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Introduction to Finance for start-ups 18 October 2010 Jonathan Gold www.financetree.biz

Introduction to Finance for start-ups 18 October 2010 Jonathan Gold www.financetree.biz. Finance Tree works with businesses to help them understand the needs of investors and find the right investment.   2005 NStar Corporate Finance established

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Introduction to Finance for start-ups 18 October 2010 Jonathan Gold www.financetree.biz

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  1. Introduction to Finance for start-ups 18 October 2010 Jonathan Gold www.financetree.biz

  2. Finance Tree works with businesses to help them understand the needs of investors and find the right investment.   • 2005 NStar Corporate Finance established • 2006 Finance and Business launched • 2008 (April) Management Buyout and creation of Finance Tree • 2009 (April) created Rivers Capital Partners • 2010 Managers of the £7.5m North East Angel Fund www.riverscap.com

  3. Who am I to talk ! 3

  4. No free lunch…money costs Banks Grants Other lenders (ie: UK Steel Enterprise… NESTA) FFF Venture Capital / Business Angels Sales !!

  5. Money costs money … part 2 Accountants CORPORATE FINANCE SPECIALISTS Legal advisors Non-exec directors Brokers, banks…

  6. Venture Capital / Private Equity… “Private Equity is medium to long-term finance provided in return for an equity stake in potentially high growth unquoted companies”. Source: British Venture Capital Association (BVCA) 2005 NB: Almost all are… FSA regulated collective investment schemes…

  7. Sources of capital of capital

  8. Venture capital is often a crucial element in… Getting a new business going Start-up Funding a step-change in the business Rapid organic growth or M&A Effecting a change of management or control Buy-in / buy-out / public-to-private Funding long-term development pre-revenue Typically high technology – eg: biotechnology, electronics

  9. Finance for Business North East Funds £15m £25m £7.5m £20m £20m £20m

  10. The investment model Generating £ cash… Investment in… Sale of company… or “exit “ Development & early sales (losses…) …10x return in 5 yrs Time … since investment

  11. Statistics of VC portfolios… 10 Investments 4 Fail 4 Living dead 2 Stars

  12. Why bother? VC should add real value to your business • Recruitment of the senior team and suitable NXDs • Extending your contact base of customers/partners • Assisting the business to enter new markets • Providing support on complex deals (eg: acquisitions) • Acting as a friendly outsider in strategy debates • Securing additional funding & negotiation of exits

  13. So is there a downside? Lose some control – • there will be another owner of your business VC will normally want a seat on your Board Full transparency in terms of information & business Typically look to agree a growth and exit strategy up front.

  14. Applying…process

  15. Value & IRR • Ultimately its what an investor will pay ! • Investment required • Time to a given return • Return the investor needs • RISK • Valuation • Pre-investment • Post-investment • % ownership to give return

  16. Indicative timeline…end game BLUE internal RED externally driven

  17. Lessons from Venture capital…What are investors looking for

  18. POC stories 18 NE POC (venture capital) £10m 4yrs 194 Investments £15.2m Leveraged private investment Scottish Enterprise (grant) £41m ~10yrs 230 projects 47 new tech companies £241m leveraged private investment West Midlands (APoC) (loan/grant) £6.32m 2yrs 283 grants 143 businesses supported £2m leveraged private investment

  19. Last but not least…EXITS… PLANNED from day one Fund Managerwill want a well definedEXIT Investment Return to the fund from growthof company… Common exits Further investment round (someone else buys out fund) Listing on a stock exchange (IPO) Trade sale,sold to another corporation.

  20. EXITS… • At some point the Fund Manager agrees to EXIT the investment… • …and (hopefully) return any profit to the fund from the growthof the company or its value… • Common exits are: • Further investment round (someone else buys out fund) • List on a stock exchange • Trade sale, sold to another corporation.

  21. Investment in UK Technology companies… 2009 (BVCA performance Survey) 21 £394m in technology-related businesses (2008: £619m) Of this, three areas received the most amounts Communications – £51m (2008… £81m) Computer software – £46m (2008... £310m) Medical / Pharma – £36m (2008… £73m) Of the total amount invested Early stage – 33% (2008… 43%) Expansion – 41% (2008… 31%) MBO/I – 20% (2008… 3%)

  22. AIM… new listings Source: LSE NB: listings in April 2010.. 2 in mining 1 in industrial metal

  23. Thank you… Jonathan Gold j.gold@financetree.biz Follow us on TWITTERwww.twitter.com/financetree

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