Raising Money in Small
Companies
November 11, 2004
Dale H. Munk
Raising Money in Small
Companies
November 11, 2004
One Man’s View
Background
-Farmer from Southern Idaho
-Married, Five Children
-MBA from the Other School in Utah
-Business Locations Boston, San
Diego and Provo
-Focused on Small to Medium Sized
Companies / Troubled
Money
-Almost All Businesses Need It
-You Need Much More than You Think
-Bad Things Happen if You Can’t Get It
-Survive or Capitalize on Opportunities
Three Primary
Sources of Financing
-Venture Capitalists
-Angel Investors
-Strategic Partners
Three Primary
Sources of Financing
-Venture Capitalists
-Angel Investors
-Strategic Partners
Dramatic Upheaval
-First Quarter, ’00 the Zeneth-$29 Bil
-Last Quarter-$5.9 Bil
-Last Quarter at-Q4, 1998 Levels
Dramatic Upheaval
-In Q1 2000, Invest in Any Crazy Idea
-Today, Better Have a Great Plan
-Startup Investments are Sparce
-Old Deals are on Life Support
Vulture Capital
-Waiting to Pick the Bones
-Greed and Fear-Mostly Greed
-Demand 50%-70% of the Company
-Ruthless with Management
A Kinder, Gentler
View
-Providing Fuel for Ideas
-Facilitate the Advancement of
Technology
-Take Big Risks / Should Get Big
Rewards
Vulture Capital Scenario
Local Current Example
-Three Founders Raied $2 Mil from
Friends and Family
-Worked Like Dogs for Eight Years
-Suffered
-Went to VCs for Rescue
Vulture Capital Scenario
Local Current Example
-Took 60%, 25% and 25% in Three
rounds
-Founders Now Hold 1.2% But are at
the Bottom of the Waterfall. Will
Get Nothing
-Lost Their Jobs to Boot
Qualify for Venture Capital
If You Have
-A Credible Management Team
-A Large Market
-A Great Idea With a Great Bus Plan
-A Credible Exit Strategy
Qualify for Venture Capital
If You Have
-Ability to Provide 5-10 X Investment
-Over 3-5 Years
-Implying Ability to Create $50-100 Mil
Valuation
How They Think?
-Philosophy of 3 of 10 is Good Enough
-A Few Losers, A Few Winners, A few
Marginal
-Parametric Technologies
-It is About Managing Risk
Managing Risk
-Take Controlling Position (50%-70%)
-Invest in Seasoned Management
-Conduct Extensive Due Diligence
-Invest Small Amounts in Many Deals
Managing Risk
-Insist on Preferred Stock, Liquidation
Preferences, Anti-Dilution Provisions
and Dividends
-Require Board Seats
-Seek Veto Power on Major Decisions
-Get in Your face
Where Do They Get Their
Money?
-Wealthy Individuals
-Insurance Companies
-Pension Funds
-Other VC Funds
Venture Capital
-About 700 (1300) in the US
-Industry Preference
-Geographic Preference
-Round / Class Preference
Venture Capital
Questions?
Three Primary
Sources of Financing
-Venture Capitalists
-Angel Investors
-Strategic Partners
Angels
-Wealthy Individuals
-Diversifying Their Own Portfolios
-Usually Not Part of Organized Group
Angels
-More Hands Off than VCs
-Less Sophisticated Risk Evaluation
-Move More Quickly
-Easier to Control
Angels
-Pay Higher Price
-Willing to Do Seed
-Invest Smaller Amounts
-Less Staying Power
Angels
Questions?
Three Primary
Sources of Financing
-Venture Capitalists
-Angel Investors
-Strategic Partners
Strategic Partners
-Investments Leverage Their Own
Business Initiatives
-ROI Not Measured by Money on
Money
Strategic Partners
-Cost of the Money is Lowest
-Other Benefits: Validation, Testing,
Marketing Help, Rollout
-In Your Face for All the Right Reasons
Strategic Partners
Questions?
Keys to Raising Money
-Assemble a Good Management Team
-Pursue a Good Idea / Test, Validate,
Study it Out
-Quadruple Best Cash Needs
Estimates
-Be Persistent-Hang In There
Raising Money in Small
Companies
March 2, 2004
Questions