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Learn how to determine if your business needs venture capital, assess its funding readiness, conduct due diligence on potential VC partners, and prepare for making the pitch.
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Money Day Assess Your Need and Readiness For Venture Capital Content provided by Gazelles Systems Content by Gazelles Systems
Session Objectives After completing this session, you will be able to: • Determine whether your business is in need of venture capital • Complete a gap analysis to determine your business’s funding readiness • Conduct due diligence on potential VC partners • Conduct internal due diligence to determine whether you are ready to make the pitch Content by Gazelles Systems
Positive Result Venture Capital • Questions to Consider • Do I need capital? • How do VC’s decide? • How do I prepare? Content by Gazelles Systems
Venture Capital Question 1: Do I need capital? • Is it time to inject some capital into my business? • What can I expect to gain from it? Content by Gazelles Systems
Purpose of Venture Capital Opportunity Capital (take advantage of unforeseen opportunities) Fudge Factor (because Murphy’s Law is a law) Debt Repayment (as approved) Capital Raised R&D Capital Day-to-Day Operating Capital Project-Specific Capital Content by Gazelles Systems
Venture Capital • Question 2: How do venture capitalists decide? • What are the key points VC’s consider in their decision- making process? Content by Gazelles Systems
Balancing Competing Interests THE DEAL(meeting of the minds/compromise) INVESTOR WANTS/NEEDS ENTREPRENEUR WANTS/NEEDS COMMON OBJECTIVES Content by Gazelles Systems
Balancing Competing Interests THE DEAL(meeting of the minds/compromise) INVESTOR WANTS/NEEDS ENTREPRENEUR WANTS/NEEDS • Maximum return • Mitigate risk/downside protection • Input on future and growth of the business/control • Maximum capital/valuation • Avoid dilution/control • Affordable cost of capital • Relationships and introductions • Growth in the value of the business • Additional rounds of funding at more favorable valuations • Mutually beneficial exit strategy COMMON OBJECTIVES Content by Gazelles Systems
Types of Investors • Angels • Strategic • Commercial Lenders • Venture Capitalists • Private Placement Investors Content by Gazelles Systems
Sources of Venture Capital • Typical institutional venture capital firms • Corporate venture capital divisions • Small Business Investment Companies (SBIC’s) • Private equity funds • Hedge funds • Super angels and angel investing clubs • Strategic investors Content by Gazelles Systems
Components of Investment Decisions • Management Team • Background, knowledge, skills, and abilities of team members • Individual roles and responsibilities • How risks and problems are identified, managed, and eliminated • Entrepreneurial personality traits of management team • Products and Services • Stage of development • Specific opportunity • Unique, innovative, and proprietary • Level of control of the means of production • Technological breakthrough or low-tech Content by Gazelles Systems
Components of Investment Decisions • Markets • Stage in the life cycle • Size and projected growth rate of targeted market • Marketing, sales, and distribution methods • Strengths and weaknesses of competitors • New markets, and barriers to entry • Characteristics of typical consumer • Return on Investment • Current and projected valuation and performance • Personal investment in the business • Financial acuity • Capital required • Projected return on investment (ROI) Content by Gazelles Systems
Experience Sharing • Share successes and pitfalls in raising capital • Discuss the toughest questions you’ve had to answer and how you dealt with them Content by Gazelles Systems
Break • 10 Minutes
Venture Capital Question 3: How do I prepare? • Presenting and negotiating • Checklists • Managing your VC partner after the deal is done Content by Gazelles Systems
Presentation Tips from Guy Kawasaki The 10/20/30 Rule • 10 Slides • 20 Minutes • 30-point font minimum Content by Gazelles Systems
10 Slides: What to Cover Content by Gazelles Systems
Checklists (Right Tools) • Funding readiness • Due diligence on VC • Due diligence on you Content by Gazelles Systems
Managing VC’s After the Deal • Over-communicate • P2P (People-to-People) • Board meetings • Provide financial reports early • Dashboard handful of KPI’s Content by Gazelles Systems
Experience Sharing • What can you share about presenting to VC’s? • What was your experience during due diligence? • How did you communicate with your board and VC’s on your board? Content by Gazelles Systems
Summary & Wrap-Up • Being prepared to make the pitch to a prospective investor is one of the most critical parts of the process. • Almost all businesses will need an infusion of capital at some point in their life cycle. • Your due diligence needs to focus on these three questions: • Is your business funding ready? • Do you know which investors are the right fit for your business and the opportunity? • Is everything in place to meet the potential investor’s expectations? • After the deal, be sure to communicate frequently to keep your investor informed and ready to help when needed. Content by Gazelles Systems