David R Clark Director of Investment Services 1
What is SATAI? The San Antonio Technology Accelerator Initiative Mission The SATAI Network exists to Inspire technology innovation and commercialization, Create technology companies, and Grow them into viable businesses. 2
IED/SBDC Quantity of Deal Flow, to Quality Deal Flow Univ of TX @ San Antonio UT Health Science Center Cancer Treatment Research Center S/W Found for BioMed Research National Security Agency - AIA S/W Research Institute Texas Research Technology Found. Ft. Sam Houston (Military) Wilford Hall (Military) Others E n t r e p r e n e u r s Q U A N T I T Y S A T A I Q U A L I T Y D E A L S 3
Preamble 1. Raising money for a new high tech venture Life Style vs. Gazelles 2. What the investors are looking for 3. What you need to be thinking about 4. Mistakes to avoid 5. Pragmatic approach 6. There are exceptions to everything I say 4
Pop Quiz I want to start a new venture because: a) My invention/discovery will help mankind. b) I want to build a company dominant in the market. c) I want to get rich. d) All of the above 5
Valley of Death 6
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Venture Investment 101 Technology 1. What is it? 2. What is the value proposition? 3. Is there protected Intellectual Property? 4. What stage of development? 5. Are there barriers to development success? 8
Venture Investment 101 Market 1. What is it? 2. How big is it? 3. Is there evidence of demand? 4. Who are the competitors? 5. What is the differentiator? 6. What are the barriers to entry? 9
Venture Investment 101 Management 1. Who are they? 2. What entrepreneurial experience? 3. How much skin do they have in the game? 10
Venture Investment 101 Attractive Investment? 1. What is the deal? 2. When do I cash out and how? 3. What are the key milestones? 11
Recommended Documents (In order of importance) 1. Investor Presentation 2. Executive Summary 3. Elevator Speech 4. One Page Summary 5. Business Plan 6. Customer Brochure 12
Biggest Mistakes by Entrepreneurs 1. Talk too much about the technology and not the business aspects. 2. Cannot articulate assumptions driving revenue and expenses. 3. Failing to involve former entrepreneurs in venture. 4. Confusing marketing with sales. 5. Failing to realize that investors want to cash out - not get a share of profits. 6. Not understanding IP issues. 13
Why a Business Plan? Business Strategies Product Development Sales & Marketing Financial Others Management in sync (Equity Funding World) Sell the venture Due Diligence 14
Venture Investment 101 Business Plan 1. What is the technology? 2. How big is the market? 3. Who is on the Management Team? 4. Is this a good deal? 15
Preliminary Remarks No proprietary warnings About 20 pages without exhibits About 6500-7500 words 10 or 12 pt Times New Roman Spellchecker Flesch-Kincaid Readability <30 Table of Contents and page numbers 16
Technology Detailed description of the problem Set up the Value Proposition What is the solution 5 th grader rule Product Description Feature Function Benefit Intellectual Property State of Development 17
Market Market Need Market Size Competition Direct & Indirect Differentiators Pricing Strategy Sales Strategy and process Revenue sources 18
Management Team Who is on the team Domain Expertise Entrepreneurial Experience Board of Advisors 19
Attractive Investment Pro Forma P&L 3-5 years Assumptions driving the numbers 10X N5 Pro Forma Balance Sheet Cap table Funding Request Pro Forma Cash Flow The Deal and Liquidity Events Use of Funds Integrated timeline 20
Integrated Timeline ($K) Development Alpha Beta Production Sales & Mkting Hire Sales Sign 1 st Distr 1 st Sale Continued Sales Cash $20 $110 $15 $205 $120 $90 $135 Investment $150 $350 21
Cosmetics & Presentation Lots of graphics and color Puppies & Kittens Professional binding with heavy paper Double sided printing May want to consider a Marketing Communications advisor The objective is make it easy to read 22
What really happens 1. Read the first paragraph 2. Look at the financials $ Revenue line 3. Look at Management Team Is there a hook? How much & 10X N5? Can they pull this off? 23
Biggest Mistakes by Entrepreneurs 1. Too much on the technology 2. Too little on the Management Team 3. Failure to abide by the 5 th grader rule. 4. Failure to articulate the Value Proposition 5. There is no competition. 6. This assumes only a 1% market penetration. 7. Too much or too little detail on the Pro Forma 8. Does not state The Deal 24
Venture Investment 101 Attractive Investment? 1. What is the technology? 2. How big is the market? 3. Who is on the Management Team? 25
The Management Team Version 1.0 Product Development Marketing Finance 26
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The Management Team Version 2.0 Chief Executive Product Development Finance Sales & Marketing 28
Chief Executive The key player Overall strategy of the venture Face of venture to investors Lead presenter Assemble the Management Team Raise equity funding Operations 29
Chief Financial Officer Financial strategy of the venture Pro Formas Funding rounds or traunch strategy Negotiation & Term Sheets Financial operations Cash management Creditor management, e.g. factoring Expense control Vendors 30
Chief Technical Officer Build the product Program Management Investor milestones Launch milestones Product support strategy Logistics IP protection Manufacturing 31
Chief Marketing Officer Marketing strategy Product launch Marketing communications Sales strategy Drive revenue Distribution Sales organization 32
The Management Team Version 2.0 Chief Executive Product Development Finance Sales & Marketing 33
The Management Team Version 2.0 Chief Executive Product Development Finance Sales & Marketing 34
Whose the Entrepreneur? Who on the Management Team has raised equity funding before? How much and how many times? Who has brought a product to market before? This can be done. Just get creative. 35
So How Do We Do This? Don t not have a plan Advisors Gray hair and scar tissue Can become investors Equity positions Work for piece of action Keep it simple Realize an Investor may want to put his/her people in especially CEO or CFO 36
Board of Directors & Advisors Fill roles temporarily Accepted by Investors Consulting roles Legal, Marketing (not Sales), Manufacturing, Technical, etc. Use Star Power of BOD/advisors Access to investors May be investors themselves Don t forget the Investor 37
The Management Team Version 3.0 Board of Directors Investor Presence Star Power Chief Executive Advisors Investor s designate Finance Product Development Sales & Marketing 38
Biggest Mistakes by Entrepreneurs 1. No seasoned entrepreneur 2. No plan to fill key roles 3. We ll be able to do that once we get funding. 4. Multi-tasking to cut expenses. 5. Failure to use Board of Advisors 6. Confusing accountants with CFO s 39
Equity Funding Arithmetic You and your team have invented the best thing since beer in cans You need $500K to build a prototype, hire sales people, rent facility, etc. Some investors have expressed an interest in your venture 40
Today You figure your company is worth $1,200,000 based on IP, assets, etc. So... 1,200,000 You 500,000 Investor 1,700,000 Total 70.5% 29.5% 41
Now your company is worth $2,500,000 So... In Six Months (prototype finished) 1,762,500 You 737,500 Investor 2,500,000 Total 70.5% 29.5% 42
Now your company is worth $4,000,000 So... In Two Years (sales people, revenue) 2,820,000 You 1,180,000 Investor 4,000,000 Total 70.5% 29.5% 43
Alternate Arithmetic You need $500K to build a prototype, hire sales people, rent facility, etc Some investors have expressed an interest in your venture Divide funding into rounds $200K for prototype $150K for sales people $150 for facilities, etc. 44
Today You figure your company is worth $1,200,000 based on IP, assets, etc. So... 1,200,000 You 200,000 Investor(1) 1,400,000 Total 85.7% 14.3% 45
Now your company is worth $2,350,000 So... In Six Months (prototype finished) 2,013,950 You 336,050 Investor(1) 2,350,000 Subtotal 150,000 Investor(2) 2,500,000 Total 85.7% 14.3% 80.6% 13.4% 6.0% 46
Now your company is worth $3,850,000 So... In Two Years (sales people, revenue) 3,101,483 You 748,517 Investor(1&2) 3,850,000 Subtotal 150,000 Investor(3) 4,000,000 Total 80.6% 19.4% 77.5% 18.7% 3.8% 47
So What? $500K up front Your share - 70.5% Your value - $2.8M $500K (200/150/150) Your share - 77.5% Your value - $3.1M Timing is important 48
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Do you want to be rich? or Do you want to be King? 50
So where s the money? Venture Capitalists - Probably too early Angel Networks - South Texas Angel Network & others Government Initiatives - SBIR/STTR - Texas Emerging Technology Fund - Texas Ignition Fund 51
The Take Away Clever technology or a good idea is not enough. There must be a strong management team around the technology. Know the market and competitive landscape. The objective is to sell the company. 52
David Clark Director Investment Services SATAI 210.458.2523 drc@satai.us 53