Financial Architecture

1
Financial Architecture

• Positioning from the Start for Follow-on VC
  Funding

2
Introductions

• Moderator
• Fred Nussbaum, Managing Director, Wingspan
  Partners
• Panel Members
• Raj Kothari - Partner, Seneca Partners
• Mary Langhauser - Supervisor of Financial
  Services, Oakland County Planning and Economic
  Development Services
• Jeff Mason - Senior Vice President, Michigan
  Economic Development Corporation

3
Life Cycle of a Startup
Build Shareholder Value
Build Shareholder Value
Exit Strategy
Revenue Growth
Enter Markets
Develop Idea Prove Concept
Build Shareholder Value
Build Shareholder Value
MA
Profit Visibility
Profit Growth
First Revenues
Develop Channel/Push
Design Wins/Pull
Deliver to Customers
Build Shareholder Value
Build Shareholder Value
IPO
4
Growth and Valuation Steps
Zm
Execution risk eliminated
Ym
Improved economic performance Hit/exceed AOP
targets Profitability and related growth Branded
in at least 1 market
Market risk eliminated
Strong channels Market dominance Growing
revenues New channels
Xm
Technology risk eliminated
Millions
Closing pipeline deals Producing revenue Repeat
business
Proof of concept Leadership, experts Endorsements/
testimonials Products in the market
Today
12 mos
36 mos
48 mos
24 mos
Time
5
QA

• Is structuring the financial framework of a
  company similar to building a home, i.e.
• what constitutes a good foundation
• Is the companys legal form important
• what do VCs prefer, C, Sub S, LLC,
• Delaware vs. local laws
• Do exit strategies play a role in financial
  architecture should the company plan/anticipate
  such events from the beginning
• Any particular clauses Investors/Entrepreneurs
  should avoid
• How many classes of stock is too much
• What roles do Angels play in VCs eyes and Vice
  versa
• Should Angels seek VC input when investing in a
  deal

6
QA

• Should Investors/Entrepreneurs finance businesses
  in traunches
• What are the key milestones VCs look for in
  development stage businesses and to finance the
  next round
• How can Investors/Entrepreneurs avoid being
  washed out in later stages when new capital is
  required
• Are there standard terms Angels/Entrepreneurs can
  obtain in early rounds that can be preserved when
  VCs step in
• Is there a standard way to lay out a
  capitalization table in anticipation of
  additional rounds of capital
• Board representation for VCs and Angels and the
  importance of participation