1

Getting Initial Funding—

Taking your company from Zero to Something

Some Tips from Don Freeman

(Been there, done that)

October 2, 2007

2

Who Am I?• Member, Boston Harbor Angels

– On Executive Board of BHA

• Angel Investor in 10 Early-Stage Companies– All High-Tech, Mostly Medical Devices

• Board Member of 4 Early-Stage Companies– All healthcare related

• Mentor for MassMEDIC Ignite Program• Inventor on 26 Patents• PhD: Chemistry, Post-doc: Physics, Harvard

AMP

3

Who Was I?

• Started as a Scientist, UCC• Shifted to Business• Ran Small Division• Directed Corp. Development, 15 Ventures• Ran Hospital Design firm, AMI• Pres., Davol, Inc.• GVP, C.R. Bard• CEO, Five Healthcare Ventures• Investment Banking (4 years)

4

The Angel Perspective

• “We ain’t VC’s!”

• Typical Funding Criteria:– Experienced Management– Tech. “Proof of Principle”– Short-term to Breakeven– Minimal Investment Requirements– Needs Help Investor can Provide– Socially Significant

5

Some Early Lessons Learned• “Your value to the corporation is not estimated from

the excellence of your excuses!”• “Essentia non sunt multiplicandi praeter necesitatum”• Techies do better when they rub shoulders with

marketing and sales• Make sure that know-how is shared!• The sure fire way to raise money is to:

– 1. Found it, build it and sell it.– 2. Repeat step 1.– 3. Repeat step 2.

• After that, raising money is no problem at all!

6

Fund Raising Options (1)

Know your Investment Strategy!• How much will you need?

– Have a financial projection, at least to CFBE

• Bootstrap or Build?– Depends on Exit Strategy

• Single Product or “Platform Technology”?– Can you spin off products or licenses?

• Is there a “demo” market niche?– Either market segment or geographic

• How will you market? – Direct, Dealers, Corporate Partners, Net?

7

Fund Raising Options (2)

• Fascinate and Capture an Experienced CEO– Careful “Pairing” Seems to work best– Know what a “Founder Problem” is

• Start in Consulting– Build Staff and Cash Flow– Wait for the “killer app”– Watch our for the “Strategy Focus Problem”

• Corporate Partners– Source of capital, but can be restrictive– Get funds for product development– Avoid corporate partner equity, if possible

• Debt Financing– Finance your furniture and equipment

8

Fund Raising Options (3)

• SBIR, DARPA, etc. Grants– “Free Money” (No equity dilution)– After a successful Phase I (~$100k), a Phase II

(~$1M) is quite probably, then Phase III– Keys to Success:

• Know what they want• Sell it personally• Find the right “partner(s)”• Be persistent and responsive• Be prepared for OH negotiation

9

Some Further Tips for Minimizing your Burn Rate

• Sell preferred shares– Retain common shares for options

• Avoid hiring direct sales people– (If appropriate)

• Use a patent agent where possible– They are lower cost and very effective when

attorneys are not essential

• Carefully select a general attorney• Sub-lease space and share facilities• Outsource payroll and benefits• Be “virtual”, but only within reason

10

Some “Rules” to Ignore

• “Raise it when you don’t need it”• “Raise more than you need”• “Don’t sell too much equity”• “Stay away from VC’s”• “Don’t give equity to corp. partners”

All good advice, but may not apply!

11

Personal Advice

• You must have Passion!• You must be Resilient!• You must have Integrity!• Get Experience!• Know what you Don’t Know!• Find Mentors!• Don’t Over-commit!• Read MHT and other Pertinent Publications

12

Conclusions

• Test your “Elevator Speech” Extensively• Have a Strategy, but be Pragmatic• Network like Crazy• Keep “Tuning” as you learn• Know the odds are long—”Nothing is Easy”

Know you need luck, but luck goes to those

who can recognize it!

13

Thank You!

• Contact Information:– Donald C. Freeman, Jr., PhD– (781) 229-9205– Don.freeman6@verizon.net