Incubes presentation accessing venture capital too early 2013 02 13
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Mentoring Presentation
Pros of Cons of Accessing Venture Capital too Early
& Some of the Pitfalls to Avoid
Agenda
• Meet & Greet• Introductions• 90 Second Company Elevator Pitch• Pros and Cons of Accessing Venture Capital• Some Pitfalls to Avoid• Q & A• Future Topics
Superhero of the Modern World
Equity Capital Life Cycle
Cash flow
Sale
s a
nd
p
rofi
t
I ntroduction Growth Maturity Decline
Time
R & D Pre-Seed & Seed
Start-Up
Sales
Round 1 Round 2
Grants / Love Money
$
Angel $
VC $ VC $
Exit
Angel $
Concept and product
development
Profit
Financing Alternatives
• Personal Financing• Business Loans• Government Grants• Accelerators• Angel Investors• Asset Backed or Receivables Lending• Venture Capital• Bank Debt
Venture Capital Investment
• Cdn VC’s invested $363 mm in Q3 ‘12 in dn 6% from ’11• Disbursements to 87 companies dn 33% 2012 vs 2011• Domestic market activity 1.1b as of Sept 30 is identical to
2011• These #’s are substantially down from the high water mark
of almost 4billion in the late 1990’s and 2.1b in ’07• VC investment has dropped from a high of 5.9b in ‘00 to 1.1b
in ‘10.• Only 3% of the universe of venture capital firms generate
95% of the industry returns
Venture Capital Investment
• For entrepreneurs, choosing the best financing model for their start-up isn’t a luxury – it is a necessity
• The terms you will be offered will be commensurate with the value you have created. Sales = Higher Valuation
• VC’s money comes from LP’s which is mostly institutional
Venture Capital Pros
• Small piece of a big company is better than a large piece of a small company
• Industry expertise• Their goal is to grow the company quickly and
exit.• Deep pockets for follow on financing• Allows you to focus on the business rather
than constantly raising $
Venture Capital Cons
• You have to qualify• Often looking for exit in short time frame• Negotiations tend to be one sided• Legal costs of documentation are high• Equity has a higher cost than debt +30%• Staff & time commitment for due-diligence• Reduced control or determination of business
Venture Capital Cons
• Your business is exposed to the VC’s funding cycle and market uncertainties
• One author referred to VC’s as a last resort• May control board decisions• Follow on Financing requires higher valuations
to support VC’s valuation• Funding is down and VC’s are taking less risk.• Series A crunch 36m vs 18m
Pitfall’s
• Complex covenants based on performance metrics
• Inordinately thick documents• May replace management• Liquidation preference• Anti-dilution clauses • Loose control of the direction of your
company
Do it Your Way - Parting Thoughts
• Over 90% of all businesses are started and grown with no equity financing
• VC is the OPM drug of Start-ups• Oct’11 Profit Hot 50 - Seed Financing – 96%
Founders own capital, Growth Capital – 64% Founders own Capital
• Control your destiny until you create sales• Eyes Wide Open and be well researched
Future Topics
1. Bootstrapping a Company & Exec Summary2. Preparing a Pitch for Investors3. Terms to expect from an Investors Term
Sheet4. Accessing Capital from a Angel Network5. Forming an Advisory Board6. Pros of Cons of accessing Venture Capital too
early & some of the pitfalls to avoid
Gerard Buckley, BBA, FICB, ICD.DPresident and CEO Jaguar Capital Inc.(C) 416-884-9522(W) 416-646-6789g.buckley@jaguarcapital.ca
www.jaguarcapital.ca
@jaguarcapital @gerardbuckley
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