Copyright @ Element8 Innovations (PTY) Ltd Fund Raising for business start-ups Dr. Peter Breitenbach CEO Element 8 Innovations (PTY) Ltd [email protected].

Copyright @ Element8 Innovations (PTY) Ltd

Fund Raising for business start-ups

Dr. Peter Breitenbach

CEO Element 8 Innovations (PTY) Ltd

[email protected]

082 82 87 801

mailto:[email protected]


Dr. Max Theiler

1951 Phys & Med

Dr. Max Theiler

1951 Phys & Med

Dr. Sydney Brenner

2002 Phys & Med

Dr. Sydney Brenner

2002 Phys & Med

Dr. Alan Cormack

1979 Phys & Med

Dr. Alan Cormack

1979 Phys & Med

Ms. Nadine Gordimer

1991 Literature

Ms. Nadine Gordimer

1991 Literature

Prof. Aaron Klug

1982 Chemistry

Prof. Aaron Klug

1982 Chemistry

Mr. F.W. de Klerk

1993 Peace Prize

Mr. F.W. de Klerk

1993 Peace Prize

Dr. Desmond Tutu

1984 Peace Prize

Dr. Desmond Tutu

1984 Peace Prize

Mr. Nelson Mandela

1993 Peace Prize

Mr. Nelson Mandela

1993 Peace Prize

Mr. Albert Luthuli

1960 Peace Prize

Mr. Albert Luthuli

1960 Peace Prize

?YOU?YOU?


CREDENTIALS

• MB.ChB, MBA x 2, M-Chem.Eng

• CEO Acorn Technologies, other start-ups

• Technology development company inc. 2006

• 1st investment in the pipeline, launch 2007

• Raised R180m for legacy clientele

• Spun out 10 new SMMEs in life-sciences

• Developed and launched Hellfire, Fundman, IC

• Consulting to Cabinet on R&D Policy


THINGS ARE NOT AS THEY SEEM


DEFINITIONS: QUESTION EVERYTHING

Start-up.

– A business or an undertaking that has recently begun operation: grew from a tiny start-up to a multimillion-dollar corporation

Capital– vague term, definition depends on the context; can refer to financial resources

available for use; for this presentation it means physical money.

Business– a person, partnership, or corporation engaged in commerce, manufacturing, or a

service; profit-seeking enterprise or concern.


EXAMPLES OF BRICK-WALL BEATERS

START-UPS ∆

∆

∆

∆∆∆∆


THE ALCHEMY, SIMPLE

GO (IF) = Fit2 + PC + MA2+ + TeCompet (IP) + BS(HotP)4

B2

PRODUCT vs. SERVICE Service businesses contribute more to GDP!

WHAT ARE YOUR OBJECTIVES? Are you certain you want to do this? Got the cajones?

IDEA vs. OPPORTUNITY Do you have proof of concept?

MARKET ATTRACTIVENESS Is there a market? How sexy is it? Can you compete?

BUSINESS or VENTURE STRENGTH Rather the B grade technology with the A grade Team

STRATEGIC FIT Does it fit with your potential investors mandate etc?

POLITICAL FIT Are there requirements regarding BEE etc?

INTELLECTUAL PROPERTY (TECH) Secure provisional prior to marketing; IP may raise value

LEAD TIME TOLERANCE Some funders can take years. Really.

CONTROL Are you willing to relinquish (some) control for $?

ADMINISTRATION There are hidden costs, like reporting….!


THE THEORY OF COST

• There is no such thing as a free lunch

• May be better to walk away if its ‘sold’ as ‘free’

• How much are you willing to sacrifice vs. do I REALLY want to sleep with you

• Capital costs money, therefore preferably avoid or at least borrow cheaply

– The old adage…’Family, friends and fools’ still holds true

• Lenders usually want:

Financial returns

– Shares (equity)

– A commitment to repayment (debt)

– Royalty (State loves this)

– Compensation given the opportunity cost (interest)

Control

– read management or Board

Strategic returns

– Job creation

– Contributions to tax base

– Skills development


THE REQUIREMENTS BEFORE THE MISSION

• Do the research• Talk to the (potential) market (Burn rubber, Meet ‘n Greet)• Run the Screening Tests (Go vs. No Go)• Use the Tools (RAT, PAT) to identify weakness & risk• Review the outcomes & beef up accordingly• Write the Business Plan (do the financials!) yourself• Identify the type of funding you can live with• Identify & shortlist the funders or use Consultants, Fundman• Secure confidentiality (NDA) or IP before shopping around• Start shopping

BECAUSE IF YOU DON’T….


YOUR START-UP LIFE FORETOLD…

CONSERVATISM

ADOPTION

EXUBERANCE

PEAK

UNREALISTIC EXPECTATIONS

CORRECTION

BOTTOM

STABILITY


THIS IS NOT THE STAGE OF DREAMING

.

.

Our projections are conservativePeople who want money always talk it up; so we know you're lying a bit

IDC says our market will be $50 billion by year 2003.But you still have none of it and big markets attract Big Bad Business like moths…

Amazon.com will sign our contract next week.Maybe, but they are also waiting for Halley’s Comet to do a fly-by

Key employees will join us as soon as we get funded.Really? Are you sure these are the kind of people you want? Where’s their sacrifice?

We have first-mover advantage. Yeah right….dream on

VCs are already interested. Name 3 (hard in SA especially)

Oracle is too slow to be a threat. Funny how they got so big that quickly

We are glad the market is down, its more realistic Yup, so realistic that we aren’t interested

Our patents make our business defensible. Go tell that to America or the Russian Mafia

All we have to do is get 1% of the market Yes, but you still have to bloody get it!


EVERY GOOD IDEA WILL RAISE CAPITAL

CAPITAL

F3 STATE PRIVATE

GRANTS NON-GRANT VCPE INDUSTRY ANGELS

BANKS

Few strings, usually

strategic ROI; pedantic,

slow, admin

Range from loaded grants

(IF, BRICs %), to equity + debt instruments

Very few players; risk averse position (pref.

later stage). Expensive capital + control requirements

Can be very beneficial, as comes usually with Industry

know-how

Still ranks as the Number One

recommendation

DO I REALLY, REALLY,

REALLY NEED TO BORROW?

Demands access to networks,

especially High Net Worth

individuals or Pro Solo ‘Artistes’


STATE SOURCES

Notice how there are almost no private investors/funds

here…

Explains why the cost of capital is so

high


STATE MATTERS

• There is a lot of money in the system

• There is no Chief, but a lot of Indians – no-one knows where it all is!

• But there is a funding gap

– Pre-seed Stage

– < R1m

• There is bureaucracy (no different elsewhere)

• Lack technical & market insight (not atypical)

• Delivery time is excessive (below the benchmark)

• The ‘political’ and strategic requirements are NOT barriers to entry

• They are all over-worked and have almost no support

• Get poached by Industry

If you take the trouble, do as required, and can survive a year, then the State as a

source of capital is a good choice.


PRIVATE SOURCES

ANGELS [If you don’t know any, don’t bother]• Hippy, odd, often no formal tertiary training

• They hunt alone, leaving no footprints

• Friends of Trevor

VC > PE [Bioventures, Argyll, HBD…]• Very few that (really) operate at the start-up stage (lack of understanding)

• Big appetite for equity + control (some have hydrocephalus)

• Usually big on intense due diligence (high drop out rate: 10 ~6~4~2~1)

INDUSTRY [This is why the BusPlan is so NB]• Includes your potential/actual competitors (protect yourself), but not always…

• Survivors know the industry backwards (worthwhile having tea regardless)

• All businesses started somewhere; these CEO’s are often more amenable than you think

(and an opportunity for important snippets)


THIS IS WHAT ELEMENT8 TELLS PEOPLE…

• DO I REALLY, REALLY, REALLY NEED TO BORROW

• “I HAVE TRIED THE 3 EFFS WITHOUT SUCCESS….”

• Use a central resource – like Fundman, its free, simple and contains all the funders

• Another is Blue Catalyst

• There are a few consultants and businesses around that play the RAISING role

– Its not free; usually a % of funds raised (beware State Funds position on this)

– Ensure it is success-linked (no finance raised = no fee)

– There are also State & NGO enterprise Agencies that are obligated to assist [SEDA]

• Play the field (with integrity and openness, i.e. tell people you are ‘shopping’ around]

• This is a VERY small Sector, everyone knows everyone and bad news (you?) travels fast

WELL, WHERE DO I GO TO GET FUNDS?


WE MADE ACCESS SIMPLER

Enter site

Learn about Fundman

Access to:•Funders list•List of service providers•List of incubators

Access to:•Funders matrix•Search function•E-mail ‘alert’ system•Downloads

LEVEL 1ACCESS

LEVEL 2ACCESS

LEVEL 3ACCESS

No registration

Register Fundseeker details

Register project details

www.fundman.org.za


SUBJECTIVE?

GENERAL•Avoid borrowing if you can – there is ALWAYS a cost•Aim for the lowest ‘cost’ x ‘best fit’ of the borrowed capital•KISS•Do not arbitrarily give away any value or control•EVERYTHING is negotiable (including you)

INTELLECTUAL PROPERTY•IP important for specific sectors•But, having Patents is meaningless initself•It usually has already been done (sorry)

FINANCE•You may love your wife, but Cash is your mother and you sleep with your business •Take the least you can survive on (especially with State Capital – its tax-payer’s after all)•Hire as few bodies as possible•Do you really need that office, that car…

•Protect your idea

•Non disclosure

Agreements

•Copyright everything

•Keep records/emails


KEY REQUIREMENTS

• All, every and any business is relationship driven

• Know the market, the technology and the competitors

• Never accept NO for an answer

• Be willing to talk to ANYONE

• There is always someone, somewhere who knows more than you

• Read the fine print

• Passion is a critical ingredient

• But a market opportunity and business strength are prerequisites

• No bull___ and be polite (like your mother taught you)

• Records & governance

• Legislation

• TAXES (yahh…!?!)

Choices….The Long Road…

Copyright @ Element8 Innovations (PTY) Ltd….The ___ Road…


With thanks to Jan Botha

….Grab It BTB Road…

Copyright @ Element8 Innovations (PTY) Ltd Fund Raising for business start-ups Dr. Peter Breitenbach CEO Element 8 Innovations (PTY) Ltd [email protected].

Documents

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