Financing the Entrepreneur’s Business:
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Financing the Entrepreneur ’s Business: Steve Leese John Snow David Vogel January 18, 2011
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Financing the Entrepreneur’s Business:. Steve Leese John Snow David Vogel January 18, 2011. Financing the Entrepreneur’s Business. Introductions David Vogel, Velocity Equity Partners Steve Leese, Quabbin Capital John Snow, Quabbin Capital. Agenda. Sources of Financing - PowerPoint PPT Presentation
Transcript of Financing the Entrepreneur’s Business:
Financing the Entrepreneur’s
Business:
Steve LeeseJohn SnowDavid Vogel
January 18, 2011
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Financing the Entrepreneur’s Business
Introductions
• David Vogel, Velocity Equity Partners
• Steve Leese, Quabbin Capital
• John Snow, Quabbin Capital
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• Sources of Financing• Friends and Family• Angels• Venture Capital• Terms of Venture Capital Financing• Questions – don’t wait until the end!
Agenda
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Sources of Financing
• Friends and Family• Angels• Venture Capital• Commercial Loans• Government Loans• Corporate or Strategic Partners• Grants from foundations
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Sources of Financing
Stage Pre-Seed Seed/ Start-Up Early Later
SourceFounders,
Friends and Family
Individual Angels Funding Gap
between $500,000and $2,000,000
Venture Funds
Investment up to $100,000
$100,000 to
$500,000$2,000,000 and up
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Venture Capital
• Advantages– More Cash
• Access to Additional Capital– Value Added Expertise
• Management Experience• Industry Experience• Access to Strategic Partners• Access to Personnel
– Enhance Credibility in Marketplace– Facilitate Liquidity Event
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Venture Capital (continued)
• Disadvantages– Months Long Process– Dilution of Equity Ownership– Sacrifice Control– Replacement of Management– Forced Liquidity Event– V.C. Imposed Business Objectives– Your New “Partner”/“Boss”
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Employee Matters
• Employment Agreements• Non-Competition Agreements• Confidentiality Agreements• Assignment of inventions and proprietary information• Key Man Life Insurance• Shares reserved for employees
– Stock option pool: 10 – 20% of fully diluted– Vesting provisions for stock options
• Restrict transfer of shares by Founders and Employees– Reverse vesting (often opposed by Founders)– Vesting 25% per year– Buy-back of unvested shares upon termination of employment
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Additional Rights
• Information Rights– Annual, quarterly and monthly financial
statements– Budgets and business plans– Inspection rights
• Registration Rights– Contractual right to register or participate in
registration of shares for resale to public– Liquidity for investors
Private Equity-beyond venture
• Used for more advanced cases:– Company has sustainable earnings or is
approaching earnings stage rapidly– Buyouts
• Control (50% +) passes to investor group– Growth equity, mezzanine loans:
• Used for acquisitions, expansion, hiring, partial sale of company
• Capital passes from investors to company
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Why private equity?
• Can accelerate company’s growth• Experience of capital providers• Better governance
– Board of directors– Debt structure requires discipline, planning– Growth strategy-the game changes
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Risk-not a four letter word
• Management-can they grow the company?
• Markets-will they remain favorable?• Economy-recent downturn as example.• Obsolescence
– Commodity like product or service• Investor group, lenders-leadership
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Is it worth it?
• Capital is expensive• Investment/purchase process a huge
distraction to a business• Managements can be discouraged• Many companies good to own
– Only a few are worth investing in• Growth is always key-creates value
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Example-NE Patriots
• A $172 million buyout in 1994• Now worth $1.4 billion (source: Forbes)
– Breakeven business-potential earnings– Markets-Patriots became a great product– Economy-fans have persevered, grown – Obsolescence-shrewd personnel moves– Leadership-the Kraft’s, Belichick, Brady,
Wilfork; creates a professional culture
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Private equity realizations
• Exits:– Sell to a strategic investor (a competitor)-
usually most desirable– Sell to another financial buyer– IPO-currently limited to large companies
• $1 billion plus buyouts– Downside scenarios
• Distressed sales-debt driven-result in losses• Bankruptcy
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Questions, comments?
• We are available anytime to respond to questions
• It has been our privilege to be here tonight.
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Steve Leese and John Snow Quabbin Capital
Phone: 617 330-9041Email: [email protected] [email protected]
David VogelVelocity Equity Partners
Phone: 617-338-2545Email: [email protected]
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