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www.gogla.org1
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Fundraising and Investors
Privileged & Confidential
GOGLA AcademyFebruary 2017
Confidential
Agenda
2
1. Blue Haven Initiative
2. Startup Capital 101
3. Investor Selection & Management
Blue Haven Initiative
Privileged & Confidential
Confidential
100% Impact
4
• Family office based in Cambridge, MA• Portfolio targeted to be 100% values aligned
across asset classes• Thought leader in impact investing by family
offices
Confidential
Venture Portfolio
• $50 million carve out• 11 global portfolio
companies• Ongoing focus in Sub
Saharan Africa• Fintech, renewable energy• Series A onwards,
$500,000 initialcommitments
5
Startup Capital 101
Privileged & Confidential
Confidential
Why do investors like PAYG?
7
• Scalable• Innovative model to reach underserved
markets• Utilizes mobile money• Adjacent asset finance opportunities• Social / environmental impact
Confidential
Funding Cycle of a Startup
8
Reve
nue
Time
Valley of Death
Brea
k ev
en
Venture Capital
SeedAngels
FFFGrants
Accelerators
Exit, IPO, Buyout
Confidential
Capital needs for off-grid solar
9
What type of capital does your company need and at what stage?
• Quasi-equity (convertible debt)– Looks like debt, but equity risk– Avoids valuation, haggling at earliest stages
• Equity– Series A, Series B– Highest cost of capital
• Debt– Secured by inventory / receivables– On or off-balance sheet– Local FX debt?
• Securitization– Special Purpose Vehicles (SPVs)– Separation of operational and financial risk
Confidential
Due Diligence Process
10
Pre-Diligence DD: Phase I Final DD
• Fit• Quality of source• Problem being
solved• First impression
• Team• Technology• Distribution• Revenue model• Market size• Risks
• Financial analysis• Cap table• Term sheets• Legal diligence• IC approval
Confidential
• Investors are betting on teams, people, founders• Market opportunity, but second
Seed Stage
11
Category of Needs Typical Deal
Stage Pre-revenue
Uses of Cash Prototyping, R&D, pilot product sales, basicinfrastructure buildout
Type of Capital Convertible debt, preferred equity, grants
Investors Friends, family [& fools], Crowdfunding,Venture Philanthropy
Fundraising Materials Deck, business plan (maybe), market sizing/financial model
Confidential
Where to go at seed stage?
12
Industry/GeogSpecialists
• Jives with areaof expertise,focus, location
• Limits universe• Shorter DD?• Value add
potential
Mission Aligned
• Broad;businesseswith impact
• DD may belengthy withsignificantreporting
• Involvementvaries
• Seal of “GoodHousekeeping”
Accelerators
• Broad or niche• Offers
curriculum +money
• Cohortnetwork
• Investigatethoroughly
• Variable quality
ConcessionarySources
• Differentstructuresavailable withvaryingrequirements
• Foundations• Venture
philanthropy• DFIs
Confidential
Grants…why, where and when
13
• Nascent venture ecosystems• High upfront R&D costs for innovative models• New markets only attractive with subsidy• If everyone else is doing it…
DON’TPivot to qualify for a grant
Build a model that can only survive on grants
Confidential
• Still betting on teams and market• Min. requirements will differ/evolve round to round
Venture Capital
14
Category of Needs Typical Deal
Stage Revenue traction, site line to breakeven
Uses of Cash Hiring sales team, new generation of products,general growth and cash burn
Type of Capital Preferred equity, venture debt
Investors Fund managers, family offices
Fundraising Materials Deck, business plan (maybe), historicalfinancials, market studies, use of funds,financial model
Reporting Requirements Impact metrics
Confidential
Term Sheets Components
15
• Investment Structure (preferred, note,common)
• Valuation & Round Size• Management incentives & controls• Shareholder rights
– Drag, Tag, ROFR– Liquidation preferences
• Governance
Confidential
16
Debt
Equity*
InvestorSelection & Management
Privileged & Confidential
Confidential
Investor Motivations
18
Profit• Cash flow• Exit• LPs
Impact• Feel good• Create new
industry
Experience• Industry• Geography• Impact
Confidential
Investor Management Tips & Tricks
19
• Negotiate and document information rights• Discuss expected level/frequency of
communications and set boundaries• Think through potential conflicts• Share highlights and bumps
Over-communicate during rocky times
SunFunderUnlocking beyond the grid solar finance
Shelmith Theuri
24 February 2017
Debt financing in the off-grid solar sector
SunFunder overview
Confidential. Please do not distribute. 3
Mission and track record
Over 90 loans completed
2.7 million people impacted in 12 countries
SunFunder is a solar finance business driving a global energy transformation to solve energy access and climate change
$40 million unlocked
Loan types
Confidential. Please do not distribute. 4
Solar lanternsSolar home systems
Micro-/mini-grids and C&I solar
Corporate loans for working capital and inventory
Pay-as-you-go receivables and other structured finance
Project / construction finance
SunFunder has financed more companies in the off-grid and grid deficit solar sectors than any other investor – 30 and counting...
Customers
Confidential. Please do not distribute. 5
Distributors / suppliers Pay-as-you-go solar Microgrids / commercial
SunFunder debt financing
Agenda
Confidential. Please do not distribute. 7
Industry debt financing needs
Loan process
What we look for
Pitfalls
Term sheet review
Confidential. Please do not distribute. 8
1.1. Off-grid solar industry value chain
Manufacturing~1 month
Shipping / transportation2–3 months
Customs<1 month
Delivery / sales~1 months
Sales~1 month
Payment plan12–36 months
● A typical solar company will have financing needs at every stage of the value chain
● This will be in different forms, e.g. inventory finance, working capital, receivables financing, etc.
Confidential. Please do not distribute. 9
1.2. Debt required at stages of growth
SeedEquity/ grant
Early stageEquity /
impact debt
Expansion stageImpact & commercial
debt
Scale-up / mezzanine stage
Structured / syndicated /
commercial debt
Lower risk
Higher risk
Source: SunFunder, adapted from Lighting Global / GOGLA / BNEF 2016
Agenda
Confidential. Please do not distribute. 10
Industry debt financing needs
Loan process
What we look for
Pitfalls
Term sheet review
Confidential. Please do not distribute. 11
2.1. SunFunder loan process
1. Initial fit test
2. Approval to start diligence (from deals committee)
3. Full diligence (terms and structuring, credit committee approval)
4. Signing loan agreement, security registration (where applicable) and disbursement
5. Post disbursement monitoring
2–4 weeks
1–3 months +
Confidential. Please do not distribute. 12
2.2. SunFunder fit test
● Registered for-profit/non-profit entity in a legally sound geography that employs commercial approach to providing solar products
● Demonstrated growth (potential for repeat loans)
● Proven technology
● Needs within SunFunder’s capacity – amounts and tenor
● Management team – is it experienced?
● Are you ready (able) to provide diligence materials
Agenda
Confidential. Please do not distribute. 13
Industry debt financing needs
Loan process
What we look for
Pitfalls
Term sheet review
Confidential. Please do not distribute. 14
3. What we look for
Business model
Track record
Capital structure
Governance
Confidential. Please do not distribute. 15
3.1. Business model
Capital structure
Track record
How do you make your
money?
Governance
Confidential. Please do not distribute. 16
3.1. Business model
Key partners
Key activities
Key resources
Value proposition
Customer relationships Target
customer segmentDistribution
channels
Cost structure Revenue streamsProfit
What? How? To whom?
For how much?
Confidential. Please do not distribute. 17
3.1. Business model
Key partners
Key activities
Key resources
Value proposition
Customer relationships Target
customer segmentDistribution
channels
Cost structure Revenue streamsProfit
What? How? To whom?
For how much?
Path to profits
Confidential. Please do not distribute. 18
3.2. Capital structure
Business model
Track record
How do you fund your business?
Governance
Confidential. Please do not distribute. 19
3.2. Capital structure
Senior debt
Subordinated debt (e.g. mezzanine debt)
Hybrid financing (e.g. convertible debt, convertible equity)
Preferred equity
Common equity
Lowest riskLowest cost
High priority in liquidation
Highest riskHighest cost
Lowest priority in liquidation
Confidential. Please do not distribute. 20
3.2. Capital structure
Senior debt
Subordinated debt (e.g. mezzanine debt)
Hybrid financing (e.g. convertible debt, convertible equity)
Preferred equity
Common equity
Lowest riskLowest cost
High priority in liquidation
Highest riskHighest cost
Lowest priority in liquidation
Cash is king!
Confidential. Please do not distribute. 21
3.3. Track record
Business Model
Capital structure
Has the business
demonstrated growth?
Governance
Confidential. Please do not distribute. 22
3.3. Track record
● Proven business model?
● Proven technology?
● Revenue growth
● Team / capacity growth
● Portfolio health (PAYG or other leasing models)
Confidential. Please do not distribute. 23
3.3. Track record
● Proven business model?
● Proven technology?
● Revenue growth
● Team / capacity growth
● Portfolio health (PAYG or other leasing models)
Potential for scaling from past growth
Confidential. Please do not distribute. 24
3.4. Governance
Business Model
Capital structure
Do you have the right team?Track record
Confidential. Please do not distribute. 25
3.4. Governance – team and management
● Qualified?
● Sufficient?
● Is there segregation of duties?
● Is there separation of ownership and management?
● Capable team in place
Confidential. Please do not distribute. 26
3.4. Governance – team and management
● Qualified?
● Sufficient?
● Is there segregation of duties?
● Is there separation of ownership and management?
● Capable team in place
No one man shows!
Agenda
Confidential. Please do not distribute. 27
Industry debt financing needs
Loan process
What we look for
Pitfalls
Term sheet review
Confidential. Please do not distribute. 28
4. Red flags – missing information
● Financial informationLacking financial and accounting policies and systems, which can lead to delays, unsatisfactory presentation and/or incomplete financial information
● Team gapsLacking mid-level managers, and often depending on a single individual
● Timely responseTaking too long to respond to debt providers
● VisionNo clear long-term (competitive) strategy for the business
Confidential. Please do not distribute. 29
4. Red flags – missing information
● Financial informationLacking financial and accounting policies and systems, which can lead to delays, unsatisfactory presentation and/or incomplete financial information
● Team gapsLacking mid-level managers, and often depending on a single individual
● Timely responseTaking too long to respond to debt providers
● VisionNo clear long-term (competitive) strategy for the business
Some flexibility to help early stage companies...
Agenda
Confidential. Please do not distribute. 30
Industry debt financing needs
Loan process
What we look for
Pitfalls
Term sheet review
Confidential. Please do not distribute. 31
5. Term sheet
● What is a term sheet? Initial vs final
● What gets negotiated?
○ Key terms – pricing, amount, tenor, payment structure,
○ Core conditions
○ Flexible conditions
○ Security / collateral
● Any questions?