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October 2, 2018
Boston Entrepreneurs Network:Bootstrapping and Fundraising Basics
Tibor TothManaging Director of [email protected]
• Over 20 years of experience in VC & PE and as an entrepreneur
➢ Invested over $250M across dozens of companies in transactions totaling over $1B
▪ Including 25 new investments & over 50 rounds of financing since 2013 @
MassCEC
➢ Technology and manufacturing; clean energy focus since 2010
• Current board role at 6 MassCEC portfolio companies
• Adjunct Professor, M&A, Brandeis International Business School
• Commercial Reviewer, National Science Foundation
• Education:
About Me
MassCEC Funding Programs for Startups
Inv
est
me
nt
Siz
e
Research & Prototyping Commercialization & Growth
Catalyst Program
Up to $65K Grant
<14 Grants / Year
Equity Investments
~$500K Equity Investment
1-3 Deals / Year
Venture Debt
$100K - $1M Debt Investment
InnovateMass
Up to $250K Grant
<10 Awards / Year
DeployMass
Project-dependent
Workforce Development Programs
AmplifyMass
Project Cost Share
Up to $500K Grant
AccelerateMass
$150K Convertible Note
<5 Awards / Year
Investment Grant
Demonstration & Acceleration
Company Stage
Massachusetts Cleantech Startup Ecosystem
Accelerators
Incubators
Research CentersUniversities
Angels + early stage VCs
Later-stage VCs + Strategics
MassCEC Portfolio Companies
6
• How much capital do you need?
o How do you determine need (use of proceeds, runway,
milestones)?
o Financial sensitivity
• When should you raise capital?
• Where can AND should you get it from?
• What do you have to watch out for?
• What are capital providers looking for?
Fundraising Considerations
7
Marketo Problem
o Size
o Drivers
o Competition
Solution
o Technology/IP
o Value proposition
Team
o Current
o Future
• How are you going make money/profits and be sustainable?
• How are you going to scale this into a big business?
The Business PlanWhat exactly is it that you do?
8
Operations
o Revenues
o Partners
Grants
o Government
o Foundation / Nonprofit
Investment
o Equity
o Debt
Who cares (or should/will care) about your problem and solution?
Sources of Financing
9
• Revenues
➢ Products
➢ Services
➢ One-time, recurring, repeat
• Partners
➢ Vendors / suppliers / contract manufacturers
➢ (Prospective) customers
➢ Channel partners
➢ Strategic partners – JDA / JV / NRE / Investment
Operations
10
• Government
➢ Federal (DOE, DOD, NSF, SBIRs, etc.)
➢ State (DOER, NYSERDA, MassCEC, MassVentures, CT
Innovations, California Energy Commission, etc.)
➢ Municipal
• Accelerators / Competitions
➢MassChallenge, Cleantech Open
➢Universities (MIT Clean Energy Prize)
• Foundation / Nonprofit
• Don’t get distracted!
Grants
11
• Funds the development of groundbreaking, high-impact, high-risk
technology, transforming scientific discovery into products and
services with commercial and societal potential
• Evaluation criteria
➢ Intellectual (technical) merit
➢Broader (societal) impacts
➢Commercial impact (potential)
➢For Phase II awards, success with Phase I grant project
• For US-based and owned, for-profit small businesses
National Science Foundation (NSF) SBIR
12
• Phase I
➢Up to $225,000, non-dilutive grant to last 6 – 12 months
➢Proof-of-concept/feasibility
• Phase II
➢Up to $750,000, non-dilutive 2-year grant
➢Helps commercialize high-risk technology innovations
➢Must have previously received a Phase I grant
• Phase II B
➢Up to $500,000, 50% matching grant on revenues or investment
National Science Foundation (NSF) SBIR
13
• Equity (ownership, voting rights, upside value, dilutive)
➢ Convertible Notes
➢ Common Stock
➢ Preferred Stock
• Debt (obligation to repay, interest expense, collateral)
➢ Venture Debt
➢ Asset-Based Loans
➢ Cash Flow Loans
➢ Project Financing
Investment
14
• Founders
• Friends & family
• Angels
• Venture capital funds
• Growth equity funds
• Strategic/corporate partners/investors
• Other investors (impact investors, government, family offices)
• Other funders – grants, competitions (governments, foundations,
universities, accelerators)
Types of Investors
15
• Investment round (seed, Series A, Series B+, bridge, etc.)
• Company stage (concept, proof of concept, pilot, commercial, etc.)
• Amount funded
• Lead or follow
• Market focus
• Technology focus
• Experience / fit
• Motivation / strategy
Investor Considerations
16
• Market size
• Magnitude of problem (mission critical)
• Predictability of revenues and earnings (recurring/repeat; validated
market, pipeline, and costs)
• Scalability of solution and team
• Growth rate / velocity
• Sustainable competitive advantage
• Innovative and defensible IP
• Team track record and capability
Drivers of Company Value
17
Validation
o Technical
o Commercial
o Third party
Milestones
o Tangible achievements
o Derisking/ unlocking
Expectationso Reasonable
o Achievable
o Never overpromise!
Risk Management
18
Research
o Web / Market
o Word of mouth
Motivation
o Goals (ST & LT)
o Mission critical
needs
Processo Decision
makers / champions
o Timing
o Budget
Know your competition too!!
Know Your Customer
Thank you!
Questions??
Appendix
21
Types of Investors
22
• Small dollars
• High risk stage
• Unsophisticated investors
• Lower bar / faster for approval
Friends & Family
23
• Seed to Series A stages
• Concept to commercialization
• $10K to $1MM+
• Individuals or groups/networks
• Generally follow, but larger groups can lead
• Seasoned entrepreneurs
• CEVG, Launchpad, TiE Angels, Walnut Ventures, Golden Seeds, etc.
Angels
24
• Series A, B, C+ (some seed)
• Post-revenue (some pilot/demonstration stage)
• $2 - $15MM
• Lead / co-lead
• Focused by markets and/or technologies
• Highly returns focused
• Interest and experience can vary widely by partner within firms
• Rigorous due diligence process – significant time to close
Venture Capital
25
• Series B, C+
• Commercial scale-up ($5MM+ revenues)
• $5 - $50MM
• Lead / co-lead
• Focused by markets and/or technologies
• Highly returns focused, but lower expectations than early stage with
reduced risk
• Interest and experience can vary widely by partner within firms
Growth Equity
26
• Seed to Series C+
• Pilot / demonstration to commercial scale-up
• $250K - $15MM
• Lead or follow
• Must demonstrate strategic fit with current or future business
imperative
• Financial return required but secondary focus
• May be combined with commercial partnership
• May request special rights (IP, license, exclusivity)
Strategic/Corporate Investors
27
• Impact investors (Investors Circle)
• Family offices (CREO, BMGI)
• Quasi-governmental (MassCEC)
• Foreign governmental (China, Middle East)
• Philanthropic investors (PRIME)
• Programs/accelerators (TechStars, Y-Combinator)
Others
28
Types of Investment
29
• Pre-money valuation (price per share)
• Offering size
• Type of security (convertible preferred stock)
• Liquidation preference
• Dividends (0 – 8% accruing)
• Voting rights, Board rights, pre-emptive rights
• Protective provisions
• NVCA Template Documents
EquityKey Investment Terms
30
• Offering size
• Type of security (convertible notes)
• Maturity date (6 – 24 months)
• Automatic conversion into “qualified equity financing”
• Value in a liquidity event (1 – 3x liquidation preference or conversion)
• Interest rate accrual (5 – 8%)
• Conversion discount (20 – 30%)
• Conversion cap ($1 - $10 million; sometimes none)
• Warrants (0 – 25% of offering amount)
Convertible NotesKey Investment Terms
31
• Loan size
• Type of security (senior or subordinated loan)
• Maturity date (1 – 5 years) and principal repayment schedule
• Interest rate (5 - 15%)
• Warrants (0 – 10% of loan size)
• Collateral (security interest in assets, shareholder guaranty)
• Financial covenants
DebtKey Investment Terms