Raising investment 16 October 2013 Jonathan Gold www. financetree. biz www. riverscap. com © Finance Tree ltd, 2013
Finance Tree works with businesses to help them understand the needs of investors and find the right investment. 2005 NStar Corporate Finance established 2006 Finance and Business launched 2008 (April) Management Buyout and creation of Finance Tree 2009 (April) created Rivers Capital Partners 2010 Managers of the £ 7. 5 m North East Angel Fund 2012 Invested in 40 businesses and total 80 investments www. riverscap. com © Finance Tree ltd, 2013
No free lunch…money costs Banks Grants Other lenders (ie: UK Steel Enterprise… NESTA) FFF Venture Capital / Business Angels Sales !! © Finance Tree ltd, 2013
Unreasonable risk for an unreasonable return © Finance Tree ltd, 2013
Venture Capital / Private Equity… “Private Equity is medium to long-term finance provided in return for an equity stake in potentially high growth unquoted companies”. Source: British Venture Capital Association (BVCA) 2005 NB: Almost all are… FSA regulated collective investment schemes… © Finance Tree ltd, 2013
Are you 1 in 100 Most VCs probably invest 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 website 4. MAKE A RETURN… © Finance Tree ltd, 2013
Sources of capital © Finance Tree ltd, 2013
Venture capital is often a crucial element in… Getting a new business going Start-up Funding a step-change in the business Rapid organic growth or M&A Effecting a change of management or control Buy-in / buy-out / public-to-private Funding long-term development pre-revenue Typically high technology © Finance Tree ltd, 2013
The investment model Generating £ cash… Investment in… Sale of company… or “exit “ Development & early sales (losses…) … 10 x return in 5 yrs Time … since investment © Finance Tree ltd, 2013
Finance for Business North East Funds © Finance Tree ltd, 2013
Statistics of VC portfolios… 10 Investments 4 Fail 4 Living dead 2 Stars © Finance Tree ltd, 2013
Why bother? VC should add real value to your business • • • Recruitment of the senior team and suitable NXDs Extending your contact base of customers/partners Assisting the business to enter new markets Providing support on complex deals (eg: acquisitions) Acting as a friendly outsider in strategy debates Securing additional funding & negotiation of exits © Finance Tree ltd, 2013
So is there a downside? Lose some control – – there will be another owner of your business VC will normally want a seat on your Board Full transparency in terms of information & business Typically look to agree a growth and exit strategy up front. © Finance Tree ltd, 2013
Applying…process © Finance Tree ltd, 2013
© Finance Tree ltd, 2013
Financial value drivers 16 © Finance Tree ltd, 2013
Value & IRR Ultimately its what an investor will pay ! Investment required • Time to a given return • Return the investor needs • RISK Valuation • Pre-investment • Post-investment • % ownership to give return © Finance Tree ltd, 2013
IRR… internal rate of return YEARS Multiple © Finance Tree ltd, 2013
Indicative timeline…end game BLUE internal RED externally driven © Finance Tree ltd, 2013
What do investors look for ? © J. Gold, 2011 all pictures by J. Gold rights reserved © Finance Tree ltd, 2013
Lessons from Venture capital… What are investors looking for © Finance Tree ltd, 2013
Business models not Business plans. . . …and EXITS/returns ! © Finance Tree ltd, 2013 © Finance. Tree ltd, 2011
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Last but not least…EXITS… PLANNED from day one Fund Manager will want a well defined EXIT Investment Return to the fund from growth of company… Common exits Further investment round (someone else buys out fund) Listing on a stock exchange (IPO) Trade sale, sold to another corporation. © Finance Tree ltd, 2013
Thank you 16 -18 Hood Street Newcastle-upon-Tyne NE 1 6 JQ 0191 230 6370 www. riverscap. com www. financetree. biz www. twitter. com/financetree 25 © Finance Tree ltd, 2013
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