On Financing of Ventures

Ziya G. Boyacigiller

This presentation was created and given by Ziya Boyacigiller who was leading Angel Investor and a loved mentor to many young entrepreneurs in Turkey. We have shared it on the web for everyone’s benefit. It is free to use but please cite Ziya Boyacigiller as the source when you use any part of this presentation. For more about Ziya Boyacigiller’s contributions to the start-up Ecosystem of Turkey, please go to www.ziyaboyacigiller.com

Introduction to EntrepreneurshipSabanci University

BA, MBA and EXEC MBA2004 through 2013

Objective: to develop entrepreneurial skills that can be helpful for the successful formation and sustainable growth of a start-up company. Use of creativity to achieve strong differentiation through innovation will be emphasized. How to do successful innovation will also be a prime course objective.

SubT for ZB

• Startup Financing Life Cycle

Start up Financing Life Cycle

• Bootstrapping• Debt

• Alternatives– Angels Investors– Seed Fund– Venture Capital– Private Equity

Available Mechanisms

Startup Phase0 – 500K TL

Early Stage500K – 5M TL

Growth Phase5M + TL

Public

Private

LOAN

GRANTS

INVESTMENTS

LOAN

INVESTMENT

International Mechanisms

Individuals Institutional

ECOSYSTEMKOSGEB

TOBBTKB

İGEMENMCP

İKVTOSYÖV TTGV MPM

Conventional Funding Mechanisms

• Financing– Halk Bankası– Eximbank– TKB– Dünya Bankası– Kredi Garanti Fonu

• Investment– Hazine Müsteşarlığı– TOBB– KOSGEB– Halk Bankası– TKB– TSKB

• Low risk tolerance

•Returns are pre-calculated

• Risk minimization tools are different • Standardized, repeatable processes

• Increased red-tape proportional to size

• Use area and conditions well defined

• Not ideal for new product or service development and launch

• Technology commercialization requires more flexibility

Banks’ Perspective

Problems for SMEs in working with Convention

34%

21%

13%

12%

9%

8%

3%

Collateral

Uncertainty

Financials

Success Rate

Maxed out Credit

Financial Informing

Low Credit Score

Kaynak: SME Development Survey 2006

RISK

ALTERNATIVE FINANCING MECHANISMS

• Compared to conventional mechanisms:– Higher risk tolerance– Uncertain return– Flexible procedures, processes– Welcoming framework for the development of

new technologies and ideas– Different risk minimization tools and tactics

EXPECTATIONS

RISK

REVENUE

Bank Loan

Export Loan

Venture Capital

Private Equity

Institutional Investors

Angel Investors

Side Loan

- Interest- Foreseable payment timeline- Risk Control: Collateral, Mortgage, Credit Score

- Unknown payment terms and timeline- Risk management: Term sheet, shareholders agreement, protective provisions.

Startup Financing Life Cycle

Alternative Financing Mechanisms

• Angel Investors• Venture Capital

Angel Investors

• High networth individuals started in 1920s• Startup or early stage investments around 0 to 500K• Small scale, flexible• Investing their own capital• High return expectations – 5x , 10x• Investing as a group• 2008 – In the US 57,000 companies, totalling$30B

in investments, average investment $450K• 260,000 registered angel investors in the US

Venture Capital

• SBA Regulation provided the trigger in 1950s• Managing funds that are created by pooling funds

from individuals and institutions• Early and growth stage, exponential growth markets• Higher returns – 20X – 25X – IRR focus • New projects welcome but reject rate is 98%• Risk management: Due diligence, agreements etc.• 2008 in the US $29B – 2600 investments• Return: IPO, M&A

What do they look for?

• Idea• Novel, innovative, disruptive• High growth markets• Scalability• Team > passion, track record, chemistry• Execution > profitable business model as well

as well thought strategic plan

Operating Model

• Introduction > Networking• Elevator Pitch > 2 minute summary• Executive Summary & Business

Plan• Term Sheet• Negotiations• Due Diligence > 2 weeks to 6

months...• Agreement• Portfolio Management• Exit

Differences Between C & A

• Process• Acceptable Risk• Risk control and minimization• Shareholder vs. Debt• Return expectations• Exit

I just created ice cream that never melts!

I really need to find a good investment for all this money.

My ice cream is better then others because it never

melts.

I love ice cream.This could be big!

I need money to build an ice cream plant.

That’s a deal!

We’ll give you $5M for 50%

of your company.

$$$Schechter Ice Cream

1 Year Later…

We are selling 10 million

ice creams a day. We need moremoney to keep

growing.

Why don’t I introduce you to someone who

can help.

This is great butmaybe we should

just buy the company.

Sweet. We just made 20 times our original investment.

I’m buying my parents a new house and donating

millions to Schechter.

Who knew ice cream could

be worth so much money.

Where should I

invest next?