1. The Materials Entrepreneur: Raising Venture Capital 19 April 2010 Hazel Moore FirstCapital

2. Raising equity funding means selling a stake in your business to an external party What are you doing when you raise venture capital? Entering into a Faustian pact Surrendering control (in practice if not in fact) over your company in return for money Pros Limited liability Pay on success (reduced exit proceeds) Cons When things go wrong….. Puts you on a timeline to sell

3. How much money you can raise, and who from, depends on what stage of development the business is at What are the sources of equity funding? Stage of development Type of fundingTypical amount Potential investors Feasibility Develop bench prototype Seed<£50k Friends and family R & D Initial trials of demonstrator unit Start-up£50k-£1mn Angels, seed funds Scale up & production Develop production prototype and engage initial customers First round£0.5mn-£2mn Angels, some VCs Expansion Generating revenues from product in market Second round>£1mnVCs, strategics

4. Angels typically can provide missing skills to fledgling management teams – this can be a great benefit (or a hindrance) Angels: who are they? Private individuals who invest their own money in seed and start-up businesses that interest them Typically invest from as little as £5k up to £250k, often in groups, eg Cambridge Angels, OION Usually only invest locally (within 50 miles/2 hrs) Often secretive and difficult to find – access via angel networks, university alumni, professional advisers, networking

5. VCs come in all sorts of different shapes and sizes. Unless you do your homework and target carefully, you can waste a lot of time and get no-where Venture Capitalists: NOT “one size fits all” Professional investors who invest money that has been entrusted to them by others (typically pension funds, insurance companies, banks etc) Investment amount can range from £500k to £10mn (or more) Who should you approach? Do your homework Know their criteria (stage, sector, geography) Check their portfolio (competing investments, sector knowledge) Seek an introduction

6. To make lots of money! Typically for an early stage business, you need to have the potential to make your investors 10X their money Puts you on a timetable to generate success and sell the business What do investors want?

7. VCs fund only around 1-2% of businesses that approach them There are lots of very good businesses that are not suitable for venture capital What makes a good investment opportunity for a venture capitalist? Very high growth potential Large addressable EXISTING market Evidence of commercial demand/need Having an identifiable “unfair advantage” Products not just technology Robust IPR protection Excellent quality team with track record of success Realistic financial forecasts and capital requirements Credible exit options

8. Investors want to invest as little as possible for the maximum possible return in the shortest possible timeframe Therefore anything that delays or reduces the exit or requires unanticipated extra capital is bad news What do investors really dislike? Technology push not customer pull No evidence of commercial need Low value business models Licensing (not enough value capture) Process innovation (how to police?) High capital requirements Heavy investment in fixed assets Lengthy time to commercialisation Market yet to develop Slow adoption cycle by customers

9. All risk must be seen in the context of the potential return If the potential return is very high, investors will take more risk The more that you can do to mitigate or reduce the risk, the better your chances Investors are very risk averse Market risk What if the market is not big enough? What if the customer does not want to buy the product? Execution risk What if the management cannot deliver? Financial risk What if delays mean more money is needed? Investment risk What if I cannot sell for enough money? Technology risk What if it cannot scale to production?

10. Fundraising is also about psychology Create demand and desire for what you are selling Maintain momentum and competition in the process How to maximise your chances of running a successful process Offer an attractive investment opportunity supported by a compelling business plan and presentation Know who to approach and how to get in front of them Achieve (and report) sales/milestone progress during fund raising process Maintain deal momentum to achieve closure

11. The key steps Preparation - before you start The business plan The presentation Marketing – making it count Selecting your targets How to get in the door Completion - getting the money Negotiating terms Navigating due diligence

12. Objective of the teaser/business plan is to secure a meeting Sales document not an operating plan What makes a good investor business plan? Crisp, clear, compelling Concise and well presented, avoid jargon Short 25-30 pages Save the detail for later Focus on: Market opportunity – how big, why you? Customer benefits – quantify Management capability – track record Financials – underpin with defensible realistic assumptions

13. You only have one chance to make a first impression What makes a good investor presentation? First impressions matter Be on time Prepare: know who you are meeting and their background Practice beforehand Prepare a powerpoint presentation of 10-12 slides Focus on the investment case Expect the meeting to last no more than 1 hour Listen to the questions and answer them clearly Be enthusiastic and upbeat Ask for the money

14. Fund raising is time consuming - persistence and hard work is required How to get in the door DO NOT SEND AN UNSOLICITED PLAN BY EMAIL Seek a referral; or Check the name of the relevant person and call him/her Have your elevator pitch prepared for the phone call Capture his/her attention Ask for a meeting Don’t forget to follow up (at every stage)

15. Keep momentum high and create a sense of competition Surviving due diligence Don’t take your eye off the ball Fund raising will take 4- 6 months The business MUST continue to make progress Keep the momentum high Respond quickly to information requests Think about your referees and tee them up (VCs won’t just take your word for it) Focus on the whole deal, not just the valuation Get the best advisers and lawyers you can afford

16. GOOD LUCK! hazel.moore@firstcapital.co.uk +44 20 8563 1563 hazel.moore@firstcapital.co.uk