Show Me The Money: Preparing Client Companies for Investment Funding

1. Show Me The Money: Preparing Client Companies for Investment Funding Association of Small Business Development Centers Annual Conference San Antonio, TX September ___, 2010 Presented by Sandra Cochrane, Technology Business Consultant MI Small Business & Technology Development Center Kalamazoo, MI

2. Goals for Today’s Session • Understand the overall investment process • Recognize when a company is ready for outside investment • Know the critical communication tools clients need to have before seeking funding • Outline a standard 10-minute pitch • Help clients avoid investor pitch mistakes

3. Overall Investment Process

4. When is a Company Ready for Investment? • Funding landscape (who’s got money?) • Business plan and executive summary • Investor pitch • IP protection • Company leadership has “skin in the game”

5. Investor Communication Tools

6. Essential Investor Communication Tools • Written: Business plan that includes a solid executive summary • Verbal: Elevator pitch • Mathematical Model: Excel-driven financial model • PowerPoint: Investor pitch

7. The 10 Minute Investor Pitch

8. Investor Presentation Objective? • Educate, engage & entertain • Get a NEXT meeting

9. Investor Pitch: Key Points • Follow the 3 C’s: • Clear, concise and compelling • Answer these questions: • Why this? • Why us? • Why now? • Ask yourself “so what?” and “who cares?” • Goals: • Drill down discussions • Transition into due diligence

10. The 10 Minute Investor Pitch:Template and Guidelines Special Thanks to Seattle Alliance of Angels for their work on this presentation

11. Anatomy of the 10-Minute Pitch • Act I: Introduction • Cover page slide • Problem slide • Solution slide • Technology slide • Traction slide • Act II: The Business • Market slide • Competition slide • Customers slide • Sales strategy slide • Partners slide (optional) • Revenue model slide • Management slide • Advisory board slide • (optional) • Act III: The Future • Milestones slide • Financials slide • Offer slide • Questions slide

12. Act1: The Introduction Separator Slide – not to be included in your presentation

13. Company Name & LogoContact Information One line description of what your company does Date Audience Presenters

14. The ProblemDefine the problem and WHO has this pain • Graphs • Pictures (one photo is best) • Describe a problem scenario /usage case • The goal is to get everyone nodding & “buying-in”

15. The Problem: Recorded Claims - Example Weeks and Months • 75-100 Million Interviews (Per Yr) • $350 Billion Claims Related (Per Yr) • Process is “Off The GRID”

16. The SolutionExplain your solution to the problem & why it’s superior to existing alternatives • How do you alleviate the “pain” • Use multiple slides if necessary – see “the technology” slide • Short list of feature/benefits

17. The TechnologyDescribe the basics of your product/ service • Quick overview of the company’s technology • Use lay man’s language • Tie to “the solution” • Do not exceed time limits (avoid in-depth technical explanations) • Product photos and/or screen shots help • Logical flow and architecture diagrams

18. Claims Rep Interviewees Bridge .WMA Minutes The Solution: Digital Service - Example • $15M Savings (Per Yr): Farmers Insurance • 24 x 7 x 365 Availability • Giant, Untapped Data Asset

19. Proof of Concept Tech. Development / Scale-Up Launch Today 200__ 200__ 200__ Traction/ MilestonesShow the progress you have made to date Incorporated Mgt. team in place Provisional patent filed Beta test Paying customers Strategic channel partners Received A round financing Customer launch Be clear about the status of product development

20. Act 2: The Business Separator Slide – not to be included in your presentation

21. Market SizeDemonstrate your understanding of the size & composition of your target market • Build the number from the ground up • Total addressable market • Use drivers relevant to your product • Show the different segments • Pie graphs works well • Explain how you prioritize the segments • “This is our initial market” (explain why) • If you use 3rd party figures, cite the source

22. 8.5 22.4 14.1 2011 2006 45M 14M 18-28yrs 12-17yrs 29-34yrs Market Size - Example Total Addressable Market: US home broadband usersages 12 to 34 who actively consume internet video 2.7 7 4.4

23. CustomersDemonstrate your understanding of your target customers • Current Customers • 83 startup companies like the following: • Potential Customers • Early stage technology companies between $250K & $2M in revenues

24. Sales StrategyExplain how you will reach your customer How do you sell your product? Direct and/or channel Sales If direct, • How many sales people? Territories? • How long does it take to close a deal? • Who is the key decision maker? (especially if that differs from the key user) If channel, • Who are the partners? • How many are required? • How are the territories divided? (if relevant)

25. PartnersIf appropriate, describe the key players in your value chain & their functions.

26. Revenue $6,000 33% CoGS $2,000 OE $3,000 50% 17% PbTD $1,000 Revenue ModelShow how, financially, you will make money Per Widget Per Customer Average Customer Buys 10 Widgets per year @ $6,000 100% Average Customer is worth $60,000 in Annual Revenue CoGS & Operating Expenses $50,000 Profit Before Taxes & Dep. $10,000 This is an example for demonstration purposes only

27. Revenue Model(cont.) • Provide a diagram of your business environment (value chain) • Who are the stakeholders? • How are they related? License Holders Technology Licenses License Revenue Components VAR Mfgrs. Company Tech. & Mfg. Fees Finished Goods & Services End User Sales Dollars

28. CompetitionDemonstrate your understanding of the competitive environment • Indirect Competition • Summarize the current alternatives (other technologies or types of products) • Direct Competitors • List competing company 1 and an analysis • List competing company 2 and an analysis • List competing company 3 and an analysis • Use a matrix if possible

29. Competition - Example XYZ B Co ABC Ease of Use Reliability Price Speed

30. Management TeamExplain why this is the management team to bring your product/ service to market • Name, Position • Prior Company, Position (VP or above), Years • Prior Company, Position (VP or above), Years • Entrepreneurial experience (if any) • Name, Position • Prior Company, Position (VP or above), Years • Prior Company, Position (VP or above), Years • Entrepreneurial experience (if any) • Open positions • VP Sales • Head of QA

31. Advisory BoardExplain how these individuals will contribute to your companies chance of success • Name, Area of Expertise • Company, Position (VP or above), Years • Prior Company, Position (VP or above), Years • Name, Area of Expertise • Company, Position (VP or above), Years • Prior Company, Position (VP or above), Years • Name, Area of Expertise • Company, Position (VP or above), Years • Prior Company, Position (VP or above), Years

32. Act 3: The Future Separator Slide – not to be included in presentation

33. Financial ProjectionsShow financially that your company is a smart investment Five Year Projections (Millions, US) • Assumptions: • Avg. $__ per sale • In Yr. 1, __customers • Yr. 3 market share: __ % • By Yr. 3, __% from new sales; __% & from recurring sales • U.S. market only • Does not include future product extensions This is an example for demonstration purposes only

34. Financial Projections(alternative)

35. MilestonesShow the audience what the next important steps are for your company Secure international distributor Generation II of Product Hire CFO Series “B” Financing

36. Milestones(alternative) Table 3: projected milestones and funding rounds

37. Funding RequirementsShow why an investment of $X will lead to the cited milestones Prior Funding: - $ from founders, $ from outside investors, $ grants Current Round: • Seeking $1 million ($500,000 raised) Use of Funds: • Finish v 2.0 prototype • Launch in xxx market • File patents Future rounds: - Series B of $X million expected in early 2011 Exit Strategy: • Acquisition (perhaps Microsoft, IBM, Nike, or Gatorade)

38. Summary • Experienced management team • Company generated $x in revenue in Yr. 1 • Strong IP position • Large and growing market • Signed partnerships with key players

39. Questions COMPANY NAME & LOGO COMPANY CONTACT INFORMATION

40. It’s All About the %% & $$! Make it Easy to Absorb & Comprehend

41. Investor Pitch Mistakes(and how to avoid them)

42. Mistakes 1 & 2 • Pitching when the company is not ready • Pitching to the wrong investor

43. Mistakes 3 & 4 • Not having a clear, concise, compelling business plan to back up the pitch • Not understanding the investor’s exit strategy

44. Mistakes 5 & 6 • “I only need 1% of the market….” 6. “EVERYBODY is going to need my….”

45. Mistakes 7 & 8 • “I have no competitors.” 8. Failing to state the pain that’s being alleviated

46. Mistakes 9 & 10 9. Failing to actually state how the company is going to make money! 10. Not understanding the concept of tranches

47. Mistakes 11 & 12 11. Building technology products, not a business 12. The future exit is an IPO

48. Due Diligence A working definition: • An investigation of the company’s business, legal, financial affairs, and a verification of its assertions. Investor outcome: • An assessment of risk. • An investment and partnership opportunity. Company outcome: • A substantiation of the stated value proposition. • A commercialization and partnership opportunity.

49. Getting Through the Checklist • Don’t ask the investor to modify the checklist; if an item doesn’t apply, mark it “N/A” • Be subtle in asking about timeframe. Okay to ask: “When do you anticipate completing due diligence?” vs. “We really need the money; can you complete due diligence in 2 weeks?” • Understand that other companies are in the pipeline. • Remember due diligence is augmented w/valuation negotiations.

50. Getting Through the Checklist • Decide on disposition of documents upon conclusion of due diligence. • Fully disclose checklist items to avoid surprises. • Begin addressing problems • Ask for investor’s help andresources to solve problems • Remember investor will likely assume a board seat upon investment • If in doubt, check with company legal counsel about whether to disclose.