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Alternatives to Venture Capital for financing technology commercialization

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Specialize in assisting companies using a combination ... Staples, Inc. Extreme Networks, Inc. Kronos, Inc. 6/3/09. 11. CFA v. 2.0. Venture Capital Fund ... – PowerPoint PPT presentation

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Title: Alternatives to Venture Capital for financing technology commercialization


1
Alternatives to Venture Capitalfor financing
technology commercialization
February 28, 2003
2
Corporate Finance Advisors (CFA)
  • Specialize in assisting companies using a
    combination layering of equity, debt,
    subordinated debt, and other alternative
    financing sources for rapidly growing businesses

3
My Background
  • Over 350 million in financing arranged since
    1994
  • Focus on structuring mix of debt / equity
  • Largest single deal 11 million
  • Average deal 1.5 - 2 M
  • Sam Thacker

4
Todays Objective
  • Introduce you to alternatives to classic venture
    capital and how they can be used
  • Provide real world examples of how the various
    alternatives to VC have been used
  • Challenge you to think differently about
    financing technology commercialization

5
Historical Foundation (pre 1990s)
Government
IBM 3M Etc.
NASA Aerospace
Defense
6
Changes in Financing 1988-1996
7
Grass Roots Financing
SBA
Asset-Based
Conventional
?
Construction
TraditionalLOC
Credit Card
EquipmentLeasing
AngelInvestor
HomeEquity
Factoring
SBIC
8
Financing Pyramid
IPO
Big-time VC
Institutional VC
Early seed stage (SBICs)
Corp VC, Strategic Alliance
Larger-scale commercial loans
Private Placement (PPM) Reg. D
Band of Angels
Angels (wealthy families), individuals
SBA / Microloan Comm Loans
Friends Family
Personal Funds
9
Advent of Small Business Investment Companies
(SBICs)
  • Small Business Investment Companies (SBICs) have
    provided approximately 27 billion in long-term
    debt and equity growth capital to nearly 90,000
    small U.S. companies since 1959.

10
SBIC Success Stories
  • Intel Corporation
  • Staples, Inc.
  • Extreme Networks, Inc.
  • Kronos, Inc.

11
Venture Capital FundInvestments 1995-2001
Billions
12
Nature of the Technology
  • Enabling
  • Disruptive
  • Can a company be formed around the technology?
  • Companies vs technologies

13
Enabling Technology
  • Easy to understand implications
  • Fits current value chain
  • Incumbents will easily finance

14
Disruptive Technology
  • Will not be understood at first
  • New markets need to be developed
  • System anti-bodies kick in

15
Financing Companies vs. Financing Technology
  • Companies are free standing
  • Technology needs a home
  • Companies are easier
  • Power of Strong Management

16
Investor / Lender expectations
  • Value of Technology to owners
  • Liquidity
  • Risk vs. Reward
  • WIIFM?
  • Realistic expectations

17
Banks in the Financing Mix
  • Debt, rarely equity
  • Three Cs of banking
  • Character
  • Capacity
  • Collateral
  • Cash Flow

18
Venture Capital Banks
  • Silicon Valley Bank, Imperial Bank, etc.
  • Regularly provide debt / equity financing and
    take more risk than regular commercial bank.
  • Have high degree of expertise in technology

19
Balance Sheet Financing and Technology
Commercialization
  • Match financing method to asset being financed
  • Layer multiple types of methods to minimize
    equity dilution and mitigate risk
  • Understand key ratios

20
Current Asset Financing
  • Purchase orders
  • Inventory
  • Accounts Receivable
  • Contracts

21
Financing Long-term Assets
  • Equipment
  • FFE
  • Real Estate

22
Intellectual and Intangible property
  • Patents
  • Software
  • Goodwill
  • New GAAP rules
  • SFAS 142

23
Mezzanine Debt Financing
An investment of between 2 million and 20
million into a profitable company for a major
expansion generally leading to an IPO in 3 to 18
months.
  • Brick Mortar Oriented
  • Strong EBITA
  • Strong track record of performance

24
Corporate Venture Money
  • Why use this type of money?
  • Few sources can have a profound impact on your
    outcome.
  • Less emphasis on strict investment criteria
  • A large strategic doesnt mind being first in
    on an investment round.
  • A large strategic looks very, very good on the
    cap table.

25
Corporate Venture Money
  • Example 17B of Nortels recent writedown was
    from investments.
  • Corporations have different needs
  • Corporations are well versed in buy/make
    decisions.
  • Equity juices the deal

26
Corporate Venture Money
  • What makes you valuable?
  • Technology is clearly yours
  • You are the expert
  • STRONG strategic component

27
Corporate Venture Money
  • The power of strategic intent
  • Assume 5,000 wins
  • 20000 engagements
  • Gross Revenue of 500M
  • Your product increases the wins by 10.
  • Average win 100,000
  • New wins 5,500
  • Incremental Revenue 50M

28
Corporate Venture Money
  • Techniques for finding the right strategic
  • Who bears the cost of failure?
  • Who currently has the same customers as you?
  • Who wants the same customers as you?
  • Who has similar business/manufacturing processes

29
Corporate Venture Money
  • Top things to think about
  • Strengths Weaknesses
  • How do you create incremental revenue?
  • Find the strategic connection
  • Elephant on a leash

30
Government Backed Programs
  • Generally have a background agenda
  • Lift for specific
  • Industries
  • Geographic areas
  • Socio-economic
  • Gaps in banking system

31
Government Backed Programs (SBA)
  • Small Business Administration (www.sba.gov)
  • Does not loan money
  • Allows lending institutions to consider higher
    risk loansHouston 330M (2001)

32
Government Backed Programs (SBA)
  • Several SBA programs
  • Programs target specific businesses/goals
  • Guarantee up to 80 of 100K
  • 75 of gt 100K, max 750K
  • Loans are made at the regional level
  • Collateral is important

33
Government Backed Programs (SBIC)
  • Venture Investment Companies licensed by the SBA
    www.sba.gov/INV
  • Private Capital Government Lending
  • 4.8B in 2001
  • Profit Motivated (25 - 46 IRR)

34
Government Backed Programs (SBIC)
  • Fill the gap just under typical VC financing.
  • Will be tough just like VCs
  • Have specific focuss
  • Provide expertise

35
Government Backed Programs (Local EDCs)
  • Focus on job creation / tax base
  • Regaining popularity
  • Community feels able to influence own destiny

36
Government Backed Programs (State Focus)
  • Driven to attract certain sub-segments like
    biotechnology medicine
  • Start off where local EDCs end, often
    cooperatively
  • Often involves academia / research

37
Philanthropic Investments
  • Benefit society / mankind
  • Examples drug discovery, biotechnology,
    medical, and learning technology
  • Find an insider to help you find sources

38
Angels and Angel Groups
  • Tend to be either vertically or geographically
    focused
  • Small funds for early stage
  • Collective due diligence

39
Academic Corporate Partnership
  • In kind contribution may substitute for
  • Understand academic institutions need
  • Share / collaborate IP creation

40
Incubators and Accelerators
  • Many rethinking focus
  • Understand strengths weaknesses
  • Have realisticexpectations

41
Public vs. Private Company
  • Current trend in becoming public via reverse
    merger
  • Do your homework, learn strengths / weaknesses
  • What reverse mergers do and dont do

42
Conclusion
  • Think creatively when considering financing
    sources for your project
  • When possible, layer financing methods to protect
    shareholder value while balancing speed to market
  • Be persistent and look at all options
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