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IPO process


									Dr. Galbraith, MBA 533
   Three decision models for Angel Sidecar Funds
    have emerged:
     Funds that invest automatically, based on definitions
      in the bylaws of the fund (such as a fund connected to
      Tech Coast Angels)
     Funds that invest based on the judgment and decisions
      of an independent, professional manager (like funds
      linked to the Band of Angels and The Angels’ Forum)
     Hybrid funds that invest according to automatic
      criteria subject to management over-ride (such as a
      fund established by CommonAngels)
 Content Analysis: Sub-Topics and “General Inquirer” Thematic Word Tags

          Top 5 Sub-Topics Referenced in Scoring Sheets                                Thematic Word Tags
                        (times mentioned)                                            (percentage of word tags)

               Quality/Experience of Management Team                        Quality/Experience of Management Team
 1.   Management experience in industry (14)                  1.   Strong (demonstrate, experience, strong, much, depth, complete,
 2.   Past experience in running a business (12)                   aggressive, fill, experience, etc, 25.6%)
 3.   Completeness of management team (7)                     2.   Active (build, commit, demonstrate, implement, work, do, lead,
 4.   Depth of board (6)                                           propose, sell, etc., 16.8%)
 5.   Coachability of CEO (2)                                 3.   Power (advisor, board, management, director, etc., 10.5%)
                                                              4.   Affiliation (commitment, team, etc., 7.7%)
                  Characteristics of Product or Service                        Characteristics of Product or Service
 1.   Uniqueness or differentiation (10)                      1.   Strong (benefit, fulfill, prove, significant, etc, 15.3%)
 2.   Technology/intellectual protection (8)                  2.   Active (do, pay, solve, etc., 10.2%)
 3.   Ability to solve market problem (7)                     3.   Human (customer, 8.4%)
 4.   Proven in marketplace (6)
 5.   Barriers to protect position (6)
                Market and Competitive Characteristics                       Market and Competitive Characteristics
 1.   Market size (12)                                        1.   Active (growth, demonstrate, achieve, implement, provide, size, etc.,
 2.   Market growth (10)                                           23.3%)
 3.   Low competition (6)                                     2.   Economic (customer, buy, market, company, etc., 17.8%)
 4.   Ease of market entry (2)                                3.   Positive (favorable, understand, respect, etc., 10.0%)
 5.   Segmented market/niche (2)                              4.   Space (Segment, niche, etc., 7.2%)
                                                              5.   Solve (believe, evaluate, think, understand, etc., 6.7%)
                                                              6.   Solve Negative (competition, 4.4%)
           Completeness/Quality of Business Model/Strategy
 1.   Business plan viability (11)
 2.   Realistic (10)
 3.   Scalable (9)
 4.   Well defined (8)
 5.   Milestones given/reached (5)

Source: Galbraith et al, Journal of Small Business Strategy
What do “Angels” look for? – Presentation

      “Trustworthiness/honesty of the
      “Management team”,
      “Enthusiasm/commitment of the
      “Personality of the entrepreneur”

Source, Sudek, Journal of Small Business Strategy (2007) and USASBE (2009)
   One of a number of related securities
    offered as part of the same transaction (for
    example, as part of the same Series of
    equity funding). The word tranche is French
    for slice, section, series, or portion.
   Paid sequentially when a) certain milestones
    are met, or b) upon demand.
   Used to maintain liquidity while waiting for
    an anticipated inflow of cash
     Convertible debt used by start-up firms between rounds of
      equity funding (CARS)
     Used by companies before their initial public offering, to
      obtain necessary cash for the maintenance of operations.
      ▪ These funds are usually supplied by the investment bank underwriting the
        new issue.
      ▪ As payment, the company acquiring the bridge financing will give a number
        of shares at a discount of the issue price to the underwriters that equally
        offsets the loan.
   Deal flow:
    flow of business plans and term sheets involved in the
    venture capital investing process
   Due diligence (in venture investing
    process of ascertaining the viability of a business plan
                      Management
   Proprietary       Fire Within
   Growth            Business Model
   Founder           Business Plan
    Commitment        Deal Structure
   Experience        Exit Plan
   Track Record
   About 7 to 10% of VC dollars
   Invest in technologies/deals that have transferability to the
   Don’t necessarily share the “profit” motive as Angels and
    fund-based VCs
   Deal rate is much lower, but support is much higher for
    funded firms
   Popular in pharmaceuticals, telecommunications, software
    and defense technologies
    Microsoft, Intel, Merck, Qualcomm, and Millennium
   Small Business Innovation Research (SBIR)
     DoD, NASA, DHS, DoC, EPA, DoT, DoEd, DoE, HHS
      (NIH), NSF & USDA
     The SBIR Program provides up to $850,000 in early-
      stage R&D funding directly to small technology
      companies (or individual entrepreneurs who form a
      ▪ Phase 1 ($75,000)
      ▪ Phase II ($750,000)
      ▪ Phase III (sell product)
   Small Business Technology Transfer & Research
     The STTR Program provides up to $850,000 in early-
      stage R&D funding directly to small companies
      working cooperatively with researchers at universities
      and other research institutions;
   Department of Defense: SBIR/STTR/Fast
    Track - Main Page
   TechLink : : Links to Department of
    Defense, DoD Component, and Related
    Websites for SBIR/STTR Information
   Other Grants (CCAT, TechLink, BAAs, etc)
   Local and Regional Economic
    Development Grants
     Industrial Development Bonds
     Tax Breaks
     Other Incentives
   Private Foundations
 A "reverse merger“ (blind pool merger) is a method by
  which a private company goes public. In a reverse
  merger, a private company merges with a public listed
  company with no assets or liabilities (shell company)
 Buy majority of stock (90%), 300 shareholders for
  NASDAQ SmallCap Market
 Requires formal acquisition process (small premium
  usually paid), and approval of majority of private firms
 Work with consulting firms that specialize in reverse
   Generally under $1million (SCOR, Reg D). Limit is basically $5m (Reg
    A) due to regulatory issues, but many only raising a couple thousand
   SEC requirements (Rule 504, Reg D), as well as State requirements,
    minimum $5 per share
   Typical cost is $50,000 (filing, legal, and marketing), although can do it
    for about $5,000 if accounting is in good shape, and know potential
    investors -
   Internet is making DPS much more attractive (reaching potential
    investors, downloading prospectus, etc.)
   Most successful are sold to happy customers (micro-breweries, unique
    clothing stores, electric bikes and cars, etc)
   Little secondary market until certain thresholds are met (NASDAQ
 Like a bank line of credit, but firm or individuals
  acquire equity when the “borrowing” firm draws
  upon the credit line.
 Firms has the right, but not obligation to “draw-
 Unlimited “draw-downs”, different from tranches
  from private equity investments
   Credit Cards
   Relatives and Friends
   Trade Credit
   Revenue Financing
   Small Shares, with
    buyback provision
   Factoring

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