Workshop
Investor readiness
Program for today
13:00 Introductions13:30 Fundamentals on startup investments14:15 Preparation investment game15:00 Play investment game16:15 Evaluation
Who are you and who am I?
Niek Huizenga [email protected] | www.niekhuizenga.com
Lecturer
Entrepreneur Investor
Consultant
Coach
Chordify BV“Tune into chords”
• Spin out from the University of Utrecht & Oxford• Started in 2012 by a group of scientists• Launched the web service in 2013• Working Business Model in 2014• Growth and investment in 2015
www.chordify.net
Business Investments
You need fuel to launch your strategy ….
What is finance?
• Verb: “provide funding for a person or organization”
Who needs finance?
Pecking order of finance
• Own money• Gift• Loan
– Normal loan– Subordinate loan– Convertible loan
• Equity
Two types of funders
Trust driven funders• Self• Family, friends & fools• First employees “Sweat”• Crowd funding• Business angels
Fact driven funders• Venture capitalist• Banks
Trust driven funders
Fact driven funders (VC’s and banks)
• Remember: they manage money of others!!
• Focus on evidence:– Business opportunity– Customer references– Experience of team
• It is all about risk management!
Funding stages
1. Own money and friends, family & fools “pre seed” – 50k– Idea stage, search for customers demand, only founding team
2. Business angel and subsidies “seed” – 500k– Prototype stage, first customers, first employees
3. Venture capitalist “series A / series B” – 5M– Scaling stage, serious revenue, growing team
4. Exit “IPO / acquisition” – A lot– Serious challenger or opportunity for big players
Funding stages
An ideal investment has…
• A working product• A growing market• A launching customer
• …. A great team• …. A great team• …. A great team• …. A great team
Are you looking for an investment?
The search for funding (1)
• Do you have the ambition?
• Can your startup become a real business?
• What stage you are in?
• Define your risk profile?
• How much funding you need?
• What are you willing to share / give away?
• What do you need besides funding?
The search for funding (2)
1. Make your materials: one pager, pitch deck, business plan
2. Mobilize your network and announce you are looking for funding
3. Make a list of potential funders (desk research)
4. Visit events to meet potential funders (field research)
5. Approach the least appealing funders first and practice
6. When you have enough feedback and confidence, approach the most appealing funders
Be critical to yourself, if you do not find investor’s interest maybe it is because of you!
Making the deal: Term Sheet
• Negotiate the terms for funding– Valuation– Type of stock– Dividends– Anti Dilution Rights– Governance– Vesting conditions– Management and CEO replacement– Ambition for exit– Confidentiality– Termination conditions– Other….
• No experience: always get an advisor!!
Making the deal: Due Diligence
• Due diligence– Product– Market– Team– Financial
• Do your own due diligence!
Making the deal: Bring in the lawyers!
• Paperwork– Participation agreement– Shareholders agreement– Guarantees and disclosing– Management agreement– Company constitution– Representations– Warranties– Etc. etc. etc.
Making the deal: Champagne!!
• Closing– Day at the notary!– Lot of signatures!– Don’t forget to celebrate!!
Getting an investor is like a marriage
• Are you sure you need funding?• Put everything on paper and
assume the worst case scenarios!• Never sign anything until you
fully understand everything!• Trust and share the vision!• Remember: you can only give
away shares once
Tvilight BV“Intelligent streetlights, reducing energy consumption”
• Spin out from the TU Delft • Started in 2012 as a one person project• In 18 months company grew to 25 employees• In Summer 2013 we closed an investment of 4M• Now growing rapidly on global scale
www.tvilight.com
Instructions Investment Game
Workshop: Close a deal between the entrepreneur and the investor
•Participants are divided into teams of two•Teams are assigned the role as entrepreneur or investor•Teams receive the case of the entrepreneur/investor•Case needs to be prepared intensively prior to workshop
Case- The company Earth Escape needs an investment of $100M.- The VC Aerovent Capital is interested to invest the full amount.- How to structure a deal acceptable to both parties?
Profile Earth Escape- The founder of Earth Escape dreams of conquering the market of space tourism.
His team has 25 years of experience, their product is superior and the market forecasts are fantastic.
Profile Aerovent Capital- Aerovent Capital is a renown investor in the aerospace industry. They have a
proven track record of successful investment deals. Besides financial resources they offer a vast network of experts and potential clients. Earth Escape is a risky investment, but it has the potential to become a “home run”!
Case: Aerovent Capital & Earth Escape
Points to earn for:- Substantive terms (S) 50%- Process evaluation (P) 50%
Substantive terms (Term Sheet)- 8 technical aspects of the deal (minimum score is 45).
Process evaluation- 5 process aspects of the deal (no minimum score).
How to make a successful deal?
1. Equity percentage2. Type of stock3. Dividend4. Anti dilution clause5. VC board members6. Vesting of shares7. CEO replacement8. No shop
The founder and investor get points for each negotiated results. However they are not aware of the importance of each others results!
Substantive terms
1. Trust2. Respect3. Equitability4. Regard to other’s interests5. Interest in future collaboration
A deal is only a good deal if both parties leave the table with a smile. How far do you go to get your substantive points?
Proces points
Teams
Founders Investors
Marielle, Hubert Jori,
Steven, Arjan Sander
Rowan Severin
Evaluation
• Scores on the substantive terms• Scores of the process
• What’s next?
[email protected]/niekhuizenga
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