Raising Capital Frank Demmler

© Frank Demmler Investor Perspective Looking for a “black box” Looking for a “black box” Looking for a reason to say “No” Looking for a reason to say “No” –Many investment alternatives –Limited time to evaluate –Very quick and “brutal” screen Looking for “acceptable risk” Looking for “acceptable risk” –Investor’s perception of risk –Areas of risk »People »Business

© Frank Demmler Fundraising Tactics Perception of risk is not static Perception of risk is not static Investors may be grouped by perceptions of risk Investors may be grouped by perceptions of risk –People who know you –People who know the business »Corporate »Individual –People who don’t know you or the business

© Frank Demmler Sequencing strategy Run parallel paths Run parallel paths Concentrate on the first two groups Concentrate on the first two groups Initial commitments reduce the perceived risk of the third group Initial commitments reduce the perceived risk of the third group Use commitments strategically Use commitments strategically

© Frank Demmler 20045

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7 Other risk reduction techniques Stage the investment with milestones Stage the investment with milestones Build in “go-no go” decision points Build in “go-no go” decision points Cite relevant analogs Cite relevant analogs Obtain third party endorsements Obtain third party endorsements Use intermediaries Use intermediaries –For introductions to investors –For fundraising Use halo effect of board members or advisory board participants Use halo effect of board members or advisory board participants

© Frank Demmler Deal Structures Investors fall on a continuum Investors fall on a continuum –Lock in higher-than-market rates –Risk everything on a homerun

© Frank Demmler Structures Notes with high interest rates Notes with high interest rates Notes with warrants Notes with warrants Convertible notes Convertible notes Notes with options & buybacks Notes with options & buybacks Preferred stock Preferred stock Common stock Common stock

© Frank Demmler Comments Each structure has pros and cons Each structure has pros and cons Match sources, structures, and personal desires Match sources, structures, and personal desires Must have an exit plan Must have an exit plan Pursue multiple paths Pursue multiple paths

© Frank Demmler Time to Raise Capital Clean up a business plan Clean up a business plan Initiate investor overtures Initiate investor overtures Respond to investor requests Respond to investor requests Investor due diligence Investor due diligence Negotiate deal Negotiate deal Prepare legal work and close Prepare legal work and close

© Frank Demmler Are There Alternatives? Less money? Less money? Stage the investment? Stage the investment? Customers or suppliers? Customers or suppliers? Economic development agency? Economic development agency? Grants? Grants? Strategic partner? Strategic partner? Boot strap? Boot strap?