business Venture Capital Act

• Scientific Research And Experimental Development Tax Incentive Program

• Government grants – NRC Concierge Service

• Product or service that addresses a large market need versus a want or nice to have

• Team that can execute

• Solid understanding of business and challenges



Canadian Equity Crowdfunding Portals Operating Now

(October 29, 2015)

Accredited Investor Portals

Other Equity Portals


Canadian Debt Funding Portals For Business Operating Now

(October 29, 2015)

Rates: 9.75% and up Rates: 6% and up

Receivable Financing Rates: 9% and up

Rates: 15% and up

Resources Start-Up Document Templates

• Founders Workbench: www.foundersworkbench.com • NVCA's Model Legal Documents: www.nvca.org • Seed Series: www.seriesseed.com • Orrick’s Start-Up Form:

http://www.orrick.com/practices/corporate/emergingCompanies/startup/forms_index.asp

Term Sheet Generator

• WSGR Term Sheet Generator: http://www.wsgr.com/WSGR/Display.aspx?SectionName=practice/termsheet.htm

• Orrick’s Term Sheet Generators: https://tsc.orrick.com/

Sample documents while instructive and prepared with helpful annotation are not a substitute for legal advice. You are strongly encouraged to discuss the suitability of any and all documents with your legal counsel prior to use.

18


http://www.foundersworkbench.com/

http://www.nvca.org/

http://www.seriesseed.com/



http://www.wsgr.com/WSGR/Display.aspx?SectionName=practice/termsheet.htm

http://www.wsgr.com/WSGR/Display.aspx?SectionName=practice/termsheet.htm

https://tsc.orrick.com/

Resources Useful Calculators

• EquityNet Startup Risk Calculator: https://www.equitynet.com/crowdfunding-tools/startup-risk-calculator.aspx

Estimates business risk . Relies on real-world data gathered from over 500,000 businesses from across North America to create estimate/suggestions.

• Valuation Calculators: – EquityNet Valuation Calculator: https://www.equitynet.com/crowdfunding-tools/startup-valuation-calculator.aspx

– Venture Choice Valuation Calculator: http://www.venturechoice.com/calculators.htm

– Cayenne Consulting Valuation Calculator: http://www.caycon.com/valuation.php

– Endeavour Term Sheet Value Calculator: http://www.endeavor.org/blog/term-sheet-calculator/

• Crowdfund CPA – Crowdfunding Audit/Review Cost Calculator - http://crowdfundcpa.com/cost-estimate--calculator.html


https://www.equitynet.com/crowdfunding-tools/startup-risk-calculator.aspx







https://www.equitynet.com/crowdfunding-tools/startup-valuation-calculator.aspx







http://www.venturechoice.com/calculators.htm

http://www.caycon.com/valuation.php

http://www.endeavor.org/blog/term-sheet-calculator/





http://crowdfundcpa.com/cost-estimate--calculator.html






Closing Remarks

Keep Track of Your Actions • Considering using BaseCamp or a similar program to log all

your actions. • Track commitments from the pre-sale stage to final

investment. • Follow-up with everyone at each stage of capital raising

process. Your capital raise is top of mind to you and not your potential investors.

Treat Investors with Respect • Investors are not just money. They are potential customers,

boosters and allies in making your business a success.


Thank-you

Thank you to each attendee for participating in this panel discussion.

Venture Law Corporation 618-688 West Hastings Street

Vancouver, BC V6B 1P1 Phone: 604-659-9188

Fax: 604-659-9178 Email: [email protected]

Website: www.venturelawcorp.com Blog: www.AlixeCormick.com

Twitter: @AlixeCormick Google+: AlixeCormick

mailto:[email protected]