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Agenda
Investment Thesis
Valuation Fundamentals
Investment Deck
Investment Thesis
5 Essential Elements that Lead to Success
IDEAS TEAM BUSINESS MODEL FUNDING TIMING
Company Successes and Failures
10 9 8 6 10 8 9 5 4 9 8 10 7 7 10 9 8 5 6 9 8 10 5 7 8
4 5 6 10 4 4 5 6 10 4 3 5 7 10 5 3 4 5 8 5 8 5 4 6 6
IDEAS TEAM BUSINESS MODEL FUNDING TIMING
Top 5 Factors in Success Across More Than 200 Companies
42%
32%
28%
24%
14%
TIMING
TEAM I EXECUTION
IDEA “TRUTH” OUTLIER
BUSINESS MODEL
FUNDING
Concept
Product
Functional Prototype
Early Users/Customers
Profitable Unit Economics?
Scalable Cost Acquisition?
Profitable Business
Investors
Scalable Organization
Exit / Liquidity?
Investment Thesis Fundamentals – Founder Perspective
Angel Pre – Seed Seed Post – Seed Series A / B Growth
Selection Criteria – Data Driven Process Based on Pre-defined Metrics
Product or service solves a problem for a specific target customer
Capital-efficient business; operational at less that $1M in external financing
Scalable internet-based distribution (search, social, mobile) or proven ability to scale sales
Functional prototype required before investing (or previous product success)
Measurable traction: engaged users, some revenue, and attractive unit economics
Cross-functional team with design, engineering and marketing expertise
500 Start Ups: Investment Thesis Example ...
Private Equity vs. VC Valuations
1. NPV vs IRR
2. Capex
3. Working Capital
4. Scaling up
5. Dividends
6. Discount Rate
7. Terminal Value
8. Multiple Round Financing
9. Mezzanine Finance
10.Capitalization table
Investment Deck
Sources of Financing by Stage
FOUNDER FUNDS
FRIENDS / FAMILY
ANGELS I SEED FUNDS
GOBERMENT SUBSIDIES
VENTURE
CAPITAL
FUNDS
PRIVATE
EQUITY
FUNDS
Founders Co - Financing Venture Capital Market
Seeed Start-up Early Growth
RapidGrowth
Maturity
VENTURE
CAPITAL
FUNDS
FONDOS
PRIVATE
EQUITY
FOUNDER FUNDS
FRIENDS / FAMILY
ANGELS I SEED FUNDS
GOBERMENT SUBSIDIES
Sources of Financing by Stage
PRIVATE
EQUITY
FUNDS
Founders Co - Financing Venture Capital Market
Seeed Start-up Early Growth
RapidGrowth
Maturity
Return Requeriments
Stage IRR Investment Period
Seed and Startup 50 – 100% More than 10
First round 40 – 60% 5 – 10
Second Round 30 – 40% 4 – 7
Expantion 20 – 30% 3 – 5
Bridge and Mezzanine 20 – 30% 1 – 3
LBOs 30 – 50% 3 – 5
Turnarounds 50 + 3 – 5
The main challegences that start ups face in early stage in emerging markets are as follows:
Scalable
Main Challenges
Local InvestorMarket
Main Challenges
The main challegences that start ups face in early stage in emerging markets are as follows:
Investment Amount
Main Challenges
The main challegences that start ups face in early stage in emerging markets are as follows:
Investment Period
Main Challenges
The main challegences that start ups face in early stage in emerging markets are as follows:
Exit Strategy
Main Challenges
The main challegences that start ups face in early stage in emerging markets are as follows:
Return Requeriment
Main Challenges
The main challegences that start ups face in early stage in emerging markets are as follows:
Use of Funds
Main Challenges
The main challegences that start ups face in early stage in emerging markets are as follows:
Main Challenges
Term Sheet
The main challegences that start ups face in early stage in emerging markets are as follows:
Top Factors for Capital Raise Process
During capital raise process, several factors impact the availability of financing alternatives as well asvaluation expectations:
Investor risk perception
Investor return requirement
Achievements and milestones
Growth projections
Business potential and timing for exit
Investment amount and previous valuations
Stage of development
Founders vision, objetives and control
Negotation power from founder perspective
Terms and covenants required by investors
Deck Components
Investment Deck Investment Structure
Pitch
Teaser
Book
Financial Modeling
Valuation Fundamentals
Term Sheet
Data room
Due diligence I Gestión Financiera
Pitch
Company purpose Define your company in a single declarative sentence
Problem Describe the pain of your customer. How is this addressed today and what are the shortcoming to current solutions.
Solution Why is your value prop unique and compelling
Why now? Timing? Always have a clear why now?
Market
How are your direct and indirect competitors.Competition I Alternatives
Convert in 2xBusiness Model
Tell the story of your founders and your team members.
If you have any, please include.
Team
Financials
Vision
Identify your customer and your market. Invent your own market.
If all goes well, what will you have built in 5 years?
Teaser I Book
1. Business Opportunity
2. Potential Market
3. The Team
4. Company
5. Service I Product
6. Business Model
7. Growth Plan
8. Financial Fundamentals
9. Investment Proposal
Financial Fundamentals
1. Revenue Projections
2. Cost – Margin Structure
3. Financial Statements
4. Capital Requirements
5. Funds Financing
6. Sensitivity Analysis
7. Scalable Metrics
8. Key Economic Metrics
Investment Proposal
1. Pre Money Valuation
2. Investment Amount
3. Capital Structure
4. Term Sheet
- Share preferences
(Conversion I Liquidation)
- Corporate governance (SM I BoD)
5. Expected Return (Multiple)
6. Exit strategy
Exit Strategy
1. Rational for Acquisition
2. Timing for Exit
3. Potential Acquirers
4. Previous Transactions
5. Valuation Methology
6. Valuation Fundamentals
7. Term Sheet Exit Preferences
Valuation Fundamentals
Pro
gram
a Em
pre
sas
Eme
rgen
tes
FLUJO CAJAMÚLTIPLOSOTROSAPPROACHES
CAPITALRIESGO
Top 3 Factors for Valuation Generation from Founders Perspective
Valuation
Funding
Growth
Investment Thesis – Growth
62%
38%
$ 1,0 MM
$ 0,6 MM
62%
38%
$ 7,5 MM
$ 4,5 MM
5 years Market $50 MMRevenues $ 5 MM
EBITDA $ 2 MMMúltiple 6 xFirm Value $12 MM
Revenues $1 MM
36%
64%
$0,5 MM
$0,9 MM
31%
55%
$3,8 MM
$6,5 MM
IRR 50%IRR 50%
$0,5 MM
$1,7 MM14%
Investment Thesis – Funding
Market $50 MMRevenues $ 5 MM
EBITDA $ 2 MMMúltiple 6 xFirm Value $12 MM
Revenues $1 MM 5 years
33%
67%
$0,5 MM
$1,0 MM
33%
67%
$3,8 MM
$7,7 MM
$0,5 MM
Market $50 MMRevenues $ 5 MM
EBITDA $ 2 MMMúltiple 6 xFirm Value $12 MMEquity Value $11,5 MM
Revenues $1 MM
Investment Thesis – Funding
5 years
33%
67%
$1,0 MM
$2,0 MM
33%
67%
$4,0 MM
$8,0 MM
Market $50 MMRevenues $ 5 MM
EBITDA $ 2 MMMúltiple 6 xFirm Value $12 MM
Revenues $1 MM
Investment Thesis – Funding
5 years
47%
53%
$1,0 MM
$1,1 MM
47%
53%
$7,5 MM
$8,5 MM
Market $50 MMRevenues $ 5 MM
EBITDA $ 2 MMMúltiple 8 xFirm Value $16 MM
Revenues $1 MM
Investment Thesis – Valuation
5 years
13%
87%
$0,5 MM
$3,0 MM
12%
85%
$2,0 MM
$13,25 MM
IRR 30%IRR 30%
$0,25 MM
$0,5 MM3%
Investment Thesis – Funding + Valuation
Market $50 MMRevenues $ 5 MM
EBITDA $ 2 MMMúltiple 8 xEquity Value $15.75 MM
Revenues $1 MM 5 years
Early Stage Financing
Mezzanine Finance
An “hybrid” is a financial instrument that shares some characteristics
(risk I return) from debt as well as from traditional equity (stocks).
Mezzanine Finance
SENIOR DEBT & ASSETS BACKED LENDING
SUBORDINATED DEBT
CONVERTIBLE NOTE
PREFERRED STOCKS
EQUITY
MEZZANINE FINANCING
Convertible Note
DISCOUNT VALUATIONCAP
INTEREST RATE
CONVERSION
ACCELERATION PRO RATA RIGHTS
LIQUIDATION PREFERENCE
TABLA DE CAPITALIZACION
Tabla de Capitalización
SAMPLE CAPITALIZATION TABLE (“CAP TABLE”)
ESTABLISH COMPANY ADD EMPLOYEES, ADVISORS SEED ROUND OF FINANCING
UNITS OR SHARES
% UNITS OR SHARES
% UNITS OR SHARES
%
FOUNDER 10,000 100% 10,000 94,0% 10,000 73,6%
EMPLOYEES 530 5,0% 530 3,9%
ADVISORS 110 1,0% 110 0,8%
SEED INVESTORS 0,0% 2,956 21,7%
TOTAL 10,000 100% 10,640 100% 13,596 100%
UNITS PRIOR TO INVESTOR ROUND
VALUATION PRIOR TO INVESTOR ROUND
PRICE PER SHARE / UNIT
SEED INVESTMENT ROUND
SHARES / UNITS SOLD IN ROUND
10,640
$ 900,000
$ 84,59
$ 250,000
2,956
