Start-up financing and assessment

Transcription

1 Start-up financing and assessment Lex de Lange, LL.M. Zernike Group Holding BV CEO Jönköping, September

2 Starting a new firm Stages of financing Financing forms Seed capital Figures Jönköping, September

3 Starting a new firm Jönköping, September

4 What is the real issue? Money like water? A droplet on a hot plate? Technology, innovation, entrepreneurship and finance need to be balanced Jönköping, September

5 Venture Capital... what is it? How to finance a start-up Your own money Government Banks Personal environment Start-up funds Venture Capital Investment Grants and loans Credit and loans Loans Equity and loans Equity Jönköping, September

6 Nicely financed... Jönköping, September

7 The bank will provide you with a loan if you can proof to them that you don t need it. - Bob Hope - Jönköping, September

8 VC s are after the big money I have a good idea I have a good plan I am going to work hard They take a major part of my earnings! - One of many entrepreneurs from our practice - Jönköping, September

9 VC s focus on data, keeping me from my real work! Jönköping, September

10 Investors Love unique technology When development is ready More developing is a must As long as this will not affect success in a negative way Love a wide range of user possibilities As long as the target market is approachable Love a big market But they find their opinion concerning product and company more important Jönköping, September

11 Venture capital is submitted due to the chance of high returns on investment, taking the risk to lose everything Both are to be shared Jönköping, September

12 Stages of financing Jönköping, September

13 Financing Technological development... Investments (seed) and subsidies Business start-up... Investments (seed) and bank credits Market development... Investments (VC) and bank credits Projects and stock... Bank loans Jönköping, September

14 Identifying the stages Product/Market Development Stage HIGH Risk Of Failure Zernike Commercial Value LOW Market consolidation Market expansion Market penetration Product development Marketing & research Prototyping Market definition Innovation & R&D University R&D Angels /3F s Funds under Zernike management Seed VC/IIF Business Development Tiers VC/ Expansion Sources Of Funding IPO/MBO /Trade Sale Tier 0 Tier 1 Tier 2 Tier 3 Tier 4 Tier 5 Pre-incubation Incubation Early Commercial Maturity Commercialisation Jönköping, September

15 Stages Other services apart from financing are: financial planning and advice on sources for financing projects once they are beyond the seed stage market analysis competitive positioning business strategies other types of specialist advice Jönköping, September

16 Financing forms Public National investment incentives Incentives for new technologies Regional investment schemes Regional development corporations Regional restructuring funds Tax incentives Jönköping, September

17 Public venture-backed companies stimulate the economy: improve the environment for private equity to maximise growth, innovation and employment create an entrepreneurial environment encourage tax-efficient share incentives develop long-term capital sources facilitate fund formation give public support only when partnered with private equity Jönköping, September

18 Public - example IPR grants are not suited for starting businesses as major conditions have to be met, being: 1. The investment should be made from the inventor s own account. 2. At least 25% of the investment costs should be financed with equity capital. 3. Application for a grant should be submitted before any investment commitment is entered into. Jönköping, September

19 Public - example Development corporations set up by the Dutch government have two objectives: 1. Acquisition of subsidiaries of (foreign) companies for their region. Also helping them setting-up new enterprises and dealing with government bodies. 2. Financial assistance in the form of equity capital to starting or expanding companies. Jönköping, September

20 Public - example Regional Restructuring Fund The Integral Structure Plan s (ISP) main objective is to improve the economic infrastructure in the region. Some subsidies issued by the ISP are directed at creating favourable conditions for starting businesses or introducing new products. Tax Incentives The main tax incentives relevant for starting businesses are: Investment deduction Carrying backward/forward tax losses Tax exemption for starters Jönköping, September

21 Seed capital Jönköping, September

22 Seed capital What would the entrepreneurs like? Not only finance but also expertise: financial advice corporate strategy/direction a sounding board for ideas challenging the status quo contacts and market information management recruitment marketing strategy Jönköping, September

23 MISSION Providing seed financing and an environment in which potential entrepreneurs are able to access technical and professional advice, and a network to develop innovative concepts into profitable companies with a strong management capable of capitalising on growth opportunities that are attractive to investors. Jönköping, September

24 SEED CAPITAL VS VENTURE CAPITAL Seed Capital - small investments at early stage - vision carried out by one person requires high hands on support - due diligence limited - high risk long-term investment - commonly high-technology - active participation & monitoring - unpredictable income & costs Venture Capital - large investments at matured/ expansion stage - experienced management team - due diligence extensive known - limited risk short-term investment - often low-tech - strategic participation & monitoring - predictable cash flow - customers & competitors unclear - customers & competitors clear Jönköping, September

25 Success... The success probability of a seed stage business is as follows: Technical success 60% Commercial success 55% Economic success 40% Overall probability 13% Jönköping, September

26 Academically speaking, technology transfer is about (The Dutch Experience) Jönköping, September

27 SEED FUND SUPPORT Management support Marketing and sales support Administrative support Subsidy advice Coaching Training and seminars Jönköping, September

28 CRUCIAL ROLES IN INNOVATION IDEA of People Entrepreneurs Entrepreneurial team Sponsors (government, VCs, research institutes, universities, ICT companies) Climate maker Jönköping, September

29 TARGET GROUP Graduates/candidates from universities, higher vocational schools and other scientific institutions; Researchers from knowledge institutions to commercialise their scientific knowledge; Technical industrial entrepreneurs Starting entrepreneurs. Jönköping, September

30 FRAMEWORK Investing in promising innovative start-ups by providing Seed Funding Formal Criteria: - venture should be a start-up company or in the process of developing or commercialising their product - should be... related idea - size of company - space requirements -location Jönköping, September

31 PROCESS OF SEED FUND INVESTMENT Investment criteria Finding projects Gathering of information (& registration) Screening Assessment (due diligence) Negotiations and actual investment Investee monitoring and providing support Exit stage and realizing returns Jönköping, September

32 World view Jönköping, September

33 World view Jönköping, September

34 Jönköping, September

35 World View Jönköping, September

36 European Jönköping, September

37 European Jönköping, September

38 European Jönköping, September

39 Start-up financing and assessment Due diligence How to minimize your risk? Jönköping, September

40 What is due diligence? Research of the strategic, commercial, operational, financial and legal aspects of an entity Preferably an extensive research of the complete business, to support the buyer Jönköping, September

41 Aim due diligence Confirmation of expectations Collecting relevant information Price reduction Analyzing strengths and weaknesses Asses the consequences and effects for the new owner of an acquisition Additional securities towards directors Jönköping, September

42 The due diligence should be a complete assessment People, HRM Organization (structure) Financials Business Strategy Technology, incl. IP Market industry and competition Jönköping, September

43 Assessment Category: People Entrepreneurialism and leadership Education and training Experience, track list Commercial skills Financial commitment Balance of skills Entrepreneuralism Jönköping, September

44 Assessment Category: Market Comparables Market accessibility Market nature Target group size and matching Micro influences Price comparison and sensitivity Jönköping, September

45 Assessment Category: Technology and Innovation Innovative level Industrial feasibility Cost confirmation of technology Cost efficiency Societal benefit Technology platform Jönköping, September

46 Assessment Category: Business Strategy Method of distribution and sales Marketing plans and milestones Product strategy Time to market Co-operation objectives Jönköping, September

47 Assessment Category: Financial Planning Planned debt-to-asset ratio Exploitation prognosis and expenditure composition Balance sheet Liquidity prognosis Return on investment Jönköping, September

48 Strategic and commercial due diligence Identification of specific ratio s Input in stand-alone financial projections Input in strategic rationales Evaluation of synergy, e.g. opportunities for cost reduction Jönköping, September

49 Scope for a strategic and commercial due diligence is depending on: Expansion Local Enterprise Small transaction Not confidential Diversification International Venture capitalist Big transaction Exchange Confidential Jönköping, September

50 Financial Due Diligence Is the company dressed for sale? Meaning of an audit certificate? Jönköping, September

51 Is the company dressed for sale? Less conservative valuations Cutting in discretionary costs Estimations Delay investments Transactions with related parties Exceptional earnings and expenses Other changes Jönköping, September

52 Due diligence: at which moment? Timing of the due diligence for a take over Information memorandum Valuation by selling party Search Negotiation letter of intent Due diligence Valuation by buying party Negotiation deal making Closing audit integration after take over Jönköping, September

53 Keeping your finger on the time line For buying party Timing Letter of intent Good project management For selling party Timing Continuation Closing the deal Jönköping, September

54 INVESTMENT Investment decision made by a selected Board of Advisory Directors Negotiate the valuation of the venture to render a fair equity stake Once investment is made, investment managers actively monitor and provide support when required Exit stage: trade sale, IPO, merger or management buy-out Jönköping, September

55 And competences and integrity Jönköping, September

56 Golden rule: There are always reasons not to invest Jönköping, September