Raising Money in Small Companies November 11, 2004 Dale H. Munk
Raising Money in Small Companies November 11, 2004 One Man’s View
Background -Farmer from Southern Idaho -Married, Five Children -MBA from the Other School in Utah -Business Locations Boston, San Diego and Provo -Focused on Small to Medium Sized Companies / Troubled
Money -Almost All Businesses Need It -You Need Much More than You Think -Bad Things Happen if You Can’t Get It -Survive or Capitalize on Opportunities
Three Primary Sources of Financing - Venture Capitalists -Angel Investors -Strategic Partners
Three Primary Sources of Financing -Venture Capitalists -Angel Investors -Strategic Partners
Dramatic Upheaval -First Quarter, ’00 the Zeneth-$29 Bil -Last Quarter-$5.9 Bil -Last Quarter at-Q4, 1998 Levels
Dramatic Upheaval -In Q1 2000, Invest in Any Crazy Idea -Today, Better Have a Great Plan -Startup Investments are Sparce -Old Deals are on Life Support
Vulture Capital -Waiting to Pick the Bones -Greed and Fear-Mostly Greed -Demand 50%-70% of the Company -Ruthless with Management
A Kinder, Gentler View -Providing Fuel for Ideas -Facilitate the Advancement of Technology -Take Big Risks / Should Get Big Rewards
Vulture Capital Scenario Local Current Example -Three Founders Raied $2 Mil from Friends and Family -Worked Like Dogs for Eight Years -Suffered -Went to VCs for Rescue
Vulture Capital Scenario Local Current Example -Took 60%, 25% and 25% in Three rounds -Founders Now Hold 1.2% But are at the Bottom of the Waterfall. Will Get Nothing -Lost Their Jobs to Boot
Qualify for Venture Capital If You Have -A Credible Management Team -A Large Market -A Great Idea With a Great Bus Plan -A Credible Exit Strategy
Qualify for Venture Capital If You Have -Ability to Provide 5-10 X Investment -Over 3-5 Years -Implying Ability to Create $ Mil Valuation
How They Think? -Philosophy of 3 of 10 is Good Enough -A Few Losers, A Few Winners, A few Marginal -Parametric Technologies -It is About Managing Risk
Managing Risk -Take Controlling Position (50%-70%) -Invest in Seasoned Management -Conduct Extensive Due Diligence -Invest Small Amounts in Many Deals
Managing Risk -Insist on Preferred Stock, Liquidation Preferences, Anti-Dilution Provisions and Dividends -Require Board Seats -Seek Veto Power on Major Decisions -Get in Your face
Where Do They Get Their Money? -Wealthy Individuals -Insurance Companies -Pension Funds -Other VC Funds
Venture Capital -About 700 (1300) in the US -Industry Preference -Geographic Preference -Round / Class Preference
Venture Capital Questions?
Three Primary Sources of Financing -Venture Capitalists -Angel Investors -Strategic Partners
Angels -Wealthy Individuals -Diversifying Their Own Portfolios -Usually Not Part of Organized Group
Angels -More Hands Off than VCs -Less Sophisticated Risk Evaluation -Move More Quickly -Easier to Control
Angels -Pay Higher Price -Willing to Do Seed -Invest Smaller Amounts -Less Staying Power
Angels Questions?
Three Primary Sources of Financing -Venture Capitalists -Angel Investors -Strategic Partners
Strategic Partners -Investments Leverage Their Own Business Initiatives -ROI Not Measured by Money on Money
Strategic Partners -Cost of the Money is Lowest -Other Benefits: Validation, Testing, Marketing Help, Rollout -In Your Face for All the Right Reasons
Strategic Partners Questions?
Keys to Raising Money -Assemble a Good Management Team -Pursue a Good Idea / Test, Validate, Study it Out -Quadruple Best Cash Needs Estimates -Be Persistent-Hang In There
Raising Money in Small Companies March 2, 2004 Questions