MBAX 6100 Entrepreneurship & Small Business Funding

1. MBAX 6100Entrepreneurship & Small BusinessFunding Frank Moyes Leeds School of BusinessUniversity of ColoradoBoulder, Colorado Funding

2. 0 Funding Your New VentureNext 3 Weeks • This week: Venture Capital & private placement • Next week Debt & other forms of funding • Following week: Negotiating Term Sheets Funding

3. 0 Today’s Agenda • Locomotion presentation • Funding • Venture Capital • Venture Capital • Chris Scroggins of Sequel Venture Partners • Rob Balgley of Skyetek • Private Placement • Doug Collier • Due: Mid-term & entrepreneurship papers Funding

4. 0 Venture Capital Funding

5. 0 Venture Capital • $21.7 billion in 2005 • 2,939 investments • Down from $104 billion & 7,832 deals in 2000 • Pool of capital invested in rapidly growing companies • Private Partnerships • General partners – manage • Limited partners – provide funds Funding

6. 0 What Are the Advantages to Venture Capital? Funding

7. What Are Disadvantages of Venture Capital? Funding

8. VC Decision Making • Deal flow • Less then 2% of deals are funded • 1 to 2 new deals per year per partner • Due diligence – in-depth investigation of the venture & you • Time frame to do a deal: 3 to 12 months • Entrepreneur decision making • Due diligence • Chemistry is key Funding

9. Managing VC Portfolio Companies • A, B, C, & D Rounds • Dry powder • Each round is often staged with milestones • Board of Directors • Hands-on vs. portfolio approach Funding

10. 0 What Do VC’s Look For? Funding

11. Control: Why do VC’s Often Wind-up Owning > 50% of a Venture? Funding

12. Seed 80%+ Start-Up 60% Early Stage 50% Second Stage 40% Third Stage 30% Bridge 25% 19x 10x 8x 5x 4x 3x 0 VC Required Return on Investment 5 yr. Increase ROI Bygraves & Zacharakis Funding

13. What Are the Implications to the Entrepreneur of VC ROI? • The later the stage, the better the deal • The better the management, the better the deal • The quicker the exit, the better the deal Funding

14. Why people want to be VC’s? • Partnership • General partners • Limited partners • Management fees 2% • Specialize in an industry • Carried interest – 80/20 • Series of funds Funding

15. 0 Angels • Sophisticated investor who invests in early stage companies • 250,000 + angels in US • Invest $5 bill - $10 Bil, 20K – 30K companies annually • Typical investment = $25K - $250K • High net worth • Usually wants to invest in industry where has experience • Accessing Angels • Not in the Yellow Pages • Networking • ACE-net.org Funding

16. 0 Angels (cont’d) • Advantages • Early stage resource • Value-added money : network, advice, commitment • Disadvantages • No follow-on funds • Give-up equity • Over-control from angel Funding