LOOK FOR BUSINESS ANGLES BEFORE GOING FOR ANGELS

Startup Cash Flow

Startup developmentSeed Growth DevelopmentPre‐Seed

Lower risk

“Death Valley”

Early stage VC (A series)Early stage VC (A series)

Corporates, Strategic investors, IPOs, bank debt

Corporates, Strategic investors, IPOs, bank debt

Savings, credit cards, 3FS, 

public money,

Savings, credit cards, 3FS, 

public money,

Business Angels

Are all investors the same?

Start‐up

Crowdfunding, accelerators

3Fs, public money, contests

3Fs, public money, contests

Crowdequity

Later stage VCsLater stage VCs

INVESTORS TEND TO SAY NO

Company profile / deck

SelectionComittee Pitch event Initial

AnalysisThoroughanalysis Negotiation Agreement

• Success rate in raising funds

450 25

300 101 88 35 ~26 ~25

Fundraising process

How to be in the 5%? 5

450

STATISTICS ARE AGAINST ENTREPRENEURS … & AND INVESTORS

(~5%)

• The business of Business Angels and VCs is not to invest… but to divest … in ~5 years

• Investors often get it wrong …– 56% ‐ Do not return the money invested

– 35% ‐Modest returns of (1 to 2) times the money invested

– 9% ‐ Returns as expected and needed (+10x)

Fuente: Wiltbank, R. (2005). Siding with Angels (para una media de 4 entre la entrada y la salida)

6

A BUSINESS WITH INVESTORS

A real, and successful, case

2010

Launch

Seed

FFF

Undisclosed

2012

Startup

900,000€

BAs & VCs

3,600,000€

2013

Series A

4,500,000€

VC (2 inverstors)

13,400,000€

2015

Series B

13,400,000€

VC&CVC

(7 Investors)

40,200,000€

9,000,000€Turnover

100 employees

2016

Trade sale

80,000,000€

Corporate

123,000,000€

14,000,0000€Turnover

200 employees

Bought by Vente‐privee.com march 23rd

2016. Total funds raised previously $189.19M 5 5 capital increases, from 7 large investors. Up to series E!

Bought by Airbnb on september 19th, 2016. Total funds raised $3.14M in 4 capital increases with 6 investors.

… and if you do it well, how much you keep

9

Company Major Founders/CEOFounder

%VC%

VC's

Facebook Mark Zuckerburg 57% 17% Accel Partners, DST Global Limited

Linkedin Reid Hoffman 21% 40%Sequoia Capital, Greylock partners, Bessemer Venture partners

Twitter Dick Costolo 2% 25%RizviTraverse, Spark capital, Benchmarkcapital partnersVI, Unionsquare partners, DST global

Priceline Jay Walker 47% 74%General Atlantic partners, vulcanventures, walker digital corp

eBay Pierre Omidyar 42% 22% Benchmark

TripAdvisor Barry Diller 30% ‐‐‐ Created from a spin off ‐ no s1 filed

Shutterstock Jonathan Oringer 55% 18% Insight venture partners

Lending Club Renaud laplanche 5% 57%norwest venture partners, canaanVII LP, Foudation capital vi, morgenthalerventure partners ix

Groupon Andrew mason 8% 59%Green media, Rugger Ventures LLC, New enterprise assocciates, AccelGrowth Fund,City deal management

GoogleSergey Brin, Larry Page 51% 20% KPCB Holdings, Sequoia capital

Company Major Founders/CEO Founder%

VC% VC's

Netflix Jay Hoag 43% 68%Institutional venture management, technology grossover management, foundation capital management

Fitbit James Park 11% 57%Foundry Group, True Ventures, Softbank

GoPro Nicholas Woodman 43% 34% RiverwoodCapital, Foxteq, Sageview

Shopify Tobias Lutke 15% 42% Bessemer, FirstMark, Klister, Omers

Square Jack Dorsey 24% 34%KhoslaVentures, JPMC Strategic, Sequoia Capital, RizviTraverse

‐Upon exit, the median level of founder ownership across the 79 companies was 11%.  The average was slightly higher at 17%, due to the very heavy ownership stakes of founders at GoPro (43%), Netflix (43%), eBay (42%), and Google (51%). A long as  you’re at least at 11% upon exit, you’re in line with your peers. ‐The median level of VC ownership upon exit was 62% and the average was 56%.  In other words, to get to the IPO level, generally it takes a significant amount of outside investment so nurturing and maintaining large investor relationships is important. ‐Both the median and averages of the founders and VC sum to 73% (11+62 and 17+56).  That means smaller investors and employees owned 27% of these businesses at IPO.  The lesson there is that small investors will be as important to your success as large investors, especially early on.  Additionally, option pools are going to need to be set up along the way and sharing equity with your key employees will be critical to growing a large, IPO‐worthy business. http://blossomstreetventures.com/blog_details.php?bcat_id=106

S1 filings of 79 publicly traded tech companies

WHAT DO THEYLOOK FOR?

AttractiveFor the entrepreneur

FeasibleFor this team at this time

Investment opportunityFor the business angel

ViableIn the market

How do investorsevaluate anopportunity?

Is it worth the risk?Risk versus return on a professional / personal basis

Is it a lifestyle business?Companies without investment are also attractive for entrepreneursIs he/she willing to share decisions?

¿What motivates the entrepreneur?Social recognition? Intellectual challenges? Creating something new from scratch? Solving a problem? Legacy motivations?

Interpersonal skillsIs he/she a “social” person willing to spend time with employees, clients, providers…

Attractive

Is there a market or we have to create it?A market is a crowd (larger or smaller) willing to buy, “and pay” and identifiable

Is the market accessible?Channels, access cost

Do we have a competitive advantage?Competition: none? or, we do not see it?Will the incumbents react and how?Type of competitive advantage: ¿cost driven or price driven?Is it sustainable?

Viable

Why this team?CompleteComplementaryCohesiveStarters, businessmen or techiesCompetenciesContacts

Why now?Too early or too lateWhy now and not beforeOpportunity window

Feasible

Viable, feasible and attractive are not enoughMust need money investment

To whom is generating value / money?Cash flowsReturns to investors

Is scalable? Business modelThe larger the betterMargin’s evolutionNew’ clients costs tend to be marginal

Is it for me? Size of investment, portfolio fit, risk profile

Investment opportunity

MY STARTUP CHECKS ALL THE MARKS, DONE?

IESE BAN

Reception of proposals

/

Venture profile sheets

Presentation to an investor audience (Forum)

Interview -Individual

presentation

Due Diligence

Definition of

Agreement

Closing of Agreement

Business Angels Decision-Making Process

I trust this team? Seems an investment

opportunity?

Feasible, viable? A real investment opportunity?Is it for me?

Can we reach a good

agreement?

Rel

evan

ceof

inte

rper

sona

l sk

ills

Interesting sector, size of the deal, risk

Entrepreneur does not solve

questions raised.

Not scalable,

Business model, market analysis,

strategy underperform

Lack of agreement on

terms

The image part with relationship ID rId3 was not found in the file.

18

First contect Pitch event BusinessAnalysis Negotiation Agree on terms

Due diligence Close deal

COMMUNICATINGWITH INVESTORS

Objective

30 ‐ 120’’

2 p.

10 ‐ 20 tr

20 ‐ 40 p.

Length 

Prepare your communication strategy and plan

Create interest or drop outGet telephone number … 

Get a meeting, a referral or an invitation to pitch

Understand the Business model and the investment opportunityCreate interest to invest

Describe in detail operations (typical marketing, operations …)

Business’ plansBusiness’ plans

Pitch / Deck / PresentationPitch / Deck / Presentation

ES / One pagerES / One pager

“Elevator Pitch”/ Liner

“Elevator Pitch”/ Liner

20

“Elevator Pitch”“Elevator Pitch”

Decide spending more time or not on this. 

Basic criteria. 

Invitation to present and basic review of Business models and 

KPIs

Through analysis of operations and 

investment aspects

Negotiation and terms agreement

ES / One‐pagerES / One‐pager

Demo / Deck / PresentationDemo / Deck / Presentation

Planes de NegocioPlanes de Negocio

First contact Investment Forum 

One one onemeetings

Analysis and DD

Negotiation Agreement and signature

21

THE PITCH

A (Possible) Structure for a 3’ Presentation

The Opening (Cover)

TheProblem

TheSolution

The Business Potential

The Team

The Achieve-

ments

The Closing

(Future plans)

THE DECK

Pitch structure and contents

Opening

1. The problem

2. The solution and theopportunity

3. The product or service

4. Clients

5. Unique valueproposition for clients

9. Achievements

25

6. Go to market

10. Technology partners

7. Market strategy: comm. & distribution

8. Business model

11. Competition

12. Team

13.Funding plan

14. Call for acgtion

Closing

About the Story and How is ToldSome basic recommendations

Know your purpose and target

Solve a problem and get to the point

Focus on value creation potential

Avoid talking in an overly technical manner

Convey personal credibility… but also professional organization

Be prepared

And… do not forget saying what are you looking for, and for what

Things To Remember

Attract the audience’sinterest

ObjectiveA fact or issue thatattracts immediatelythe interest of theaudience

“Hook”If you are not inspired byyour busineess, nobodywill

PassionStick to the time

Time

BESIDES A GOOD PROJECT MUST CLOSE A GOOD DEAL

I trust this team? Seems an investment

opportunity?

Feasible, viable? A real investment opportunity?Is it for me?

Can we reach a good

agreement?

Rel

evan

ceof

inte

rper

sona

l sk

ills

Interesting sector, size of the deal, risk

Entrepreneur does not solve

questions raised.

Not scalable,

Business model, market analysis,

strategy underperform

Lack of agreement on

terms

The image part with relationship ID rId3 was not found in the file.

29

First contect Pitch event BusinessAnalysis Negotiation Agree on terms

Due diligence Close deal

30

Competitors

Flaws of BM

Due DiligenceNegotiation

Structuring

Follow up

Pushing for growthPreparing for exit

PRE‐INVESTMENT INVESTMENT POST‐INVESTMENT EXIT

Other options 

100 ~6

Successful exit

Active vs Passive

implication

Investors interest / before ‐ after

Defending their interests

Monitor

• Ask Friends, Business contacts and other entrepreneurs about the investor

• … do some google search,

Homework…

– Check investor’s portfolio, success and failures, partners and coinvestors etc. 

– Sound their understanding of your technologies.– Assess how big are their pockets. – Seek references.– Talk to them as much as possible …

Finding the right investor…

adesanjose@iese.edu