Boston Entrepreneurs Network: Bootstrapping and Fundraising Basics - - PowerPoint PPT Presentation

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Boston Entrepreneurs Network: Bootstrapping and Fundraising Basics - - PowerPoint PPT Presentation

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Boston Entrepreneurs Network: Bootstrapping and Fundraising Basics October 2, 2018 Tibor Toth Managing Director of Investments ttoth@masscec.com About Me Over 20 years of experience in VC & PE and as an entrepreneur Invested over

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October 2, 2018

Boston Entrepreneurs Network:

Bootstrapping and Fundraising Basics

Tibor Toth

Managing Director of Investments ttoth@masscec.com

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  • Over 20 years of experience in VC & PE and as an entrepreneur

➢ Invested over $250M across dozens of companies in transactions totaling over $1B ▪ Including 25 new investments & over 50 rounds of financing since 2013 @ MassCEC ➢ Technology and manufacturing; clean energy focus since 2010

  • Current board role at 6 MassCEC portfolio companies
  • Adjunct Professor, M&A, Brandeis International Business School
  • Commercial Reviewer, National Science Foundation
  • Education:

About Me

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MassCEC Funding Programs for Startups

Investment Size

Research & Prototyping Commercialization & Growth Catalyst Program

Up to $65K Grant <14 Grants / Year

Equity Investments

~$500K Equity Investment 1-3 Deals / Year

Venture Debt

$100K - $1M Debt Investment

InnovateMass

Up to $250K Grant <10 Awards / Year

DeployMass

Project-dependent

Workforce Development Programs AmplifyMass

Project Cost Share Up to $500K Grant

AccelerateMass

$150K Convertible Note <5 Awards / Year Investment Grant

Demonstration & Acceleration

Company Stage

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Massachusetts Cleantech Startup Ecosystem

Acc ccelerators Inc ncubators Research Cen enters Un Universities Ang ngels + + ear early ly stag age VCs Later-stage VCs s + + St Strategics

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MassCEC Portfolio Companies

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  • How much capital do you need?
  • How do you determine need (use of proceeds, runway,

milestones)?

  • Financial sensitivity
  • When should you raise capital?
  • Where can AND should you get it from?
  • What do you have to watch out for?
  • What are capital providers looking for?

Fundraising Considerations

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Mark rket

  • Problem
  • Siz

ize

  • Dr

Driv ivers

  • Co

Competit ition

So Solu lutio ion

  • Tech

echnology/IP

  • Valu

lue proposit ition

Team

  • Cu

Current

  • Futu

ture

  • How are you going make money/profits and be sustainable?
  • How are you going to scale this into a big business?

The Business Plan

What exactly is it that you do?

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8

Operatio ions

  • Reven

enues

  • Part

rtners

Grants

  • Government
  • Fou
  • undation /

/ Non

  • nprofit

In Investment

  • Equit

ity

  • De

Debt

Who cares (or should/will care) about your problem and solution?

Sources of Financing

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  • Revenues

➢ Products ➢ Services ➢ One-time, recurring, repeat

  • Partners

➢ Vendors / suppliers / contract manufacturers ➢ (Prospective) customers ➢ Channel partners ➢ Strategic partners – JDA / JV / NRE / Investment

Operations

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  • Government

➢ Federal (DOE, DOD, NSF, SBIRs, etc.) ➢ State (DOER, NYSERDA, MassCE sCEC, MassVentures, CT Innovations, California Energy Commission, etc.) ➢ Municipal

  • Accelerators / Competitions

➢MassChallenge, Cleantech Open ➢Universities (MIT Clean Energy Prize)

  • Foundation / Nonprofit
  • Don’t get distracted!

Grants

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  • Funds the development of groundbreaking, high-impact, high-risk

technology, transforming scientific discovery into products and services with commercial and societal potential

  • Evaluation criteria

➢Intellectual (technical) merit ➢Broader (societal) impacts ➢Commercial impact (potential) ➢For Phase II awards, success with Phase I grant project

  • For US-based and owned, for-profit small businesses

National Science Foundation (NSF) SBIR

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  • Phase I

➢Up to $225,000, non-dilutive grant to last 6 – 12 months ➢Proof-of-concept/feasibility

  • Phase II

➢Up to $750,000, non-dilutive 2-year grant ➢Helps commercialize high-risk technology innovations ➢Must have previously received a Phase I grant

  • Phase II B

➢Up to $500,000, 50% matching grant on revenues or investment

National Science Foundation (NSF) SBIR

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  • Equity (ownership, voting rights, upside value, dilutive)

➢ Convertible Notes ➢ Common Stock ➢ Preferred Stock

  • Debt (obligation to repay, interest expense, collateral)

➢ Venture Debt ➢ Asset-Based Loans ➢ Cash Flow Loans ➢ Project Financing

Investment

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  • Founders
  • Friends & family
  • Angels
  • Venture capital funds
  • Growth equity funds
  • Strategic/corporate partners/investors
  • Other investors (impact investors, government, family offices)
  • Other funders – grants, competitions (governments, foundations,

universities, accelerators)

Types of Investors

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  • Investment round (seed, Series A, Series B+, bridge, etc.)
  • Company stage (concept, proof of concept, pilot, commercial, etc.)
  • Amount funded
  • Lead or follow
  • Market focus
  • Technology focus
  • Experience / fit
  • Motivation / strategy

Investor Considerations

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  • Market size
  • Magnitude of problem (mission critical)
  • Predictability of revenues and earnings (recurring/repeat; validated

market, pipeline, and costs)

  • Scalability of solution and team
  • Growth rate / velocity
  • Sustainable competitive advantage
  • Innovative and defensible IP
  • Team track record and capability

Drivers of Company Value

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Vali lidatio ion

  • Tech

echnical

  • Co

Commercia ial

  • Thir

ird party ty

Mil ilestones

  • Tangi

gible ach chie ievements

  • De

Deris iskin ing/ / unlo lockin ing

Exp xpectatio ions

  • Reasonable

le

  • Ach

chievable

  • Never

r

  • ve

verp rpromise!

Risk Management

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Re Rese searc arch

  • Web / Market

et

  • Word

d of mouth th

Mo Motiv ivatio ation

  • Goals

ls (ST T & LT)

  • Missi

sion

  • n critica

tical l needs

Proce

  • cess

ss

  • Dec

ecision sion makers rs / champions ions

  • Timing

ng

  • Budget

Know your competition too!!

Know Your Customer

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Thank you! Questions??

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Appendix

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Types of f In Investors

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  • Small dollars
  • High risk stage
  • Unsophisticated investors
  • Lower bar / faster for approval

Friends & Family

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  • Seed to Series A stages
  • Concept to commercialization
  • $10K to $1MM+
  • Individuals or groups/networks
  • Generally follow, but larger groups can lead
  • Seasoned entrepreneurs
  • CEVG, Launchpad, TiE Angels, Walnut Ventures, Golden Seeds, etc.

Angels

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  • Series A, B, C+ (some seed)
  • Post-revenue (some pilot/demonstration stage)
  • $2 - $15MM
  • Lead / co-lead
  • Focused by markets and/or technologies
  • Highly returns focused
  • Interest and experience can vary widely by partner within firms
  • Rigorous due diligence process – significant time to close

Venture Capital

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  • Series B, C+
  • Commercial scale-up ($5MM+ revenues)
  • $5 - $50MM
  • Lead / co-lead
  • Focused by markets and/or technologies
  • Highly returns focused, but lower expectations than early stage with

reduced risk

  • Interest and experience can vary widely by partner within firms

Growth Equity

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  • Seed to Series C+
  • Pilot / demonstration to commercial scale-up
  • $250K - $15MM
  • Lead or follow
  • Must demonstrate strategic fit with current or future business

imperative

  • Financial return required but secondary focus
  • May be combined with commercial partnership
  • May request special rights (IP, license, exclusivity)

Strategic/Corporate Investors

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  • Impact investors (Investors Circle)
  • Family offices (CREO, BMGI)
  • Quasi-governmental (MassCEC)
  • Foreign governmental (China, Middle East)
  • Philanthropic investors (PRIME)
  • Programs/accelerators (TechStars, Y-Combinator)

Others

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Types of f In Investment

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  • Pre-money valuation (price per share)
  • Offering size
  • Type of security (convertible preferred stock)
  • Liquidation preference
  • Dividends (0 – 8% accruing)
  • Voting rights, Board rights, pre-emptive rights
  • Protective provisions
  • NVCA Template Documents

Equity

Key Investment Terms

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  • Offering size
  • Type of security (convertible notes)
  • Maturity date (6 – 24 months)
  • Automatic conversion into “qualified equity financing”
  • Value in a liquidity event (1 – 3x liquidation preference or conversion)
  • Interest rate accrual (5 – 8%)
  • Conversion discount (20 – 30%)
  • Conversion cap ($1 - $10 million; sometimes none)
  • Warrants (0 – 25% of offering amount)

Convertible Notes

Key Investment Terms

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  • Loan size
  • Type of security (senior or subordinated loan)
  • Maturity date (1 – 5 years) and principal repayment schedule
  • Interest rate (5 - 15%)
  • Warrants (0 – 10% of loan size)
  • Collateral (security interest in assets, shareholder guaranty)
  • Financial covenants

Debt

Key Investment Terms