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Startup Pirates BratislavaFinance & Investment

24 June 2015

Michal NešporInvestment manager

Launcher and Crowdberry

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PREDSTAVENIE

Michal Nešpor

Investment manager at the innovation studio LAUNCHER and the equity based crowdinvesting platform

CROWDBERRY.

10 years experience in front, next and in start-ups.

5 years with a VC investments firm in Vienna, Austria. Early-stage investments in AT, DE, CH and HU. CFO in a VC

funded startup, Austria / USA. Fundraising support for various startups.

LAUNCHER supports innovations, build startups and make them into real companies with international ambitions.

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AGENDA

The right time for an investment

Who is the right investor for me

Investors types and company stages

Investors overview PRE-SEED and SEED

Investors overview EARLY (VC’s)

Crowdfunding platforms

Further funding sources

Where to find non-cash support

International investors

Final recommendations

Contact

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THE RIGHT TIME FOR AN INVESTMENT

What should a startup achieve before raising funds from investors? *

Obtian market feedback (validation of primary product idea)

Develop a functional prototype

Launch / Public beta towards the target customer group

Readiness to institutionalize (company incorporation and relationships between founders)

The above should be achievable within a short time span (3-6 months), with relatively low ressource allocation (1-2 people, even next to a day-job) and with low cash investment (usually own).

* Relates to first time fundraising, not for follow-on funding rounds.

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THE RIGHT INVESTOR

What should a startup consider when choosing an investor

Invesor type, enterpreneurship or pure financial background

Investor focus (industry, stage focus, geography, investment size)

Investor strategy and network (strategic investors vs. financial return oriented investors)

Recommendations and track record (previous investments and investment experience)

Wrond investor can lead to an unsolvable or even fatal situation.

Look for smart money!

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INVESTOR TYPES AND COMPANY STAGES

START-UP CORE PRODUCT DEVEL MARKET ENTRY MARKET EXPANSION

Typical InvestorsFFF

Business AcceleratorsBusiness Angels

Business AngelsSeed VCs

Strategic Investors

VCsCorporate VCs

Strategic Investors

Growth VCsBuy-Out

Strategic Investors

Investment Size 5-50k EUR 100-500k EUR 1-5m EUR 10m+ EUR

Startup Age 0-3 months 3-18 months 18-36 months 36month+

Number of Employees 2 3-10 11-50 100+

Regional ExamplesHubRaum (PL)

Pioneers Ventures (AT)Launcher

Neulogy Seed CapitalCredo Ventures

Neulogy Venture CapitalJ&T

Penta

Global ExamplesY-Combinator (US)Seed Camp (UK)

500 Startups (US)Eden Ventures (UK)

Sequoia Capital (global)Accel Partners (global)

Index Ventures (global)

PRE-SEED STAGE SEED STAGE EARLY STAGE GROWTH STAGE

TIME

FUNDING

IdeaPrototype

PoCPublic Beta

Launch

Traction

ProfitabilityIntl. Expansion

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PRE-SEED A SEED INVESTORS

1. Own cash from savings or better, from revenue

2. FFF - Family & Friends & Fools

3. Business Angels + Entrepreneurs (e.g. from IT or other industries)

Anton Zajac Michal Truban Michal Štencl

4. Business Accelerators – Slovakia + CEE

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EARLY STAGE INVESTORS (VC)

4. Seed VCs + VCs + Corporate VCs

5. Strategic Investors (Corporations)

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CROWDFUNDING / -INVESTING PLATFORMS

6. Reward based crowdfunding

7. Equity based crowdinvesting

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OTHER FUNDING SOURCES

8. Banks – Bakning products and loans for entrepreneurs (rather rare)

9. EU funds

10. Awards

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NON-CASH SUPPORT

11. Co-working

12. Enterprise programs for startup support

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NON-CASH SUPPORT II.

13. Consulting 14. Média 15. Public agencies

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INVESTOR‘S MINDSET

It‘s all about Value (Overall, capture, measurement etc.)

When assessing opportunities:• How big is the opportunity?• The right people & structure to succeed?• What tangible evidence of the above?

But! • Not every good research project/invention becomes a good business idea, • Not every good business idea becomes a good company,• Not every good company becomes a good investment deal

Usual attrition rate: 95-98%!!!

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INVESTOR‘S MINDSET

85 - 90%

10 - 15%

1- 2%

Attrition Rate:• Not every great idea becomes a

great technology...• Not every great technology has a

great commercial application...• No every great commercial

application is a great business concept...

• Not every great business concept becomes a great company...

• Not every great company becomes a great investment deal...

• AND: not every „great“ investment deal becomes a success ;-))

Immediate Drop-Out• Management• Business model• Sector• Stage• Capital requirement• Consistency

Close View• Negotiation• Competition• Due Diligence

Investment

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INVESTOR‘S MINDSETMILESTONE CONCEPT

Diminishingrisk

Increasingvaluation

Early stageMost company resources dedicated to product development

ExpansionMost company resources dedicated to market & business development

TimeMilestone

Reduces...

illustrative

PRE-SEED

STAGE

SEED

STAGE

EXPANSION

STAGE

EARLY

STAGE

Prototype 1st CustomerSuccessful pilot Crit. mass post launch

Break Even Exit

R&D / TechRisk

Market Risk

Financial Risk

InvestmentRisk

Proof of Concept

Proof of Market

Proof of Bus. Model

Proof of Inv. Thesis

GROWTH

STAGE

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APPROACHING AN INVESTORTIMING

Some General TipsHave your docs ready (ExecSum, Inv pres, Business Case/Financial plan, etc.)Do your homework – which investor is the best for you?

Industry focusStage focusGeography

Investment size

Track record (experience!) – request and do reference calls with CEOs

Previous investment history – does the investor have a main competitor of your company in his

portfolio? Have a look!Get in shape and ready for due diligence (get your house in order)Get a recommendation – find a way in via your advisory board, business friends, conferences, networking or otherwise. Preferably, you want the investor to get to know you way before fundraising starts. Cold call should always be last option.

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INVESTORS’ DOCU – CONTENT OVERVIEWANATOMY OF A GOOD PITCH 1/3

Some General TipsAs often in life, it‘s useful to put yourself in the other‘s position…Nobody reads business plans (the plan is nothing, planning is everything)K.I.S.S.S. (Keep It Short, Simple and Sexy): What‘s well understood can be communicated clearlyGet high and stay high – don‘t get lost in the details, provide a big picture that sticks with the audienceMake information relevant, put it into context, answer the SFW... » E.g. tech is worthless, unless commercially relevant, i.e. shown to generate cash at

some time...

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ANATOMY OF A GOOD PITCH 2/3

Topic Questions to answer Common fallacies Supporting mat‘s

Problem What’s the need you address?How big, significant, urgent?Mission-critical or nice-to-have?

Solution How do you address this need?Why is this better/cheaper/unique?What value for the user/client?

Insignificant problemEngineering driven (solution seeking problem)

Commercially relevant factors neglectedDriven by feasibility, not need

Market researchCustomer interviews

Prototype

ScalabilityRoute to market and its cost not considered

Too much focus on technologyJust because something works does not mean anyone needs it

-

Data / prototypePatent listFull patent texts

Why is it unique / different?How can you defend it?Does it work? Have you proof?

How will you capture value?How do you monetize this value?Is this concept scaleable?

Tech

Business Model

Not enough focus on itNot well enough thought throughNot enough resources (€, HR…) devoted to execution

Anything of relevanceThe more specific (i.e. closer to reality, action oriented), the better

How will you sell it?What resources will you need?What drives buying decisions?

Marketing & Sales

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ANATOMY OF A GOOD PITCH 3/3

Topic Questions to answer Common fallacies Supporting mat‘s

Competition Who else is in the game?Substitutes? Industry food chain?What’s your unfair advantage/USP?

Team Who will implement the plan?Can they do it? track record?Advisors? Recruitment needs?

“Nobody offers this (yet)”Unknown competitors“Our widget can….”

All R&D, no sales / commercialNo assessment of future needs

-

Full CVsReference list

Unrealistic/intransparent assumptions (both ways)No clearly identified milestonesNo linking of risk & returnUnrealistic funding requirement (both ways – too lo/hi)

Not action-oriented

Financial Plan, esp. monthly Cash-FlowsMilestone PlanFunding requirement & use of proceeds

-Where are you now?What next?

What do you plan to achieve when?What are your assumptions?How do you measure progress?What resources do you need?What will you use them for?

Status & Timeline

Projections, Milestones

Introduction rather than summaryWritten first, rather than lastToo long

-Give a complete and concise overview of the opportunity on no more than two pages

ExecSum

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DEAL STRUCTUREKEY AGREEMENTS

Term Sheet

Short document summarising key terms of the investment. Most of the time non-binding.

Shareholders Agreement

Detailed agreement outlining certain rights and obligations of the Parties with respect to their shareholdings.

Investment Agreement

Agreement determining “mechanics, terms and conditions of the investment.

Articles of Association

Main company agreement.

Bylaws

Document regulating the company’s Board operations.

Management Agreements

Determines the relationship between the company and its management/managers.

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DEAL STRUCTUREKEY TERMS & CONDITIONS OVERVIEW

Liquidation preference

Catch-up

Anti-dilution rights

Pre-emption rights (Subscription Rights)

Transfer of Shares

Right of First Refusal

Drag-along

Tag-along

Good Leaver/ Bad Leaver

Information, Control & Decision Rights

MSOP / ESOP – Management/Employee Stock Option Plan

Representations & Warranties

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DEAL STRUCTUREDUE DILIGENCE

Purpose

Process designed to get a 360° view of the business

Evaluation of an entrepreneurs' ability to ascertain strength AND weakness

Opportunity to validate true customer demand

Beginning foundation of trust and partnership

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DEAL STRUCTUREEXIT

Exit

„Liquidation of holdings by a private equity fund. Among the various methods of exiting an investment are: trade sale; sale by public offering (including IPO); write-offs; repayment of preference shares/loans; sale to another venture capitalist; sale to a financial institution.”

Exit Options

Trade Sale – The sale of (mostly all of the) company shares to industrial investors

IPO – Listing on a public stock exchange

Sale of quoted equity – Selling shares after registration on the public market

Secondary Sale – The sale of part or all of company shares in a portfolio company to other investors (later stage VCs, Buy-out, other financial institutions etc.) or private buyers

Buy Back – A corporation or the shareholders repurchase the shares from the investor

Write-off – The write-down of a portfolio company’s value to zero. The value of the investment is eliminated and the return to investors is zero or negative

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FINAL RECOMMENDATIONS

Chose wisely! Every investor has an influence on a company.

Don‘t lose focues, building the product and the company is more important than chasing after investors.

If possible, raise more money, which will give you more runway for realizing your goals.

Don‘t get hung up too much on how much ownership you give away, look at the bigger picture.

If your business model and your company stage allows it, the best source of funding is your own cash from operations (selling your products or services).

GOOD LUCK!

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