A VC’s view of raising investment
8 October 2014
Jonathan Gold
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An Early Stage VC
Founder 4 businesses
3 Fund Management Companies
6 Venture Capital Funds
Raised over £50m
www.riverscap.com
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2008
Management Buyout and creation of Finance Tree
2009
created Rivers Capital Partners
2010
Managers of the £7.5m North East Angel Fund
2014
Invested in 55 businesses and over 90 deals
£7.5m from NE Angel Fund
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£4m private capital
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Sources of Capital
Pitching and Presenting to an Investor
What investors look for
Sources of Capital
1.
Banks
2.
FFF…. & Founders cash
3.
Business Angels
4.
Venture Capital
5.
IPO/ Aim/ Stock Markets
6.
Crowdfunding
7.
Peer to Peer lending
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Colours of money !
uk.zupa.com
According to the SME Finance Monitoring study of 2011 sources of
external finance accessed by SMEs are:
28%
19%
11%
7%
5%
2%
2%
1%
1%
Bank overdraft
Credit cards
Bank loans
Hire purchase
Loans & Equity from Family/Friends
Invoice finance
Grants
Export Finance
Other party loans (assets finance etc)
1-2% Equity or VC finance.
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Return
Equity
Convertible
Loan
Mez
Debt
Loan
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RISK
Crowd Funding
Its relatively new…
Advantages / Disadvantages
www.investingzone.com
www.crowcube.com
www.growthfunders.com
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InvestingZone
• Web-based equity crowdfunding platform
• Easy to use
• Low cost for companies and no fees for
investors
• Allows small investors to easily access a
previously unavailable asset class and to
take advantage of SEIS and EIS tax reliefs
• Launched in July 2013
• National advertising and PR campaigns
www.investingzone.com
USA… VC view of startups and VC
“Entrepreneurs can benefit by knowing how to
take off without venture capital, and to…
… use venture capital only if they cannot
dominate without it – as fuel for the fire, not as
a crutch or catalyst….
…your odds of getting venture capital from
larger, more established venture-capital funds
before proof of success are slim….”
Edison
“ I have not failed. I’ve just found
10,000 ways that won’t work.”
Thomas Edison
Edison built… Track record
• Western Union Telegraph Company with
several inventions of his relating to the
telegraph, especially the quadruplex
telegraph system
• Edison thought of asking for about $2000, but
instead he turned the question around and
replied, "Well suppose you make me an offer."
• Edison was offered … $40,000!
Edison … the Venture Investors
• Thomas Edison sought $30,000 in R&D
funding for the Incandescent light bulb
• He obtained this financing from a syndicate of
financiers, including J. P. Morgan and the
Vanderbilt family.
THE VC and Angels of their day !
Before
After
EU VC by Sector
Source: EU Commission 2013
Finance for Business North East Funds
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What do investors look for ?
© J.Gold, 2011 all pictures by J.Gold rights reserved
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Unreasonable risk
for an
unreasonable return
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Lessons from Venture capital…
What are investors looking for
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Leadership potential of lead entrepreneur
Leadership potential of management team
Industry expertise in management team
Track record of lead entrepreneur
Track record of management team
Sustained share position
Marketing and sales expertise of team
Organisational abilities of team
Ability to get cash out of the investment
Degree of product-market understanding
Expected rate of return on investment
Time to breakeven
Finance and accounting expertise of team
Ability to create post-entry barriers
Business meets funding constraints
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Process/production capabilities of team
Uniqueness of product/technology
Market growth and attractiveness
Degree of market already established
Time required to payback investment
Ability to influence nature of the business
Importance of unclear assumptions
Stage of investment required
Ease of market entry
Strength of suppliers and distributors
Nature and degree of competition
Location of business
Business and product fit with VC portfolio
Projected market size
Sensitivity to economic cycles
Ability to syndicate
Seasonally of product market
Scale and chance of later financing rounds
Location of business relative to fund.
Source: Tradeoffs in the investment decisions of European Venture Capitalists. (Authors: Daniel F. Muzyka and Sue
Birley) Journal of Business Venturing Vol 11 No.4 July 2000
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TEAM…. CRUCIAL !!
Larry Page & Sergy Brin
•
•
•
•
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Founders with vision...
Bringing in experience...Eric Schmidt
Mutual respect (vital to a senior team)
Shared values (all were engineers)
Different skills and perspectives
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Team
Scale
Innovative step / USP
Access to market
Traction
EXIT
RETURN..... £ x10
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Are you 1 in 100
Most VCs probably invest in 1 in 10 they look into
But at least another 90 have tried
So what makes you stand out ?
How can you blow everyone else away
1. Displace the competition?
2. Convince people to buy-in and buy?
3. Do more than collect hits on a
website
4. MAKE A RETURN…
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VC portfolios…
10
Investments
4
Fail
4
Living dead
2
Stars
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EXITS…. The only ways out
Trade sale
Buy-back
IPO or other stock market listing
Sale on to other investors.
And… the only other “Exit” is….?
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Any questions ?
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Thank you
0191 230 6370
www.riverscap.com
www.financetree.biz
@Financetree
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