Selecting the Right Source of Funding What it means … the Right Source of Funding & What it means to be ... § Economic Development & SME Finance ... “what is the right source

TURKEYINHORIZON2020ALTUN/HORIZ/TR2012/0740.14-2/SER/005

Selecting the Right Source of Funding

& What it means to be Investor Ready

…...Mr.GerryO’Brien,

InternationalDevelopmentIrelandLtd26th May2016

Introduction- GerryO’Brien§ HeadofProjects,InternationalDevelopment Ireland(IDI).

§ EconomicDevelopment&SMEFinanceSpecialist.

§ DegreeinEconomics&FinanceandMastersinPublicSectorPolicy.

§ Previouslyworkedfor13yearsinEnterpriseIreland– IrishNationalDevelopmentAgency.

§ Currentlymanaging IDIProjectsinTurkey,Bahrain,SaudiArabia,Kosovo,Nigeria.

§ ExperienceindesignandmanagementofGrant&EquityFundingInstruments forHighPotentialStart-Ups&SMEs

§ InvestmentAdviser andMentor toIrishStart-Ups.

Purposeoftoday’sPresentation

§ overviewoffundingsourcesfornewhighgrowthstart-upsandexpandingSMEs

§ Whatitmeanstobe“InvestorReady”

§ Flagsomeofthecommonandavoidableerrorsmadebyfounders“againandagain”.

§ InsightintohowanInvestorthinksandwhattheyarelookingforinaproposal.

§ Workshop– TurningtheTables“PuttingYourselfintheInvestor’sShoes”

IntroductiontoEnterpriseIreland

§ IrishGovernmentDevelopmentAgency–§ 600Employees§ Annualbudgetof€300millionEuro(986millionTurkishLira)§ 30InternationalExportOffice– Incl.Istanbul

§ HighPotentialStart-Ups,§ SMEExpansion,§ InnovationandR&DFunding§ UniversityResearchCommercializationFunding &Incubators§ ExportDevelopment,SMEEfficiency(Lean),§ ManagementDevelopment

ENQUIRIESReceivedfromEntrepreneurs 2,000NewBusinessProposal/PlansReviewed 1,000

MeetingsHeld 500SeedInvestments

€50k 150FullInvestments

€250k 100+

AverageAnnualActivity

InvestmentApprovalProcess

DA Validation

HRDAssessment

CommercialAssessment

InvestmentAdvisor

TechnicalAssessment

Overseas Office

Assessment

FinanceInvestment

Proposal

Legal/Equity

Investment Committee

Go/No Go

Go/No Go

Business Plan

Application

InvestmentApprovalProcess

DA Validation

HRDAssessment

CommercialAssessment

InvestmentAdvisor

TechnicalAssessment

Overseas Office

Assessment

FinanceInvestment

Proposal

Legal/Equity

Investment Committee

Go/No Go

Go/No Go

Business Plan

Application§ Enterprise Ireland undertakes its own Due Diligence In-House with

its Investment Services Team.

§ Investment Decisions are made by the Enterprise Ireland InvestmentCommittee chaired by the CEO.

§ All Investments in Start-Ups are by way of Equity.

§ Profits from Successful Investments are returned to Government.

LargestStart-UpInvestorinIreland

EnterpriseIreland- TheStart-UpClassof2015

SupportsforHighPotentialStart-Ups(HPSUs)

EnterpriseIreland- TheStart-UpClassof2015

“EnterpriseIrelandranked3rd GloballyforVolumeofSeedInvestments in2015”PitchBook

SourcesofFunding&

WhattobeAwareof

SourcesofFunding

Oneofmostimportantconsiderationswhenraisingexternalfundingis

“whatistherightsourceoffundingformybusinessatthisstage?”

DifferentFundingSourceshavedifferentobjectivesandrequirements.

SourcesofFunding

Theappropriateinvestorwillbedeterminedbythe;§ leveloffundingrequired§ typeoffunding(Grant,Debt,Equity,Quasi-Equity)§ stageofdevelopmentofthebusiness,§ growthpotentialofthebusiness§ timeframetoscalethebusiness§ InnovativenessofProduct/Service

and

§ Yourrequiredownershipandcontrolofthebusiness§ Yourassessmentoftheinvestor(s)valueandtrackrecord.§ Yourrelationshipwiththeinvestor

TheFundingJourney

R&D Startup EarlyGrowth AcceleratingGrowth

SustainingGrowth Maturity

ProofofConceptFunding

DevelopmentCapital

ReplacementCapital

MBO/MBIDevelopment

Capital

Seed FirstRound SecondRound

TheFundingJourney

R&D Startup EarlyGrowth AcceleratingGrowth

SustainingGrowth Maturity

ProofofConceptFunding

DevelopmentCapital

ReplacementCapital

MBO/MBIDevelopment

Capital

Seed FirstRound SecondRound

BusinessAngels

Founders,Family&Friends

PublicSector(National&EUFundingSources)

Seed&VentureCapital

PublicListing/IPO

Debt

CorporateVenturing(Google,Intel,)

Family,Founders&Friends(3F’s)

§ Normally the first capital invested is by the founder(s) of thecompany. Investors call this having “Skin in the Game”

§ Family and Friend investors normally invest in the person –not the idea or commercial proposition.

WARNING!!!!

§ Set up company and ensure that you have a clear record ofmoney invested.

§ It is important that they understand the risks.

§ Having a lot of small family and friend investors can put offsome institutional investors and can make it difficult tonegotiate later funding rounds.

BusinessAngels§ High net worth individuals that are actively looking for

investment opportunities but many also want to get involvedin the business.

§ Increasingly Business Angels are formalized and operate aspast of investment syndicates. Pooling funds and spreadingrisk.

Warning!!!

§ Itisimportanttofindabusinessangelthatunderstandsyourbusinessmodel.

§ NotjustaboutMoney- Trytoidentifyabusinessangelthatcanaddresstheareasofthebusinessthatyouareweakon.

§ NeedtobeclearontheBusinessAngelstimeframeforexit.

Seed&VentureCapitalFunds

§ A major source of funding for fast growing and technologybased firms.

§ Seed & Venture Capital Funds require significant returns andare not interested in “Lifestyle” businesses or business thatcannot be scaled.

§ Generally “Tranche” investment so it is important to fullyexplain the funding requirements and meet plannedmilestones.

WARNING!!!

§ Despite the name Seed & VC funds are not always keen toinvest early.

§ It is important to maximize other available funding sourcesto build to business proposition to a point where it youhave stronger negotiating position withVC Fund.

§ Need to do your research on funds to understand theirtrack record – speak to other investee companies.

§ Need to ensure fund has ability to “Follow itsMoney”

PublicSectorFundingSources(National/EU)

§ As outlined this morning – there are many sources offunds available through National and EU FundingInstruments.

§ Private investors will seek to ensure that you haveleveraged available public sector funds prior and duringtheir investments.

Warning!!!!

§ Be prepared for the paperwork.

§ Ensure that you threat Pubic Investors with the samerespect as private investors.

§ Do your homework and research the objective andeligibility criteria for the funding source that you aretargeting. E.g. social impact, collaboration etc

§ Keep up to date with “Funding Call Dates”

CorporateVenturing

§ Many Multi-Nationals also act as venture capitalinvestors.

§ This source of funding is often forgotten about byentrepreneurs.

§ They have the same approach as traditional VC fundshowever can bring significant value and credibility.

Warning!!!

§ You need to be careful that the Corporate VentureFunds does not limit your market potential.

CorporateVenturing

§ Many Multi-Nationals also act as venture capitalinvestors.

§ This source of funding is often forgotten about byentrepreneurs.

§ They have the same approach as traditional VC fundshowever can bring significant value and credibility.

Warning!!!

§ You need to be careful that the Corporate VentureFunds does not limit your market potential.

IsmyBusiness“InvestorReady”

IsmyBusinessInvestorReady?

ConvincingFamily&Friendsmaynotprovetoodifficult.

HoweverwhenraisingfundsfromPublic&PrivateFundingsourcesyouneedtogiveyourselfthebestchanceofsuccess.

Youmustaddressthekeyquestionsthatdetermineifyouare“InvestorReady”

PitchingV’sBusinessPlans

Warning

ManyworkshopsandTrainingSessionsfocusbuildingaValuePropositionforInvestorsandtheImportanceofPitchingtoinvestors.

Whiletheseareimportanttheyarenotenough.

Dragon’sDenMistake


YourBusinessPlanisthemechanismforconvincingpotentialinvestorsofthepotentialofyourbusiness.

ItcanbeaWordDocument,aPresentationSlideDeckbutitmustincludethedetailedinformationthatgives

EVIDENCEOFPOTENTIALbutalsohelpstoDE-RISKS theBusinessintheEyesofInvestors

Sowhatneedstobecovered?


YourBusinessPlanisthemechanismforconvincingpotentialinvestorsofthepotentialofyourbusiness.

ItcanbeaWordDocument,aPresentationSlideDeckbutitmustincludethedetailedinformationthatgives

EVIDENCEOFPOTENTIALbutalsohelpstoDE-RISKS theBusinessintheEyesofInvestors

Sowhatneedstobecovered?

RemembertheInvestorlooksatyourbusinessplantolearnaboutyourbusiness

But

isalsolookingtoassessyourunderstandingoftheMarket.

http://www.bing.com/videos/search?q=youtube+the+business+model+canvas&view=detail&mid=EBA1A2C994B2D98C541DEBA1A2C994B2D98C541D&FORM=VIRE

5PillarsofInvestorReadyBusinessPlan


1.TheOffering– (ProductorService)– WhatareyouSelling



2.TheTeam– Whoareyou,whatisyourexperienceinthismarket,whoelseisinvolved?




3.TheGotoMarketStrategy(ChannelstoMarket





4.TheMarketResearch– Whowillbuy?






5.TheFinancials– Howmuchdoyouneed,howwillyouspendit?


§ Needtoexplainexactlywhatyouareselling.IP,Product,Service?

§ ExplaintheMarket,theProblem,theSolution.

§ Highlightyourvaluepropositiontotheenduser.

§ Clearlyexplainthestageofdevelopmentofyourtechnology/offering.Prototype,Beta,MarketReady.

§ ExplainanyIntellectualPropertythatyouhaveorthatyouneedtosecure.IstheIPinyourcompany?

§ Explainhowtheproduct/servicewillbemade/delivered–Manufacturedbyyourcompany,outsourcedpartneretc.


§ Investorswanttoknowaboutyouandthewiderteam.

§ Explainwhowillbemanagingthecompany– fulltime!!!

§ Focusonrelevant“DomainorMarketKnowledgeandexperience”.

§ Clearlyexplainwhoisinvolved,theirrolesandtheirshareholding.

§ Itisoktolistadvisers,mentorsorinformalpartnersiftheyaddcredibility.

§ FullDisclosureonanyotherbusinessesthatyouandtheteamareinvolvedinorwhereinvolvedin.

§ Ifyoudonotyethaveacoreteam– youneedtoexplainthepositionsthatareneededandtheirrole/value.


§ Investorswanttoknowaboutyouandthewiderteam.

§ Focusonrelevant“DomainorMarketKnowledgeandexperience”.

§ Clearlyexplainwhoisinvolved,theirrolesandtheirshareholding.

§ Itisoktolistadvisers,mentorsorinformalpartnersiftheyaddcredibility.

§ FullDisclosureonanyotherbusinessesthatyouandtheteamareinvolvedinorwhereinvolvedin.


ManyInvestorsbacktheJockeynottheHorse.

AnexcellentTeamandanaverageproductwillalwaysdobetterthataweakteamandanexcellentproduct.

§ Needtoexplainhowyouplantogetyourproductorservicetomarket.

§ AreyouaB2BorB2C?

§ Needtoexplainthatyouunderstandhowthemarketworks.

§ Highlightanybarriersthatyoumayfaceandhowyouplantoaddressthem.Logistics,Licensing,Currencyetc

3.TheGotoMarketStrategy(ChannelstoMarket)

§ PayingCustomersaddmorecredibilitytoyourpropositionthananyotherfactor.

§ Ifyoudonotyethavecustomers,Investorswanttoseethatyouhaveengagedwiththemarketplace.

§ Youneedtogetoutthere§ Speakwithtargetusers§ Speakwithtargetbuyers§ Speakwithcompetitors


7LevelsofMarketResearch


TheMarket– OverallGlobalMarketSource:Gartner,Frost&Sullivan,ValueofCompetitorSales,EstimatesbasedonNumberof

PotentialUsers


PotentialUsers

YourTargetMarketTheportion oftheoverallmarketthatyouwillbefocusingontowinbusiness


PotentialUsers


YourAddressableMarketTheportion ofyourtargetmarketthatyoucangetaccessto– basedon

plans,resources,etc


PotentialUsers



plans,resources,etc

TargetCustomersNames,contactdetails??


PotentialUsers



plans,resources,etc


ValidatedCustomerPipelineWhohaveyouspokento–whatisthereinterest?


PotentialUsers



plans,resources,etc



Customers


PotentialUsers



plans,resources,etc



Customers

RecurringCustomers


PotentialUsers



plans,resources,etc



Customers

RecurringCustomers

MostearlystageBusinessPlansfocusonthefirst2or3levels

Weplantowin2%ofthis3BillionEuroMarket!!!!


PotentialUsers



plans,resources,etc



Customers

RecurringCustomers

Investorswanttoseethatyouhaveactuallyspokenwithandvalidatedyourtargetcustomers.

§ Manystart-upsfocuson3yearsalesprojections.

§ IfyouhavenotactuallyspokenwithcustomersInvestorswillnottakeyourprojectionsseriously.

§ YouneedtoexplainhowlongandhowmuchitwillcosttogetyourproductorserviceMarketReady.

§ Investorswillwanttounderstandandchallenge§ RevenueModel– PricingStrategies§ Companysetupandrunningcosts– “BurnRate”§ ValidatedSalesPipeline(ifpossible)§ Salaryforfounders!!!!!!

5.TheFinancials– Howmuchdoyouneed,howwillyouspendit?

Common&

AvoidableErrors

10Common&AvoidableErrors

§ 1.ApproachingInvestorwaytooearly.



§ 2.Notclearlyexplainingwhatyouareselling.




§ 3.FocusingonlyontheTechnology/Product.Passion isgoodbutcustomersarebetter!




§ 3.FocusingonlyontheTechnology/Product.Passion isgoodbutcustomersarebetter!

§ 4.NotSpeakingwithTargetCustomersorstrategicpartnersorSpeakingtothewrongCustomers




§ 3.FocusingonlyontheTechnology/Product.Passionisgoodbutcustomersarebetter!

§ 4.NotSpeakingwithTargetCustomersorstrategicpartnersorSpeakingtothewrongCustomers

§ 5.NoCompetitors.CustomerDecisionnottobuyiscompetition!


§ 6.Part-TimeEntrepreneurs.



§ 7.PreparingforaPitchinsteadofDueDiligence.




§ 8.“x%ofMarket”





§ 9.IPnotassignedtothecompany.





§ 9.IPnotassignedtothecompany.

§ 10.Notrealisticabout“givingaway”equity.51%ofasuccessfulcompanyisbetterthan100%ofanunsuccessfulcompany.

Securinginvestmentisnottheendgoalbuttherealstartofthejourney.

Thehardworkisstillahead- Delivering!

TurningtheTables

PuttingYourselfintheInvestor’sShoes

AcmeLtd– CaseStudy


[email protected]

[email protected]

[email protected]

[email protected]

Contact:

Office AddressTurkey in Horizon 2020 Project

No:6/2 Mustafa Kemal Mah. 2119. Sok.06520 Çankaya/Ankara,Turkey

Tel: +90 312 219 69 80http://www.turkeyinh2020.eu/


Thankyou!

Teşekkür ederim!

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Selecting the Right Source of Funding What it means … the Right Source of Funding & What it means to be ... § Economic Development & SME Finance ... “what is the right source