POLYTECH VENTURES - How to be prepared to negotiate with an Investor. Know Your Investor

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1 POLYTECH VENTURES - How to be prepared to negotiate with an Investor

2 V E N T U R E C A P I TA L I N T R O D U C T I O N Why? If you launch your project, there is a high likelihood that you will need an investor! Run out of grants Impossible to ask for debt financing Need to bring new skills and network on board Understanding how investors work is essential EUROFIN VENTURES PRESENTATION PAGE 2

3 V E N T U R E C A P I TA L F U N D I N G I N N O VAT I O N EUROFIN VENTURES PRESENTATION PAGE 3

4 C O N TA C T HOW VC WORKS? EUROFIN VENTURES PRESENTATION PAGE 4

5 V E N T U R E C A P I TA L H O W VC W O R K S Where does the VC money comes from? EUROFIN VENTURES PRESENTATION PAGE 5

6 V E N T U R E C A P I TA L H O W VC W O R K S EUROFIN VENTURES PRESENTATION PAGE 6

7 V E N T U R E C A P I TA L H O W VC W O R K S EUROFIN VENTURES PRESENTATION PAGE 7

8 C O N TA C T SELECTING YOUR INVESTOR EUROFIN VENTURES PRESENTATION PAGE 8

9 V E N T U R E C A P I TA L S E L E C T I N G Y O U R I N V E S T O R Your Investor should bring you the following Cash (today and tomorrow) Expertise (biz dev, finance, strategy, growth, HR, marketing, etc) Network (clients, partners, HR) Additional credibility An Investor works for you and pays you at the same time. However, don t forget that the best money comes from customers! EUROFIN VENTURES PRESENTATION PAGE 9

10 V E N T U R E C A P I TA L S E L E C T I N G Y O U R I N V E S T O R Who is your Investor? Investment philosophy (focus/time for new deals/partner in charge) CV Reputation Current and past investments (focus/expertise/network) Past successes and failures (like/don t like) Average investment per company Geography Does he really understand your business? Due diligence process / time to invest / decision making Listen to your feeling! Do you go along with him? EUROFIN VENTURES PRESENTATION PAGE 10

11 C O N TA C T Valuation Method EUROFIN VENTURES PRESENTATION PAGE 11

12 V E N T U R E C A P I TA L VA LUAT I O N M E T H O D Traditional valuation methods Basic principle: The value of a business is equal to the present value of all its expected future cash flows. Main method = Discounted Cash Flows Alternative methods include: Earnings based Asset based Comparable transactions Those methods are difficult to apply to start-ups that are burning cash and making losses in the first years of operation. Therefore Investors use an alternative method. EUROFIN VENTURES PRESENTATION PAGE 12

13 V E N T U R E C A P I TA L VA LUAT I O N M E T H O D Valuation method Basic principle: What price should I pay if I need to generate x% of return? Investors need to generate appropriate returns (IRR) to cover their risk Returns depends on a few variables: Valuation when investing (Buy) Valuation when exiting (Sell) Time to exit Cost of capital (also called discount rate ) EUROFIN VENTURES PRESENTATION PAGE 13

14 V E N T U R E C A P I TA L VA LUAT I O N M E T H O D Knowing how investors work and what are their constraints and objectives, put you in a better position to raise funds from them. Try to value your business as an investor would do it. EUROFIN VENTURES PRESENTATION PAGE 14

15 C O N TA C T Term Sheet EUROFIN VENTURES PRESENTATION PAGE 15

16 V E N T U R E C A P I TA L T E R M S H E E T What is a Term Sheet? A Term Sheet is a non binding agreement between an Investor and a company that outlines the terms of the transaction. The Term Sheet is proposed by the Investor. A Term Sheet is very similar to a LOI (Letter of Intent). A Term Sheet has three important functions: It summarizes all the important financial and legal terms related to the transaction. It quantifies the value of the transaction. It serves the basis by which to draft the legal documents EUROFIN VENTURES PRESENTATION PAGE 16

17 V E N T U R E C A P I TA L T E R M S H E E T What is a Term Sheet? The key elements of the Term Sheet are Amount raised Price per share Pre-money calculation Liquidation preference (!) Anti-dilution provisions (!) Voting rights & board seats Etc. EUROFIN VENTURES PRESENTATION PAGE 17

18 V E N T U R E C A P I TA L T E R M S H E E T The simpler the Term Sheet, the better. Don t hesitate to call the advice of a lawyer. EUROFIN VENTURES PRESENTATION PAGE 18

19 C O N TA C T Polytech Ventures EPFL Innovation Park Building E 1015 Lausanne Switzerland EUROFIN VENTURES PRESENTATION PAGE 19