Building a Company requires capital
Operational
capacity
Management
Sales and
distribution
Support and
service
Working capital
needs
Capital
expansion
Accounts
receivables
Technology
Inventory
Leasehold
improvements
Equipment
Administration
1
Think about the sources of funding across
the life of your business
Angel
investors
Institutional
Investors
Friends &
family
Banks
Business Lifecycle
Concept
Sales
Growth
Profitability
2
Angel vs. Institutional Investors
Angels
Institutional
Source of
Funds
•Own money
•Other’s money
(e.g. pension
funds, insurance
companies,
foundations)
Business
stage
•Mostly seed,
start-up and
early stage (but
moving more
and more to
later….)
•Most are later
stage investors
3
The front line of equity investors: Angels
Angel investors: Wealthy individuals who make equity investments in
private companies, typically early stage
-
Investment range (~$10-$250K)
Use referral networks (attorneys, CPAs, bankers)
140K+ active angels in the US, investing $20B+ annually
“Accredited” Investors ($200K annual income & $1MM+ in net worth)
Many are former entrepreneurs
Angel groups
- Larger investments; follow-on capacity
- Regular meetings
- Syndication
4
Goal of Angel Rounds: Prove you have a
scalable business that can succeed if funded
• Capital is hard to get at any stage, the further you can go and
the more you can prove before approaching professional capital,
the better your odds
• Build a strong, numbers driven story that has shown it can scale
-Product in the market
-Sales/Concept proven
 Proving you can gain distribution and drive velocity at the shelf is
most important … quality of revenue is as important as quantity
 Things from which you can extrapolate: “show the white space”
-Team/Advisors in place
• If you can get capital, valuation will be based both on your past
performance and the strength of your “going forward” story
• Be capital efficient early on
-Delay all unnecessary costs: premature IP, legal, PR, “2.0” website
-Bootstrap; work without a salary; moonlight; run lean ops; focus on
revenue-generating aspects of the business; partner for equity
-“The more self-sufficient a company is, the less risky it appears…”
5
Average 15-20% Annualized Return on
Investment As…
Investment
Outcome
Cash on Cash
1
Write-off
0.0X
2
Write-off
0.0X
3
Write-off
0.0X
4
Write-off
0.0X
5
Write-off
0.0X
6
Write-off
0.0X
7
Write-off
0.0X
8
Bad
1.0X
9
Good
5.0X
10
Great
12.0X
Average
1.8X
IRR
13%
*Memo: Years = 5 year horizon
*Chart Courtesy of ASW
Angel Round Dynamics
• It’s a numbers game so you need to build investor
momentum
-In many angel investments, 1/3 comes from a lead investor;
-Second third from a team of people following the lead
-Last third, random … cast a wide net, be Fearless, Accept No’s
 Go hunting for that lead!
• The simpler and more straightforward the terms in the
angel round, the better for all parties
• Equally importantly, terms shouldn't impede any future
financings
Always think FIRST about the
NEXT round of capital
Materials for Investors
• Make the Company as Real as Possible
- Pictures of Packaging
- Effectively Frame up in the Competitive Context
- Make realistic assumptions
• Be concise, compelling & realistic
• Write well; look professional
• Preempt obvious questions/concerns and be mindful
issues which might knock you out of consideration.
• You’re selling an investment and not just an
idea/product … be legally prepared to take in capital
You’ll need a core set of materials when you
enter the fundraising market
Executive
Summary
Company
Presentation
• 2-4 pages
• 10-15 pages
• Something
you can
send to
virtually
anyone
Business
Plan
Financial
Model
• Detailed 20- • Detailed
40 page
bottoms-up
document
• Scenario
Driven
Investment
Documents
• PPM
• Term Sheet
• Subscription
Agreement
• Shareholder
Agreement
Communicate a Vision, an Understanding and
The Capability to Execute Against It
9
A Strong Executive Summary is critical
• Cover all core parts of the business in 2-4 pages
• Topics (usually in this order – same for business plan)
1.
2.
3.
4.
Problem
Your solution
Business Model
Underlying point of differentiation, i.e. the unique selling
proposition (secret sauce)
5. Marketing and Sales
6. Competition (features/benefits – comparison slide)
7. Team
8. Projections and milestones (Financials, historic & projected)
9. Status and timeline
10. Summary and Call to action
 Exit strategy/market comps
 Ask/Use of Proceeds
 Capitalization to date
10
Your business is assessed against an “ideal”
Management
• Previously made money for investors
• Successful startup, ideally in same sector/space
• Complete team in core areas (sales, marketing, finance, etc)
Market
• Large, fast growing with few competitors
Product/
Tech.
• Great Packaging
• Differentiated yet understandable and priced appropriately
• Proprietary position (barrier to entry such as established
market position and/or intellectual property, patents)
Business
Model
• Scalable: Can extend into multiple channels and geographies,
no structural barriers to growth
• Exitable: A range of potential acquirers exist
Financial
• Sustainable gross margins > 40%
• Limited financing risk (future rounds likely)
• No financial liabilities that affect value or equity position
Legal
• No legal contracts that affect value or equity position
• No outstanding litigation around intellectual property or
other assets
Source: Clear Venture Partners, Inc.
11
Valuation Terminology Basics
Pre-money
+
• Valuation before
the investment
New money
=
• The investment
• “Pre”
Value
$5.0M
4.0
Post-money
• Valuation that the
company is
“sitting on”
• Post”
$5.0M
Post-money valuation
New
$2M buys 40% of company
Pre
$3M pre-money
3.0
2.0
1.0
0.0
Valuation
12
$2M raise scenarios: Staged Rounds
Series A
Series B
Value
Value
$6M
$6M
$5.000M
4
4
New (Srs B)
New Pre
New (Srs A)
2
0
$2.000M
New
Pre (Entr)
Valuation
• Raise $1M on a $1M Pre
• Pre = Entrepreneur Ownership
• New investor buys 50% of
company
• Achieve milestones and prove
early business model
2
Pre
(Entrepeneur)
0
Valuation
• 18 months later raise $1M on a
$4M pre
- Up round: $2M company value
“steps up” to $4M
- New Investor buys 20%
• Entrepreneur owns 40%
• Srs A has 40% at 2X the value –
$1M now “worth” $2M
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Some resources
Events
• Nutrition Capital Network
- 2x/year
- 20 Companies presenting to 50+ institutional/strategic
investors
• Investors’ Circle
- 2x/ year
- Tracks for Health & Wellness/Other consumer companies
to present to “socially responsible” angel/fund investors
- Newsletters
Angel
Associations
• Angel Capital Association
(www.angelcapitalassociation.org/)
- Directory of 330+ angel groups, organized by state
Investment
Bankers
• Bankers know the market and players
• Many have industry newsletters for free
14
Some resources
Blogs
• “Healthy Living and Consumer Venture Capital,
Consulting and Investment Banking” (Mike
Burgmaier) www.nevc.blogspot.com
• “A VC” – Fred Wilson from Union Square Ventures –
great blog on general VC trends:
http://www.avc.com/a_vc/
• “Ask the VC” – General blog with great archive
http://www.askthevc.com/blog/
• 2X Partners Blog & Trend Watch:
http://www.2xpartners.com/
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Some Summary Considerations in Finding
the right capital
• Consider your personal goals
-Your role in company over time
-When you take someone else’s money, you have taken on an
entirely new responsibility to the company and shareholders
-Shareholders need to be paid back: Is this a lifestyle for you or
the next Microsoft
• Be realistic on time and effort it takes to secure funding
• Find investor/company alignment
-Stage of development
-Goals; return objectives; timing….
• Respect the Capital
- Valuation and Terms
- Don’t take “No”s in the process personally
Source: Clear Venture Partners, Inc.
16
Additional Slides
Appendix
17
Institutional investors can come in several
types
• Family Offices
- Wealthy family private investment arms
• Fundless Sponsors
- Deal-by-deal economics
- No dedicated pool of capital
- Investor deal fees
- Term sheet “lock up” first step
• Dedicated Private Equity funds
- Many investors/”Limited Partners” (LPs) create a dedicated pool of
capital
- Defined life vehicle (10 years)
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Finding the right institutional investor for
you is important
Stage
• Early, Development, Late
Fund size/
Amount to
invest
• Alignment needed
Active/Passive
Investors
• People and funds are different
Expectations
• Returns (Spectrum of pure financial to “social”)
• Average investment over multiple rounds +/- 25%: Take
the size of the fund & divide by 15
• Active, expert “accelerators” /operating partners vs.
“just” money
• Timing to exit: Year of fund matters
• Communication: Frequencty/depth
Temperament
• Whatever your plan is, you are unlikely to hit
it….boardroom dynamics…logical? Rational?
Which investor/
not just which
fund
• Who will join your board?
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Some active funds
Later Stage
Early/Development Stage
Fund
Deals
Sherbrooke
Capital
Maveron
Greenmont
Capital
FoodSouldTasteGood; Oregon
Chai; Izze Beverage;
Immaculate Baking; Adina
Hosts:
Eco Products; Madhava; Blue
NextFoods; Pinkberry
Horizon Organic; Bossa Nova;
Mary’s Gone Crackers
Fund
Deals
TSG Consumer
Partners
Cytosport; Glaceau (Vitamin
Water); Voss; Perricone MD;
Smart Balance; Alexia;
Arrowhead Mills
Encore Consumer
Capital
Ciao Bella; Aidells Sausage
Company; MyChelle
Dermaceuticals
Inventages
Honest Tea; MooBella ; Organic
To Go; The Healthy Beverage
Company (Steaz)
Generation Equity
Dancing Deer Baking Co.;
NutraBella
PCV Fund
Adina; Niman Ranch
Verlinvest
Sambazon; Vita Coco; Hint;
Glaceau (Vitamin Water)
Prolog Ventures
Nest Collective; Attune; Brand
New Brands; Corazonas
VMG Equity
Partners
Mighty Leaf Tea; Pieceworks
(KIND); Pirate Branks (Pirate’s
Booty); Waggin Train
Financing Fast Growth
Northcastle
Catamount
Ventures
Nest Collective
TBL Capital
Numi Organic Tea; CleanFish;
Gaia Herbs; LaLoos
2X Consumer
Products Growth
Partners
Tasty Bite; Orabrush; gDiapers
Emil Capital
Balance Water, Cheribundi
Naked Juice; EAS; Ibex
Highland
Consumer Fund
O Water; lululemon athletica;
Pharmaca Integrative
Pharmacy; mix1
Catterton Partners
Nest Collective; Van’s Foods;
O.N.E. (One Natural
Experience); Sweet Leaf Tea
Winona Capital
Boloco
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