1

Building a Company requires capital

Operational capacity

i Management

i Sales and distribution

i Support and service

i Administration

Working capital needs

i Accounts receivables

i Inventory

Capital expansion

i Technology

i Equipment

i Leasehold improvements

2

Think about the sources of funding across the life of your business

Friends & family

Angel investors

Banks

Institutional Investors

Business Lifecycle

Concept Sales Growth Profitability

3

Angel vs. Institutional Investors

Source of Funds

Business stage

Angels

•Own money

•Mostly seed, start-up and early stage (but moving more and more to later….)

Institutional

•Other’s money (e.g. pension funds, insurance companies, foundations)

•Most are later stage investors

4

The front line of equity investors: Angels

i Angel investors: Wealthy individuals who make equity investments in private companies, typically early stage

- Investment range (~$10-$250K)- Use referral networks (attorneys, CPAs, bankers)- 140K+ active angels in the US, investing $20B+ annually- “Accredited” Investors ($200K annual income & $1MM+ in net worth)- Many are former entrepreneurs

i Angel groups- Larger investments; follow-on capacity- Regular meetings - Syndication

5

Goal of Angel Rounds: Prove you have a scalable business that can succeed if funded

• Capital is hard to get at any stage, the further you can go and the more you can prove before approaching professional capital, the better your odds

• Build a strong, numbers driven story that has shown it can scale-Product in the market-Sales/Concept proven

8 Proving you can gain distribution and drive velocity at the shelf is most important … quality of revenue is as important as quantity

8 Things from which you can extrapolate: “show the white space”-Team/Advisors in place

• If you can get capital, valuation will be based both on your past performance and the strength of your “going forward” story

• Be capital efficient early on-Delay all unnecessary costs: premature IP, legal, PR, “2.0” website-Bootstrap; work without a salary; moonlight; run lean ops; focus on revenue-generating aspects of the business; partner for equity

-“The more self-sufficient a company is, the less risky it appears…”

Average 15-20% Annualized Return on Investment As…

Investment Outcome Cash on Cash

1 Write-off 0.0X

2 Write-off 0.0X

3 Write-off 0.0X

4 Write-off 0.0X

5 Write-off 0.0X

6 Write-off 0.0X

7 Write-off 0.0X

8 Bad 1.0X

9 Good 5.0X

10 Great 12.0X

Average 1.8X

IRR 13%*Memo: Years = 5 year horizon *Chart Courtesy of ASW

Angel Round Dynamics

• It’s a numbers game so you need to build investor momentum

-In many angel investments, 1/3 comes from a lead investor;-Second third from a team of people following the lead-Last third, random … cast a wide net, be Fearless, Accept No’s

8 Go hunting for that lead!

• The simpler and more straightforward the terms in the angel round, the better for all parties

• Equally importantly, terms shouldn't impede any future financings

Always think FIRST about the NEXT round of capital

Materials for Investors

• Make the Company as Real as Possible- Pictures of Packaging- Effectively Frame up in the Competitive Context- Make realistic assumptions

• Be concise, compelling & realistic

• Write well; look professional

• Preempt obvious questions/concerns and be mindful issues which might knock you out of consideration.

• You’re selling an investment and not just an idea/product … be legally prepared to take in capital

9

You’ll need a core set of materials when you enter the fundraising market

• 2-4 pages

• Something you can send to virtually anyone

Executive Summary

Business Plan

Company Presentation

Financial Model

• 10-15 pages • Detailed bottoms-up

• Scenario Driven

• Detailed 20-40 page document

Communicate a Vision, an Understanding and The Capability to Execute Against It

InvestmentDocuments

• PPM

• Term Sheet

• Subscription Agreement

• Shareholder Agreement

10

A Strong Executive Summary is critical

• Cover all core parts of the business in 2-4 pages

• Topics (usually in this order – same for business plan)1. Problem2. Your solution3. Business Model4. Underlying point of differentiation, i.e. the unique selling

proposition (secret sauce)5. Marketing and Sales6. Competition (features/benefits – comparison slide)7. Team 8. Projections and milestones (Financials, historic & projected)9. Status and timeline10. Summary and Call to action

8 Exit strategy/market comps8 Ask/Use of Proceeds8 Capitalization to date

11

Your business is assessed against an “ideal”

Manage-ment

• Previously made money for investors• Successful startup, ideally in same sector/space• Complete team in core areas (sales, marketing, finance, etc)

Market • Large, fast growing with few competitors

Product/Tech.

• Great Packaging• Differentiated yet understandable and priced appropriately• Proprietary position (barrier to entry such as established

market position and/or intellectual property, patents)

Business Model

• Scalable: Can extend into multiple channels and geographies, no structural barriers to growth

• Exitable: A range of potential acquirers exist

Financial • Sustainable gross margins > 40%• Limited financing risk (future rounds likely)• No financial liabilities that affect value or equity position

Legal • No legal contracts that affect value or equity position• No outstanding litigation around intellectual property or

other assetsSource: Clear Venture Partners, Inc.

12

Valuation Terminology Basics

Pre-money + New money = Post-money

• Valuation before the investment

• “Pre”

• The investment • Valuation that the company is “sitting on”

• Post”

0.0

1.0

2.0

3.0

4.0

$5.0M

Valuation

Pre

New

$5.0MValue

$3M pre-money

$2M buys 40% of company

Post-money valuation

13

$2M raise scenarios: Staged Rounds

0

2

4

$6M

Valuation

New

Pre (Entr)

$2.000M

Value

0

2

4

$6M

Valuation

New (Srs B)

New (Srs A)

Pre(Entrepeneur)

$5.000M

Value

Series A Series B

• Raise $1M on a $1M Pre

• Pre = Entrepreneur Ownership

• New investor buys 50% of company

• Achieve milestones and prove early business model

• 18 months later raise $1M on a $4M pre

- Up round: $2M company value “steps up” to $4M

- New Investor buys 20%

• Entrepreneur owns 40%

• Srs A has 40% at 2X the value –$1M now “worth” $2M

New Pre

14

Some resources

Events

Angel Associations

• Nutrition Capital Network- 2x/year- 20 Companies presenting to 50+ institutional/strategic investors

• Investors’ Circle- 2x/ year- Tracks for Health & Wellness/Other consumer companies to present to “socially responsible” angel/fund investors

- Newsletters

• Angel Capital Association (www.angelcapitalassociation.org/)

- Directory of 330+ angel groups, organized by state

Investment Bankers

• Bankers know the market and players

• Many have industry newsletters for free

15

Some resources

Blogs • “Healthy Living and Consumer Venture Capital, Consulting and Investment Banking” (Mike Burgmaier) www.nevc.blogspot.com

• “A VC” – Fred Wilson from Union Square Ventures – great blog on general VC trends: http://www.avc.com/a_vc/

• “Ask the VC” – General blog with great archive

http://www.askthevc.com/blog/ • 2X Partners Blog & Trend Watch:

http://www.2xpartners.com/

16

Some Summary Considerations in Finding the right capital

• Consider your personal goals -Your role in company over time-When you take someone else’s money, you have taken on an entirely new responsibility to the company and shareholders

-Shareholders need to be paid back: Is this a lifestyle for you or the next Microsoft

• Be realistic on time and effort it takes to secure funding

• Find investor/company alignment-Stage of development-Goals; return objectives; timing….

• Respect the Capital- Valuation and Terms- Don’t take “No”s in the process personally

Source: Clear Venture Partners, Inc.

17

Additional Slides

Appendix

18

Institutional investors can come in several types

• Family Offices

- Wealthy family private investment arms

• Fundless Sponsors

- Deal-by-deal economics

- No dedicated pool of capital

- Investor deal fees

- Term sheet “lock up” first step

• Dedicated Private Equity funds

- Many investors/”Limited Partners” (LPs) create a dedicated pool of capital

- Defined life vehicle (10 years)

19

Finding the right institutional investor for you is important

Stage

Fund size/Amount to invest

• Early, Development, Late

• Alignment needed

• Average investment over multiple rounds +/- 25%: Take the size of the fund & divide by 15

Active/Passive Investors

• People and funds are different

• Active, expert “accelerators” /operating partners vs. “just” money

Expectations

Temperament

• Returns (Spectrum of pure financial to “social”)

• Timing to exit: Year of fund matters

• Communication: Frequencty/depth

• Whatever your plan is, you are unlikely to hit it….boardroom dynamics…logical? Rational?

Which investor/ not just which fund

• Who will join your board?

20

Some active funds

Financing Fast Growth

Hosts:

Early/Development Stage Later Stage

Fund DealsSherbrooke Capital

FoodSouldTasteGood; Oregon Chai; Izze Beverage; Immaculate Baking; Adina

Maveron NextFoods; Pinkberry

Greenmont Capital

Eco Products; Madhava; Blue Horizon Organic; Bossa Nova; Mary’s Gone Crackers

Generation Equity Dancing Deer Baking Co.; NutraBella

PCV Fund Adina; Niman Ranch

Prolog Ventures Nest Collective; Attune; Brand New Brands; Corazonas 

Catamount Ventures

Nest Collective

TBL Capital Numi Organic Tea; CleanFish; Gaia Herbs; LaLoos

2X Consumer Products Growth Partners

Tasty Bite; Orabrush; gDiapers

Emil Capital Balance Water, Cheribundi

Fund DealsTSG Consumer Partners

Cytosport; Glaceau (Vitamin Water); Voss; Perricone MD; Smart Balance; Alexia; Arrowhead Mills

Encore Consumer Capital

Ciao Bella; Aidells Sausage Company; MyChelle Dermaceuticals

Inventages Honest Tea; MooBella ; Organic To Go; The Healthy Beverage Company (Steaz)

Verlinvest Sambazon; Vita Coco; Hint; Glaceau (Vitamin Water)

VMG Equity Partners

Mighty Leaf Tea; Pieceworks (KIND); Pirate Branks (Pirate’s Booty); Waggin Train

Northcastle Naked Juice; EAS; Ibex

Highland Consumer Fund

O Water; lululemon athletica; Pharmaca Integrative Pharmacy; mix1

Catterton Partners Nest Collective; Van’s Foods; O.N.E. (One Natural Experience); Sweet Leaf Tea

Winona Capital Boloco