Raising Money in Small Raising Money in Small CompaniesCompanies
November 11, 2004November 11, 2004
Dale H. MunkDale H. Munk
Raising Money in Small Raising Money in Small CompaniesCompanies
November 11, 2004November 11, 2004
One Man’s ViewOne Man’s View
BackgroundBackground-Farmer from Southern Idaho-Married, Five Children-MBA from the Other School in Utah-Business Locations Boston, San Diego and Provo-Focused on Small to Medium Sized Companies /
Troubled
MoneyMoney
-Almost All Businesses Need It
-You Need Much More than You Think
-Bad Things Happen if You Can’t Get It
-Survive or Capitalize on Opportunities
Three Primary Three Primary Sources of FinancingSources of Financing
-Venture Capitalists
-Angel Investors
-Strategic Partners
Three Primary Three Primary Sources of FinancingSources of Financing
-Venture Capitalists
-Angel Investors
-Strategic Partners
Dramatic UpheavalDramatic Upheaval
-First Quarter, ’00 the Zeneth-$29 Bil
-Last Quarter-$5.9 Bil
-Last Quarter at-Q4, 1998 Levels
Dramatic UpheavalDramatic Upheaval
-In Q1 2000, Invest in Any Crazy Idea
-Today, Better Have a Great Plan
-Startup Investments are Sparce
-Old Deals are on Life Support
Vulture CapitalVulture Capital
-Waiting to Pick the Bones
-Greed and Fear-Mostly Greed
-Demand 50%-70% of the Company
-Ruthless with Management
A Kinder, Gentler A Kinder, Gentler ViewView
-Providing Fuel for Ideas
-Facilitate the Advancement of Technology
-Take Big Risks / Should Get Big Rewards
Vulture Capital ScenarioVulture Capital ScenarioLocal Current ExampleLocal Current Example
-Three Founders Raied $2 Mil from Friends and Family
-Worked Like Dogs for Eight Years
-Suffered
-Went to VCs for Rescue
Vulture Capital ScenarioVulture Capital ScenarioLocal Current ExampleLocal Current Example
-Took 60%, 25% and 25% in Three rounds
-Founders Now Hold 1.2% But are at the Bottom of the
Waterfall. Will Get Nothing
-Lost Their Jobs to Boot
Qualify for Venture CapitalQualify for Venture CapitalIf You HaveIf You Have
-A Credible Management Team
-A Large Market
-A Great Idea With a Great Bus Plan
-A Credible Exit Strategy
Qualify for Venture CapitalQualify for Venture CapitalIf You HaveIf You Have
-Ability to Provide 5-10 X Investment
-Over 3-5 Years
-Implying Ability to Create $50-100 Mil Valuation
How They Think?How They Think?
-Philosophy of 3 of 10 is Good Enough
-A Few Losers, A Few Winners, A few Marginal
-Parametric Technologies
-It is About Managing Risk
Managing RiskManaging Risk
-Take Controlling Position (50%-70%)
-Invest in Seasoned Management
-Conduct Extensive Due Diligence
-Invest Small Amounts in Many Deals
Managing RiskManaging Risk
-Insist on Preferred Stock, Liquidation Preferences, Anti-Dilution
Provisions and Dividends
-Require Board Seats
-Seek Veto Power on Major Decisions
-Get in Your face
Where Do They Get Their Where Do They Get Their Money?Money?
-Wealthy Individuals
-Insurance Companies
-Pension Funds
-Other VC Funds
Venture CapitalVenture Capital
-About 700 (1300) in the US
-Industry Preference
-Geographic Preference
-Round / Class Preference
Venture CapitalVenture Capital
Questions?
Three Primary Three Primary Sources of FinancingSources of Financing
-Venture Capitalists
-Angel Investors
-Strategic Partners
AngelsAngels
-Wealthy Individuals
-Diversifying Their Own Portfolios
-Usually Not Part of Organized Group
AngelsAngels
-More Hands Off than VCs
-Less Sophisticated Risk Evaluation
-Move More Quickly
-Easier to Control
AngelsAngels
-Pay Higher Price
-Willing to Do Seed
-Invest Smaller Amounts
-Less Staying Power
AngelsAngels
Questions?
Three Primary Three Primary Sources of FinancingSources of Financing
-Venture Capitalists
-Angel Investors
-Strategic Partners
Strategic PartnersStrategic Partners
-Investments Leverage Their Own Business Initiatives
-ROI Not Measured by Money on Money
Strategic PartnersStrategic Partners
-Cost of the Money is Lowest
-Other Benefits: Validation, Testing, Marketing Help, Rollout
-In Your Face for All the Right Reasons
Strategic PartnersStrategic Partners
Questions?
Keys to Raising MoneyKeys to Raising Money-Assemble a Good Management Team
-Pursue a Good Idea / Test, Validate, Study it Out
-Quadruple Best Cash Needs Estimates
-Be Persistent-Hang In There
Raising Money in Small Raising Money in Small CompaniesCompanies
March 2, 2004March 2, 2004
QuestionsQuestions