November 2, 2012 Presentation to CMU Financing Your Startup Presented by Brian Goncher and Joe Krolczyk
November 2, 2012
Presentation to CMUFinancing Your Startup
Presented by Brian Goncher and Joe Krolczyk
AgendaPART I
Venture Capital Trends
PART II
Presenting Your Plan
PART III
Creating Financial Projections
Copyright © 2012 Deloitte Development LLC. All rights reserved.
Our commitment to companies like yours
Deloitte Emerging Growth Companies
Our emerging growth company practice is a part of our national Deloitte Growth Enterprise Services practice.
Private ,companies form the backbone of our economy. At Deloitte, more than 50% of our U.S. clients operate in this sector.
Our Deloitte Emerging Growth Company practice, and its professionals who will be serving you, fully understand and are focused on addressing the unique needs and challenges of companies like yours. Some of those challenges are:
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Deloitte Growth Enterprise Services held its third Private Perspectives live eventon May 9, 2012, featuring guest speaker Jeff Immelt, chairman and CEO of GE, and a panel discussion with senior Deloitte leaders. Previous events featured former Federal Reserve Chairman Alan Greenspan and former President Bill Clinton.
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Copyright © 2012 Deloitte Development LLC. All rights reserved.
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No matter what business challenge you're facing, our team has likely faced the same challenge or something similar. In addition, we provide access to our global network of resources who know and understand your industry, issues, and opportunities.
Together, in a culture of collaboration, we offer the capability through our local service team to deliver insights that others might miss.
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Worldwide • Approximately 182,000 professionals
located in more than 150 countries
• 55 member firms
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• Deloitte’s global organization serves nearly 90% of the technology, media, and telecommunications companies in the Fortune Global 1000
National• More than 51,000 professionals
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West Region• More than 5,000 professionals in 11
locations
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Deloitte by the Numbers
The Deloitte member firm organization, Deloitte Touche Tohmatsu Limited, is the largest professional services network in the world. Approximately 182,000 professionals in more than 150 countries demonstrate
Initial public offering experience
Source: NASDAQ.com
Initial Public OfferingAntheraPharmaceuticals6,000,000 SharesCommon StockPrice $7.00 Per Share
March 2010
Initial Public OfferingRosetta Stone6,250,000 SharesCommon StockPrice $18.00 Per Share
April 2009
Initial Public OfferingOpenTable3,000,000 SharesCommon StockPrice $20.00 Per Share
May 2009
Initial Public OfferingMedidata Solutions6,300,000 SharesCommon StockPrice $14.00 Per Share
June 2009
Initial Public OfferingLogMeIn7,666,667 SharesCommon StockPrice $16.00 Per Share
July 2009
Initial Public OfferingA123 Systems28,180,501 SharesCommon StockPrice $13.50 Per Share
September 2009
Initial Public OfferingFortinet12,500,000 SharesCommon StockPrice $12.50 Per Share
November 2009
Initial Public OfferingGAIN Capital407,692 SharesCommon StockPrice $9.00 Per Share
December 2010
Initial Public OfferingLinkedIn7,840,000 SharesCommon StockPrice $45.00 Per Share
May 2011
Initial Public OfferingBG Medicine5,000,000 SharesCommon StockPrice $7.00 Per Share
February 2011
Initial Public OfferingGEVO7,150,000 SharesCommon stockPrice $15.00 per share
February 2011
Initial Public OfferingSolazyme10,975,000 Shares Common StockPrice $18.00 Per Share
May 2011
Initial Public OfferingApollo Management29,757,559 SharesCommon StockPrice $19.00 Per Share
March 2011
Initial Public OfferingResponsys6,619,654 SharesCommon StockPrice $12.00 Per Share
April 2011
Initial Public OfferingM/A – COM TechnologySolutions Holdings6,000,000 Shares Common StockPrice $19.00 Per Share
March 2012
Initial Public OfferingYelp!7,150,000 Shares Common StockPrice $15.00 Per Share
March 2012
Initial Public OfferingInvensense10,000,000 Shares Common StockPrice $7.50 Per Share
November 2011
Initial Public OfferingDemandware5,500,000 Shares Common StockPrice $16.00 Per Share
March 2012
Technology, media, and telecom (TMT)IPOs from Q1 2007‒Q1’12
Deloitte leads in TMT IPOs
Deloitte29%
EY25%
KPMG10%
PwC24%
Other12%
Initial Public OfferingEnphase Energy8,969,697 Shares Common StockPrice $6.00 Per Share
March 2012
Initial Public OfferingRenewable Energy Group7,200,000 SharesCommon stockPrice $10.00 per share
January 2012
Initial Public OfferingSynacor6,818,170 SharesCommon stockPrice $5.00 per share
February 2012
Over the last ten years, Deloitte & Touche LLP and Deloitte Tax LLP have assisted with more than 265 IPOs in the U.S. Our team consists of professionals with extensive experience with the IPO process. Our commitment to responsive service and meeting client expectations will assist in your successful transition to a public company.
Several recent IPOs where Deloitte was the auditor include:
From January 2007 through March 2012, Deloitte assisted with more than 50 IPOs in the technology, media, and telecom industry, and 25 software company IPOs – both first among the Big Four.
Venture Capital Virtuous Cycle
Company Funded
Company Grows
Company Goes Public
Venture Capital Relationships
Deloitte Venture Capital Team
Success Story: LinkedIn
LinkedIn founded in 2003, raised about $125 M in 5 rounds
LinkedIn has annual sales of $200M and grew 100% in the past year with 90 million users
Public Offering in 2011
LinkedIn Investors Include Sequoia, Greylock and Bessemer
Source: Dow Jones VentureSource
Investment Off Pace in 2012Deal Flow and Equity into Venture-Backed Companies
$23.6$25.1
$31.1$34.4 $33.0
$24.2
$29.5
$34.7
$15.3
24602628
28573106 3031
2742
3093
3404
1595
0
1,000
2,000
3,000
$0
$10
$20
$30
$40
$50
2004 2005 2006 2007 2008 2009 2010 2011 1H' 12
Amount Invested ($B) Number of Deals
Source: Dow Jones VentureSource
Momentum Picks Up in 2Q’ 12Deal Flow and Equity into Venture-Backed Companies
$6.2 $6.0
$7.5
$5.1
$8.5
$6.1
$9.8
$7.7
$8.8$9.9
$8.3
$7.2$8.1
682 669
827
683
827
726
857794
889 859 862
732
863
0
150
300
450
600
750
900
$0
$2
$4
$6
$8
$10
$12
2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12
Amount Invested ($B) Number of Deals
Source: Dow Jones VentureSource
Early Stage Deal Flow Steady in 2012
Deal Flow Allocation by Round Class (Annual)
*Seed and First Rounds Combined
*36% *36%
*45% *46%
22% 24%
19% 19%
35%37%
35% 34%
8% 3%
0%
20%
40%
60%
80%
100%
2004 2005 2006 2007 2008 2009 2010 2011 1H' 12
Restart
Later
Second
First
Seed
Source: Dow Jones VentureSource
Early Stage Investment Rises in 2Q’ 12Investment Allocation by Round Class
*Seed and First Rounds Combined
*17% *17% *19% *19% *23%
20% 22% 22%17%
17%
60% 58% 55% 63% 59%
3% 1%
0%
20%
40%
60%
80%
100%
2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12
Restart
Later
Second
First
Seed
Source: Dow Jones VentureSource
Median Deal Size Increases in 2Q’ 12 Median Amount Invested Per Financing Round
$5.0 $5.0 $4.7
$4.0
$4.5 $4.8
$4.1
$4.5
$5.0
$5.9
$4.2 $4.0
$5.0
$0
$2
$4
$6
2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12
Source: Dow Jones VentureSource
Early Stage Median Invested Lower in 2012
Median Amount Invested by Round Class (Annual), VC Only
$9.2$10.0 $10.0
$8.0
$6.0 $5.5$5.0
$3.0 $2.5
$1.0 $0.8 $0.5
$0
$5
$10
$15
2004 2005 2006 2007 2008 2009 2010 2011 1H' 12
Later Round Second Round First Round Seed Round
Source: Dow Jones VentureSource
Seed Round Median Invested Higher in 2Q’ 12
Median Amount Invested by Round Class, VC Only
$8.2
$10.0 $10.1
$5.0 $5.0$5.5
$3.0 $2.8 $2.4
$0.5 $0.3 $0.8
$0
$2
$4
$6
$8
$10
$12
$14
2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12
Later Round Second Round First Round Seed Round
Source: Dow Jones VentureSource
Corporate Equity Invested Falls in 2Q’ 12
Corporate Equity into Venture-Backed Companies
$492
$76 $73 $103 $30
$138
$425
$258 $254 $198 $145
$1,334
$121
14
10 1012
910
1513
17
8
16
19
10
0
5
10
15
20
25
$0
$500
$1,000
$1,500
2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12Amount Invested ($M) Number of Deals
Source: Dow Jones VentureSource
VC Investment Bounces Back in 2Q’ 12
Equity Investment into Venture-Backed Companies, VC Rounds Only
$5.7 $5.8
$7.4
$4.9
$8.2
$5.9
$9.2
$7.3 $8.3
$9.6
$8.1
$5.8
$7.9 652 646
794
647
794
696
821
760
857838 826
703
839
0
150
300
450
600
750
$0
$2
$4
$6
$8
$10
2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12
Amount Invested ($B) Number of Deals
Source: Dow Jones VentureSource
Most Active U.S. Investors in 2Q’ 12By Number of Equity Investments in U.S. Venture-Backed Companies
500 Startups LP 36
First Round Capital LLC 25
New Enterprise Associates 25
Kleiner Perkins Caufield & Byers 21
Google Ventures 20
Khosla Ventures 19
SV Angel 16
Accel Partners 14
Andreessen Horowitz 14
Battery Ventures 14
Greylock Partners 14
InterWest Partners 14
Source: Dow Jones VentureSource
Half of U.S. Investment Goes to California
Regional Investment Dollars in the United States 2Q’ 12
Northern California42%
Southern California12%
Mid-Atlantic13%
New England10%
Pacific Northwest5%
South Central2%
Mountain6%
South East3%
All Other US6%
Source: Dow Jones VentureSource
Early Stage Valuations Higher in 2012
Median Pre-money Valuations by Round Class (Annual)
$29.3
$57.0
$46.4
$12.1
$18.3
$30.3
$5.6 $6.0
$10.4
$1.7 $2.9 $3.3$0
$20
$40
$60
2004 2005 2006 2007 2008 2009 2010 2011 1H' 12
Later Stage Second Round First Round Seed Round
Source: Dow Jones VentureSource
Exit Opportunities Via IPO Increase in 2012
Percentage Breakdown of Venture Backed Liquidity Events: IPO vs. M&A
0% 20% 40% 60% 80% 100%
2004
2005
2006
2007
2008
2009
2010
2011
1H' 12
IPOs M&As
Source: Dow Jones VentureSource
M&A Activity Sluggish in 2012Transactions and Amount Paid ($B) in M&As
$26.9$30.3
$39.3
$54.9
$26.0$23.8
$39.5
$51.0
$26.4
531508
536 525
443 426
536
208
0
100
200
300
400
500
$0
$20
$40
$60
2004 2005 2006 2007 2008 2009 2010 2011 1H' 12
Amount Paid ($B) Number of Transactions
Source: Dow Jones VentureSource
Fewer IPOs Raise More Capital in 2012
Deals and Amount Raised ($B) Through IPOs
$5.3
$2.5
$3.7
$7.5
$0.6 $0.9
$3.3
$5.4
$9.270
46
57
80
8 8
4746
31
0
10
20
30
40
50
60
70
80
90
$0
$4
$8
$12
2004 2005 2006 2007 2008 2009 2010 2011 1H' 12
Amount Raised ($B) Venture-Backed IPOs
Sales Process (Prepare)
Prepare
1 to 2 Months
Key Elements include:•Create Runway (or Perceived Runway)
•Get Current Investor Commitment
•Scrub The #s
•Align The Organization
•Define Your Objective
•Define Roles & Responsibilities
•Prepare Sales Tool Kit
•Identify Targets
•Create Scarcity Value
Sales Process (Approach)
Approach
1 to 3 Months
Key Elements include:•Get Referrals
•First Meeting
•Subsequent Meetings
•All-Partners Meeting
•Consultant Meetings
•Customer Meetings
•Due Diligence
•Site Visit
•Term Sheet (or Pass)
Sales Process (Term Sheet)
Term Sheet
1 to 2 Months
Key Elements include:•Negotiate
•Draw Legal Documents
•Signature
•Pre-Close Review
•Close
•Confirm $ Deposited
•Due Diligence IS Still Happening!
Financing your Companyv Be realistic on timing and pricing
v Become a great writer and spreadsheet jock
v Plan your approach using all resources
v Practice, practice, practice
v The first term sheet is often the best
Financing Tool Kitv Elevator Pitch
v Story/Demo
v Presentation
v Executive Summary/Plan
v Due Diligence
Elevator PitchDefinition
• 2-3 sentences that defines the market, customer, problem/solution and uniqueness of the business
• Place on slide one (display as brief bullets with a graphic)
Framework• What market are you in? • What urgent problem are you solving?• What is the size of the opportunity? • Why will you win (differentiation, barriers to
entry, unfair advantage)? • Where is the validation (customers, investors,
etc.)?
Elevator Pitch$35 billion is what US commercial medium-duty truck
fleets spend each year on fuel. Wrightspeed has invented an extended range electric truck powertrain that uses 1) plug-in grid power, 2) regenerative braking and 3) a multi-fuel turbine generator for range extension. The result is high a mpg equivalent, full power and low emissions which can radically transform an entire fleet of trucks.
Light and medium duty delivery trucks represents a $16 billion addressable market with companies such as UPS and FedEx. The management team has experience from top tech companies such as Tesla, Cisco and Apple. Wrightspeed represents a patented technology which competitors cannot match.
Executive SummaryPrimary Uses• Initial introduction to investors (may accompany introductory
email)• Prepares investors for meetingBest Practices• Text derived from your presentation• Drill down in key areas, but be concise• Highlight external validation• Less than 5 pages• Use as tool to sell the teamSupporting Materials• Business plan, sales pipeline, IP roadmap, competitive landscape,
etc.• Make available only as appropriate (avoid material overload)
Executive Summary Outline Definition
• 1-3 page text document which includes all the elements of a business plan
Outline• Business Definition/Company Purpose• Business/Technology Problem• Company/Product Solution• Market Trends/Size /Growth• Competitive Assessment/Point-of-Difference• Product/Technology/IP• Sales/Distribution• Team/BOD• Financials
Business Plan OutlineDefinition: 6-10 page document before appendicesOutline
• Executive Summary (1-3 pages)• Business Overview and Strategy (1 page)• Technology and Product (1-2 pages)• Market and Competition (1 page)• Management and Board (1-2 pages)• Financial Summary (1 page)
Due Diligencev Full management resumes
v Annual Financial Projections
v Product Information
vMarket Studies
Financial Modelingv It is a forecasting, not a budgeting, toolvWork on the financial model together with the
presentation and executive summaryv Do not provide more detail than the planv Use sensitivity analysis, but present the “expected
case”v Refer to assumptions throughout the planv Check for mistakes and “reasonableness”vGet help
Financial Projectionsv Create a revenue modelv Plan New Hiresv Estimate any Significant One-Time Costsv Use only annual income statement and balance
sheetv Prepare monthly or quarterly cash flow forecast
until breakevenv Don’t sweat the details
Revenue Modelv Build a specific revenue model that mirrors your
industryv Compare with industry standards, highlight any
differencesv Prepare the model from the “bottoms up”v Do not over estimate first year revenuev Do make a 5 year forecastv Know the way revenue is recorded for your
industry
Headcountv 80% of all early year expenses are headcount
relatedvMake sure you are reasonable with salariesvMatch additions of people with company
milestonesv Don’t forget taxes, benefits and recruiting
expensesv Build a sales commission model, if necessaryv Index salaries to inflation and add bonuses
Other Expensesv Don’t sweat the other expensesvMake sure rent increases as neededvWatch consulting and professional servicesv Begin taxes at the appropriate time
Balance Sheetv Do create a balance sheet v Use industry standards for AR and AP
assumptions (typically 60 days and 30 days)v Include financing assumptions on your balance
sheetvMake sure it balances (the balancing item is cash)
Cash Flow Statementsv A Flow of Funds statement is typical and easiestv Use the Receipts and Disbursements statement if
you are bravev Cash flow statements are derived from the
income statement and balance sheetv Do not make changes on the cash flow statementv Show monthly or quarterly cash flows until
breakeven in the appendix or as backup slide
Charts and Tablesv In the presentation or business plan, use charts
and tables to highlight the following:Revenue (esp. as compared to competitors)Sales and distribution model
vFive year annual summary
vOther charts and graphs can show key events to next funding round, cash flow breakeven or the cash flow cycle
Summaryv Create a great demo and presentationv Use the executive summary to market your
companyvMake the financial projections work with the
assumptions in your pitchv Practice your pitch with an experienced audiencev Keep revising your plan and projections as you
growvGood luck
Copyright © 2012 Deloitte Development LLC. All rights reserved.
Appendix A: Tools and knowledge resources - continuedDbriefs webcasts: Timely, interactive web based presentations covering a wide range of topics of interest to financial professionals. Accounting-related Dbriefs, conducted at least twice a quarter, cover each EITF meeting and recent accounting developments. Special editions of Dbriefs are produced when significant accounting events occur (e.g., when the FASB issues a major exposure draft or final standard). Attendees of accounting-series Dbriefs are eligible for continuing professional education credits. To sign up for a free Dbriefs subscription, go to https://deloitte.zettaneer.com/Subscriptions/ and select the “Audit & Enterprise Risk Services” or “Tax” areas of interest.
TMT Predictions 2012: This annual publication presents Deloitte's view of the major trends likely to have a significant medium- to long-term impact oncompanies across TMT. The goal of Predictions is to catalyze discussions around important topics that may require organizations to respond. We provide a view on what we think will happen, what will occur as a consequence, and what the implications are for various types of companies.Over the last decade, the TMT sector - and its impact on how we work, live, and are entertained - has changed markedly. One key trend over the last ten years has been convergence: the technology, media, and telecom sectors are more interconnected and interdependent than ever before.
Strategies for Going Public Third Edition: This publication provides information to assist companies through the initial public offering (IPO) process by providing practical, working knowledge of the stages for going public in the U.S. Broad in scope, it addresses both pre- and post-IPO considerations, so companies can remain well informed and prepared at every stage. Along with key information on the requirements and regulations of a successful offering, the publication also includes helpful tools, such as a timetable for going public, a sample due diligence checklist, and a discussion of the different securities exchange listing requirements.
Perspectives – for mid-market and privately held companies: Published by the Deloitte Growth Enterprise Services (DGES) group, this bi-monthly newsletter is distributed to nearly 60,000 DGES clients, recent Private Company Dbriefs attendees, and participants in our semiannual Private Perspectives interactive events. Each newsletter features articles of interest to mid-market and private company executives provided by Deloitte specialists from audit and enterprise risk, consulting, tax, and financial advisory services – Deloitte’s multidisciplinary resources.
50
Deloitte Growth Enterprise Services
Perspectives
For mid-market and privately held companies
October 2011 Perspectives is a multifaceted program that utilizes live events, signature reports, research publications, webcasts, and podcasts to deliver content focused on relevant trends and issues. This month we feature a new survey-based report, Mid-market perspectives: America's economic engine — competing in uncertain times. In an April survey, mid-market company executives told us they were cautiously optimistic about the economy. Since then, expectations have gone from modest to minimal. Nevertheless, this new report shows that most executives in this segment continue to believe that their businesses will improve in the coming year. Increased media recognition of the growing importance of mid-market companies is highlighted by CNBC's new segment, The Mighty Middle Market. The inaugural program featured an interview with Tom McGee, national managing partner, Deloitte Growth Enterprise Services, Deloitte LLP. We will share timely elements of Perspectives on a regular basis and we hope you find this content valuable. Please contact us if you would like to take a deeper dive into any specific topic.
Important noticeThis document has been prepared by Deloitte (as defined below) for the sole purpose of providing a proposal to the parties to whom it is addressed in order that they may evaluate the capabilities of Deloitte to supply the proposed services.The information contained in this document has been compiled by Deloitte and includes material which may have been obtained from information provided by various sources and discussions with management but has not been verified or audited. This document also contains confidential material proprietary to Deloitte. Except in the general context of evaluating our capabilities, no reliance may be placed for any purposes whatsoever on the contents of this document or on its completeness. No representation or warranty, express or implied, is given and no responsibility or liability is or will be accepted by or on behalf of Deloitte or by any of its partners, members, employees, agents, or any other person as to the accuracy, completeness, or correctness of the information contained in this document or any other oral information made available and any such liability is expressly disclaimed.This document and its contents are confidential and may not be reproduced, redistributed, or passed on, directly or indirectly, to any other person in whole or in part without our prior written consent.This document is not an offer and is not intended to be contractually binding. Should this proposal be acceptable to you, and following the conclusion of our internal acceptance procedures, we would be pleased to discuss terms and conditions with you prior to our appointment.Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.