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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
Introduction to Finance

for start-ups

18 October 2010

Jonathan Gold www.financetree.biz

slide2

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

no free lunch money costs
No free lunch…money costs

Banks

Grants

Other lenders (ie: UK Steel Enterprise… NESTA)

FFF

Venture Capital / Business Angels

Sales !!

money costs money part 2
Money costs money … part 2

Accountants CORPORATE FINANCE SPECIALISTS

Legal advisors

Non-exec directors

Brokers, banks…

venture capital private equity
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…

slide8
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

finance for business north east funds
Finance for Business North East Funds

£15m

£25m

£7.5m

£20m

£20m

£20m

the investment model
The investment model

Generating £ cash…

Investment in…

Sale of company… or “exit “

Development & early sales (losses…)

…10x return in 5 yrs

Time … since investment

statistics of vc portfolios
Statistics of VC portfolios…

10 Investments

4 Fail

4 Living dead

2 Stars

why bother
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
so is there a downside
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.

value irr
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
indicative timeline end game
Indicative timeline…end game

BLUE internal RED externally driven

poc stories
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

last but not least exits
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.

slide20

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.
investment in uk technology companies 2009 bvca performance survey
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%)

aim new listings
AIM… new listings

Source: LSE

NB: listings in April 2010.. 2 in mining 1 in industrial metal

thank you
Thank you…

Jonathan Gold

j.gold@financetree.biz

Follow us on TWITTERwww.twitter.com/financetree