SHOW ME THE MONEY ANGEL EQUITY FUNDING FOR A HIGH GROWTH POTENTIAL SME. Colin Spiller - Angels Den 19 th November 2014

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1 SHOW ME THE MONEY ANGEL EQUITY FUNDING FOR A HIGH GROWTH POTENTIAL SME Colin Spiller - Angels Den 19 th November 2014

2 WHAT FORM OF BUSINESS DO YOU WANT? Organic Business Less impact Slower growth Just debts More manageable Less commitment Easier to copy Good for lifestyle businesses Fully Funded Business Faster growth Proper marketing More help Less room for copycats Greater accountability More pressure to succeed Good for high potential businesses By taking the low risk option you may risk failure

3 WHAT CHOICES DO I HAVE? Family & Friends Overdraft Savings Angel Equity Re-Mortgage Home Competitions & Grants Secured Bank Loan Crowdfunding Credit Cards Customers & Partners Venture Capital

4 ALTERNATIVES TO FUNDING Invoice discounting and asset financing Accelerating Your Sales: New sales campaigns Referrals from clients Increase social media activity Increase prices Partnerships (but need Win/Win!) Dynamic Account Management What do your customer want: Survey & action Pareto Law, 80% of revenue from 20% clients Drop non-producers, focus on 20% active clients!

5 ANGEL EQUITY FINANCE Private individual investment Self made people typically built successful businesses Small amounts - 50k to 750k, typical 100k to 300k in a club May offer help, NED, connections Typically invest in what they know Often lack process, looking for fun / interest, give back as well as a return Angels invest money for a share of your business.

6 WHAT ELSEDO ANGELS BRING? Vote of confidence & not a loan Valuable skills & experience Contacts / credibility Another brain for key decisions ie A mentor & shoulder to cry on More peace of mind Follow-up funding & help: Sometimes loans Nothing concentrates the mind better

7 BE AWARE Your investors will do DD on you and the business Take care -Social media bad comments No repayment of founder loans or pay rise post investment It will take a lot time & effort to raise investment May be easier to sell products than raise cash Both takes time, but selling increases your value Legals can be expensive! Get a fixed price Ensure key info together & up to date P & L & Balance Sheet, management accounts Contracts for: Clients, employment & IPR PAYE, NI, VAT & Corp Tax, P11 D s (S)EIS rules & re clearance Need to be Ltd Company

8 VENTURE CAPITAL Professional Investors buy a share of your business Fund larger businesses with very fast growth prospects. Typically invest 2m+ Expect a major say in how the business is run Often specific milestones must be met to get each stage of funding Often install their own people to help run the business 80/20 rule: If you want to stay as MD, don t get into bed with a VC! Sharper investment terms, fees & process Get their money out before you on Exit! Focus on Exit, Exit, Exit!

9 ANGEL FINANCE NOT FOR EVERYONE Just an idea Need short term cash loan best, FFF or Credit Card Can be time-consuming attending pitches Angels want to know what s going on Your share of business diluted Stressful (although we do our best) Don t want to exit: Don t take equity finance!

10 PREPARETO PITCH Plan your business, write up your business plan Have punchy overview, 2 to 3 pages max Work out how much money you need, for what and what shareof the business you re selling, ie the valuation, Pre/Post valuation is key, know the difference and price of your shares Tell everyone you know you re fund raising, even friends of friends who may help, your accountant & lawyer Look for opportunities to talk to angel groups, or your bank & especially entrepreneurs who have done it: network madly! Have a strong funding market understanding Raising will take a lot longer than you expect: much longer! Even if nobody ever reads your plan, it shows you have thought it through

11 TOP TIP -WHATTTEVVVER GET TO The Idea THESE 3 POINTS QUICKLY Easily explained / Protected / Pain / Barriers / Wow, must Google it / Sector they know The Numbers Valuation reasonable, Share meaningful / BE horizon / Exit plan / 4 x their money min The Team Likeability / Fun / Experience Don t over-complicate it

12 THE BUSINESS PLAN You need one, but often not read Summary: Critical, 2 or 3 pages max What is client need and pain? What problems solved? What do you do, the solution / offering? What is the market size: define, slice & dice? Bottom Up Competitors and why different? SWOT and Risk Factors and mitigation plan Who are the people, what have they achieved / invested? How will you go to market? Customers & Achievements The numbers: Revenue model & projections & cash Money needed, what for& valuation Break even and profitability Valuation what invested to date Exit plan

13 VALUATION: AN ART OR A SCIENCE? Multiplier of current revenue and profits, Potential exit value and work back Early traction: clients and partners Strength of team, and presentation What cash invested to date Based on vision that is believed Combination of above You have to start somewhere and the only way is down!

14 WHAT INSPIRESANGELS Credible / Likeable MD / Fun Scalable business Clever Business Model, sell while sleeping! Protectable IP Clear Exit Strategy Good ROI Proposition Balanced and Experienced Team Interesting and Exciting Angel has real opportunity to Add Value World Saving (S)EIS Tax relief

15 WHAT NOTTO SAY TO AN ANGEL Oh how wonderful, now I can holiday in the Seychelles! No, I don't believe in making profit, I'm in it for the fun (or "for the children", "for charity" or "for religious reasons") 95% of your investment goes towards salaries MINE! If you don t do it, I can ALWAYS take it to my bank This is so clever -Oh, YOU wouldn t understand!! Now I can get my loans in the business repaid! Apart from Google, we have no competition! My Mum thinks this a good idea Monthly accounts, you must be joking! I never want to leave the business Just sign this NDA!

16 THE PITCH Elevator Pitch On the Business: -On the fundraising BP Summary, ie Management Overview Presentation 10 to 12 slides, max 15: intro & summary slide key Problems solved, revenue and clients to date, funding & for what + valuation. your investment, people, market Prepare Due Dilligence pack DD Questionnaire, contracts, IPR, Taxes and HMRC, (S)EIS application, BP, accounts current & Co y House

17 COST OF RAISING MONEY + VAT BA events -Flat fee, + % on success + equity sometimes OION success fee of 5%,.oion.co.uk TVIN k + 5% above 25k.tvin.co.uk 1 London BAs %.businessangels-london.co.uk AIN 100 to %.angelinvestmentnetwork.co.uk FSE %.financesoutheast.com + loans envestors.com Southampton: angels5k.co.uk Costs? Angels Den % (inc. free legal s) Plus legals, DD, & board fees! Must focus on the business too while raising cash!

18 OTHER SOURCES OF FUNDING Government & EU grants R & D & SMART awards up to 60% to 500k thecarbontrust.co.uk, Samuel Wilson Ln fund Start Up Loans Company Crowd funding, social funds, Shell Springboard 40k prize green projects Business Plan Competitions Your professional advisors F, F & F, Credit Cards! R & D Tax credits Smart is better than dumb Dumb is better than no Customers and partners sell more!

19 BE AWARE Legal s: Can be expensive! (Angels Den STD deals free) Nabarro & Keystone typically 5 to 6k, Legal Clarity about 2k May be easier to sell products than raise cash Both takes time, but selling increases your value No repayment of founder loans or pay rise post investment Take care -Social media bad comments It will take a lot time & effort to raise investment Ensure all your key info together & up to date P & L & Balance Sheet, management accounts Client contracts, employment contracts & IPR PAYE, NI, VAT & Corp Tax, P11 D s Valuation link to pipeline (S)EIS rules & re clearance Watch out for aspiring CEO s

20 WHAT KILLSDEALS? High valuation liked to exit; not current reality Repayment of founder loans / salaries High salaries many of them! Live frugally! Big loans in the business Founders lack of skills to execute Lack of IPR in company or unclear Founders don t want to give up control Unresponsive founders & Takes too long: Bad compliance with corporate activities and return Complex Corporate structure & Lifestyle business Lack of drive and passion, founder breakdown/credibility

21 WHAT KILLSDEALS? Too long to get to market Too many chiefs & not enough workers: Many hangers on Dead or declining market EIS issues & Big options pool, Haven t delivered on earlier funding round: Unproven Big forward financial contractual / commitments Messed up accounts! Stronger competitors not disclosed/lack of differentiation Too much risk: lack of market traction/proof, revenue model/retail focus, big cash hole, lack of differentiation, Concern re Go to Market Plan: Big spend on marketing! Lack of a BP: Unclear what money is to be used for

22 SUMMARY Angel Finance not for everyone It doesn t have to be expensive although you can spend thousands if you want to It doesn t have to be too painful Angels are looking FOR reasons to invest If not investing not making money, & where to put it, especially now & EIS! Come to Angels Den, It s friendly, its fun Free funding clinics We don t bite or bark!

23 ANGELS DEN OFFERINGS Database listing & promotion: Speed Funding: Mandy Rogan & Piers Lawford Clubs: London Angel Club: Colin Spiller Tech Club: Chris Wheatcroft Property Club: Ian Shipman Crowd Funding: Stan Williams, inc. legals Equity finance, be a shareholder and EIS relief Loan, up to 50% of deal Gifting

24 MORE USEFUL INFO ,000 Enterprise Loans for anyone now: loans Creatives: k 8% equity in student teams to start & grow own businesses plus support Social Enterprise Funding: & events, training etc Innovation Warehouse-

25 OTHER USEFUL CONTACTS Tech pitch 4.5 and free pitch training Pitch for Management: Angel News, & Pitch for it web site UCL Advances: lots of help & Goldman s 10K program Start-Ed: City Enterprise Legal Service: Free legal advice Launch 48: meet investor events School for start ups, meetups, eventbrite Platform Black: Invoice auctions, no floating charge or PG UK Export finance: like old ECGD, bond, G tees, finance Royal Society: potential investor Information Tech Company; free mentoring for Tech firms Innovatation Warehouse: real incubator and cheap

26 Other Information Sources Treat it as a Major A/C sale!! Good luck! Show me the Money: Alan Barrell & others Book Angels, Dragons and Vultures: Simon Acland Book Crowd Funding: ie & Crowdcube City Business Library workshops & info British Library Bus & IP Centre Workshops & info Royal Institute, great events & venue Investment Documents: Meet ups Boot Law, Mash up for mobile, Mobile Mondays Royal Society of Arts, RSA Social Enterprise focus + Events Shell Live Wire great resource for start ups up to 30yrs? Business Plan Competitions

27 SHOW ME THE MONEY ANGEL EQUITY FUNDING FOR A HIGH GROWTH POTENTIAL SME Colin Spiller - Angels Den colin@angelsden.com

28 TYPICAL INVESTMENT TERMS Produce monthly accounts Quarterly board meeting, with NED from investors Can only make normal trading decisions in line with BP, Founder insurance, Typical 3 years to earn the value of your shares if leave Tag along and drag along Need approval to exit, raise capital or loans, increase pay Produce annual BP Regular reporting on business to investors & meetings, AGM

29 DRAGONS DEN VS ANGELS DEN Focus Dragons Den Ratings/audience Profile of dragons Ridicule entrepreneurs Encourage rudeness Media rules apply Get ride of nice dragons Ie Doug Richards 3 hours pitch into 5 min 75% + rejected Focus Angels Den & others Funding into firms Help entrepreneurs Help angels Training for both Let down gently Weed out bad angels Provide feedback & advice Heavy support for Entrep ns 75% + generate interest 3 deals in last month, 700k

30 DRAGONS DEN VS ANGELS DEN Example Dragons Den Nova-Flo James Barnham Mixed the Answers & Q tions Agreed with NF valuations But low balled offer NF wisely said no, Doors opened to: Care homes, builders merchants, funding, Conclusion: Use it for profile & Open doors to funding etc Example Angels Den & others Spend time & focus Listen to advice & learn Multiple streams Allocate lots of time Find introductions Network like mad Try crowd sourcing Conclusion: Make it attractive to investors Persistence, sell

31 INVESTMENT PERFORMANCE TO SEPT 2011 Closed Deals 25 Open Deals 26 Numbers % Numbers % 100% loss Dogs 4 15 Some return 4 16 Poor 2 8 Profit 2 X cost OK Profit 3 to 4 X cost Hope 5 22 OK Hope 6 23 Profit > 5 X cost High Hopes lots 2 8 High Hopes lots 6 23 Total % % Total Current Book Value 1.25m

32 HOW TO LOOK AFTER YOUR ANGEL Cherish them they can & will help you! Regular information flow formal & informal Quarterly accounts & cash flows Copy on news items Newsletter for them Meet key ones / advisory board quarterly No Surprises Use as a sounding board & for leads Be available Don t embarrass them care social media!

33 VALUATION: PRE OR POST MONEY Pre money valuation: 1m Raising: 250K Post money valuation: 1,250k Equity sold 20% Ie 250,000 divided by 1,250,000 Top Tip: Always have at least 1,000 shares in issue if not 100,000!

34 Video Business ANGELS DEN CASE STUDY Started as video anywhere in UK but Small margin, difficult to grow, labour intensive Wanted business that sold while sleeping Identified Self-serve Video Market that you sold to once and they then sold for you, ie Exhibitions, magazines Used off the self tech, clever implementation, hosted UTube Came to LAC with proven offering but no clients Came back with clients and deal done in 2 months Living frugally, very reasonable valuation & negotiated T & C Serial entrepreneur, nice people

35 ANGELS DEN CASE STUDY Gifting on Mobile Already had initial funding to get build & go to market Needed second round to get traction in B to C market & Working on Distribution Channels, blue chip partners Very focussed on exit Living frugally, ab fab rocket scientists but really nice people, Very well prepared, good compliance and documentation Closed big round under 2 months with Xmas & EIS issue Come back for 3rd big round, Again closed less than 2 months Now all about roll out of partners & exit in 12 to 18 months Very easy sell!!!!