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How to finance a Start-up Business

How to finance a Start-up Business. May 2013. 1. Introduction 2. Funding Instruments 3. Public Funding 4. Support from Banks 5. Private Equity Investment 6. Venture Capital. 1. Introduction. Challenges in Successful Technology Commercialisation Legal Frameworks as Obstacles

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How to finance a Start-up Business

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  1. How to finance a Start-up Business May 2013

  2. 1. Introduction 2. Funding Instruments 3. Public Funding 4. Support from Banks 5. Private Equity Investment 6. Venture Capital

  3. 1. Introduction

  4. Challenges in Successful Technology Commercialisation • Legal Frameworks as Obstacles • Missing Awareness and Sensitiveness (Entrepreneurship Education for Scientists) • Missing Integrated Concepts • Missing Integration of Engineering Competence with Business Competence (Teamrekruiting) • Missing Sales Forces • R&D Results aren‘t Products • High Risks in Early Stages (Gap of (Pre)-Seed Investment)

  5. Encryption of information by algorithms in a 2D-Barcode Ticket ID 82349294 Key ID F5CC06F1 From Technology… OnlineTicket- Technology Product

  6. … to Product Product OnlineTicket Technology + Ticketshop + Online payment + Online assistance + Statistics + Cash desk + Control center + User Manual + Helpdesk

  7. Funding Requirements for Product Development information and communication technologies Partner Customer Sales and licensing of technology Universities / patent commercialisation agencies medium-sized enterprises evaluation / choice after- sales- service Screening/ purchase marke- ting sales product develop- ment captive product development departments / supplier product- design public research facilities marketing and sales of technological products software developer public research facilities

  8. ? ? ? ? ? ? ? Inventor Investor Dilemma of Early Stage Financing

  9. 2. Funding Instruments

  10. Instruments for Financing External Financing Internal Financing Equity Loans Equity Financing Mezzanine- Financing LoanFinancing • Private Equity • Venture Capital • IPO • Loan • Warranties • Corporate Bonds • Leasing • Factoring • Asset Backed • Securities

  11. Stock Market Venture Capital Equity Gap Phases of Financing Business Angels Sales Risk Family, Fools, and Friends Loan Financing Company‘s Expansion

  12. Angel Investor´s Motivation

  13. The Hockey Stick Effect Profits Break Even Losses Later Stage Phase Expansion Phase Early Stage Phase Seed Phase Start-up Phase Entrepreneur Grants Private Pers. Business Angels Incubators Business Angels Incubators Strategic Investors VC/CVC VC/CVC Private Equity Loans Grants Private Equity Investment Bank

  14. 3. Public Funding

  15. Sources of Public Funding • Free Consulting (Consulting Agencies) • Supplemental Funding • Equity/Shares • Warranties • Loans

  16. Example: High Tech Start-up Funds HighTech Start-up Funds of KfW Coach Start-up Coaching Contract Shareholder‘s Agreement Managementsupport Risk Capital

  17. High Banks and venture capital firms Venture capital firms Capital required Banks Financing gap which may be filled by the incubator Low Low High Business Risk Sources of Funding in Relation to Business Risk

  18. 4. Support from Banks

  19. Market Research Institutes Universities R&D Institutes Associations Networks Industry Bank Capital Market Investors Capital Companies The Role of the Banks Information

  20. Potential Support offered by Banks • Management Support and Consulting • Information flow to Assess HighTech Start-up • Local, Regional Networks • Co-operation within an Innovation Team • Organisation of and Participation in Fairs • Loans But: • Rating Requirements

  21. 5. Private Equity Investments

  22. Private Equity Equity Private Equity „Source of Equity Financing or similar Instruments without financing through the stock market“ Eq. Mezzanine Loan Mezzanine Loans

  23. Private Equity Institutional Investors (Banks, Insurance Companies, Private Investors etc.) Investment Return Private Equity-Company/ Funds Investment + Management Consulting Return + Fee Portfolio Company

  24. Private Equity • Private Equity Investors are Co-Owners of the Company: They share Risks and Profits • They target Investments in Companies that are not listet in Stock Markets • Private Equity Investments target generally for both:Majority or Minority Participation • Participation may be active or in-active as well

  25. Private Equity • Private Equity Investor targets a Return of 20% to 25% • Normally they do not look for Desinvestments • They use to take Management Responsability • They target an Exit after 4 – 7 Years

  26. Months 6 12 18 VC How Investors Think 24 0 • First Meeting • IPR Situation • Team Recruiting • Basic Business Plan • Milestones • Financial Planning • Draft Contratcs • LOI and Assessment • Term Sheet • Negotiation • Exec Summary • Business Plan • Presentationen • Iterationen • Syndification • LOI and Valuation • Investment • Regulations • Creation • Development • Progress in BP • Staffing • Enhancement of Management • Proof of Concept

  27. ? ? ! Inventor Investor Go for the Goal!

  28. Thankyou October 2011

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