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Raising Money in Small Companies November 11, 2004

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

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Raising Money in Small Companies November 11, 2004

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  1. Raising Money in Small CompaniesNovember 11, 2004 Dale H. Munk

  2. Raising Money in Small CompaniesNovember 11, 2004 One Man’s View

  3. 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

  4. 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

  5. Three Primary Sources of Financing -Venture Capitalists -Angel Investors -Strategic Partners

  6. Three Primary Sources of Financing -Venture Capitalists -Angel Investors -Strategic Partners

  7. Dramatic Upheaval -First Quarter, ’00 the Zeneth-$29 Bil -Last Quarter-$5.9 Bil -Last Quarter at-Q4, 1998 Levels

  8. 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

  9. Vulture Capital -Waiting to Pick the Bones -Greed and Fear-Mostly Greed -Demand 50%-70% of the Company -Ruthless with Management

  10. A Kinder, Gentler View -Providing Fuel for Ideas -Facilitate the Advancement of Technology -Take Big Risks / Should Get Big Rewards

  11. Vulture Capital ScenarioLocal Current Example -Three Founders Raied $2 Mil from Friends and Family -Worked Like Dogs for Eight Years -Suffered -Went to VCs for Rescue

  12. Vulture Capital ScenarioLocal 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

  13. Qualify for Venture CapitalIf You Have -A Credible Management Team -A Large Market -A Great Idea With a Great Bus Plan -A Credible Exit Strategy

  14. Qualify for Venture CapitalIf You Have -Ability to Provide 5-10 X Investment -Over 3-5 Years -Implying Ability to Create $50-100 Mil Valuation

  15. 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

  16. Managing Risk -Take Controlling Position (50%-70%) -Invest in Seasoned Management -Conduct Extensive Due Diligence -Invest Small Amounts in Many Deals

  17. 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

  18. Where Do They Get Their Money? -Wealthy Individuals -Insurance Companies -Pension Funds -Other VC Funds

  19. Venture Capital -About 700 (1300) in the US -Industry Preference -Geographic Preference -Round / Class Preference

  20. Venture Capital Questions?

  21. Three Primary Sources of Financing -Venture Capitalists -Angel Investors -Strategic Partners

  22. Angels -Wealthy Individuals -Diversifying Their Own Portfolios -Usually Not Part of Organized Group

  23. Angels -More Hands Off than VCs -Less Sophisticated Risk Evaluation -Move More Quickly -Easier to Control

  24. Angels -Pay Higher Price -Willing to Do Seed -Invest Smaller Amounts -Less Staying Power

  25. Angels Questions?

  26. Three Primary Sources of Financing -Venture Capitalists -Angel Investors -Strategic Partners

  27. Strategic Partners -Investments Leverage Their Own Business Initiatives -ROI Not Measured by Money on Money

  28. Strategic Partners -Cost of the Money is Lowest -Other Benefits: Validation, Testing, Marketing Help, Rollout -In Your Face for All the Right Reasons

  29. Strategic Partners Questions?

  30. 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

  31. Raising Money in Small CompaniesMarch 2, 2004 Questions

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