Hello, it’s Victoria here blogging from one of the most important topics (I think) in the series and it’s about funding.

Up first is Roger Killen tell us everything we need to know.

Become a worthy investment opportunity.  This is how you raise money. What is a WIO?  How do you become that?  8 steps in the chain.  You can’t leave anything out.  Day 1: Build an SME that is a Home Run in the making:

Start at the right fit: expectations and lifestyle need to fit, self-discipline needs to marry, then the right skills, the right market, the right product, the right exit strategy, the right startup people, the right legal structure, the right infrastructure

When we have achieved these milestones, this is what we have. A culture of self-discipline, confidence and attitude.  This is achievable by the second Quarter (Q2).  You can only do this if you follow this approach.  Day 2: Leverage you home run potential into serious capital:

Start with the right money: 2 types
Equity–ownership, advantages is that it does not impair monthly cash flow, disadvantages are dilution
Debt-legally owing, minimizes dilution but it increases risk and turnoff to major investors (angels don’t like to follow debt)

Rule of Thumb: all business should be financed with Equity until they are producing revenue

Amounts of money: refer to financial model, understand you burn rate, runway length>6 months, raise capital in multiple rounds, need for cash trumps avoidance of dilution, Then the right investors: Early Stage is 4 stages (Seed, (Business Plan) startup, first stage, second stage, Expansion Stage is 3 stages (Third, Mezzanine, Bridge) Which business are you running?

1. Lifestyle Business: finances a lifestyle, subscribe enough seed capital, can be debt or equity, don’t issue many founders’ shares
2. Centred Business: subscribe enough seed capital, can be equity only, don’t issue many founders’ shares, design a vesting plan,

Definitions:

Founders’ Shares: this is how a company settles accounts, they’re common and inexpensive common shares, 1 founder = 4 million shares at .01 is $40,000, you can look into SR&ED and pay yourself

Vesting Formula: initially place the Founders’ Shares into Escrow, use a linear vesting approach 50% over 3 years, the remaining 50% becomes vested at liquidity, avoid milestone based vesting
the right valuation:

Commercial Banks: operating loan, line of credit, term loan, mortgage, credit card, cost and government programs, don’t live your life through government programs

Love Money has problems.  It’s awkward and has many problems, but it has the potential to be top quality

How do we raise up to $2,000,000 of top quality Seed and Startup Canada?

1. the right offering: 16 valuations methods, the right presentation,  the right financing campaign: 12-step sequential system for attracting several Financing Rounds of Seed and Startup Capital, contact financing does for Early Stage business financing does for selling a house

12 Step Program:
1.    Build a positive image
2.    Build a financing sales team
3.    Recruit a financial team leader
4.    Build a contact list
5.    Convert contacts into invitations
6.    Convert invitees into attendees
7.    Host  a series of seminars
8.    Cater to investors
9.    Understand RRSP
10.    Understand trustees
11.    Follow up and enroll
12.    Repeat 3X

This will give us 25 people investing at $12,000 $400,000 3X= $1, 200,000. SME at Q4 is success.  Success is knowing what to do and to act on that knowledge. If it is to be, it’s up to me.

Up next is Tanner Philp of Lions Capital. He is discussing BC Advantage Funds. What is a VCC? Get to know it.
-    30% refundable tax credit
-    cash back to investors
-    GOOGLE investment capital branch
-    less than a 100 employees
-    operating in BC and developing a technology

Financing Strategy: CEO’s job, fund to milestones, leave a cushion, 4-9 months, expertise required, directors and advisors needed, bankers, investors

What you need in a financing process is to make deadlines.  What are sources of capital? Banks, angels and VC’s. Friends and family and angels answer to themselves. VC’s work in teams. Discusses government programs (SRED, **IRAP, government funds, VCC program, innovation grants, EDC, Non Dilutive) banks, angels (relationships are important), VC’s

What are investor motivations?

1. Banks, 2. Angels, 3. VCs
Getting paid: 1. interest, 2. exit value, 3. exit value
Fee Structure: 1. Interests, 2. exit value, 3. 2%-20%
Liquidity Horizon:( (how long do you hold an investment ) 1. 1-3 yrs., 2. 5-7 yrs., 3. 5-7 yrs.
Portfolio Approach: (multiple early stage investments) 1. Yes, 2. No, 3. Yes
Fiduciary Responsibility: 1. corporate, 2. self, 3. investors,

Who to call and how do you get to these people? There are only 6 VCs in BC. www. cvca.ca.  G to the VCs web Site and see if your business fits into the portfolio. Learn who the major players are in your industry and have them on a list and learn who you will be working with.

How do you contact investors?  Direct introduction or mutual contact…the least effective is the most successful.

1. Go for a coffee, first 30 minutes you talk about how you make money

2. Second 30 minutes 50% LISTEN and 50% TALK (bring a second person who does not talk)

3. Follow up that day, suggest another meeting and answer any questions you couldn’t

Presentation Etiquette:  It’s chaotic and non-linear.  It’s critical that you ask what the people are investing in and the investment process. What is the time frame, what does it look like?
1 Hour, 12 sides: Sell the business, not the technology, Know your audience, Don’t contradict, Contents: Product, Addressable Market, Team, Competition, Financial

What are investors looking for?  Do you have a quality team? Addressable large market, competitive advantages, clear and scalable, market validating, credible vision of success

Take away investors’ reasons to say no, they won’t tell you what is wrong.  A maybe is no.
Can’t get money? It’s an ugly world out there in VC landscape.  What investors don’t want to invest in? LOTS. U.S. investors invested less in Canada by 50%.  What other words mean no?  Maybe, no, it’s too early, later, doesn’t fit our mandate, we have no money, we want to follow a lead.

What are you looking for in an investor?
- experience, people you like, experienced management, contacts, domain knowledge, confidence
Deal Terms and Structure: after a lot of discussion
Valuation: If you’re raising less than a million, you should be doing common shares.  What is valuation?  You can’t value startups. You have no cash flow or historical revenues. Tanner says the most single important thing you have is your team.  Tanner ran out of time, so he is summarizing definitions of preferred shares. Goes over negotiating terms and closing the investment. Do not take your eye off the ball.

Taking the first steps to Technology Entrepreneurship And Preparing Effective Business Opportunity Statement

It’s Victoria here…live-blogging from the first series of the NVBC seminar at SFU.

First Up: Angie from New Ventures BC talking about the competition and that it is now open. If you’re out of town, they are providing funding up to $750. Bob de Wit is the speaker: Bob talks about his bio. He is an entrepreneur, investor, advisor, mentor and WUTIF angel investor.

Intro to entrepreneurship: What is it? Who is an entrepreneur? A person who organizes, operates, and assumes the risk or a business venture. An innovator, renewing society by looking for opportunities to make products, institutions. Lists famous entrepreneurs like Ted Turner, Richard Branson, Bill Gates, Jimmy Pattison, Don Rix (Metro Labs), Thomas Jefferson, Sir John A. MacDonald, and more. What do successful E’s understand? The market, the edge of product, supporting team, “cash is king.” What are some risks investors look at? Market, technological, people, financial. Pros and cons of being an entrepreneurship are discussed, like being your own boss and stress, people will tell you one thing and do another, becoming cynical, not everyone will love your baby.

Tip 10 tips:

Find mentors, don’t over plan, hire people smarter than you, know your customer, always know your cash runway and know when not to be cheap, develop an elevator pitch, play to win, acknowledge the enemy, don’t let the hosers get you down ( I love this one) and have fun!

Where TO look for help? NRC IRAP,  New Ventures BC, Mike Volker’s site, VentureBlog.com

Where NOT to look? your bank, family and friends, outside your home market, business planning consultant

Bob discusses the New Venture BC Competition.  In it’s 9th year, mentoring, education, networking, over $309,000 in prizes, discusses eligibility, see rules here. Are you eligible for SRED? Goes over the series. Rounds are described: Round 1 is a 2-page online description where most enter, about 150 companies, then a cut is made and a 5-page business overview (which is the toughest), then the major cut is made of 30 companies, you’ll need an 8-page executive summary and then it’s down to 10. This is where you make the oral pitch and final decisions are made. The prizes are all in cash. If you’re a bio-energy company you can win more money. For $100, you can enter..by April 20.

Who are the judges? Categorized by different sectors, like clean-tech, bio sciences etc. In Round 2, your entry gets evaluated by the appropriate judges. You can spend the cash anyway you want.

Back from break…

Preparing Effective Business Opportunity Statement:

Define the pain your solving, solution, why do we care, how are we going to win? Running through last year’s winner proposal by Saltworks.  How do you get money? What do you need in Round 1? Describe the product, describe the innovation, the technology, provide a brief analysis.

What’s the definition of IP? Creation of the mind, industrial property and copyright.

Round 2 deadline is May 27, 2009 and it’s important to understand judging criteria. Five judges will review submissions, 30 companies go to Round 3. 9 questions and all matter:

Baseline (not important but can sell a judge) : product, tech development, team, business plan structure.

Evaluation:

Describe your defensible competitive advantage! Include it in your story. If you’re worried about patent disclosure talk to a lawyer.Be specific about your target market. Describe your demographic-type, their value and why they will be customers.

Describe your revenue model.  What are your market-penetration goals. (It takes at least a year for a good plan to come together.)

Distribution? What alliances do you have and do you intend to make them? How is your product produced?

Competition? who are they, what makes them unique or same, different?

Financial? How much have you spent? Don’t lump cash and equity together. How much did you raise? How much do you need? When will you be cash flow positive? What’s the return?

Investor Math:

Present Value of your company, The VC vs. Angel views.  Angels invest earlier and expect higher ROI 6-20x their money back over 5-10 yrs. VCs invest a bit alter and need at least 10x their money back over 5-7yrs. Angel valuations $500-$2mm, VC is $2-5mm. Angel Round $250-750K. VC Round $2-5mm.

Angel Rules of Thumb: A great idea with IP gets $500K, the right team with biz plan is $250K, some market validation is $250K, early revenue from early adopters is $500K, more than above justifies higher value.

Future (exit) value: usually by mergers and acquisition, typical multiples are 1-2 times revenue, much less for service businesses.

Implications for revenue growth: $2 mm pre-evaluation means you need to archive $20 mm in revenue. What are difference between VCs and Angels? Bulk money, governance, go big or go home, Angels will invest smaller.

How does an angel view a company that offers a product and or service? Angels are great because they have their own company?  Inevitably, there will be lean times and you need service. Not many people want to invest in a service business. So, don’t tell them that. Recommends Bootup Labs for Web 2.0 companies as an incubator.

Contact Bob De Wit at rdewit@alumni.sfu.ca or call 604-916-3434