Getting Startup Funding

1. Getting Startup Funding Technical Entrepreneurship And Intellectual Property February 21, 2002 Fred Wainwright

2. Agenda • Introduction • Private equity • Sources of capital • Presenting your idea • Negotiating your deal • Example • Conclusions

3. Foster Center for Private Equity • Mission: to be the world leader in private equity research and education by bringing leading practitioners and academics together to: • Develop new insights into private equity investing and entrepreneurship • Improve practitioner capabilities and nurture successful new ventures • Inform public debate • Director: Professor Colin Blaydon

4. Angel Investor Group of Vermont • Mission: to join forces in finding, reviewing and funding businesses with high growth and profit potential • Membership: 18 experienced investors • Geography: New England • Transaction size: less than $500,000 • Managing Director: Reginald Gignoux

5. Fred Wainwright • Teaching Fellow, Foster Center for Private Equity • Administrative Director, Angel Investor Group of Vermont • Advisor to small and medium size businesses • VP Sales and VP Marketing roles at startups • Tuck MBA (June 2002) • Stanford BA, BS (Economics, Engineering)

6. What is Private Equity? • Equity investments in non-public companies • Key sectors: • Buyouts • Venture capital

7. Sources of Equity Capital • Friends and family (hard earned savings) • Angel investors (self-made) • Venture capitalists (invest institutional $) • Corporations (strategic sector focus) • Credit cards (short fuse) • Banks (hah!) • Casinos...

8. Financing Ranges

9. Money is Looking for Ideas

10. Putting Your Best Foot Forward • Business plan is embodiment of past progress and future vision • Sections: • Executive summary (2 pages max) • Mission (simple, inspiring) • Problem and solution (value proposition) • Market (clearly defined and addressable) • Competitors (barriers to entry) • Management (relevant experience, advisors) • Operations (scalability) • Investment needed (put an offer on the table) • Uses of cash (no Lamborghinis) • Financials (realistic and ambitious, with assumptions) • Exit (valuation metrics) • Sample AIG summary presentation form

11. Winning the Dog and Pony Show • Practice, practice, practice • Know your information cold • Make your powerpoint sweet and simple • Visuals beat words • Create emotion

12. The Term Sheet • Amount of capital invested • Number of shares (percentage ownership) • Type of stock (dividends) • Conditions of financing • Vesting • Board of directors • Antidilution provisions • Control rights

13. Negotiating the Term Sheet • Get the best attorney you can afford • Know the language • Caveat emptor • If you can, shop around • You are being observed • Know your walkaway point • Go for win-win

14. What Will You Give Up?

15. Example • Founders own 100 shares worth $10 each • Pre-money valuation $2,000,000 • Shares are now worth $20,000 each! • Investment $1,000,000 • Investor gets 50 shares • Post-money valuation $3,000,000 What a great country!

16. Crossing the Finish Line • Most successful startups are bought out (vs. IPO) • Equity distribution • Founders and management 25% • Employees 25% • Early investors 25% • Later investors 25% • Short term greed vs. long term wealth

17. Words of Advice • Keep a balanced life style • Take care of your team • Seek advice slowly • Decide and act quickly • Investors are your partners

18. Additional Sources • Amazon.com • Foster Center for Private Equity (glossary) • Thayer alumni • DEN!

19. Getting Startup Funding Thank You!