1. European Business Angels Network Fueling Europe’s Growth

2. Introduction EUREKA HTIP Investment Readiness webinar #2 « Raising Capital through an Effective Process » Presented By Paulo Andrez | EBAN President Emeritus, Business Angel Riku Asikainen| FiBAN President, Business Angel

3. Paulo Andrez Business Angel, President Emeritus EBAN Brussels, 17-03-2015 How to raise capital through an effective process

4. Executive summary Why Business Angels Exist ? Valuation Business Angels do not sign NDAs in the first meeting Terms of Investment ✓ Risk mitigation

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6. Startups Valley of Death 6

7. A typical angel investment process Initial feedback coaching Deal screening Deal sourcing Company presentations Due diligence. Investment terms and negotiation Post-investment support Investment

8. Executive summary Why Business Angels Exist ? Valuation Business Angels do not sign NDAs in the first meeting Terms of Investment ✓ Risk mitigation

9. Angels do not sign NDAs in the first meeting Main reasons for not asking a NDA to be signed by Angels - It is a bad start by telling the Angels that you do not trust them - Angels see tens or hundreds of business plans per year so signing NDA’s on all of them, would put the Angel out of the business in some weeks or months - Some entrepreneurs like litigation and if they see an opportunity... So Angels are very careful about signing anything when they do not know the entrepreneur well - In 99% of the cases, there is nothing to protect, which makes the situation a bit ridiculous and a reason for non investment 9

10. Executive summary Why Business Angels Exist ? Valuation Business Angels do not sign NDAs in the first meeting Terms of Investment ✓ Risk mitigation

11. ©Paulo Andrez 2015 Imagine that you have 100.000 euros in a safe bank, and you have 4% of interest rate on your deposit. Hi, My name is Zephyr, and I want you to invest in my new fantastic Start Up ! I will pay you 5% annually. 11

12. But if the World Bank guarantees you that if Zephyr’s new venture doesn’t pay you the 5%, they will pay it immediately to you, would you invest ? 12

13. 0% Mitigated Risks 100% Probability of an entrepreneur to raise money for his/her venture Goal Risks (MELFO) Market, Entrepreneurs, Legal, Financial & Operational Banks Mutual Guarantee Venture Capital Business Angels Family, Friends, Fools & State 100 % Crowdfunding Source: Paulo Andrez 13

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15. Total Risk of the Project Initial project Project after risk mitigation Reduction of 50%-90% of the initial project Final Risk of the Project Get out of the Comfort Zone 15 Source: Paulo Andrez

16. 1 Risk – Market B2C products - > reward crowdfunding B2C can be transformed initially in B2B B2B - Approve samples before production line is built B2B – Get pre-orders or intentions Find key sales managers in strategic markets, with direct access to market Choose suppliers that can buy the final products 16

17. 2 Risk – Entrepreneur (Team) Add cofounder(s) Hire Interim Manager A Lead angel can become temporarily CEO, while founder can become CTO or COO Assigning difficult tasks to entrepreneur before investing in order to assess his/her skills 17

18. 3 Risk – Legal Subcontract a due diligence Hire an IP attorney with international experience to do the IP due diligence 18

19. 4 Risk – Financial Get written quotes from main suppliers Reduce the level of investment (by splitting the investment) Rent instead of buy (buildings, vehicles, machines…) Extensively use buy back options for main equipments Use SaaS solutions (e.g. search in www.capterra.com)www.capterra.com Subcontract initially the production before investing hugely in a production line Make agreements with main initial suppliers, transforming fixed cost in variable cost. Revenue sharing. Receiving the payments from clients to secure orders 19

20. 5 Risk – Operational Get written statements from reliable entities confirming that the product will perform as expected Do not reinvent the wheel. Use standard pieces and equipments in the products. Reduces the risk of non performing units Make a prototype using smart negotiations with suppliers and eventual partners in the region 20

21. Executive summary Why Business Angels Exist ? Valuation Business Angels do not sign NDAs in the first meeting Terms of Investment ✓ Risk mitigation

22. Terms of Investment Investment terms and conditions include the following: Amount and use of investment; Percentage ownership; Equity and debt structure; Dividend and interest (if applicable) rights; Voting rights; Management incentive schemes; Exit arrangements; Management changes; Investor board representation; Investor veto rights; Reporting requirements and consequence of failure; Costs and confidentiality; and Steps to closing. 22

23. Executive summary Why Business Angels Exist ? Valuation Business Angels do not sign NDAs in the first meeting Terms of Investment ✓ Risk mitigation

24. Priced rounds. Traditional approach. The valuation needs to be low enough to ensure an investor can achieve an attractive return. It needs to high enough to keep existing shareholders incentivised. Degree of influence Have a realistic valuation expectation – the investor has to make an attractive return on his investment Valuation multiples/metrics Where there is revenue and/or profits, various multiples or metrics can be applied to establish a valuation o A multiple of recurring revenue; o A multiple of EBITDA; o A multiple of profit after tax; o A sector markup; o A value for every active user/customer… Pre-money valuation: €700k Post-money valuation: €1 million 24

25. 25 What is the value of a project ?

26. How to solve the conflict of pre-evaluation? Options (earn out) based type of investment % achieved of the goal % of equity in the company % achieved of the goal 26

27. THANK YOU! paulo.andrez@eban.org Your Logo

28. EFFECTIVE FUNDING PROCESS Process by Finnish Business Angels Network (FiBAN)

29. Executive summary FiBAN introduction Pitch Screening form FiBAN angel activity Startup deal flow process Deal flow platform (Gust) ✓ 77 Syndication interest Term sheet 88 66 55 44 33 22 11

30. FiBAN is a association of private investors that aims to improve the possibilities for private persons to invest into unlisted potential high- growth companies. A non-profit, private investor driven association Deal flow and investor match-making, training and syndication “European Business Angel Network of the Year 2012”

31. +450 approved business angel members +21M€ 200 angels invested in 238 companies +500 potential investment opportunities +140 angel events in 2014 FIBAN ANGEL ACTIVITY 2014

32. STARTUP PROCESS Free-of-charge Includes investor feedback Links to growth resources Visible for 3 months Companies chosen to pitch In cooperation with Finnvera Short presentation to wake investor interest Sector-based and regional events INVESTMENT/ SYNDICATION Investor evaluation (due diligence) Alone or in group Capital and/or sweat equity (knowledge) PITCHSCREENINGSUBMIT ca 1 week ca 3 weeks ca. 6 weeks www.fiban.org/submit ca 2 – 4 months

33. FIBAN’S DEAL FLOW PLATFORM - GUST

34. SCREENING FORM

35. PITCH

36. Syndication interest

37. TERM SHEET

38. FIBAN www.fiban.org Your Logo

39. Questions and Answers

40. Next webinar: Communicate with Investors Speakers: Michael O’Connor | Cork Bic CEO Selma Prodanovic | Keynote Speaker, Entrepreneur, Philanthropist Date: 25 th of March, 2PM CET