Mentoring Presentation

Pros of Cons of Accessing Venture Capital too Early

& Some of the Pitfalls to Avoid

Agenda

• Meet & Greet• Introductions• 90 Second Company Elevator Pitch• Pros and Cons of Accessing Venture Capital• Some Pitfalls to Avoid• Q & A• Future Topics

Superhero of the Modern World

Equity Capital Life Cycle

Cash flow

Sale

s a

nd

p

rofi

t

I ntroduction Growth Maturity Decline

Time

R & D Pre-Seed & Seed

Start-Up

Sales

Round 1 Round 2

Grants / Love Money

$

Angel $

VC $ VC $

Exit

Angel $

Concept and product

development

Profit

Financing Alternatives

• Personal Financing• Business Loans• Government Grants• Accelerators• Angel Investors• Asset Backed or Receivables Lending• Venture Capital• Bank Debt

Venture Capital Investment

• Cdn VC’s invested $460 mm in Q1‘13 is up 55% from Q1’12

• Disbursements to 137 companies up 17% ‘13 vs. ‘12• Ave investment increased to 3.4m Q1’13 from 2.5m

in Q1’12 which is only 49% of that seen in the US in Q1’13 for like firms

• VC investment in Cda is DN fr 5.9b in ‘00 to 1.5b in ’12 which was similar to ‘11.

Venture Capital Investment

• Q1’ 2013 Clean Tech 180m, IT 150m & Life Sci 40m• Q1’ 2013 had 15 exits with 2 doing IPO’s and the

remainder seen as been strategic. In 2012 there were only 30 exits for the entire year

• Fundraising is DN 44% in Q1’13 to 381m of which 178m from retail investors, 100m from single fund entity & 78m foreign

• Only 3% of the universe of venture capital firms generate 95% of the industry returns

Venture Capital Investment

• For entrepreneurs, choosing the best financing model for their start-up isn’t a luxury – it is a necessity

• The terms you will be offered will be commensurate with the value you have created. Sales = Higher Valuation

• VC’s money comes from LP’s which is mostly institutional

Venture Capital Pros• Small piece of a big company is better than a large

piece of a small company• Their goal is to grow the company quickly and exit.• Deep pockets for follow on financing• Allows you to focus on the business rather than

constantly raising $• VC firm name helps & signaling positive• It is their FT Job to help you succeed• Industry expertise

Venture Capital Cons

• You have to qualify• Often looking for exit in short time frame• Negotiations tend to be one sided• Legal costs of documentation are high• Equity has a higher cost than debt +30%• Staff & time commitment for due-diligence• Reduced control or determination of business• VC’s ask for and get better terms than Angels

Venture Capital Cons

• Your business is exposed to the VC’s funding cycle and market uncertainties

• One author referred to VC’s as a last resort• May control board decisions• Follow on Financing requires higher valuations

to support VC’s valuation• Funding is down and VC’s are taking less risk.• Series A crunch

Pitfall’s• Complex covenants based on performance metrics• Inordinately thick documents• May replace management• Liquidation preference• Anti-dilution clauses • Loose control of the direction of your company• May hold veto rights or rights to sell company• Signaling effect (VC in seed rnd & passes nxt rnd)

Do it Your Way - Parting Thoughts

• Over 90% of all businesses are started and grown with no equity financing

• VC is the OPM (Other Peoples Money) drug of Start-ups• Oct’12 Profit Hot 50 - Seed Financing – 98%

Founders own capital, Growth Capital – 62% Founders own Capital

• Control your destiny until you create sales• Eyes Wide Open and be well researched

Profit Magazine’s Hot 50

Profit Magazine’s Hot 50 2012 Top Performers

Future Topics

1. Bootstrapping a Company & Exec Summary2. Preparing a Pitch for Investors3. Terms to expect from an Investors Term Sheet4. Accessing Capital from a Angel Network5. Forming an Advisory Board6. Pros of Cons of accessing Venture Capital too

early & some of the pitfalls to avoid

Gerard Buckley, BBA, FICB, ICD.DPresident and CEO Jaguar Capital Inc.(C) 416-884-9522(W) 416-646-6789g.buckley@jaguarcapital.ca

www.jaguarcapital.ca

@jaguarcapital @gerardbuckley