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Finance for Growth(venture capital)
16th March 2010
NETpark Incubator
Jonathan Gold j.gold@financetree.biz
8/7/2019 Finance for Growth - Presentation by Jonathan Gold
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Who are we ?
Finance Tree works with businesses to help them
understand the needs of investors and find the right
investor.
2005 NStar Corporate Finance established
2006 Finance and Business launched
2008 (April) Management Buyout and creation ofFinance Tree
2009 (April) created Rivers Capital Partners
www.riverscap.com
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Venture Capital / Private Equity
Private Equity is medium to long-term finance
provided in return for an equity stake in potentially
high growth unquoted companies.
Source: British Venture Capital Association (BVCA) 2005
NB: Almost all are FSA regulated collective investment schemes
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Sources ofcapitalofcapital
ResearchGrant
Con
cept Finance
~ 100,000
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Finance for Business
North EastF
unds
25m
15m
7.5m
20m
20m
20m
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The investment model
Time since investment
Investment in
Generating cash
Sale of company
or exit
Development &
early sales
(losses)10x return in 5 yrs
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Statistics ofVC portfolios
10 Investments
4Fail
4 Living dead
2 Stars
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Why bother?
VC should add real value to your business
Recruitment of the senior team and suitable NXDs
Extending yourcontact base of customers/partners
Assisting the business to enternew markets
Providing support on complex deals (eg: acquisitions)
Acting as a friendly outsider in strategy debates
Securing additional funding & negotiation of exits
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So is there a downside?
Lose some control
there will be another owner of your business
VC will normally want a seat on your Board
Full transparency in terms of information & business
Typically look to agree a growth and exit strategy up front.
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1 2 3 4 5 6 7
1x 0 0 0 0 0 0 0
2x 100 41 26 18 14 12 10
3x 200 73 44 31 24 20 17
4x 300 100 58 41 32 26 21
5x 400 123 71 49 38 30 25
6x 500 144 81 58 43 34 29
7x 600 164 91 62 47 38 32
8x 700 182 100 68 51 41 34
9x 800 200 108 73 55 44 36
10x 900 216 115 77 58 46 38
Value & IRR
Ultimately its what an investor will pay !
Investment required
Time to a given return
Return the investor needs
RISK
Valuation
Pre-investment
Post-investment
% ownership to give return
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Indicative timelineendgame
Ta Ti eline
( nt )
1 2 3
Initi l l nning tings
Pl n/ ff r l nt
M ling l ti n
Inf r ti n r ndum
Tax lanning
Invest r identified
Presentati ns t invest rs
nsiderati n f ffers
Preparati n f rduediligence
Negotiations it investors
Internal duediligence
Legal document prep.
Final offers
Investorduediligence
Exclusivit period
ompletion
BLUE internal RED externally driven
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Last but not leastEXITS
PLANNED from day one
Fund Managerwill want a well defined EXIT
Investment Return to the fund from growth of company
Common exits
Further investment round (someone else buys out fund)
Listing on a stock exchange (IPO)
Trade sale, sold to another corporation.
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Lessons from Venture capital
What are investors looking for
1 Leaders ippotential of leadentrepreneurLeaders ippotential ofmanagement team
3 Industr expertise inmanagement team4 Track recordof leadentrepreneur
Track recordofmanagement team6 Sustained s areposition7 Marketingand sales expertiseof team
8 Organisational abilities of team9 bilit toget cas out of t e investment10 egreeofproduct-market understanding11 Expected rateof returnon investment12 Time tobreakeven13 Financeandaccountingexpertiseof team14 bilit to createpost-entr barriers15
usinessmeets fundingconstraints
16 Process/production capabilities of team17 Uni ueness ofproduct/tec nology18 Market growt andattractiveness19 egreeofmarket alreadyestablis ed20 Time required topayback investment21 bility to influencenatureof t ebusiness22 Importanceofunclearassumptions23 Stageof investment required24 Easeofmarket entry25 Strengt of suppliers anddistributors26 Natureanddegreeof competition27 Locationofbusiness28 usiness andproduct fit wit portfolio29 Projectedmarket size30 Sensitivity toeconomic cycles31 bility to syndicate32 Seasonallyofproductmarket33 Scaleand c anceof later financing rounds34 Locationofbusiness relative to fund.
Source:Tradeoffs in t e investment decisions ofEuropean enture apitalists. ( ut ors: aniel F. Muzykaand Su
irley) Journal of usiness enturing ol 11No.4 July2000
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Thank you
Jonathan Gold
j.gold@financetree.biz
Follow us on TWITTER www.twitter.com/financetree