Funding Opportunities for Merrimack Valley Startups

thecapitalnetwork.org - @TCNUpdate

Pathways to Funding Your Startup

Jess McLearLaunchpad Venture Group

David KesslerBoston Harbor Angels

Arnie ScottHub Angels

Riley RodgersValia Investments

Matt PerryBoston Financial & Equity

Corporation

Participating Mentors:

Marie MeslinThe Capital Network

Tom O’DonnelUMASS Lowell iHub

Mary Ann PickardM2D2 at UMASS

What Type of Company Are You?

Before you can get funded, you have to know

where to look

Before you know where to look, you need to understand

what you are

What Type of Company Are You?

•The type of company you have will shape the type of funding available to you• Consumer mobile social software company vs

Chemistry-based life science technology product vs Equipment for emergency deployment in disaster zones

•Changes in business model can change the funding required• IP licensing of new battery technology to existing players vs

build a battery distribution company with outsource manufacturing orbuild a manufacturing company with, or without distribution

NORMAL GROWTHCOMPANY

HIGHGROWTHCOMPANY

EXTREMEHIGH GROWTH

COMPANY

SOCIAL VENTURECOMPANY

• Includes all service businesses

• Exploiting a local market need

• Team has ‘great jobs’

• Growth by adding resources one by one

• Exit will be based on value of cash flow (mature biz.)

• Growth profile ultra-scalable

• Team focus is exit

• Revenue $40M+ with lots of room for growth (5 yr.)

• Based on $20M+ investment

• Exit targeted to IPO or by ‘large’ M&A event

• Goal is to fulfill a social need

• Has mission orientation

• Team needs to support mission

• Growth profile often one resource at a time

• Exit …much harder to find fit

• Company can grow fast (on-line) or has a scalable system

• Team often motivated by exit

• $7-10M revenue in 4-5 yrs & market size allows significant additional growth

• Capital efficient total investment$2-4M

• Exit by M&A

What Type of Company Are You?

What Kind of Funding

NORMAL GROWTHCOMPANY

HIGHGROWTHCOMPANY

EXTREMEHIGH GROWTH

COMPANY

SOCIAL VENTURECOMPANY

• Friends, family, founders

• Debt, Bank, and other

• (Future) Crowd funding (portal style)

Early on

• Accelerators

• Individual Angels

• Micro Cap VCs

• Seed from VC

Later stages

• Venture Funds

• Strategic VCs

• Angel Syndication

• Friends family, founders

• Charity$$

• Crowd funding (Kickstarter, etc)

• Impact Angels

• (Future) Crowd funding (portal style)

• Angels

• Angel Groups

• Angel Group Syndication

• Angel List

• Micro-cap Funds

• (Future) Crowd funding (portal style)

• Increasingly Strategic Corporate VCs

Capital Sources: Size & Cost

Investment Size

Traditional VC

Micro VC

Equipment Financing

Angel GroupsAngels

Equity CrowdfundingAngel List, Circle Up, etc

Corporate / StrategicVenture

Customers

Jobs Bill Portals

Vendors

Founder

Friends & Family

Crowdfunding: etc.

Grants

Venture Debt

BankLoans

PersonalLoans

Private Equity

B’Plan Competition

Accelerators

Inve

stm

en

t“C

ost

”

RevenueDebt• Bank• Friends/Family• Non-convertible note

Customer/Vendor/Partner• Prepaid product purchases from customers• Pay later services from vendors• Non-recoverable engineering costs from

partners

Grants• SBIR & other Government Grants• Business competitions

Capital Sources

Dilutive Non-Dilutive Equity

• Convertible Note• Stock

• Friends, Family Investors• Common vs Preferred

Capital Sources

Size of Capital Raise: High

Time

High Risk

Low Risk

CrystallizeIdeas

DemonstrateProduct

Early Scaling Growth Sustained Growth

Market Entry

Size of Capital Raise: Low

As you develop your company, you reduce risk for your financial partners

Capital Sources: Equity

StageCrystallize Idea

and Early Demonstration

Demonstrate Product &

Market Interest

Market Entry and Early Growth

Early Scaling Growth

Repeatable Growth

Capital Source

Founders, Friends, Family,

Grants, Kickstarter, etc.

Government grants, eg., SBIR

Accelerators, Individual Angels, many others now

“exploring”government

grants, eg., SBIR

Angel Groups, Angel Group Syndication,

Micro-Cap Fundsgovernment

grants, eg., SBIR

VCs, Angel Group

Syndication, Micro-Cap

Funds

VCs

Investment $25K - $100K $100K - $500K $500K - $1M$5M – as needed

as needed

These 2 need sophisticated growth plans

This is the stage where advice can make you eligible

for outside funding later

Accelerators and a few individual angels play here … unless it is a

big idea

This is where Angel Groups

do most 1st

investments

Equity: VC vs Angel

Angels

• Invest their own money • Motivated to help entrepreneurs,

stay engaged• But Return on Investment is still the

controlling metric• Likes big returns but will often be

happy with more modest returns in a shorter amount of time3-5 year outlook on investments unless VCs get involved

VC Funds

• Invest other people’s money (pension funds, …)

• Have multi-million $ funds they need to put to work

• Invest big and must get big returns for their investors

• 7+ year outlook for exit returns (10-year funds)

Equity: VC vs Angel

Angels

$24.6B in 2015 ~ 305,000 investors71,000 deals:

(18,000 Seed & 32,000 Early Stage)NE sees 12% of all US deals

Types of angelsIndividualsOrganized: Funds: 16%; Network: 63%

(avg 10 deals / year)AngelListInformal networks & 1 time investorsFamily offices

Mostly invest locally

VCs

$59B in 2015,~ 4,300 Deals(186 seed & 2200 early stage)

12 Companies accounted for more than 10B

Angel Syndicates (relatively new)• Individual angels, or several angel groups investing as a unit

• AngelList syndicates• VC-backed syndicates

Debt Capital

Debt Capital

• Funding based on a set schedule of principal and interest payments that provide a fixed return for the lender.

• Availability may be based on asset value or cash flow or personal guarantee.

• MUST be paid back. Not “speculative” cash.

Sources:

• Personal Loans – Friends/Family

• Bank Loans

• SBA Loans

• Expect debt classes from Jobs Bill crowd funding portals

• Credit Cards

• Venture Debt (usually linked to equity & later stage)

Alternate Sources

Crowd Funding

• Kickstarter, Indiego-go

• Usually associated with “product” companies

• Can come with drawbacks

Accelerators

Many incubators across the country• May focus on specific types eg.

LearnLaunch for EdTech

• Many different models• Non-profit, equity stake, revenue, loan

• Can be very helpful but be wary of being of the “accelerator circuit” too long.

*Equity Crowdfunding (new as of May 2016)Jumpstart Micro, WeFunder

Little information so far…

Non-Dilutive Funding

SBIR + STTR = 3% - 3.6% of federal R&D Budget Best for research … need other commercial $$

Pros: •It is a contract/grant – non

dilutive

Cons:•Long Solicitation Process•March-in Rights•Work with universities for

expertise•Best to incorporate (but more

acceptance of LLCs)•Accounting systems must be

compliant with the government•Very competitive in some

agencies

Small Business Innovation Research Grant (SBIR)MISSION:To support scientific excellence and technological innovation through the investment of Federal research funds in critical American priorities to build a strong national economy… one small business at a time.”

MONEY:

• ~$2.5 billion annual set aside | ~145,000 awards granted total | ~10 patents per day generated (SBA)

• 11% of awardees have attracted another $65 billion+ of venture capital

SBIR PROGRAM GOALS:

- Meet Federal research and development needs

- Increase private-sector commercialization of innovations derived from Federal research and development funding

- Stimulate technological innovation

- Foster and encourage participation in innovation and entrepreneurship by socially and economically disadvantaged persons

The SBIR Program is managed by the Small Business Administration

- but is also directly administered by over 12 Agencies including:

Eligibility & Milestones

Eligibility is determined at time of award - Organized as for-profit U.S. business - Small: 500 or fewer employees, including

affiliates - Work must be done in the U.S. (with few

exceptions) - Company privately and individually

owned

• PI is not required to have a Ph.D./M.D

• Generally the PI is required to have some expertise to oversee project scientifically and technically

• Applications may be submitted to different agencies for similar work

• Awards may not be accepted from different agencies for duplicative projects

Milestone Driven Award Process

Phase I | Feasibility Study or Prototype -~$150 thousand and 6 months

Phase II | Full Research and Development Effort ~ $1 million and 24 months

Phase III | Commercialization Effort - Private and Non-SBIR Allocated financing

5509 Total Awards in 2012

• 54% of $ to 10 States

• Phase I Awards | 64% of Awards | 24.2% of Funds | Average Size $151,000

• Phase II Awards | 36% of Awards | 75.8% of Funds | Average Size $718,000

SBIR: Overview of total $ awarded

MASSACHUSETTS

Conclusion

Educate yourself about all of your funding options:• https://www.sbir.gov

- Example NSF: www.sbir.gov/agencies/national-science-foundation- Next funding close date of Dec 6: Advanced Manufacturing & Nanotechnology Biological Technologies, Chemical and Environmental Technologies

• http://nvca.org

• http://www.angelcapitalassociation.org

• http://www.thecapitalnetwork.org

Non-dilutive funding is always great but not always the easiest to get

It’s all about the numbers for equity investors

Network, Network, Network • http://www.greenhornconnect.com For startup events going on in MA