1 / 52

Sources of finance

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

roz
Download Presentation

Sources of finance

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Sources of finance Financiers and their habits by Mr Ties van der Laan Ties Corporate Finance 10, rue des Alouettes, L-1121 Luxembourg-Cents Luxembourg m +352 691 427 566, t/f +352 427 566 e ties@ties.lu, i www.ties.lu

  2. 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

  3. 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!

  4. Public sector • Characteristics • Who are they? • What do they seek? • How do they operate?

  5. 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

  6. PS: who are they? • Governments • Local, regional, national, European • Development agencies • Innovation support organisations

  7. 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

  8. PS: how do they operate? • No misuse of public money: • Auditors rules • Bureaucratic • Writing and lobbying • May take up to 2/3 years • Give: • “free” money: no repayment or • “soft” loans: low interest / repayment • Prefer to match others • Limited interest after spending

  9. Founder, friends & family • Characteristics • Who are they? • What do they seek? • How do they operate?

  10. 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)

  11. FFF: who are they? • Close to entrepreneur • Personal relationship • Long time contact • Grandparents, aunts, uncles etc.

  12. FFF: what do they seek? • Any industry • Objective is help not return • Information only, no control

  13. 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

  14. Sponsors • Characteristics • Who are they? • What do they seek? • How do they operate?

  15. Sponsors: characteristics • Companies • Own money • Fund: small, prefer barter deals • Deals: from € 100 - € 20k (goods/services) • Active managers (30-60) • Good network

  16. Sponsors: who are they? • Local / regional companies • CEOs (SMEs) or marketing managers • New product (line) managers

  17. Sponsors: what do they seek? • New customers: natural win-win • Contribute to their reputation • Show their expertise • Softly spreading their know-how

  18. 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

  19. Banks • Characteristics • Who are they? • What do they seek? • How do they operate?

  20. 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

  21. Banks: characteristics (II) • Focus on history • Risk averse, low return • Subsidiaries for asset-based finance • Leasing (cars, computers) • Factoring

  22. Banks: who are they? • Commercial banks • Local, regional and national • No private banking banks • No merchant / investment banks

  23. 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

  24. 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

  25. Equity investors General characteristics: • Focus is on future • Seek risk, expect high return • Buy shares • Temporary involvement • Seek (serial) managers/entrepreneurs

  26. Types of equity investors • Business angels • Corporate investors • Venture capitalists • (Institutional investors)

  27. Business angels • Characteristics • Who are they? • What do they seek? • How do they operate?

  28. 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

  29. 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

  30. 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 • Return • Profit through tradesale or IPO • Dividend, interest and fees • Likeable persons • In business (entrepreneur) and private (talk) • Mutual trust

  31. How do BAs operate? • Intake • 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

  32. Corporate venturers • Characteristics? • Who are they? • What do they seek? • How do they operate?

  33. 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

  34. 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

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

  36. How do CVs operate? Active • 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 Passive • 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

  37. Venture capitalists • History of venture capital • Characteristics • Who are they? • What do they seek? • How do they operate?

  38. 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)

  39. 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

  40. 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

  41. 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

  42. 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

  43. How do VCs operate? (I) • Intake • 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

  44. 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

  45. 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

  46. 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

  47. 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

  48. 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

More Related