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Funding Opportunities for Merrimack Valley Startups
thecapitalnetwork.org - @TCNUpdate
Pathways to Funding Your Startup
Jess McLearLaunchpad Venture Group
David KesslerBoston Harbor Angels
Arnie ScottHub Angels
Riley RodgersValia Investments
Matt PerryBoston Financial & Equity
Corporation
Participating Mentors:
Marie MeslinThe Capital Network
Tom O’DonnelUMASS Lowell iHub
Mary Ann PickardM2D2 at UMASS
What Type of Company Are You?
Before you can get funded, you have to know
where to look
Before you know where to look, you need to understand
what you are
What Type of Company Are You?
•The type of company you have will shape the type of funding available to you• Consumer mobile social software company vs
Chemistry-based life science technology product vs Equipment for emergency deployment in disaster zones
•Changes in business model can change the funding required• IP licensing of new battery technology to existing players vs
build a battery distribution company with outsource manufacturing orbuild a manufacturing company with, or without distribution
NORMAL GROWTHCOMPANY
HIGHGROWTHCOMPANY
EXTREMEHIGH GROWTH
COMPANY
SOCIAL VENTURECOMPANY
• Includes all service businesses
• Exploiting a local market need
• Team has ‘great jobs’
• Growth by adding resources one by one
• Exit will be based on value of cash flow (mature biz.)
• Growth profile ultra-scalable
• Team focus is exit
• Revenue $40M+ with lots of room for growth (5 yr.)
• Based on $20M+ investment
• Exit targeted to IPO or by ‘large’ M&A event
• Goal is to fulfill a social need
• Has mission orientation
• Team needs to support mission
• Growth profile often one resource at a time
• Exit …much harder to find fit
• Company can grow fast (on-line) or has a scalable system
• Team often motivated by exit
• $7-10M revenue in 4-5 yrs & market size allows significant additional growth
• Capital efficient total investment$2-4M
• Exit by M&A
What Type of Company Are You?
What Kind of Funding
NORMAL GROWTHCOMPANY
HIGHGROWTHCOMPANY
EXTREMEHIGH GROWTH
COMPANY
SOCIAL VENTURECOMPANY
• Friends, family, founders
• Debt, Bank, and other
• (Future) Crowd funding (portal style)
Early on
• Accelerators
• Individual Angels
• Micro Cap VCs
• Seed from VC
Later stages
• Venture Funds
• Strategic VCs
• Angel Syndication
• Friends family, founders
• Charity$$
• Crowd funding (Kickstarter, etc)
• Impact Angels
• (Future) Crowd funding (portal style)
• Angels
• Angel Groups
• Angel Group Syndication
• Angel List
• Micro-cap Funds
• (Future) Crowd funding (portal style)
• Increasingly Strategic Corporate VCs
Capital Sources: Size & Cost
Investment Size
Traditional VC
Micro VC
Equipment Financing
Angel GroupsAngels
Equity CrowdfundingAngel List, Circle Up, etc
Corporate / StrategicVenture
Customers
Jobs Bill Portals
Vendors
Founder
Friends & Family
Crowdfunding: etc.
Grants
Venture Debt
BankLoans
PersonalLoans
Private Equity
B’Plan Competition
Accelerators
Inve
stm
en
t“C
ost
”
RevenueDebt• Bank• Friends/Family• Non-convertible note
Customer/Vendor/Partner• Prepaid product purchases from customers• Pay later services from vendors• Non-recoverable engineering costs from
partners
Grants• SBIR & other Government Grants• Business competitions
Capital Sources
Dilutive Non-Dilutive Equity
• Convertible Note• Stock
• Friends, Family Investors• Common vs Preferred
Capital Sources
Size of Capital Raise: High
Time
High Risk
Low Risk
CrystallizeIdeas
DemonstrateProduct
Early Scaling Growth Sustained Growth
Market Entry
Size of Capital Raise: Low
As you develop your company, you reduce risk for your financial partners
Capital Sources: Equity
StageCrystallize Idea
and Early Demonstration
Demonstrate Product &
Market Interest
Market Entry and Early Growth
Early Scaling Growth
Repeatable Growth
Capital Source
Founders, Friends, Family,
Grants, Kickstarter, etc.
Government grants, eg., SBIR
Accelerators, Individual Angels, many others now
“exploring”government
grants, eg., SBIR
Angel Groups, Angel Group Syndication,
Micro-Cap Fundsgovernment
grants, eg., SBIR
VCs, Angel Group
Syndication, Micro-Cap
Funds
VCs
Investment $25K - $100K $100K - $500K $500K - $1M$5M – as needed
as needed
These 2 need sophisticated growth plans
This is the stage where advice can make you eligible
for outside funding later
Accelerators and a few individual angels play here … unless it is a
big idea
This is where Angel Groups
do most 1st
investments
Equity: VC vs Angel
Angels
• Invest their own money • Motivated to help entrepreneurs,
stay engaged• But Return on Investment is still the
controlling metric• Likes big returns but will often be
happy with more modest returns in a shorter amount of time3-5 year outlook on investments unless VCs get involved
VC Funds
• Invest other people’s money (pension funds, …)
• Have multi-million $ funds they need to put to work
• Invest big and must get big returns for their investors
• 7+ year outlook for exit returns (10-year funds)
Equity: VC vs Angel
Angels
$24.6B in 2015 ~ 305,000 investors71,000 deals:
(18,000 Seed & 32,000 Early Stage)NE sees 12% of all US deals
Types of angelsIndividualsOrganized: Funds: 16%; Network: 63%
(avg 10 deals / year)AngelListInformal networks & 1 time investorsFamily offices
Mostly invest locally
VCs
$59B in 2015,~ 4,300 Deals(186 seed & 2200 early stage)
12 Companies accounted for more than 10B
Angel Syndicates (relatively new)• Individual angels, or several angel groups investing as a unit
• AngelList syndicates• VC-backed syndicates
Debt Capital
Debt Capital
• Funding based on a set schedule of principal and interest payments that provide a fixed return for the lender.
• Availability may be based on asset value or cash flow or personal guarantee.
• MUST be paid back. Not “speculative” cash.
Sources:
• Personal Loans – Friends/Family
• Bank Loans
• SBA Loans
• Expect debt classes from Jobs Bill crowd funding portals
• Credit Cards
• Venture Debt (usually linked to equity & later stage)
Alternate Sources
Crowd Funding
• Kickstarter, Indiego-go
• Usually associated with “product” companies
• Can come with drawbacks
Accelerators
Many incubators across the country• May focus on specific types eg.
LearnLaunch for EdTech
• Many different models• Non-profit, equity stake, revenue, loan
• Can be very helpful but be wary of being of the “accelerator circuit” too long.
*Equity Crowdfunding (new as of May 2016)Jumpstart Micro, WeFunder
Little information so far…
Non-Dilutive Funding
SBIR + STTR = 3% - 3.6% of federal R&D Budget Best for research … need other commercial $$
Pros: •It is a contract/grant – non
dilutive
Cons:•Long Solicitation Process•March-in Rights•Work with universities for
expertise•Best to incorporate (but more
acceptance of LLCs)•Accounting systems must be
compliant with the government•Very competitive in some
agencies
Small Business Innovation Research Grant (SBIR)MISSION:To support scientific excellence and technological innovation through the investment of Federal research funds in critical American priorities to build a strong national economy… one small business at a time.”
MONEY:
• ~$2.5 billion annual set aside | ~145,000 awards granted total | ~10 patents per day generated (SBA)
• 11% of awardees have attracted another $65 billion+ of venture capital
SBIR PROGRAM GOALS:
- Meet Federal research and development needs
- Increase private-sector commercialization of innovations derived from Federal research and development funding
- Stimulate technological innovation
- Foster and encourage participation in innovation and entrepreneurship by socially and economically disadvantaged persons
The SBIR Program is managed by the Small Business Administration
- but is also directly administered by over 12 Agencies including:
Eligibility & Milestones
Eligibility is determined at time of award - Organized as for-profit U.S. business - Small: 500 or fewer employees, including
affiliates - Work must be done in the U.S. (with few
exceptions) - Company privately and individually
owned
• PI is not required to have a Ph.D./M.D
• Generally the PI is required to have some expertise to oversee project scientifically and technically
• Applications may be submitted to different agencies for similar work
• Awards may not be accepted from different agencies for duplicative projects
Milestone Driven Award Process
Phase I | Feasibility Study or Prototype -~$150 thousand and 6 months
Phase II | Full Research and Development Effort ~ $1 million and 24 months
Phase III | Commercialization Effort - Private and Non-SBIR Allocated financing
5509 Total Awards in 2012
• 54% of $ to 10 States
• Phase I Awards | 64% of Awards | 24.2% of Funds | Average Size $151,000
• Phase II Awards | 36% of Awards | 75.8% of Funds | Average Size $718,000
SBIR: Overview of total $ awarded
MASSACHUSETTS
Conclusion
Educate yourself about all of your funding options:• https://www.sbir.gov
- Example NSF: www.sbir.gov/agencies/national-science-foundation- Next funding close date of Dec 6: Advanced Manufacturing & Nanotechnology Biological Technologies, Chemical and Environmental Technologies
• http://nvca.org
• http://www.angelcapitalassociation.org
• http://www.thecapitalnetwork.org
Non-dilutive funding is always great but not always the easiest to get
It’s all about the numbers for equity investors
Network, Network, Network • http://www.greenhornconnect.com For startup events going on in MA