European Business Angels Network

1. European Business Angels Network Fueling Europe’s Growth

2. Introduction EUREKA HTIP Investment Readiness webinar #2 « Raising Capital through an Effective Process » Presented By Paulo Andrez | EBAN President Emeritus, Business Angel Riku Asikainen| FiBAN President, Business Angel

3. How to raise capital through an effective process Paulo AndrezBusiness Angel, President Emeritus EBANBrussels, 17-03-2015

4. Executive summary ✓ Why Business Angels Exist ? 1 Business Angels do not sign NDAs in the first meeting 2 3 Risk mitigation Terms of Investment 4 5 Valuation

6. Startups Valley of Death

7. A typical angel investment process Investment terms and negotiation Investment Deal sourcing Post-investment support Deal screening Due diligence. Company presentations Initial feedback coaching

8. Executive summary Why Business Angels Exist ? 1 ✓ Business Angels do not sign NDAs in the first meeting 2 3 Risk mitigation Terms of Investment 4 5 Valuation

9. Angels do not sign NDAs in the first meeting Main reasons for not asking a NDA to be signed by Angels - It is a bad start by telling the Angels that you do not trust them - Angels see tens or hundreds of business plans per year so signing NDA’s on all of them , would put the Angel out of the business in some weeks or months - Some entrepreneurs like litigation and if they see an opportunity... So Angels are very careful about signing anything when they do not know the entrepreneur well - In 99% of the cases, there is nothing to protect, which makes the situation a bit ridiculous and a reason for non investment 9

10. Executive summary Why Business Angels Exist ? 1 Business Angels do not sign NDAs in the first meeting 2 ✓ 3 Risk mitigation Terms of Investment 4 5 Valuation

11. Imagine that you have 100.000 euros in a safe bank, and you have 4% of interest rate on your deposit. Hi, My name is Zephyr, and I want you to invest in my new fantastic Start Up ! I will pay you 5% annually.

12. But if the World Bank guarantees you that if Zephyr’s new venture doesn’t pay you the 5%, they will pay it immediately to you, would you invest ?

13. Mutual Guarantee Venture Capital Crowdfunding Business Angels Family, Friends , Fools & State Banks 100% Goal Probability of an entrepreneur toraise money for his/her venture 0% Mitigated Risks 100% Risks (MELFO) Market, Entrepreneurs, Legal, Financial & Operational Source: Paulo Andrez

15. Get out of the Comfort Zone Reduction of 50%-90% of the initial project Total Risk of the Project Final Risk of the Project Project after risk mitigation Initial project Source: Paulo Andrez

16. 1 Risk – Market B2C products - > reward crowdfunding B2C can be transformed initially in B2B B2B - Approve samples before production line is built B2B – Get pre-orders or intentions Find key sales managers in strategic markets, with direct access to market Choose suppliers that can buy the final products

17. 2 Risk – Entrepreneur (Team) Add cofounder(s) Hire Interim Manager A Lead angel can become temporarily CEO, while founder can become CTO or COO Assigning difficult tasks to entrepreneur before investing in order to assess his/her skills

18. 3 Risk – Legal Subcontract a due diligence Hire an IP attorney with international experience to do the IP due diligence

19. 4 Risk – Financial Get written quotes from main suppliers Reduce the level of investment (by splitting the investment) Rent instead of buy (buildings, vehicles, machines…) Extensively use buy back options for main equipments Use SaaS solutions (e.g. search in www.capterra.com) Subcontract initially the production before investing hugely in a production line Make agreements with main initial suppliers, transforming fixed cost in variable cost. Revenue sharing. Receiving the payments from clients to secure orders

20. 5 • Risk – Operational • Get written statements from reliable entities confirming that the product will perform as expected • Do not reinvent the wheel. Use standard pieces and equipments in the products. Reduces the risk of non performing units • Make a prototype using smart negotiations with suppliers and eventual partners in the region

21. Executive summary Why Business Angels Exist ? 1 Business Angels do not sign NDAs in the first meeting 2 3 Risk mitigation ✓ Terms of Investment 4 5 Valuation

22. Terms of Investment Investment terms and conditions include the following: • Amount and use of investment; • Percentage ownership; • Equity and debt structure; • Dividend and interest (if applicable) rights; • Voting rights; • Management incentive schemes; • Exit arrangements; • Management changes; • Investor board representation; • Investor veto rights; • Reporting requirements and consequence of failure; • Costs and confidentiality; and • Steps to closing. 22

23. Executive summary Why Business Angels Exist ? 1 Business Angels do not sign NDAs in the first meeting 2 3 Risk mitigation Terms of Investment 4 ✓ 5 Valuation

24. Priced rounds. Traditional approach. The valuation needs to be low enough to ensure an investor can achieve an attractive return. It needs to high enough to keep existing shareholders incentivised. • Degree of influence Have a realistic valuation expectation – the investor has to make an attractive return on his investment • Valuation multiples/metrics Where there is revenue and/or profits, various multiples or metrics can be applied to establish a valuation • A multiple of recurring revenue; • A multiple of EBITDA; • A multiple of profit after tax; • A sector markup; • A value for every active user/customer… Pre-money valuation: €700k Post-money valuation: €1 million 24

25. Whatisthevalueof a project ?

26. How to solve the conflict of pre-evaluation? Options (earn out) based type of investment % of equity in the company % achieved of the goal % achieved of the goal

27. THANK YOU! paulo.andrez@eban.org Your Logo

28. EFFECTIVE FUNDING PROCESS Process by Finnish Business Angels Network (FiBAN)

29. Executive summary ✓ 1 FiBAN introduction FiBAN angel activity 2 3 Startup deal flow process Deal flow platform (Gust) 4 Screening form 5 6 Pitch Syndication interest 7 8 Term sheet

30. FiBAN is a association of private investors that aims to improve the possibilities for private persons to invest into unlisted potential high-growth companies. • A non-profit, private investor driven association • Deal flow and investor match-making, training and syndication • “European Business Angel Network of the Year 2012”

31. FIBAN ANGEL ACTIVITY 2014 +450approved business angel members +21M€200 angelsinvestedin 238 companies +500 potential investment opportunities +140angel events in 2014

32. STARTUP PROCESS • Free-of-charge • Includesinvestor feedback • Links to growthresources • Visible for 3 months SUBMIT SCREENING PITCH INVESTMENT/SYNDICATION www.fiban.org/submit Investorevaluation (duediligence) Aloneor in group Capital and/orsweatequity(knowledge) Short presentation to wakeinvestorinterest Sector-based and regionalevents Companieschosen to pitch In cooperation with Finnvera ca 3 weeks ca 2 – 4 months ca. 6weeks ca 1 week

33. FIBAN’S DEAL FLOW PLATFORM - GUST

34. SCREENING FORM

35. PITCH

36. Syndication interest

37. TERM SHEET

38. FIBAN www.fiban.org Your Logo

39. Questions and Answers

40. Next webinar: Communicate with Investors • Speakers: • Michael O’Connor | Cork Bic CEO • Selma Prodanovic | Keynote Speaker, Entrepreneur, Philanthropist • Date: 25th of March, 2PM CET