European Business Angels Network

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European Business Angels Network
Fueling Europes Growth
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Introduction
EUREKA HTIP Investment Readiness webinar
2  Raising Capital through an Effective
Process  Presented By Paulo Andrez EBAN
President Emeritus, Business Angel Riku
Asikainen FiBAN President, Business Angel
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Paulo AndrezBusiness Angel, President Emeritus
EBANBrussels, 17-03-2015
How to raise capital through an effective process
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Executive summary
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Why Business Angels Exist ?
Business Angels do not sign NDAs in the first
meeting
Risk mitigation
Terms of Investment
Valuation
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(No Transcript)
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Startups Valley of Death
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A typical angel investment process
Investment terms and negotiation

Investment
Post-investment support
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Executive summary
Why Business Angels Exist ?
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Business Angels do not sign NDAs in the first
meeting
Risk mitigation
Terms of Investment
Valuation
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Angels do not sign NDAs in the first meeting

• Main reasons for not asking a NDA to be signed by
  Angels
• - It is a bad start by telling the Angels that
  you do not trust them
• - Angels see tens or hundreds of business plans
  per year so signing NDAs on all of them ,
  would put the Angel out of the business in some
  weeks or months
• - Some entrepreneurs like litigation and if they
  see an opportunity... So Angels
  are very careful about signing anything when they
  do not know the entrepreneur
  well
• - In 99 of the cases, there is nothing to
  protect, which makes the situation a bit
  ridiculous and a reason for non investment

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Executive summary
Why Business Angels Exist ?
Business Angels do not sign NDAs in the first
meeting
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Risk mitigation
Terms of Investment
Valuation
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Imagine that you have 100.000 euros in a safe
bank, and you have 4 of interest rate on your
deposit.
Hi, My name is Zephyr, and I want you to invest
in my new fantastic Start Up ! I will pay you 5
annually.
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But if the World Bank guarantees you that if
Zephyrs new venture doesnt pay you the 5, they
will pay it immediately to you, would you invest
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Mutual Guarantee
Venture Capital
Business Angels
Crowdfunding
Family, Friends , Fools State
Banks
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Probability of an entrepreneur to raise money for
his/her venture
0 Mitigated Risks
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Risks (MELFO) Market, Entrepreneurs, Legal,
Financial Operational
Source Paulo Andrez
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(No Transcript)
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Get out of the Comfort Zone
Reduction of 50-90 of the initial project
Total Risk of the Project
Final Risk of the Project
Project after risk mitigation
Initial project
Source Paulo Andrez
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1 Risk Market B2C products - gt reward
crowdfunding B2C can be transformed initially in
B2B B2B - Approve samples before production line
is built B2B Get pre-orders or intentions Find
key sales managers in strategic markets, with
direct access to market Choose suppliers that can
buy the final products
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2 Risk Entrepreneur (Team) Add
cofounder(s) Hire Interim Manager A Lead angel
can become temporarily CEO, while founder can
become CTO or COO Assigning difficult tasks to
entrepreneur before investing in order to assess
his/her skills
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3 Risk Legal Subcontract a due
diligence Hire an IP attorney with international
experience to do the IP due diligence
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4 Risk Financial Get written quotes from main
suppliers Reduce the level of investment (by
splitting the investment) Rent instead of buy
(buildings, vehicles, machines) Extensively use
buy back options for main equipments Use SaaS
solutions (e.g. search in www.capterra.com) Subcon
tract initially the production before investing
hugely in a production line Make agreements with
main initial suppliers, transforming fixed cost
in variable cost. Revenue sharing. Receiving the
payments from clients to secure orders
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• 5
• Risk Operational
• Get written statements from reliable entities
  confirming that the product will perform as
  expected
• Do not reinvent the wheel. Use standard pieces
  and equipments in the products. Reduces the risk
  of non performing units
• Make a prototype using smart negotiations with
  suppliers and eventual partners in the region

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Executive summary
Why Business Angels Exist ?
Business Angels do not sign NDAs in the first
meeting
Risk mitigation
?
Terms of Investment
Valuation
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Terms of Investment

• Investment terms and conditions include the
  following
• Amount and use of investment
• Percentage ownership
• Equity and debt structure
• Dividend and interest (if applicable) rights
• Voting rights
• Management incentive schemes
• Exit arrangements
• Management changes
• Investor board representation
• Investor veto rights
• Reporting requirements and consequence of
  failure
• Costs and confidentiality and
• Steps to closing.

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Executive summary
Why Business Angels Exist ?
Business Angels do not sign NDAs in the first
meeting
Risk mitigation
Terms of Investment
?
Valuation
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Priced rounds. Traditional approach.

• The valuation needs to be low enough to ensure an
  investor can achieve an attractive return. It
  needs to high enough to keep existing
  shareholders incentivised.
• Degree of influence
• Have a realistic valuation expectation the
  investor has to make an attractive return on his
  investment
• Valuation multiples/metrics
• Where there is revenue and/or profits, various
  multiples or metrics can be applied to establish
  a valuation
• A multiple of recurring revenue
• A multiple of EBITDA
• A multiple of profit after tax
• A sector markup
• A value for every active user/customer

Pre-money valuation 700k Post-money valuation
1 million
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What is the value of a project ?
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How to solve the conflict of pre-evaluation?
Options (earn out) based type of investment
of equity in the company
achieved of the goal
achieved of the goal
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THANK YOU! paulo.andrez_at_eban.org
Your Logo
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EFFECTIVE FUNDING PROCESS
Process by Finnish Business Angels Network (FiBAN)
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Executive summary
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FiBAN introduction
FiBAN angel activity
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Startup deal flow process
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Deal flow platform (Gust)
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Screening form
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Pitch
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Syndication interest
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Term sheet
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• FiBAN is a association of private investors that
  aims to improve the possibilities for private
  persons to invest into unlisted potential
  high-growth companies.
• A non-profit, private investor driven association
• Deal flow and investor match-making, training and
  syndication
• European Business Angel Network of the Year
  2012

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FIBAN ANGEL ACTIVITY 2014
21M200 angels invested in 238 companies

• 450approved business angel members

500 potential investment opportunities
140angel events in 2014
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STARTUP PROCESS
INVESTMENT/SYNDICATION
PITCH
SCREENING
SUBMIT
www.fiban.org/submit

• Free-of-charge
• Includes investor feedback
• Links to growth resources
• Visible for 3 months

• Investor evaluation (due diligence)
• Alone or in group
• Capital and/or sweat equity (knowledge)

• Short presentation to wake investor interest
• Sector-based and regional events

• Companies chosen to pitch
• In cooperation with Finnvera

ca 3 weeks
ca 1 week
ca. 6 weeks
ca 2 4 months
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FIBANS DEAL FLOW PLATFORM - GUST
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SCREENING FORM
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PITCH
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Syndication interest
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TERM SHEET
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FIBAN www.fiban.org
Your Logo
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Questions and Answers
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Next webinar Communicate with Investors

• Speakers
• Michael OConnor Cork Bic CEO
• Selma Prodanovic Keynote Speaker, Entrepreneur,
  Philanthropist
• Date 25th of March, 2PM CET