Preparing for and Raising Early Stage Capital in Maine WEBINAR PRESENTED BY MAINE VENTURE FUND MAY 24, 2017
Webinar Introduction This webinar is being recorded Participants are on mute Use chat function to ask questions anytime Questions will be answered during Q&A at the end Presentation available on maineventurefund.com This is our second in a series of webinars
About Maine Venture Fund The Maine Venture Fund is a professionally managed venture capital fund that invests exclusively in Maine companies that demonstrate a potential for high growth and public benefit. John Burns Managing Director
Webinar Agenda Capital Raising 101 (15 min) Founder perspective (15 min) Angel perspective (15 min) Q&A (10 min) Dan St. Pierre, Hyperlite Mountain Gear Sandra Stone, Angel Investor
Capital Raising Overview WHAT IS EQUITY INVESTING? WHAT DOES THE PROCESS LOOK LIKE? WHAT S THIS LIKE IN MAINE?
Selling shares in your company in exchange for cash No monthly payment like a loan Much higher return expectations What is it?
Different sources of capital Friends & Family <$100K State/Gov t Agencies ($100K-$1M) Banks ($250K+) Cash Flow Concept Passive Investors Working Model Sweat equity and personal savings Engineering Prototype Angel Investors ($25K-$1.5M) Seed capital Production Active Investors Early stage venture capital Venture Capital ($500K-$5M+) VC Product Introduction Sales
Return of capital through acquisition, buyout or IPO Potential for at least 5X money return in 5-7 years Significant competitive advantage usually through IP What equity investors look for
The fundraising process Before talking to investors 1. Develop your business plan 2. Identity active investors in your geography & industry 3. Practice your pitch/plan to friendly investors 4. Does your plan match current investor expectations? Interacting with investors 1. Identify each investors preferred process and seek warm intros 2. Initial review 3. Identify lead investor 4. Formal due diligence 5. Term sheet negotiation 6. Funding close
Business plan materials Must have 1. 1-3 page executive summary 2. Overview business plan ~10 pages 3. Pitch deck (two versions in person and for email) 4. Historical actual financials 5. Detailed financial projections, monthly 24 months, annual 5 years; PL, BS & Cashflow 6. Capitalization history and plan Nice to have, will need 1. Third-party industry analysis 2. Past board and/or investor reports and/or meeting minutes 3. References 4. Review of competition 5. Examples of comparable exits in your industry
The pitch The goal: further interest toward due diligence Typically 5-15 minutes Various pitch deck templates available YouTube great investor pitches It s important, but it s only the very beginning A story, the hook Market / problem Product / solution Revenue model Technology Competition Management team Call to action
Due diligence All investors have their own process Most investors won t sign NDAs Can be extremely distracting and time intensive Common diligence activities might include: Product demos, listed and unlisted reference calls, customer calls, advisor, board member interviews, legal review, IP & technology review, financial proforma analysis, and much more.
Term Sheet Typically issued and negotiated by lead investor who commits to 25-50%+ of the total round Several forms of equity structures: NVCA convertible preferred shares, convertible debt, Series Seed Expect: Board of directors, preference over common, special voting and rights for investors Too much to cover - a topic for another webinar
Most Maine companies will raise first round of capital from Maine investors Investors fund companies within driving distance
Maine market realities Local market trends matter. Silicon valley norms don t typically apply in New England. Important to be in market and if not have strong rational for why. Valuations: $1.5M-$3M Deal sizes: $500k-$1M Stage: early revenue typical Investors: mostly Maine based angels and small funds, limited Boston participation Length of time: 6-12+ months Several rounds of financing typical
Raising Capital The CEO Perspective Co-founder/CFO Dan St. Pierre
Raising Capital The CEO Perspective Brief Company Intro Equity Fundraising Process Hyperlite Mountain Gear Fundraising Experience What s it like? Is it Worth It?
Company Introduction Founded in 2010 by brothers Mike & Dan St. Pierre Designer, Manufacturer and Online Seller of High-tech Ultralight Outdoor Gear Initially Funded by Family Began Seeking Institutional Investment in 2013
Equity Fundraising Process From Company Perspective There Are a Few Things You Will Need but First: Great Business Idea Requires Investment to Get Started Growing Business Needs Funding to Grow
Equity Fundraising Process From Company Perspective THEN: A Solid Plan Tell Your Story One Pager & Slide Deck Find Potential Investors Negotiate Term Sheet Complete Due Diligence Persistence
Have a Solid Plan in Place Financial Model 4-5 Year Quantitative Story Business Plan Qualitative Story
Tell Your Story: Simply One Page Business Summary & Slide Deck Business Overview Market Problem & Solution Market/Industry Overview Market Size / Addressable Market Traction-to-date Team Ask / Use of Funds Exit Strategy
Find Potential Investors Talk to Everyone You Know.and don t know Work to Find a Lead Investor Will likely only fund a portion of round Will not invest anything without minimum committed Find Other Investors to Fill Round Angel Groups, Accredited Individual Investors
Negotiations Negotiate Term Sheet With Lead Investor Have Lawyer in Place Understand Start-up / Early Stage Valuations Be Prepared with a Starting Point Value Be Aggressive, but Realistic Be Reasonable.This is Your New Potential Partner Sign the Deal
Due Diligence Begin Due Diligence Open the Kimono Be Honest Be a Good Partner
Persistence Keep Pushing Don t Give Up Chase Every Avenue Fill and Complete Your Round
Equity Fundraising Process From Company Perspective What is This Whole Process Like?
It s Like Climbing a Mountain But you ve done That before And you ll do it again..and again!
Equity Fundraising Process From Company Perspective Specific examples: Recognizing the Need for Funding Understanding Use of Funds Time to Close the Round Chasing Every Avenue
Equity Fundraising Process From Company Perspective What s it really like having institutional investors?
What s It Really Like Having Institutional Investors? Things will change Ultimately for the positive! Capital Influx Pro Board Investor Communications/Reporting Outside Support
Are There Downsides? Sure You Give Up Equity But can you grow without funding? Very Time Intensive A distraction from running your business There Will Be More to Do Which will only elevate your game!
Is It Worth It? Your job as an entrepreneur is to create value If you need funding to grow your business Go & get it! Continue to create value For your investors and yourself
Raising Early Stage Capital In Maine from an Angel Investor Perspective Sandra Stone Chair Emeritus, Maine Angels
Maine Angels an investment network Maine Angels members are accredited* private equity investors who invest in and mentor early stage companies We collaboratively identify & vet promising start-up companies with prospects high growth in Maine & New England Objective = profitable exit for both investors & entrepreneur. - NOT interested as Long-term silent partner! - We analyze fit for high return in 5-7 yrs, due to our value add/ invested funds - Expect high return as premium for high risk & illiquidity. * Defined by the SEC: > $200,000 income OR > $1,000,000 net assets
(Graphic by 37 Angels)
Maine Angels Portfolio Since 2004, >$19.5 M in 72 companies (5/1/17)
ACA New England (Angel Capital Assoc.) (24) Angel Groups Possible syndication partners Angel Investor Forum - East Hartford, CT Beacon Angels - Boston, MA Boston Harbor Angels - Boston, MA Boynton Angels - Worcester, MA Cherrystone Angel Group - Providence, RI Clean Energy Venture Group - Boston, MA ecoast Angels - Portsmouth, NH ECS Angels - Bar Harbor, ME Edible Ventures Group - Boston, MA Golden Seeds LLC - Boston, NYC, & San Fran HubAngels - Cambridge, MA Landmark Angels - Greenwich, CT *ACA Affiliate Member: Maine Venture Fund Launchpad Venture Group - Wellesley, MA Maine Angels - Portland, ME Mass Medical Angels - Brookline, MA North Country Angels - Burlington, VT Northeast Angels - Milford, NH Ocean State Angels - Providence, RI Pipeline Angels - Boston, MA River Valley Investors - Springfield, MA SideCar Angels - Wellesley, MA TiE Angels - Boston - Boston, MA UMass Lowell New Venture Fund - Lowell, MA Walnut Venture Associates - Wellesley Hills, MA
Unlike other angel groups, Maine Angels investment portfolio covers multiple sectors 13% 6% 6% biotechnology media/mobile medical devices 6% food & beverage 13% internet/it 6% consumer products electronics 8% 10% retail clean technology 8% education 8% software 8% 8% financial services
What investment opportunities do Angel investors look for? Management team capable of executing the plan Emerging market for the product Scalable business model with plans to meet growing markets Differentiated product or service Low capital expenditures Understand the user or customer Clear, actionable plan to reach milestones with the funds raised Achievable exit strategy at multiple times investment Attractive deal terms * Maine Angels: Preference for Maine / New England deals
When should a company seek investor funding? Product = more than idea stage Proprietary features distinguish it from potential competitors Some "proof of concept" revenue Clear, plausible exit strategy for 5-10x returns within 5-7 years Typical valuation at 1 st funding below $5 million Typically seeking 1 st round of $100,000-$2,000,000 Financial projections based on sound assumptions = profit & growth The company is domiciled in the United States.
Maine Angels process = online application
What companies are not a good fit? Biggest Obstacle: not being ready for outside investment. Not really knowing your business Not knowing how to articulate your business model Not wanting the close examination of due diligence Not wanting the requirement to at least provide regular progress reports or board observation rights. Type of business not really scalable or growth oriented: life style businesses, most one location retail, most small business endeavors most service providers
Maine s ecosystem
Value add of Angel investors - Mentoring - advisory committee - board member - specific industry expertise - important rolodex of contacts - awareness of or access to resources * offer good advice, focused expertise, industry knowledge and connections
Questions and Answers
Thank You! WE WILL EMAIL YOU THE LINK TO THE WEBINAR RECORDING AND SLIDE DECK SHORTLY!