Ideas to Deals Building an Investment Ready Business

1. Ideas to Deals Building an Investment Ready Business

2. We would like to be your business partner…

3. As your business partner we can… • Provide your business professional consulting and advising with certified business advisors

4. As your business partner we can… • Provide you with access to over 70 topic specific seminars and workshops covering pertinent topics for businesses at all stages from start-up to growth and existing.

5. As your business partner we can… • Provide your business an experienced and award winning team • In 2008, we: • Advised 961 Small Businesses • Facilitated $12,844,875 in loans / investment capital • Won the Ohio SBDC Performance Award • Awarded the SBDC Service Excellence and Innovation Center Award by the SBA • Were named one of the top 10 SBDC’s out of over 900 SBDC’s in the country

6. As your business partner we can… • Access to numerous resources and networks to support your growth

7. As your business partner we can… • Provide access to numerous resources and Networking opportunities to support your growth

8. As your business partner we can… Mike Figliuolo Jim Canterucci Chris Brogan

9. As your business partner we can… • Provide International Trade Assistance Specific services include: • Developing export strategies • Preparing your product or service for export • International legal considerations • Shipping your product; pricing, quotation and terms • Methods of payment and Financing Export transactions • Business travel abroad • Selling overseas.

10. As your business partner we can… Provide Manufacturing & Commercialization Assistance • Continuous Improvement & Modernization ~ Process improvements, workforce assessments & training, lean operations… • Inventions & Prototyping ~ Product design, modeling, prototyping, market assessment, Intellectual property, R&D grants… • Partnering & Commercialization ~ Licensing technologies, capital access, mfg partners, marketing channels, fulfillment strategies…

12. Build A Business • Make Meaning • Make a difference • Make Value • If you succeed in building a business, either funding sources will be fighting to give you money or you won’t need their money.

13. Why Develop a Business Plan? Provide a Roadmap of How to Drive Your Business!

14. How To… • Develop an Operating Plan. • Modify the Operating Plan to Fit Your Audience.

15. “In preparing for battle I have always found that plans are useless, but planning is indispensable.” - Dwight D. Eisenhower

16. Key Issues In an Operating Plan • Why are we necessary? • What do we do? • Who are we? • Who do we serve? • How and where do we find those we serve? • How we’re unique? • Where are we going? • How do we get there? • What are the roadblocks? • Why do we do what we do?

17. Key to Writing an Operating Plan • Do it for you. • Keep it simple. • Keep it real. • Internalize it. • Work it.

18. The key to funding is knowing your business and being honest about what you have.

19. Can you answer this: What do you do?

20. OK… Can you put it in a box and sell it?

21. What kind of Business Do You Have? • Scaleable, Exponential Growth, Defined Exit? • Heavy Service Component, Slow/high Growth, No Exit?

22. Who is out there to buy our Product? • How do we get them to buy our product?

23. Friends, Family, Founder Bootstrapping is building the business from internally generated funds. • You need to establish a foundation for your business. • Build credibility and show that your business has customers and a product that people want to buy. • Focus on customers and cash flow. • Work hard and be creative in seeking ways to drive revenue while holding expenses down.

24. Why are banks in business? To make money not to make loans. Lending is a tool to making money.

25. Commercial Banks • Banks typically lend for “stuff”. • Banks are a great option if you have history and are looking to expand. However, for an early stage company with limited history and minimal collateral, getting a loan could prove difficult.

26. Commercial Banks • When the company is new the entrepreneur should establish a banking relationship and utilize this as far as it will go. The relationship with a bank will be very helpful in the future as the business becomes established. • There is no 100% financing from a typical commercial bank.

27. Small Business Administration • SBA is not in the business of making bad loans. • Once the bank has agreed that the loan is good but in some way outside their guidelines they will seek an SBA guarantee. • The SBA is there to help you with your cash flow. • Longer term • Lower down payment

28. What do banks look for? Credit • Credit Score should strive to be over 740 + (A year ago I would have said 700) • Guard Your Credit Score

29. What do banks look for? Business Plan • The business plan tells the bank how you are planning to repay the loan.

30. What to put in a business plan • Executive Summary • Narrative • Product Description • Market Analysis • Market/Marketing Strategies • Management Plan • Financial Data • Profit and Loss Statement (Income Statement) • Balance Sheet • Source and Use of Funds • Cash Flow Statement • Personal Financial Statement

31. What do banks look for? Collateral • There is no 100% financing • To a bank collateral is real estate or equipment.

32. Working Capital Short-term money to operate the business. Typically financed by a Line of Credit.

33. Getting the bank to say YES! • Know your credit score going in. • Establish a banking relationship • Keep you plan tight, clear and easy to understand. • Use common format, don’t be creative. • Help the banker say yes. Put yourself in the banker’s shoes. • Structure your ask. Separate working capital, equipment and real estate.

34. Angel Investors Angel investors are high net worth individuals who are interested in investing in emerging businesses. Two Types of Angel Investors • Professional • Strategic

35. Professional Investors • The underlying reason that they will invest is return on their investment. • They invest in spaces they know. • They invest with people they know • They invest based on referrals from people they know. • Invest based on due diligence. • Will require professional terms. • Looking for a big payout based on a liquidity event.

36. Strategic Investors • More interested in the product than the business. • Invest based on gut reaction. • May take common stock • May not look for a liquidity event. • May be the friends in FFF (or referred by FFF)

37. Key points About Investors • If you take someone else’s money you have a partner. They will want to have some influence on the company to protect their investment. • You will probably have to relinquish some level of control over the company. • If you are unwilling to share leadership of the company, investors are not the option for you.

38. Institutional Venture Capital • The only reason that they will invest is return on their investment. • They only invest in spaces they know. • They only invest with people they know • They only invest based on referrals from people they know. • Invest only based on due diligence. • Will only require professional terms. • They are only looking for a big payout based on a liquidity event.

39. Seeking Investors Investors invest in people and teams that can execute. “A” teams with “B” markets will generally beat “B” teams with “A” markets.

40. Investor Business Plan Summary Format • Summary should be “concise” • Summary should provide a clear description of the problem you solve. • How you solve it. • Your business model. • The underlying magic of your product. • Defensibility of your product. • Summary should be no more than “four-pages”.

41. Valuation What is it all Worth?

42. Key Valuation Issues • Valuation of early-stage companies is a little short of random. • Valuation is negotiated, there are no hard numbers especially for early-stage companies. • Provide a good projection of future value at a potential, future liquidity date and discount back. • Know comparables…What other companies, similar to yours, have generated what multiples of sales at liquidity. • Build value as you build the company ~ Focus on “Value Inflection Points”. • Focus on dollars not percentage • 10% of a $20 million company is worth more than 100% of a $1 million company.

43. Suggestions for CEO’s • Know what investors look for and expect. • Make sure you and the investors are on the same page. Good investors will want you to have a fair percentage of the company. • Know why these things are important to investors. • Understand the factors that influence value • Anticipate investor questions. • Look at competitive deals. • Learn from the process ~ Listen well

44. Cap Table Example Pre Investment Unit HoldersIssuedValuationPre-investmentPost-investment John Doe 500k $500k 25% 19% Bill Smith 400k $400k 20% 15% Jane Brown 800k $800k 40% 31% ESO Pool 300k $300k 15% 15% Note…ESO does not dilute Total Issued $2 mil $2 mil 100% 80% Post Investment Investors 500k $500k 0% 20% Total Issued $2.5 mil $2.5 mil 25% 100%

45. “Cram Down” Example Pre Investment Unit HoldersIssuedValuationPre-investmentPost-investment John Doe 481,250 $240,625 19% 11.5% Bill Smith 381,250 $190,625 15% 9.5% Jane Brown 781,520 $390,625 31% 19% ESO Pool 375,000 $187,500 15% 15% Investors 481,250 $240,625 20% 11.5% Total Issued $2.5 mil $1,250,000 100% 62.5% Post Investment Investors Rd 2 1,500,000 $1,250,000 0% 37.5% Total Issued $4 mil $2.5 mil 100% $750,000 raised at $.50 per share; decrease in valuation of 50%

46. Pitching Question: How can you tell if an entrepreneur is pitching their business? Answer: Their lips are moving.

47. Tips for Pitching • Explain what you do in the first minute. • “Clearly” explain what you do in the first minute. • Articulate the problem in the market and what you do to solve it. • Purpose of a pitch is to “stimulate interest” not to close the deal. • Keep it tight. 10 slides, 20 minutes, 30 point font. • Speak to the audience’s interest.

48. Investors’ Interest • How are you going to make money? • How are you going to generate my return? • Are you capable of “executing”?

49. Don’t When Speaking to Investors. • Don’t try to BS the investor because they see through it. • Get your value proposition across early in case you don’t get to the end of the presentation. • Don’t get bogged down on the mechanics of the product. Early on the investor will assume it works as you say it will. • Don’t ask for an NDA!!!

50. Don’t When Speaking to Investors. • Don’t ask for an NDA at initial meetings!!! • Real investors are not in the business of stealing business ideas and trying to develop them. • You control what is in the summary and initial pitch. You don’t need to disclose the “secret sauce” at this point. • Investors will sign an NDA prior to due diligence.