University Business Plan Competition 1. Apply online by November 20 – www. Entrepreneurship. Foundation. org – By answering 19 questions – You can paste from a word doc – Answers limited to 1500 characters/spaces 2. Start-up Grants: $1000 - $10, 000. 3. Winner pitches to CT Angel Investor Guild 4. Cost: No entry fee Page 1
Early Stage and University Venture Fair 1. Apply online – www. Back-Offices. com/VCFair – $225 including two attendees 2. Three-minute Power. Point presentation plus exhibit table. 3. 1: 00 – 7: 00 pm 4. New Haven Lawn Club 5. 30 Companies/ 30 Investors Page 2
Evaluating Business Opportunities North Bridge Venture Partners Signal Lake Ventures Connecticut Angel Guild Connecticut Venture Group
The Deal Scorecard 1. Management 2. Market 3. Competition 4. Product/Technology 5. Ability to Forecast Results 6. Capital Intensity (Risk/Reward) 10 1
Management 10 Senior Team Proven Record 1 No Operating Experience Good Teams have: • Done their jobs before (no OJT) • Experienced ramp from startup to big company • Relevant industry experience & contacts • Specialized expertise and insight • Ability to adapt to change • Brains and hunger
Management A Good Incomplete Team • Vision • Energy and hunger • Efficient (Not a drain on capital) • Appropriate role for each person • Acknowledges management gaps
Market 10 > $1 Billion Growth capacity > 30% 1 Stagnant Attractive Markets: • Big ($50, 000 potential) • Target users adopt new products quickly • Customers feel real pain • Customers can be reached economically • The time is (will be) right
Competition 10 Potential for Leadership Leading Companies: • Typically first to market • Leaders define “Market” • Leaders get market share • Market share critical to success 1 Several Established Players
Product/Technology 10 Clearly Superior Providing Leverage 1 No Advantage • Difficult to replicate • Special technical skills required • Special user knowledge required • Proprietary technology (patents) • Many man-months to develop (time, $) • Improves rapidly with customer feedback
Ability to Forecast Results 10 High 1 Low Great companies create and execute operating plans: • Plan is financial expression of strategy • Defines business model • Shows interrelation of timelines, functions, hires • Reflects detailed understanding of the business
Capital Intensity 10 Low 1 High A function of: • Start-up and working-Capital needs (Risk) • Gross margins (Reward) • Sales and marketing expenses (Potential to deflate margins)
No Single Recipe A 1. Management 10 2. Market 3. Competition 4. Product/Technology 5. Ability to Forecast Results 6. Capital Intensity B C 1
Real World Feedback • Interview: Customers, Analysts, Potential hires, Potential partners, Other CEOs • Where is the pain? • Would you buy? • How many? • At what price? • How do you buy? • What could we do better? • Listen for what you don’t want to hear
Venture Capital Financing Today Innovation and Entrepreneurship Panel University of Massachusetts at Amherst 24 October 2009
Venture Funding in the Current Environment Early stage companies that require relatively small amounts of capital to reach positive cash flow, with low valuations are getting funded
Objective of Investors • LENDERS: – No Risk – Low Return • EQUITY INVESTORS: – Low Risk – High Return
Roer’s Continuum
Variables Affecting the Curve External factors: Economy – Capital available – Confidence – Competition Internal Factors: Hot New Tech – Serial Entrepreneur – Mega Potential
A $1 Million Investment … After Year @ 40% IRR = @ 60% IRR = 1 $ 1. 4 MM $ 1. 6 MM 2 $ 2. 0 MM $ 2. 6 MM 3 $ 2. 7 MM $ 4. 1 MM 4 $ 3. 8 MM $ 6. 6 MM 5 $ 5. 4 MM $ 10. 5 MM Page 19
CAPITAL SOURCE Bootstrapping with Savings Amount Small but critical Pros Cons No dilution Limited amounts Interest can balloon Credit Card Debt Up to $100 k Easy access SBIR Funded Research www. ctinnovations. com $125 -700 K Don’t have to pay back Equity ”Angel” Investors www. Entrepreneurship Foundation. org $250 k-$1 MM Connecticut Innovations www. ctinnovations. com $500 k-$1 mm Industry connections - Dilution - Partnership Accessible Venture Capital Fund www. CVG. org $1 - 100 M - Experience - Deep pockets - Difficult to meet profile - Will want 10 -50% Bank Loans Limited to assets No dilution Guarantees = personal liability Reduces capital needs Interest Cost Access to markets Loss of Control Leasing Strategic Corporate Partner Varies $1 m – Unlimited
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