Equity Investors by xiuliliaofz


									Sources of finance

        Financiers and their habits

                  by Mr Ties van der Laan
                   Ties Corporate Finance
     10, rue des Alouettes, L-1121 Luxembourg-Cents
          m +352 691 427 566, t/f +352 427 566
                e ties@ties.lu, i www.ties.lu
Who am I?

 After nearly ten years in Dutch venture capital
      companies (ING Group) I am coaching
   since 1999 entrepreneurs and management
     teams to raise finance, first through LIFT
      and from mid 2002 as an independent
                  business coach
Life cycle/finance/financiers

 Life Cycle Finance               Financiers
 Research Grants                  Public sector
 Start-up    Equity               Sponsors
 Early stage Seed capital         Founder, friends, family
 Expansion Venture capital        Banks
 Buy-out/in Private equity        Business angels
 Turnaround Mezzanine             Corporate venturers
             Loans                Venture capitalists

 And will finish with a summary and a step-by-step plan!
Public sector

  Characteristics
  Who are they?
  What do they seek?
  How do they operate?
PS: characteristics

  (Life time) civil servants
  Public money
  Funds: from € 1 m to € 1bn
  Deals: from € 10k to several € m
  Agenda is political
    Job creation
    Stimulation economy
PS: who are they?

    Local, regional, national, European
Development agencies
Innovation support organisations
PS: what do they seek?

Prefer projects to companies
Non / pre-commercial
Universities, research centres
Prefer companies with non-profit sector
Technology driven / innovation
Young / female entrepreneurs
PS: how do they operate?

No misuse of public money:
    Auditors rules
    Bureaucratic
Writing and lobbying
May take up to 2/3 years
    “free” money: no repayment or
    “soft” loans: low interest / repayment
Prefer to match others
Limited interest after spending
Founder, friends & family

Who are they?
What do they seek?
How do they operate?
FFF: characteristics

 NB. 1st F=Founder so your money first!
 From savers to successful entrepreneurs
 Own money
 Small funds: from € 100k to € 0,5m
 From € 10-100k
 Old money: older persons (>50)
 New money: younger persons (> 35)
FFF: who are they?

Close to entrepreneur
Personal relationship
Long time contact
Grandparents, aunts, uncles etc.
FFF: what do they seek?

Any industry
Objective is help not return
Information only, no control
FFF: how do they operate?

Through personal network
No due diligence
Give money, ask nothing
Could give unasked advise
Time frame in days
Hands-off even if going badly
Bankruptcy could mean end of relationship

Who are they?
What do they seek?
How do they operate?
Sponsors: characteristics

 Own money
 Fund: small, prefer barter deals
 Deals: from € 100 - € 20k (goods/services)
 Active managers (30-60)
 Good network
Sponsors: who are they?

Local / regional companies
CEOs (SMEs) or marketing managers
New product (line) managers
Sponsors: what do they seek?

New customers: natural win-win
Contribute to their reputation
Show their expertise
Softly spreading their know-how
Sponsors: how they operate?

Through personal network
Strategic and thematic selection
No due diligence
Give goods /services
Ask promotion, contact details, exposure
Time frame in days, maximum weeks
Often the start of a long-lasting relationship

Who are they?
What do they seek?
How do they operate?
Banks: characteristics (I)

 Professional lender
 Loans (=lending) not equity (=investing)
 (Life time) bankers
 Other people’s money (3-6–3)
 Funds: from € 10m to several € bn
 From € 1k to several € 100m
 Aged from 25 to 60
Banks: characteristics (II)

 Focus on history
 Risk averse, low return
 Subsidiaries for asset-based finance
    Leasing (cars, computers)
    Factoring
Banks: who are they?

Commercial banks
   Local, regional and national
No private banking banks
No merchant / investment banks
Banks: what do they seek?

Any industry (mostly)
Internally organised by sector/market
Demand security or collateral
Preference for existing/mature businesses
   Lower risk bankruptcy
   Lower risk non-payment (interest/redemption)
Good entrepreneurs / managers
Banks: how do they operate?

Intake through network
Low due diligence (referrals, analysis)
Time frame depends on size of loan/office
From weeks to months
Standard contracts
Focus: interest%, repayment schedule
Regular information
Hands off unless going badly
Equity investors

 General characteristics:
 Focus is on future
 Seek risk, expect high return
 Buy shares
 Temporary involvement
 Seek (serial) managers/entrepreneurs
Types of equity investors

 Business angels
 Corporate investors
 Venture capitalists
 (Institutional investors)
Business angels

Who are they?
What do they seek?
How do they operate?
BA’s: characteristics

 Successful business(wo)men
 “Have been there, done that”
 Invest their own money
 Funds: up to € 1m, few larger
 Deals: from € 15-200k, typically € 75k
 Aged between 50-70 years, few younger
 Driven by “giving something back”
 Other agendas - fun, involvement
 Profit less significant
Who are the BAs?

 Executive angel
   Active entrepreneurs, executives or consultants
   Investments between € 50k - € 100k
   Extra turnover, networking, hobby
 Job seeking angel
   Redundant executives
   Work in the € 30k - € 70k area
   Busy, active
 Retired angel
   Workaholics
   Smaller amounts (€ 15k - € 50k)
   Busy, active
What do BAs seek?

Small companies
   Mostly active in markets they know
   Growth in growing, large, empty niche markets
   In 7-10 years potential turnover >100m
   Also invest in seed phase
   Nearby
   Profit through tradesale or IPO
   Dividend, interest and fees
Likeable persons
   In business (entrepreneur) and private (talk)
   Mutual trust
How do BAs operate?

   Via friends, family or business (angel) networks
   Low due diligence
The deal
   Straightforward structure
   Veto rights, minority protection, anti-dilution
   Time frame from several weeks to one month
After the deal
   Close involvement: 1-3 days/week
   Hands on unless going badly
   Business devils
Corporate venturers

Who are they?
What do they seek?
How do they operate?
CV’s: characteristics

 Large, operating companies
 Successful, cash rich
 Invest company’s money
 Funds: active € 10, passive € 200m
 Deals: small (< € 0,2m) or large (> € 5m)
 Active managers 30-60 years old
 Objective strategic: market reconnaissance
 Outside (but close) to own market
 Profit less important
Who are the CVs?

Market leaders (or just below) in:
   Technology (ICT: Intel, Life Science: BASF)
   Telecom (Vodafone)
   Consumer products (Unilever)
   Capital goods (Siemens)
Quoted on the stock exchange
See www.evca.com
What do CVs seek?

   Small companies/individuals (in or external)
   Focussed on seed phase/technology
   Incubate until ready for VCs
   Buy when successful
   Mature businesses (MBOs, restructuring)
   Direct: partner with VC’s
   Indirect: fund of funds
   Buy or trade sale (IPO)
How do CVs operate?

     Intake through investment manager
     Fast decisions, little due diligence
     Simple deal structure
     Hands-on even when going badly
     Invest for the long run (> 5 years), buy when successful
     Enhance your credibility, give access to network
     Direct: passive in deal structuring (VC)
     Indirect: in investment committee
     Sometimes in Board of Directors or Supervisory Board
     Hands-off or buy when going badly
Venture capitalists

 History of venture capital
 Who are they?
 What do they seek?
 How do they operate?
History of venture capital

 Started in USA in early 1900
 Rich families (e.g. Rockefellers) invested outside
  own conglomerate as business angels
 1st time distinction: ownership/management
 After WOII: professional VCs
 Early 60s: UK
 Early 80s: continental Europe (banks in NL)
VC: characteristics

  Professional buyers of share in private companies
  Invest money of institutional investors (II)
  II = LP, fund manager = GP
  Funds: € 10m – € 15bn (!)
  Deals: € 1m – several € 100m
  Investment managers between 25–55 years old
  Dealmakers with financial background
  Objective is generating cash
  Driven by building profitable/sellable companies
Who are the VCs?

 1. Private equity vs. venture capital
 2. Evergreens (mostly captives) vs. revolving funds
 3a. Large VCs (<10 in EU)
   Funds: several € 1bn, deals: € 1m-250m
   Sector and/or region specific sections/subsidiaries
   Fund of funds
 3b. Medium sized generalists (100-200)
   Funds: € 50-300m, deals: € 1m several € 10m
   Private equity, venture capital and fund of funds
 3c. Niche VCs (< 100)
     Funds: € 10-300m, deals: € 250k-5m
     Focused on technology markets or niches
     Combine investors with industry knowledge
     Mostly venture capital
What do VCs seek? (I)

Private equity
 90% (!) of money yearly raised
 Mature companies with turnover > € 50m
 Buy-outs mostly (MBO, MBI, IBO, BIMBO etc.)
 No market specialisation
 Return > 20%: € 10 in, 4 years later € 20m out
    Financial engineering
    Buy and build
    Sale
What do VCs seek? (II)

Venture capital
 Young companies: seed, start-up, early stage
 Large, global empty markets
 Experienced entrepreneurs
 Return > 50%: € 1m in, 4 years later € 5m out
    Growth
    Sale (trade or IPO)

Investing is trust in people
    PE = balanced management teams
    VC = entrepreneurs
How do VCs operate? (I)

    Receive more plans than read
    Introduction via network
    Selective: invest in 1% of business plans read
    Extensive due diligence: 2 to 6 months
       Market(ing), technology, management, legal, financial
       PE: mostly external specialists
    Syndicates (so no competition between VCs)
       Deal-sourcing in other regions
       Follow-on investments
       Prevent entrapment
       Control with minority share
    Cross-border only with local lead
How do VCs operate? (II)

The deal
    Sometimes complex deals
    Management option scheme
    Veto-rights, minority protection, anti-dilution
    Board representation
    Monthly or quarterly reporting
    Control over exit
    Investment committee decides
    Typically 2 months
How do VCs operate? (III)

After the deal
    Real work starts
    Frequent contact in beginning
    Support: knowledge, experience and network
    Focus on:
      Growth
      Reporting
      Exit
    Hands-off unless going badly
      No good money for bad money
      Sell healthy part of company via network
Conclusion equity investors

 BAs: money + market experience + network, long
  term, < € 0,2m in small fast growing companies,
  not for return only, local, hands-on
 CVs: money + market knowledge + network +
  credibility, long term or short term, < € 0,2m or >
  € 5m in companies close to their market, active +
  hands-on or passive + VC, buy when successful
 VCs: money + experience + network, professionals
  in private mostly mature companies (PE), PE:
  financial engineering & buy/build & exit, VC:
  growth & exit, return only, prefer syndication with
  local party, due diligence: 4-8 months
From start to finish (I)

 The more steps you complete the easier it becomes
   to raise finance:

 1.   Finalise your product (grants)
 2.   Find entrepreneur (yourself?)
 3.   Found company (own money, house, FFF)
 4.   Find business partners (sponsors)
 5.   Find customers and sell (auto-finance)
 6.   (Accelerated) growth (raise finance)

                     continued on next slide
From start to finish (II)

                    continued from the previous slide

 7. Raising equity finance:
     1. Prepare business plan/presentation/pitch
        With help of dedicated professionals?
     2. Research financial world
        Business Angel Networks (BANs, www.eban.org)
        EVCA/local VCAs (www.evca.com)
        Networking
     3. Approach chosen potential investors
        With help of dedicated professionals?
 8. Later stage: MBO/MBI/Turnaround
 9. Raising equity finance: see 7.
 10. Sell: tradesale or IPO
Ties Corporate Finance

                  in raising finance
          for the expansion of businesses

To create a winning business plan
To approach investors professionally
To negotiate with investors successfully
Contact details

           Ties Corporate Finance
              Ties van der Laan
            10, rue des Alouettes
         L-1121 Luxembourg-Cents
        Mobile: (+352) 691 427 566
            Fax: (+352) 427 566
             Email: ties@ties.lu
            Internet: www.ties.lu

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