Alliance Venture TINC. Inves&ng in emerging technology companies & suppor&ng their global expansion. Start- up funding, raising capital and VCs

Size: px

Start display at page:

Download "Alliance Venture TINC. Inves&ng in emerging technology companies & suppor&ng their global expansion. Start- up funding, raising capital and VCs"

Sara Ball
8 years ago
Views:

1 Alliance Venture Inves&ng in emerging technology companies & suppor&ng their global expansion TINC Start- up funding, raising capital and VCs Arne Tonning, Partner, Alliance Venture

2 The challenge of start- up funding Source: Smarter Ventures, FT Pren8ce Hall,

3 Agenda What you have been promised Nordic vs. US approach Par8cipants to share challenges and experiences VC process including term sheets, pros, cons, what are VCs looking for, what do you need to look out for etc. 3

4 Agenda Start- up funding Investement process VC perspec8ve What are VCs looking for Nordics vs US Q & A 4

5 Sources of capital and equity Sources of capital Sources of equity Equity Debt SoT funding Commercial revenues & profits Founders themselves FFF (friends, fools and family) Wealthy individuals / Family offices Professional private investors / Business angels Crowdfunding Seed funds Venture capital funds Industrial investors / companies Seed/venture capital funds target only high growth and absolute poten9al opportuni9es 5

6 Agenda Start- up funding Investement process VC perspec8ve What are VCs looking for Nordics vs US Q & A 6

7 Venture capital investment process Source: Smarter Ventures, FT Pren8ce Hall,

8 Venture capital investment life cycle and investment process VC investment life cycle Ini&al Investment (3-12 months) Value development (1-10 years) Exit (3-12 months) Case iden8fica8on (deal flow) Screening & evalua8on Nego8a8on & term sheet Due diligence Investment 8

9 Alliance Venture deal- flow funnel Uniden8fied poten8al investment New Screening Monitor Hold History Screening ac8ve Evalua8on Term sheet Due Diligence Investment > por_olio company Monitor Hold History 9

10 Process to land investment VC equity Case iden8fica8on (deal flow) Screening & evalua8on Nego8a8on & term sheet Due diligence Investment Agreements u Term sheet u Investment agreement Shareholders agreement EGA protocols and (many) appendices Core ac&vi&es Mee8ngs to understand more Discuss main terms Legal Discuss details Analysis/evalua8on in various dimensions Financial Agreements Valua8on exercise Technical Commercial HR 10

11 Process discussion points Finding a lead investor NDAs Value of introduc8ons from trusted sources Fit and posi8oning find out how they and what a firm invests in & when Partners vs firms Ask for advise Time it is a process, not a decision Deliver on plans Understanding feedback from VCs 11

12 Importantance of finding an investor fit Finding an investor is like da1ng to find someone to marry and convince them to spend their money on what you want to do As opposed to marriage, you cannot get a divorce 12

13 Terms (mostly for equity) - discussion points Valua8on Class of shares and preference structure Op8on pool Control / veto rights Drag- along An8- dilu8on terms 13

14 Conver&ble notes and similar Debt Will convert in a qualified equity round (Series A) Rebate (typically 20%) Cap (max price) Some8mes interest No control and BoD representa8on 14

15 Standard documents US: Series seed - hgp:// (equity) Y combinator - hgps:// SAFE (simple agreement for future equity similar to conv. note) Series AA Preferred Stock (equity) Techstars - hgp:// (both equity and notes) Europe: Seedsummit - hgp://seedsummit.org/termsheets/ (equity term sheets) 15

16 Agenda Start- up funding Investement process VC perspec8ve What are VCs looking for Nordics vs US Q & A 16

17 Financial return targets drive venture capital investment decisions Venture capital key objec9ves Investment decisions Multiple = Distribution Invested Target: 5x- 10x Cost of investment IRR = Years Distribution Invested 1 Capital need Risks Growth rate Overall poten8al Target: 30%- 60%/year 17

18 VC return requirements Required investment return vs. stage of development (two different sources) Stage Expected annual return Company stage Discount rate Seed 80% Seed stage Over 80% Start- up 60% Start- up stage 50% to 70% First- stage 50% First stage 40% to 60% Second- Stage 40% Source: Venture Capital Due Diligence, p. 217, Wiley, 2002 Thrid- stage/mezzanine 30% Bridge 25% Source: The Venture Capital Handbook, FT Pren8ce Hall, 2000 Mul&ple - x IRR IRR as a func&on of Mul&ple and Years to exit Years to exit % 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 2 100% 41% 26% 19% 15% 12% 10% 9% 8% 7% 7% 6% 3 200% 73% 44% 32% 25% 20% 17% 15% 13% 12% 11% 10% 4 300% 100% 59% 41% 32% 26% 22% 19% 17% 15% 13% 12% 5 400% 124% 71% 50% 38% 31% 26% 22% 20% 17% 16% 14% 6 500% 145% 82% 57% 43% 35% 29% 25% 22% 20% 18% 16% 7 600% 165% 91% 63% 48% 38% 32% 28% 24% 21% 19% 18% 8 700% 183% 100% 68% 52% 41% 35% 30% 26% 23% 21% 19% 9 800% 200% 108% 73% 55% 44% 37% 32% 28% 25% 22% 20% % 216% 115% 78% 58% 47% 39% 33% 29% 26% 23% 21% % 287% 147% 97% 72% 57% 47% 40% 35% 31% 28% 25% % 347% 171% 111% 82% 65% 53% 45% 39% 35% 31% 28% % 448% 211% 134% 97% 76% 63% 53% 46% 41% 36% 33% % 532% 242% 151% 109% 85% 69% 59% 51% 45% 40% 36% % 607% 268% 166% 119% 92% 75% 63% 54% 48% 43% 39% % 900% 364% 216% 151% 115% 93% 78% 67% 58% 52% 47% 18

19 Alliance Venture looks for a great People, Poten&al, Product combina&on Investment Criteria 3Ps People Strong team Specialist skillset Industrial experience or know- how Coachable Extreme mo&va&on to succeed Poten&al Overall big size opportunity Scalable business model High importance/ impact Product Effec&vely pin- poin&ng and solving big pain points Focus on product/ market fit to capture poten&al Proof of trac&on 19

20 Investment evalua&on dimensions Opportunity size (Poten8al) Team (People) Product Trac8on Scalability Business model Strategic hypothesis Core technology Compe88on Market & tech trends Capital need Valua8on & ownership Exit opportuni8es Fit Risks Opportunity mapping Opportunity size (Poten8al) Risks 5 4 Team (People) Fit Product 3 2 Exit opportuni8es Trac8on 5 Valua8on & ownership Scalability 3 Capital need 2 4 Business model Market & tech trends 4 Compe88on 5 Average Strategic hypothesis 4 Core technology Score 20

21 Trac&on What do VCs mean? hgp://johngreathouse.com/what- the- heck- does- trac8on- really- mean- to- a- vc/ 21

22 Examples of ques&ons from screening and evalua&on checklist Poten8al to return 100+ MNOK to fund? Outlook for posi8ve and construc8ve working rela8onship? The O Hare, Oh Shit and No Asshole tests Product- market fit in place? Searching or scaling? How big is the pain being addressed by offering and what is it worth? Big pain killer or nice to have? Key risk factors (technical, market or financial)? Compounding risk? Long- term opportunity or trend vs window of opportunity? Founder heavy and clean cap table? 22

23 Next steps - valua&on and nego&a&on Evalua8on determines the principal interes8ng to invest, including both: The opportunity itself Fit in terms of por_olio, capital need, co- investors, AV capabili8es, etc. Valua9on Internal Future exit poten1al Future cash flow Inherent value Exis1ng valua1on External Expecta1ons Market/ mul1ples Alterna1ves Analysis u8lizing models and triangula8on Accounts for stage and risks Seeks to determine a fair and acceptable valua8on Nego9a9on Prac8cal and centered around agreeing on mutually acceptable terms 23

24 Agenda Start- up funding Investement process VC perspec8ve What are VCs looking for Nordics vs US Q & A 24

25 Nordic vs US (vs CA) Number and types of players Syndica8on Liquidity Speed Conver8ble notes/conver8ble debt/safe (simple agreement for future equity) Types of stock Some formality differences Investment agreement / subscrip8on agreement vs stock purchase agreement Shareholders agreement vs Investors rights agreement Ar8cles of associa8on / Bylaws / Cer8ficate of Incorp. 25

26 x 26

27 Stages of investment well- defined in the US Typical (successful) tech company journey: Series Seed: Figuring out the product and gewng to user/product fit Investment in team (3 + X * 1 Y * 2) + some model of product OTen conver8ble note typically 250 kusd 2 MUSD Series A: Scaling the product + distribu8on and gewng to a business model Validate true scaling Preferred stock / equity 2 15 MUSD Series B: Scaling the business Fueling a working model + expanding Preferred stock / equity 10+ MUSD typically Series C onwards: More capital to scale Preferred stock / equity Large rounds Defined level of metrics/maturity expected at each stage Expect to give up 20-35% of company in each round hgp://blog.eladgil.com/2011/03/how- funding- rounds- differ- seed- series.html 27

28 Data on US valua&on and round size 28

29 x hfp://fundersandfounders.com/how- funding- works- splihng- equity/ 29

30 Agenda Start- up funding Investement process VC perspec8ve What are VCs looking for Nordics vs US Q & A 30

31 Thanks! Q&A Alliance Venture Arne H. Tonning Partner Mobile: Stranden Oslo, Norway 31

Creating a Financing Strategy for Your Business

Creating a Financing Strategy for Your Business "It is not the critic who counts...credit belongs to the person who is in the arena, whose face is marred by dust and sweat and blood...whose place shall