What Funds

What Funds…….? I have opportunity what next……..! Ahh money By Dhanunjaya Gadiyaram

How to Approach Investors Research potential investors Only approach appropriate investors Prepare a very good Business Plan Prepare and rehearse a very good presentation (no set standard: 30 seconds / 40-45 mins) Be clear about what you need (how much, when, what for) and have some idea about what you’re prepared to offer (% of equity) Progress your venture as much as you can on your own before approaching investors

How to Approach Investors Ask potential investors about their investment style and expectations Spend time with investor’s other investee partners / companies Negotiate hard Ensure your interests are aligned with those of your investor. Agree a written business plan Hire professional help

Investment Opportunity Investors looking at all stages and sizes of companies Deals are few and far between problems with investors capabilities (e.g., access / protection) problems with investee capabilities (e.g., accountability / transparency) Everything takes a (very) long time Exits unclear

Typical New Venture Funding Sources Who are they? What drives their investment decision? What do they expect to get? Where does their money come from?

Typical New Venture Funding Sources Research Institutions Self-financed Angel Investors Venture Capitalists Private Equity Public Equity Banks

Research Institutions Who are they? Universities Private laboratories Government agencies What drives their investment decision? The desire to enhance the body of knowledge in a specific area of interest through research

Research Institutions What do they expect to get? The intellectual property that results from the research Patents Rights in property or process, even if not patented Where does their money come from? Endowments (sometimes with spending conditions) Grants General funding from government Student tuition

Self-financed From where? Family Friends The entrepreneur What drives their investment decision? Based on a belief in, or relationship with, the entrepreneur

Self-financed What do they expect to get? Their original investment returned Maybe interest Less often equity Where does their money come from? Usually funded from personal savings or new borrowings (mortgage on real estate)

Angel Investors Who are they? Wealthy individuals Often successful entrepreneurs What drives their investment decision? A belief that the entrepreneur has done the homework A belief that the idea holds great upside potential

Angel Investors What do they expect to get? Equity A large return on their investment (> 30% ) Where does their money come from? Usually funded from personal savings

Professional Investors They Include: Venture Capitalists, Private Equity, Public Equity, Banks What are they looking for (maturity): Significant shareholder value growth (“$”) for expansion capital or reliable cash earnings Consideration of: transparency, honesty, creativity, responsibility, accountability, teamwork, etc. Appropriate industry, investment size, stage of company development – can vary depending on risk tolerance and desired ROI.

Desirable Investment Opportunities Demonstrable need for business, product, service and defensible market position Track record of execution capability Clearly defined business plan Appropriate equity participation Board representation, perhaps appointment of CFO Visible exit strategy

Desirable Investment Opportunities When companies want to: purchase new plant and equipment to expand capacity purchase new plant and equipment to enter new business line acquire competitor, customer or supplier raise new working capital

Desirable Investment Opportunities When owners want/need to: raise capital for new investments raise capital to restructure

Venture Capital Investors Who are they? Professionally managed investment vehicles Usually in the form of a limited partnership What drives their investment decision? A belief that the entrepreneur is very capable Management team Business model A belief that the idea and market conditions allow for significant revenue and profit growth

Venture Capital Investors What do they expect to get? Equity Significant return on investment (~ 30% CAR) A clearly pre-defined exit for 5 – 7 years later Where does their money come from? Pension funds Wealthy individuals

What is a Venture Capitalist? Investment fund for private equity Such as large pension funds that have long-term investment horizons Typically a VC fund lasts 10-12 years, before it is closed out Looking for larger returns than offered by world-wide stock and bond markets Require fast growth Require large market opportunities Rewards must outweigh risks VCs may reject 99% of all proposals.

Think Big – Venture Capital Why do VC’s look for big opportunities to offset large risk. 40% will fail. 30% will become “living dead.” 30% will become successes. Most important: The failures almost always happen more quickly than the success! VC determine their exit strategy before they invest: Public offering Sale to a strategic partner

What Do VCs Offer? Investment money from pension funds or university endowments Suitable management or technical expertise Help finding strategic partners or customers Strategy planning In return: a large percentage of ownership, plus seats on the board

Private Equity Investors Who are they? Professionally managed investment vehicles Can be in the form of a limited partnership, also mutual funds What drives their investment decision? Track record of the business A belief that market conditions allow for expansion of the business

Private Equity Investors What do they expect to get? Equity Significant return on investment (up to 30% CAR) May or may not seek a pre-defined exit Where does their money come from? Pension funds Insurance companies Mutual funds University endowment funds

Public Equity Investors Who are they? Retail investors Individuals Institutional investors Pension funds, mutual funds, corporations What drives their investment decision? Retail investors Emotion, hot tips, their own analysis Institutional investors Investment policy

Public Equity Investors What do they expect to get? Shares Usually no role in management of the business Return on investment Where does their money come from? Retail investors Personal savings or borrowings (mortgage on real estate, or margin on brokerage account) Institutional investors Pension contributions, insurance premiums, etc.

Banks Who are they? Lending institutions What drives their investment decision? The creditworthiness of the borrower Ability of the business to service the loan (make payments of interest & principal) Collateral (can be supplied by a third party)

Banks What do they expect to get? Their original loan returned Interest Where does their money come from? Depositors

Funds often are applied to different purposes Source Purpose Research Institutions Basic research, inventions Self-Financed Initial start-up funds Angel Investors Initial start-up funds Venture Capitalists Just after start-up Private Equity Longer-term growth of an established company Public Equity Capital investment requirements of an established company, exit for VCs Banks Financing for most operating needs

What Funds

More Related Content

What's hot

Viewers also liked

Similar to What Funds

Recently uploaded

What Funds