raising equity capital
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U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 1
Gary E. Spanner
Manager, Office of Small Business ProgramsPacific Northwest National Laboratory(509) 372-4296gary.spanner@pnl.govwww.pnl.gov/edoApril 17, 2002IT Day, Pasco, WA
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 2
My History with Equity Capital
Honorary member of the Alliance of Angels – to help the AoA gain access to Tri-City technologies
Organizing committee for the Early Stage Investment Forum in Seattle
Organized two local investment forums for Puget Sound investors and several local training events
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 3
Some Regional History of Equity Capital
WA & OR venture capital investments: 220 in 1999, 265 in 2000, 100 in 2001
Early Stage Investment Forum: 350 applications last two years, about 15 from Tri-Cities, 1 accepted that was later rejected
Alliance of Angels: Number of applicants unknown, 6 have presented to full membership, 1 received funding
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 4
Some Regional History of Equity Capital (cont’d)
Alliance of Angels Forum in Tri-Cities (10/00): 4 presented to steering committee, 1 presented to full membership, no investments
Local surveys suggest that access to equity capital is a problem
Local equity investments in the last several years by outside investors: I know of about $40M, only one IT firm
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 5
$$ Sources Direct Private Investors
• Friends & family• Individual “angel” investors• Groups of individuals (e.g., formal & family
funds)
Institutional• Venture capital firms/funds• Pension funds (private & public) &
endowments• Corporate • Financial institutions and insurance
companies• Foreign firms• SBICs
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 6
$$ Sources (cont’d)
Governmental• Economic development funds
& agencies• Pension funds• State investment boards
Enterprise Capital Resources, Seattle, 1999
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 7
$$ Sources (cont’d) Common perception that equity capital for
technology deals is not available locally Credit cards, second mortgages Several venture capital funds in Spokane Alliance of Angels: 170 private investors, accept
applications on web, hear four presentations per month at a luncheon meeting (allianceofangels.com)
Early Stage Investment Forum: annual event in March, 300 private and institutional investors, extensive coaching for presenters (www.esif.org)
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 8
$$ Sources (cont’d)
Puget Sound Venture Club: ~ 25 members, monthly presentations, probably need a referral to get in
List of local and regional $ sources, including angels and VCs, at www.pnl.gov/edo/funding
You’re welcome to dig through my file for many others
Columbia Basin College BizWin Competition: $30K seed funding (http://www.bizwin.org/)
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 9
What Investors Want Respect
Play a role in something new and exciting
Business model that they understand Management team with these
attributes:• Perseverance• Decency• Competency• Track record• Personal financial commitment• Burning desire to succeed
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 10
What Investors Want (cont’d)
Potential for fast growth and lead market share
Appropriate involvement
August 2001 – Avogadro Partners, LLC
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 11
The Mind of the Experienced Private Investor
Know the business (a solid hedge or “Why Warren Buffet avoids Internet deals”)
Do their own due diligence and invest with others who fill their expertise gaps
Deal only with people they like
Plan on participating in subsequent rounds
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 12
The Mind of the Experienced Private Investor (cont’d)
Invest alongside a significant investor—one who has a track record of commitment and pockets deep enough to keep the company afloat
Becoming a successful private investor is definitely an apprenticeship process. They benefit from investing alongside experience.
Avoid unrealistically high valuations Understand the liquidity risk
August 2001 – Avogadro Partners, LLC
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 13
Further into the Mind Invest in ‘hot’ industries (where VCs are
concentrating their investments) Prefer large gross margins—generally more
forgiveness for problems that an early-stage venture might encounter
Focus on assumptions underlying projections, as opposed to the projections themselves. The assumptions indicate the degree to which management has an understanding of all components of the business.
Control risk through the staged infusion of capital based on performanceAugust 2001 – Avogadro Partners, LLC
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 14
Training Events for $$ Hunters
Entrepreneur’s Forum of the Great Northwest, April 17, 2002
WaFAST Pacific Northwest Regional Conference, May 1 & 2, 2002, Spokane: SBIR/STTR and Eye-of-the-Investor workshops
Spokane Economic Development Council Spring Rally, Coeur d’Alene, May 15, 2002, VCs discussing what they look for
Tri-Cities Venture Group, series of breakfast meetings
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 15
Training Documents for $$ Hunters
Online version of Rainmaking in a Capital Drought – Everything You Need to Know About Raising Capital in This Dry Climate available soon on www.pnl.gov/edo
Flier, What Private Investors Look for in Early-Stage Technology-Based Businesses
Tri-Cities Tech Business Update announces training opportunities, many for $$ hunting
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 16
Training Documents for $$ Hunters (cont’d)
Books:
Finding your Wings – How to Locate Private Investors to Fund your Venture, Benjamin & Margulis
Business Plans that Win $$, Rich & Gumpert
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 17
The Business Plan What is your company about? What pain or problem is there in the market
place?• Why?• Who• How much?
How does your company soothe the pain or solve the problem?
What compelling benefits do you offer the customer?
Who is the management team and why can they bring the solution to the market? What have they accomplished so far?
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 18
The Business Plan (cont’d) What is your strategy? How will you make money & when
(business model)? What’s your capitalization plan
• Money raised so far?• How much capital in what kind of offering
now? Use of proceeds (list milestones) Exit strategy Summary: Why invest?
August 2001 – Avogadro Partners, LLC
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 19
Pertinent Experience Matters
When you need other people’s $$, you need experienced entrepreneurs on the executive team (i.e., people who have raised capital and taken products to market)
VCs consider an experienced management team a prerequisite to funding
Investors are betting on the jockey as well as the horse Investors consistently state that the management team
is the most important factor If you want experienced management, you better have
a stock option plan
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 20
How to Obtain Experienced Management
Tech Job Connection now available at www.pnl.gov/edo/jobs
Several local firms having success with remote CEOs plugged into $$ and other vital networks (Integrated Environmental Technologies, MesoSystems, Advanced Imaging Technologies)
There is excess experienced management talent available on Interstate 5 nowadays
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 21
My Observations and Advice
Early stage investors are looking for a 40% rate of return (5 times their investment in 3 years)
Nobody got rich owning Microsoft stock, only by selling it
For tech investors, wealth results from increasing stock prices
Sell the investment opportunity to investors, not the technology and not the market
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 22
Investors Expect Share Prices to Increase
0
2
4
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10
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Seed Round 1 Round 2 Round 3 Round 4
Time
Pric
e (
$)/
Sh
are
U.S. Department of EnergyPacific Northwest National Laboratory
04/10/23 23
My Observations and Advice (cont’d) How ESIF opportunities compare to Tri-City opportunities:
greater scalability (leads to stock price increases) and more experienced management teams (serial entrepreneurs)
Tri-Cities is close enough to I-5 to attract investors Tri-Cities has a technology opportunity cachet Consider Small Business Innovation Research Program as
alternative to seed funding Do what it takes to show an experienced management team Investors expect the CEO to give the pitch, using electronic
PowerPoint
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