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Assessing the Cost of Capital
BioWednesday October 7th 2010 Oscar Jazdowski
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Agenda Silicon Valley Bank overview Available forms of capital
Sourcing equity Sourcing other forms of capital Route to capital Closing remarks
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Silicon Valley Bank overview
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Available forms of capital
Equity: Friends – Family – Fools Business Angels Government grants / Lottery funding / Princes Trust Institutional Venture Capital Other sources of capital: Investments Partnerships/JVs/Distribution Agreements Debt: Venture debt Working capital Acquisition financing/Term Debt/Re-Caps
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Sourcing equity It is critical to understand what every level of capital expects as a return: Friends and Family: Not really in it for the money… or are they? Are they prepared to be diluted away? Return Expectations: 0% – 0% Business Angels: Individuals generally investing between £10,000 - £100,000 in earlier stage investments Value add or trouble ahead? Return Expectations: 5% – 20%
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Sourcing equity Institutional Venture Capital: Pros:
Expertise and experience Network Credibility Higher return Expectations: 30% + Cons: Reduction of personal equity stake Control issues Increased reporting / targets
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Sourcing other forms of capital
Partnerships/JVs/Distribution Agreements: Different investment criteria and return expectations Debt: Stable or unstable Return expectations - none to little dilution: Venture Debt: 12% – 18% Working Capital: 6% - 8% Acquisition Finance: 10% - 18%
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Sourcing other forms of capital
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Route to capital Preferred access to capital:
Customers Joint Ventures/Partnerships Debt Equity Typical access to capital:
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Closing remarks
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