FUNDINGCYCLEFORUMMay6,2019CraigHarris

CTANservesasaconnectorintroducingearlystagecompaniestoearlystageinvestors…butitalsoencourageseducationandknowledgeexchange,likethiseducationalsession,andleveragesmemberexpertiseformore

effectiveduediligenceandforbuildingbettercompanies.

Today’sTakeaways

• LearnsomethingaboutAngelsandtheinvestorperspective.

• Tipsforpitchingyourbusinessandfundraising.

Agenda• CTANstatistics• InformationonCTANandAngels• TheCTANFundingCycle• Elementsofagreatpitch• Resourcematerials

CTANSTATISTICS

CTANStatistics• Founded2006• >$107Minvested,174+companies• $11-14Mperyear(pastfouryears)• Overhalfasfollow-onfunding• >185Angels(individuals/FamilyOffices)• Oneofthelargest,mostactiveAngelNetworksinNorthAmerica• 2018:Invested$14Minto40companies• Approx.$7Minto13newcompanies• Approx.$7Minto27existingportfoliocompanies

CTANStatistics(cont.)• 40-60applicationspercycle•Memberstypicallyfund3companieseachcycle(~4-7%ofapplicants)• AverageCTANraise~$400k(~40%oftotalraise)• Averagepre-moneyvaluation~$4.5M

INFORMATIONONANGELS

WhoareAngelInvestors?• “AccreditedInvestors”• Diversebackgrounds• Professionals,hobbyists,FamilyOffices• Investors,mentors&coaches• Beforeandaftertheinitialinvestment

WhyDoAngelsInvest?• Financialreturns• Diversificationofinvestmentportfolio• Intellectuallyinterestingandfun• Involvementinthestartupecosystem• “Giveback”throughmentorshipandadvice;applicationofone’sskillset

CTANFUNDINGCYCLE

WhoShouldApplytoCTAN?GeneralGuidelines:• Raising$250k– $2M• Pre-MoneyValuation$1.5M– $10M• Solidteam/founder(s)• Completedproduct(orclose)• Customers(hopefullypaying)• Competitive&scalableadvantagevs.othercompanies(abilitytodifferentiate)• Exitoptions(Howwillinvestorsgettheirmoneyback?)

SpecialInterestGroups(SIG)1. BusinesstoBusiness(B2B)Software2. BusinesstoConsumer(B2C)Software3. ConsumerProducts4. Hardware/Other5. LifeSciences

•MembersoptintoSIGs• Allmembershavevisibilityintoalldeals

TipsforOnlineApplicationSuccess• Focusonthe“Description”within“CompanyInformation”section• Populatesasaone-line“Summary”onyourapplicationandisusedincommunicationstomembers• Mustbe150charactersorless

• Don’tmessagethistocustomers,messagethistoinvestors;selltheinvestmentopportunity,notyourproduct

• Useclearandconciselanguage,notbuzzwords

WhichDealStructureisMostCommon?

TypicalEquityDeal• ~65%ofdeals• PreferredStockgeneralterms• LiquidationPreference• ParticipationRights• Anti-Dilutionclauses• BoardParticipation• FounderVesting

TypicalConvertibleDebtDeal• ~35%ofDeals• Criticalelementsandcommonterms:• Interestrate(usually6-8%)• Maturitydate(usually1-2years)• Discount(usually15-20%)• Valuationcap• ConversionRightsorSaleMultiple

• Note:WerarelydoSAFE(simpleagreementforfutureequity)deals

ELEMENTSOFAGREATPITCH

WhatMatterstoAngels:NationalStudy

QualityofPlanValuation

Sales&DistributionProducts&ServicesSizeofOpportunity

Team

WhatMakesaCompanyInvestible?• Asolutiontosolveameaningfulproblem thatsomeonewillpaytouse• Aproductwithdemonstrablebenefitnotjustafeature

• Earlyindicationsofproduct-marketfit• Thisistypicallyearlyrevenuefortechcompanies

• Foundingteamthatispassionate,experienced,knowledgeable,trustworthy,andhasabilitytobothsetvisionandexecute• Littlecompetition and/orbarrierstoentry• Potentialfora10Xreturn(ifthingsgoright)

PitfallsThatMakeaCompanyNotInvestible• CapTableissues• Example:afounderhasleftandstillholds>5%ofequity

• Legalissues• Examples:pendingorcurrentlawsuits,holdingcompanyorotheratypicallegalstructures,anattorneythatisnotwellversedin.Earlystagedocumentformationand/ortransactionwork

• Toomuchcapitalpreviouslyraisedorstageofbusiness• Investors inthedealarenotsavvy(previousorcurrentround)• Valuationorcashburnthataretoohighforthemarket• Founderissues• Examples:criminalrecord,otheradversenewsresultsviagooglesearch

• Contention amongstkeyteammembers• Lackoffocus

HowtoDeviseYourPitch• Remember,yourgoalistomakefolkswanttolearnmore• Condenseyourmessagetotheelementsthatyouthinkarethemostimportantandwillgarnerfollowupinterest

QuestionstoAskYourself•WhatproblemamIsolving?Whyshouldastrangercare?•Whohastheproblem?Bedetailed.•Whatistheimpact?Howisitexperienced?•Whatisthecostofthisproblem?•Whatisthevalueofsolvingthisproblem?•WhatsolutionamIoffering?• How.Doesitsolvethedefinedproblem?•Whobenefits?Whyandhow?

QuestionstoAskYourself(cont.)•Whydoesmysolutionsolvethisproblembetterthaneveryoneelse?• Isthereproofthatmysolutionactuallysolvestheproblem?Data!• HowwillIreachmycustomers?• HowwillIbeatmycompetition?•Whatismy“next”businessgoal?•WhatgapsdoIhavetoachievemygoal?Funding?Team?MarketAccess?Other?• Howcanpeoplehelp?

ElementsofaGreatPitch1. Logoandtagline2. Theproblem3. Thesolution4. Thedemo(time?)5. BusinessModel6. Competition7. Differentiation

8.Theteam9.Timeline&milestones10.Tractiontodate11.Financials12.Theask/close13.Yourcontactinfo

HowtoApproachFunding• Understandyouraudience• Beopenandhonest• Communicate• Bepatient• Beflexible• Berealistic

Don’tSellYourProduct- SellYourCompanyandtheInvestmentOpportunity

• Don’tspendallofyourtimesellingyourproduct−Remember,youarelookingforfinancialpartnersforyourbusinessandinvestors areprobablynotyourtargetmarket!

• Investorsarelookingforabusinessthatwillgivethemareturnontheirinvestment andtheyarelookingforateamandideatheywanttosupport.• Whyareyoutheteamtobuildthiscompany?• Howareyougoingtomakemoney?• Howbigistheopportunity?• Howdoyouexpecttogrow?

NowForgetAllThatandTellYourStory• Spendyourprecioustimewhereitmakessenseforyourstory

• Beauthentic(whoareyou?)• Showyourpassion• Saywhatyouknow,whatyouhavedone,andwhatyouwilldo,notwhatyouplantodo;separatemilestonesfromvision

• Don’treciteascript;yourslidesshouldhaveallthecuesyouneed

• Practice;it’stheonlywaytomakethetimingwork

CLOSINGCOMMENTS

ClosingComments• CTANisagreatplacetofindcapitalforyourbusinessbutitisnottheonlyplace. Rememberthatonly~5%ofdealsreceivefunding.Thereforetrytolearnmoreaboutyourbusinessgoingthroughtheprocessandfromthequestionsandcommentsyoureceive.

• CTAN’sprocessisnotperfectandgooddealsgetmissed.

• Youarejustgettingstarted. Growingyourbusinessisalongjourney. Alongtheway,chooseyourinvestorswisely.

Remember:IttakesLonger andCostsmorethanyouthink

NOTE:WerarelydoSAFEdeals.

Takingoninvestorsisalongtermcommitment;youneedthemoney,butchoosewisely!

*Avg.lengthofamarriageintheUSis8.2years;angel“winners”>8.2year(onavg.)

THANKYOUFORYOURATTENTIONQuestions?

RESOURCEMATERIALS

ExternalResources• AngelCapitalAssociation(ACA)website• KauffmanFoundationwebsite—lotsofresearch&materials• NationalVentureCapitalAssociation(NVCA)website• http://venturehacks.com/• YCombinatorwebsite—goodblogsandgreatlibrary• 500Start-upswebsite—goodwhitepapers• “TermSheetsandValuations:ALinebyLineLookattheIntricaciesofTermSheetsandValuations”abookbyAlexWilmerding

• BradFeldbook—”VentureDeals”• BasilPetersbook—”EarlyExits”• RobWiltbankresearchreports• SteveBlank–hiswebsiteandbooks“TheFourStepstotheEpiphany”&“Start-upOwnersManual”&otherbooks

• Googleit

SteveBlank,EntrepreneurExpert

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