Title: Raising Capital for EarlyStage Technology Companies
1Raising Capital for Early-Stage Technology
Companies
January 13, 2005
2Agenda
- About Silicon Valley Bank
- Venture Capital
- Other Equity Investments
- Debt Financing
-
3About Silicon Valley Bank
4Silicon Valley Bank
About Silicon Valley Bank
5SVBs Global Banking Network
London
Shanghai (2005)
Bangalore
SVB Offices
SVBs Banking Network
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a
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ppines
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Arab Emirates
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About Silicon Valley Bank
6A Partner at Every Stage of Your Life Cycle
Venture Capital Corporate Partnering Private
Placement Early Stage Funding Follow on
Funding Mergers Acquisitions
Public Markets Liquidation Strategy Portfolio
Management
Seed Stage Angel Funding Infrastructure
Development
Professional Referrals International Expansion
Software Services
Corporate Technology
Emerging Technology
Communications Electronics
Life Sciences
SVB Asset Management ("SAM") and SVB Securities
("SVBS") are non-bank affiliates of Silicon
Valley Bank. Investments recommended by or
offered through SAM or SVBS are not FDIC insured,
are not bank guaranteed and may lose value. SVB
Alliant is a wholly owned broker-dealer
subsidiary of Silicon Valley Bancshares. The
services of SVB Alliant are not bank services,
are not guaranteed by Silicon Valley Bank, and
are not insured by the FDIC.
About Silicon Valley Bank
7Diversified Services Single Partner
SVB Asset Management ("SAM") and SVB Securities
("SVBS") are non-bank affiliates of Silicon
Valley Bank. Investments recommended by or
offered through SAM or SVBS are not FDIC insured,
are not bank guaranteed and may lose value. SVB
Alliant is a wholly owned broker-dealer
subsidiary of Silicon Valley Bancshares. The
services of SVB Alliant are not bank services,
are not guaranteed by Silicon Valley Bank, and
are not insured by the FDIC.
About Silicon Valley Bank
8Venture Capital
9VC Investing Trends
- Increased Investing Activity 15 billion by end
of Q3 2004 versus 18 billion in 2003. (Sources
VentureOne and Ernst Young.) - Investments are relatively diversified across
industry (software, hardware, life science) and
stage (early, mid, later). - VCs are hiring more GPs with operating
backgrounds to provide greater access to sales
channels and strategic partners. - MA is more common exit path than IPO 84 of
exits by end of Q3 2004 were MA transactions,
versus 50 in 1996. (Sources VentureOne and
Ernst Young.)
Venture Capital
10VC Investment Criteria
- Its Back to Basics.
- Team Management, Board of Directors, Board of
Advisors - Market Size and Growth of Addressable Market
(Bottoms-Up) - Technology Intellectual Property Position,
Know-How - Validation Customers, Strategic Partners
Venture Capital
11Access to VCs
- Existing Relationship
- Referral through Trusted Source
- Boards of Directors/Advisors
- Seed Investors
- Service Providers
- Law Firm
- Accounting Firm
- Interim CFO Firm
- Bank
- Customers
- Strategic Partners
- Cold Call?
Venture Capital
12Presentation Materials
- Executive Summary Keep it short and sweet.
- Value Proposition
- Team
- Market
- Technology
- Validation
- PowerPoint Presentation VCs need to know
within 5-10 minutes who you are, what you do, and
how you will be successful. - Business Plan More useful for internal
planning, save it for due diligence.
Venture Capital
13Other Equity Investments
14Alternative Sources of Equity Capital
- Friends and Family
- Angels
- Corporate VCs
Other Equity Investments
15Alternative Sources of Equity Capital
- Friends and Family
- Seed stage
- Structure Convertible debt versus preferred or
common stock - Ability to raise VC funding
Other Equity Investments
16Alternative Sources of Equity Capital
- Angels
- Seed to early stage
- Individuals versus groups
- Structure Convertible debt versus preferred or
common stock - Criteria vis-à-vis VCs
Other Equity Investments
17Alternative Sources of Equity Capital
- Corporate VCs
- Early to later stage
- Structure Preferred stock
- Ability to set strategy
- Ability to raise VC funding
Other Equity Investments
18Debt Financing
19Key Considerations re Debt Financing
- Debt costs less than equity with respect to
dilution. - For profitable companies, debt provides tax
benefits since interest is tax-deductible, while
dividends are not. - However, debt results in higher bankruptcy risk,
especially for companies with volatile cash flow,
since it has to be repaid. - Bottom line Debt should be used to leverage
equity, rather than replace it.
Debt Financing
20Types of Debt Financing
- Growth Capital
- Leverage equity from venture capital investors
- Finance expansion
- Equipment Financing
- Leverage equity from angel or venture capital
investors - Finance fixed asset purchases
- Working Capital
- Manage operating cash flow
- Finance expansion
- Bridge Financing
- Provide additional runway to equity funding event
Debt Financing
21Lending Criteria
- Proven Access to Equity Financing
- Viable Business Model
- Experienced Management Team
- Positive EBITDA Not Required
- Intangibles in the Business
- Financial Covenants Track Performance to
Plan/Liquidity
Debt Financing
22Lending Process
- Due Diligence
- Executive summary, business plan or PowerPoint
presentation - Financial statements historical and projected
- Accounts receivable and payable aging reports
(working capital lines of credit only) - Capitalization table
- Term Sheet
- Underwriting and Credit Approval
- Discussions with investors and customers
- Audit of accounts receivable and payable
- Loan Documentation and Closing
Debt Financing
23Contact Information
- John Lee
- Relationship Manager
- Emerging Technologies Practice
- 650.320.1149
- jclee_at_svbank.com
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