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A VC’s view of raising investment

8 October 2014

Jonathan Gold

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© Finance Tree ltd, 2013

An Early Stage VC

Founder 4 businesses

3 Fund Management Companies6 Venture Capital Funds

Raised over £50m

www.riverscap.com

© Finance Tree ltd, 2013

2008 Management Buyout and creation of Finance Tree

2009created Rivers Capital Partners

2010Managers of the £7.5m North East Angel Fund

2014Invested in 55 businesses and over 90 deals

£7.5m from NE Angel Fund £4m private capital

Sources of Capital

Pitching and Presenting to an Investor

What investors look for

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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 !

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According to the SME Finance Monitoring study of 2011 sources of external finance accessed by SMEs are:

28% Bank overdraft19% Credit cards11% Bank loans7% Hire purchase5% Loans & Equity from Family/Friends2% Invoice finance2% Grants1% Export Finance1% Other party loans (assets finance etc) 1-2% Equity or VC finance.

© Finance Tree ltd, 2013

© Finance Tree ltd, 2013

Loan

Convertible Loan

Mez Debt

Equity

RISK

Return

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Crowd Funding

Its relatively new…Advantages / Disadvantages

www.crowcube.com

www.growthfunders.com

www.investingzone.com

InvestingZone

• Web-based equity crowdfunding platform

• Easy to use

• Low cost for companies and no fees for investors

• Allows small investors to easily access a previously unavailable asset class and to take advantage of SEIS and EIS tax reliefs

• Launched in July 2013

• National advertising and PR campaigns

www.investingzone.com

USA… VC view of startups and VC

“Entrepreneurs can benefit by knowing how to take off without venture capital, and to…… use venture capital only if they cannot dominate without it – as fuel for the fire, not as a crutch or catalyst….

…your odds of getting venture capital from larger, more established venture-capital funds before proof of success are slim….”

Edison

“ I have not failed. I’ve just found 10,000 ways that won’t work.”

Thomas Edison

Edison built… Track record

• Western Union Telegraph Company with several inventions of his relating to the telegraph, especially the quadruplex telegraph system

• Edison thought of asking for about $2000, but instead he turned the question around and replied, "Well suppose you make me an offer."

• Edison was offered … $40,000!

Edison … the Venture Investors

• Thomas Edison sought $30,000 in R&D funding for the Incandescent light bulb

• He obtained this financing from a syndicate of financiers, including J. P. Morgan and the Vanderbilt family.

THE VC and Angels of their day !

Before

After

EU VC by Sector

Source: EU Commission 2013

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Finance for Business North East Funds

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What do investors look for ?

© J.Gold, 2011 all pictures by J.Gold rights reserved

© Finance Tree ltd, 2013

Unreasonable risk for an

unreasonable return

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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

TEAM…. CRUCIAL !!

• Founders with vision... • Bringing in experience...Eric Schmidt• Mutual respect (vital to a senior team)• Shared values (all were engineers)• Different skills and perspectives

Larry Page & Sergy Brin

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© Finance Tree ltd, 2013

TeamScale

Innovative step / USPAccess to market

TractionEXIT

RETURN..... £ x10© FinanceTree ltd, 2011

© Finance Tree ltd, 2013

Are you 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…

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VC portfolios…

10 Investments

4 Fail

4 Living dead

2 Stars

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EXITS…. The only ways out

Trade sale

Buy-back

IPO or other stock market listing

Sale on to other investors.

And… the only other “Exit” is….?

27

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Any questions ?

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Thank you 0191 230 6370

www.riverscap.comwww.financetree.biz

@Financetree