Rivers Capital Partners ltd is authorised and regulated by the Financial Services Authority no: 519469 Investment Readiness Jonathan Gold 6 March 2013

Rivers Capital Partners ltd is authorised and regulated by the Financial Services Authority no: 519469

Investment Readiness

Jonathan Gold

6 March 2013

Confidentiality Statement: Please note that this document or presentation is and remains the property of Rivers Capital Partners Limited.

© Rivers Capital Partners Ltd, 2013

Jonathan Gold Director/Partner

Director/Founder Finance Tree ltd–Founding Director Nstar and CEO Northstar Ventures (now NorthStar Equity)–Founder Rainbow Seed Fund–AEA Technology–DTI, Imperial Innovations, Set Squared, Qi3–Johnson Matthey

Venture Capital Manager (FSA)Deal makerInvestment Readiness


What is “investment ready” ?

Source: Smithsonian, Washington USA


Investment Readiness … Is…

• NOT a business plan

• An investment proposition

• A story that tells an investor what they need to know

• Meets the needs of the THE investor


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Sources of Capital

1. Banks

2. FFF…. & Founders cash

3. Business Angels

4. Venture Capital

5. IPO/ Aim/ Stock Markets

6. Crowdfunding

7. Peer to Peer lending uk.zupa.com

Colours of money !


Finance for Business North East Funds

£25m

£15m

£7.5m

£20m

£20m

£20m


1 in 100

Most VCs probably invest in 1 in 10 they look into

But at least another 90 have tried

So what makes you stand out ?

How can you blow everyone else away

1.Displace the competition?2.Convince people to buy-in and buy?3.Do more than collect hits on a website4.MAKE A RETURN…

© FinanceTree ltd, 2012


Sources of capital of capital

ResearchGrant

GRANTS….

Business Angel...

North East Finance for Business (£125m)

“Familymoney”

Commercialloan

Strategic development partners

SEED FINANCE

~ £250,000

Concept Finance

~ £100,000

Early Stage

£500,000to ~ £1m-2m

VentureCapital


Statistics of VC portfolios…

10 Investments

4 Fail

4 Living dead

2 Stars


1 2 3 4 5 6 7

1x 0 0 0 0 0 0 0

2x 100 41 26 18 14 12 10

3x 200 73 44 31 24 20 17

4x 300 100 58 41 32 26 21

5x 400 123 71 49 38 30 25

6x 500 144 81 58 43 34 29

7x 600 164 91 62 47 38 32

8x 700 182 100 68 51 41 34

9x 800 200 108 73 55 44 36

10x 900 216 115 77 58 46 38

Don’t get too hung up on…Value ..IRR

Ultimately its what an investor will pay !

Investment required

• Time to a given return

• Return the investor needs

• RISK

Valuation

• Pre-investment

• Post-investment

• % ownership to give return


Lessons from Venture capital…What are investors looking for

1 Leadership potential of lead entrepreneur 2 Leadership potential of management team 3 Industry expertise in management team 4 Track record of lead entrepreneur 5 Track record of management team 6 Sustained share position 7 Marketing and sales expertise of team 8 Organisational abilities of team 9 Ability to get cash out of the investment 10 Degree of product-market understanding 11 Expected rate of return on investment 12 Time to breakeven 13 Finance and accounting expertise of team 14 Ability to create post-entry barriers 15 Business meets funding constraints

16 Process/production capabilities of team 17 Uniqueness of product/technology 18 Market growth and attractiveness 19 Degree of market already established 20 Time required to payback investment 21 Ability to influence nature of the business 22 Importance of unclear assumptions 23 Stage of investment required 24 Ease of market entry 25 Strength of suppliers and distributors 26 Nature and degree of competition 27 Location of business 28 Business and product fit with VC portfolio 29 Projected market size 30 Sensitivity to economic cycles 31 Ability to syndicate 32 Seasonally of product market 33 Scale and chance of later financing rounds 34 Location of business relative to fund.

Source: Tradeoffs in the investment decisions of European Venture Capitalists. (Authors: Daniel F. Muzyka and Sue Birley) Journal of Business Venturing Vol 11 No.4 July 2000


1212

The Management Team


1313

Innovative Defensible Products


1414

Market size


1515

Scalable Business Models


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Value drivers…

SALES

Cash margin

WorkingCapital

Fixed Assets

CashTax rate

Cost ofcapital

…it all comes down to these…


Last but not least…EXITS…

PLANNED from day one

Fund Manager will want a well defined EXIT

Investment Return to the fund from growth of company…

Common exits

Further investment round (someone else buys out fund)

Listing on a stock exchange (IPO)

Trade sale, sold to another corporation.


Business plan

• No right answer• No set format• No right length

• Communicate• Concise• Clear assumptions• Back up evidence• Team• Financials• Risk

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Business Plan: It is Simple!But so many people don’t cover the basics

Idea• What is it?• Applications explored• Key Markets• Users/ Benefits• Environment / competitionStrategy• What is your goal• By When? • What type of business are you?• How do you make money (sales) ?• Revenue model• Delivery / production• Team and systems• Risks / risks managedFinance• Cash flow forecast (cumulative)• Breakeven• Investment needed• Investment return

1. Exec Summary2. Business Model3. Mission4. Ownership5. Governance6. Management7. Risks8. Key Personnel9. Resources10. QA11. Marketing12. Products13. Financial Model14. Investment Offering


Business models not Business plans...

VALUE PROPOSITION

Market positionOFFERING

Delivery/resourceSYSTEM

FINANCIAL model

· Choice of Target Segment· Development of customer benefit· Competitive position (or USP)

· Actual product / scope FEATURES / BENEFITS· How its delivered... Is on-line the product or means to an end... How does delivery matter· Customer decision process· MAP the PRODUCT OFFER to the CUSTOMER BUYING process

· Aligning internal SYSTEMS, delivery PARTNERS, PLATFORMS· Ensure these meet the PRODUCT delivery benefits

· REVENUE to generate SHAREHOLDER value· GROWTH model· · Advertising· Product Service or information sale· Transaction / facilitator· Subscription

…and EXITS/returns !


Survive the Assessment

Carried out on…

You

Your plan

Your references …….others you don’t know

By the Fund manager, external advisors, experts

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Due diligence… going behind the plan

INVESTMENT READINESS…. More than skin-deep

Be prepared you will have to answer questions on everything about the business and your team:

• Directors (disclosures)• Share agreements• Other investors• Finances• Contracts (staff and customers)• Orders, claims• Patents, other IP….• …. And more

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Jonathan Gold [email protected] 0191 230 6370

Pictures by J.GoldCopyright 2013

www.goldsplace.comwww.twitter.com/financetree

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Rivers Capital Partners ltd is authorised and regulated by the Financial Services Authority no: 519469 Investment Readiness Jonathan Gold 6 March 2013