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Funding Options for CT Companies
2013
Presented to
Crossroads Venture Group
Boardroom Series
Liddy Karter, Managing DirectorHitesh Shah, Vice President
Confidential
Background
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● Enhanced Capital Partners, Inc. (“ECP”) is a diversified, national asset management firmproviding financing to small-business in U.S. markets that have been underserved bytraditional sources of capital
● Founded in 1999 by former Welsh Carson Managing Partner Andrew Paul, ECP has gainedexperience in targeted investing through years of participation in numerous state andfederal public-private partnerships
● Working with small businesses for over 12 years has allowed ECP to develop an investmentapproach that combines innovative structures and conservative investment principles toprovide a dual bottom line return for our collective partners
● Our collaboration with marquee investment partners like Berkshire Hathaway and VulcanCapital provides our portfolio companies with a variety of funding options
● Office Locations in 10 States and Washington DC (Alabama, Colorado, Connecticut, Florida,Louisiana, Mississippi, New York, Oregon, Tennessee, Texas, Wyoming)
Confidential
ECP’s Platform
ECP
Office locations in
10 States and DC*
Berkshire Hathaway /
Vulcan Capital
19 State Focused
Funds
National Middle Market
SBIC Fund
Federal & State New Market Tax
Credits
Enhanced Equity Fund
& Sopris Capital
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Confidential
Connecticut Fund
● Enhanced Capital Connecticut is Certified by the DECD as Fund Manager under the Connecticut Insurance Reinvestment Fund (“IRF”) Act Program pursuant to Public Act 10-75, Sec. 14
● Investment Criteria:
● Headquartered in Connecticut
● Less than 250 employees
● Less than $10M in Net Income in previous fiscal year
● At least 80% of employees are CT residents or at least 80% of payroll is paid to CT residents
● 3% Preseed investments – target met
● 25% Green technology
● ECP’s investment profile – Debt investment in $500,000 to $5,000,000 range
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Confidential
Connecticut Team
Elizabeth (“Liddy”) Karter - Managing Director, Connecticut
● Liddy serves as a Managing Director of Enhanced Capital and is responsible for overseeing investment activity in Connecticut. She brings experience in clean tech venture capital, corporate finance, and early stage company management.
● Prior to joining Enhanced Capital, she was a Managing Partner at IRON Ventures, a venture fund investing in sustainable business ventures enabling symbiotic reuse of energy, industrial material and water.
● Prior to IRON Ventures, Liddy was CEO of Resource Recovery Systems, Inc., a nationwide recycling company and CFO of Netkey, Inc., an ecommerce software company. Prior to that, she was Vice President of the Financial Services Group at Morgan Stanley.
● Liddy is active in angel investing and serves on the Board of the Angel Capital Association. She is Executive Director of the Connecticut Venture Group, a statewide trade association for venture funds in Connecticut and serves as a Mentor at the Yale Entrepreneurial Institute.
● Liddy received an MBA from Yale University and a BA in from Columbia University.
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Confidential
Connecticut Team
Hitesh Shah – Vice President, Connecticut
● Hitesh serves as a Vice President at Enhanced Capital and focuses on investment activities in Connecticut.
● Prior to Enhanced Capital, he was an Analyst at Connecticut Center for Advanced Technology’s (CCAT) Entrepreneur Center, a physical and virtual incubator for technology led small businesses.
● Prior to CCAT, he was an Analyst at Connecticut Technology Council’s (CTC) statewide virtual incubation program for small businesses. Prior to CTC, he was a Financial Analyst at a small ceramics manufacturing company in India.
● Hitesh graduated with an MBA from University of Hartford and a BS in Accounting from University of Pune.
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Confidential
Representative CT Portfolio
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Confidential
Representative CT Portfolio
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Confidential
Equity- Early Stage
● Focus on Angels and Funds
● Angel Investor Forum
● Centripetal Capital
● Boston and NY groups
● Family Offices
● Funds
● Launch
● Vital
● Elm street
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Equity – Early Stage
•Overview
•Know your Investors
•Define the company
•Growth strategy
•Capital plan
•Connections
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Common/
Founders
Stock
Common,
Preferred
or Bridge
Preferred
Convertible
Preferred,
Mezzanine,
Debt
Listed
Equity
Seed-
product
development
Early Stage-
Begin
sales
Series
A or B-
Ramp up
sales
Series
C or D-
Product
extension
IPO/M&A
Founders
3Fs,
SBIR,
University
Angels,
VC
Boutique
VCPrivate Eq
Inv. Banker
Investment
managers,
Hedge
funds
Company
Players
Collateral
First, we will clarify the
investment cycle….Match Investors to Company
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Angels are not VC’s
What they have in common How they are different
Play in a similar space on the investment
continuum
VCs have fiduciary responsibility to
their Limited Partners
Look for similar things in a business plan Angels risk their own capital – no
need to invest
Only invest if outlook is for
> 10X return minimum
VC’s invest larger $ ~10x more than
angels.
Expect to invest in multiple rounds VCs may require control. Define
control
Portfolio approach: 2+ 7+ 1 Fund cycle affects VC investing
Time horizon is 5+ years Angels 50k deals/yr - VC 4k deals/yr:
Both ~$20B+
Confidential
Pick the Right Business
● Industry Sector- Fast and Hot● Innovative/Established,
● IT/Green Tech/Manufacturing, Medical Device
● Model- Capital light● Product/Service,
● Direct/Indirect
● Market – Addressable● B-B/B-C, Size
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Confidential
Key Features
● Huge Market Need/Value Proposition
● Barriers to Entry
● Patents/Trade Secrets/Capital Advantage
● Team
● Experienced/friends?
● Collateral
● Building/Standard equipment/PG
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Confidential
PreRev, PreMoney Value ~$1.8M.
●Negotiation
●Capitalization table
●What’s the right number?
●Methods
●Meeting the investors needs
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Confidential
Sources of Value
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• Numbers: projections, comps, 18m• Product – High margin, Necessary• Clients – Recurring? $1B market?• Intellectual Property • Management: track record,, team• Competition: ability to raise money• VC: life cycle of fund• Industry: hot or not, economy
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$1m = 25%
$ 3m = 75%
Pre-money valuation $3m
New money $1m
First Investors Take 10 % – 30%
Post-money
valuation = $4m
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Executive
Summary
Business
PlanInvestor
Deck
Purpose: get them to
read your business plan
• Must grab attention
• Must be brief
Purpose: get them to
meet with you
• Must be comprehensive
• Must be professional
Purpose: get them to
invest in you
Must be brief
Must be expandable
Exec Summary and Deck
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•Financial Model - Details
•Cash Flow - Don’t be shy
•Potential vs. Risk
•Expect to be wrong
• Know why
•Use Comparables
Know Your Numbers
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• 2011: $200,000 invested by founders @$500k pre
• 2012: $100,000 friends and family with a post-
money valuation of $1.5M
• Currently looking to raise $500,000 with a pre-
money valuation of $2M
•Revenues $800k
• Expect to do a $10M VC round early 2014 @$10M
pre.
•TTM EBITDA - $1M
Funding Strategy- Simple
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Sales & marketing Big salaries for
management
Distribution partners Paying off debt
Some product
development
Too much product
development
Use of proceeds
[email protected] Equity Financing in CT21
•CEO’s Main Job
•Constant Process
•Networking
•Build LT Relationships
•Create confidence
Funding Timing
[email protected] Equity Financing in CT22
•CT Tech Council – Innovation Ecosystem
•www.ct.org
•Tech Start, Pre-Seed program
•www.ctinnovations.com
•Angel Investor Forum
• www.angelinvestorforum.com
• Crossroads Venture Group
•www.cvg.org
•DECD Express Loans
•http://www.ct.gov/ecd/cwp
•Enhanced Capital
•www.enhancedcapital.com
Start-up to Growth Capital
Confidential
Corporate VC 40% of Start up $
● The number of CVCs actively investing is steadily on the rise. In Q2’13, 66 different CVC investors participated in at least one investment which was up 40% versus the number of participating CVCs in Q3’11.
Confidential
CT Based Fortune 500 Companies
8 General Electric, Fairfield, $147 B 50 United Technologies, Hartford, $59.8 B 84 Aetna, Hartford, $36.6 B 103 Cigna, Bloomfield, $29.1 B 112 The Hartford Financial Services Group, Hartford, $26.4 B 131 Xerox, Norwalk, $22.4 B 241 Praxair, Danbury, $11.2 B 245 Stanley Black & Decker, New Britain, $11.1 B 340 Charter Communications, Stamford, $7.5 B 351 Terex, Westport, $7.3 B 399 EMCOR Group, Norwalk, $6.3 B 400 Starwood Hotels & Resorts, Stamford, $6.3 B 438 W.R. Berkley, Greenwich, $5.8 B 473 Priceline.com, Norwalk, $5.3 B 489 Pitney Bowes, Stamford, $5 B 492 Frontier Communications, $5 B
Confidential
CVC Growing
Confidential
CVC- $7B market
Confidential
CT Investment Highlights
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CT 13 60,168,000 12 18,644,200 10 24,952,100 16 51,363,000 12 32,374,700 18 40,435,000
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013
STATE
Deals Amount Deals Amount Deals Amount Deals Amount Deals Amount Deals Amount
Rank 12 13 13 23 20 23 10 15 11 19 10 17
Confidential
VC $ Invested VC $/Capita 1 job/$25k VC
CA 12,864,904,100$ 338$ 514,596
MA 3,005,281,900$ 452$ 120,211
NY 2,088,210,300$ 107$ 83,528
CT 149,124,800$ 42$ 5,965
CT Investment Highlights
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Confidential
CT is in the middle
●CAL
●MA
●NY
●>>>>CT
Confidential
Seed and Early for Corporate VC
40%
Confidential
Matchmaking- Corporate VC Sectors
● Internet
● Mobile
● Life Sciences
● Mostly just looking for a match
Confidential
Late Stage Equity
● Investment bankers and intermediaries
● Private Equity
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Confidential
Debt
● Banks are back – 5%
● Private Debt a good option – see funds and I-bankers. 8%
● Mezzanine – 14%
● With State Support – 12% all in with equity kicker
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Confidential
What is Mezzanine Debt?
● Mezzanine debt or mezzanine capital is a form of hybrid capital that has been around for 30 years and which can be structured as either preferred equity or unsecured debt. It is generally referred to the layer of debt that sits between senior debt and equity. Mezzanine debt lays claim to a corporation’s assets, yet also incorporates equity-based security options in its structure. It is senior only to common shares and is often a more expensive form of financing because of its positioning and inherently higher level of risk to the lender. And unlike Venture Capital, Mezzanine debt is used for adolescent and mature companies who are cash flow positive that need capital for a number of growth-related uses.
Confidential
Mezz. Debt benefits
● Mezzanine debt provides the following benefits:
● The company being funded gains capital while increasing their leverage
● The senior secured lender sees an injection of new opportunity equity and reduced leverage
● The mezzanine debt provider can put its capital to use at an attractive rate
● Shareholders avoid unnecessary dilution from new equity (which is also the most expensive form of capital)
● The company sees a lower cost of capital when compared to equity
● The company receives less rigid terms when compared to senior debt
● The company's weighted average cost of capital (WACC) can be reduced
● The company's return on equity (ROE) can be increased
Confidential
Contact Information
● Liddy Karter
● Email: [email protected]● Phone: (203) 376-7958
● Hitesh Shah
● Email: [email protected]● Phone: (203) 614-8771
Enhanced Capital Connecticut:1055 Washington Blvd, 8th FloorStamford, CT 06901Phone: (203) 614-8770Fax: (203) 614-8769Website: www.enhancedcapital.com
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