Funding Sources and Business Plans

Identify the ‘funding’ audience

 What is your ‘ask’? If you are asking for 10 Million,
your plan must support it. If you are asking for
250k, your plan must support it, PLUS follow on.
 Match the investor. Don’t ask a VC for 20k.

Identify the goal of the business plan

 Is the goal to solicit a partner? Investment?
Strategic Alliance?
 Is it a feasibility plan or a business plan?
 Presentation is the same, the data change.

 Important Data

1/40 Startups get Angel Funding

1/400 Startups get VC Funding
The ‘market’ reward better or worse, not good
or bad.
Common Map for Investors and
Founders
 Avoid the Frustration!
Right Funding Mechanism, Right Time

VC Micro Loan Funds

 Huge Market  Building the company
 IP  Pilot project
 Serial Entrepreneur  May have IP
 Customers 
 

If you do not have A feasibility plan might

these, you will be sufficient to apply
probably not get
funded…and may
spend years to find
out that you targeted
the wrong
mechanism
 Types of Funding
Non-Dilutive Dilutive
 Loans and Grants, not  “Making less
selling a stake in the concentrated”
company  Angel
 Friends and Family  Venture Capital
 Credit Card
 SBIR
 Non-Dilutive Funding
Savings Business Accelerators
Credit Cards Banks
Home Equity  Commercial/Traditional
Family and Friends  Private Banks
 SBA
Grants
 Credit Unions
 SBIR/STTR
Leasing Companies
 Business Plan
completion Customers
(Bootstrapping)
 Bootstrapping (Customers)

50% of companies that are denied by the PSF

get denied due to lack of Market or Customer
data.


Source-
Steven
Blank
 Who can help

Biotechnology Business Consultants

Lisa or Andrea

803 N. Main St.

Ann Arbor, MI 48104

lisa@bioconsultants.com

Phone: 734-930-9741

Fax: 734-930-6629

Website: http://www.bioconsultants.com

Michigan Small Business & Technology Development Center

MI-SBTDC State Headquarters
Technology Business Resource Consultant
510 West Fulton Street
Grand Rapids, MI 49504
sbtdchq@gvsu.edu
 Micro Loan Funds

 FIRST STEP FUND



$10 - $50 thousand dollar loans

Promissory and Convertible Notes with warrants

Personal guarantee

Innovative companies in Detroit metro

Funding from New Economy Initiative

Submission:

 10 page business plan

 Multi-year financial projections, including current
balance sheet
 Bios of founder(s) and management team

 Micro Loan Funds

Ann Arbor Micro Enterprise fund (Spark)



Justifiable Incremental loan amount ($2, 000 to

$10,000)-focused on milestones
Reside in Ann Arbor or surrounding community

Promissory and Convertible Notes with warrants

Submission:

Feasibility plan
Advisor and ‘match’ from community business
owner
Multi-year financial projections, including current
balance sheet

 Private Banks
 Factoring is the sale of accounts receivable or invoices at a discount
to a factor to obtain immediate cash.


 Asset-based lending is a credit line based on various asset classes

such as accounts receivable, inventory, equipment or real estate. 
Asset-based lending is often viewed as a stepping stone to
traditional bank financing, with loans focused on the value of the
asset and not solely on a company's cash flow.


Higher Interest Rates

No Equity

h ttp : // w w w . ca p ita lfu n d in g fin a n cia l. co m www . hennesseycap . com

 Leasing

Sale Lease Back



Pull Equity out of Equipment You ALREADY

OWN!!
If you have purchased equipment within the last
90 days, you can still apply to finance it and
keep the working capital in your business.


Leasing as a Sales Tool



 Market Your Products to End Users

 Get Money Up Front
 Simple Process
 No Cost to YOU!
 Shortens Sale Cycle The Wilson Group


 Equity

 Equity is ownership in a business in the

form of capital stock


 Two kinds of capital stock: Common and Preferred

 Basic right: vote to elect the governing board
 Preferred stock has greater (more) rights than common
 Get paid first upon liquidation
 Board Seat


 “Founders” get common stock, investors usually

get preferred stock

 What happens when you bring in equity
investors?

 Impact to current equity stakeholders:


 Dilution

 Changes in governance

 Potentially new management

 Capital to accelerate development

 Access to broader network

 Added business insight


 Forms of Business Organization
All businesses must adopt some legal configuration that defines the rights and


liabilities of participants in the business’ ownership, control, personal liability,

life span, and financial structure. This decision will have long-term
implications, so you want to consult with an accountant and attorney to help
you select the form of ownership that is right for you. In making a choice,
you will want to take into account the following:


 Your vision regarding the size and nature of your business.

 The level of control you wish to have.
 The level of “structure” you are willing to deal with.
 The business’s vulnerability to lawsuits.
 Tax implications of the different organizational structures.
 Expected profit (or loss) of the business.
 Whether or not you need to re-invest earnings into the business.
 Your need for access to cash from the business for yourself.


Four basic legal forms of organization:

Sole Proprietorship; Partnerships; Corporations; Limited Liability

Company
 Organization Types
Sole General Limited Liability Limited S Corporation C Corporation
Proprietorship Partnership Partnership1 Liability
Company
Life Limited to life of Generally set up for a Generally set up for a A dissolve date Perpetual life Perpetual life
proprietor. Can sell or specific agreed term; specific agreed term; must be stated at
gift assets to another usually will be usually will be filing
person. terminated by death, terminated by death,
withdrawal, withdrawal, insolvency,
insolvency, or legal or legal disability of a
disability of a general general partner
partner

Legal Liability Unlimited Unlimited Limited Limited Limited Limited

Acquisition of Limited to what Limited to partner Limited to partner Limited to member Limited in that there can May sell stock or
Capital proprietor can raise contributions contributions contributions only be one class of stock bonds to the public
outstanding, but the
corporation could sell
bonds or more stock so
long as that would not be
considered a second class
of stock

Management All decisions by Usually all general Governed by the Usually managed Much flexibility. Control Much flexibility.
proprietor partners are active partnership agreement by members, but usually exercised by Control usually
can have separate officers and directors. exercised by officers
managers. and directors.

Kauffman Foundation for

Entrepreneurship
www.kauffman.org
 Organization Types

Sole General Limited Liability Limited S Corporation C Corporation

Proprietorship Partnership Partnership1 Liability
Company
Life Limited to life of Generally set up for a Generally set up for a A dissolve date Perpetual life Perpetual life
proprietor. Can sell or specific agreed term; specific agreed term; must be stated at
gift assets to another usually will be usually will be filing
person. terminated by death, terminated by death,
withdrawal, withdrawal, insolvency,
insolvency, or legal or legal disability of a
disability of a general general partner
partner

Legal Liability Unlimited Unlimited Limited Limited Limited Limited

Acquisition of Limited to what Limited to partner Limited to partner Limited to member Limited in that there can May sell stock or
Capital proprietor can raise contributions contributions contributions only be one class of stock bonds to the public
outstanding, but the
corporation could sell
bonds or more stock so
long as that would not be
considered a second class
of stock

Management All decisions by Usually all general Governed by the Usually managed Much flexibility. Control Much flexibility.
proprietor partners are active partnership agreement by members, but usually exercised by Control usually
can have separate officers and directors. exercised by officers
managers. and directors.

Kauffman Foundation for

Entrepreneurship
www.kauffman.org
 Angels and Venture Capitalists

Angels
 Venture Capitalists

High Net Worth Individuals Partnerships

$25,000 to $2,000,000 $1 to 20 million investments
investments
Personal money Other peoples money
Reasonable return HIGH Return on Investment
Give back to society (ROI)
Stay engaged in industry It’s a business
Mentor/Social
Personal satisfaction
 Valuation


Valuation is an Art , not a Science
Based on required Return of Capital or IRR
Market conditions
Multiples
Sales
EBITDA
Cash Flow
Book Value
Recent Competitor Acquisition Price
 Pre- and Post- Money

What is the company worth today? Pre-

Money
What is the company worth after an
investment?
Pre-Money
Post-Money
Investment Post-Money

IP, Product, Cash Valuation
 Mgt
$1,000,000 $500,000 $1,500,000
100% 66.66%
ownership ownership
 What to look for in an investor?

Market or industry focus and experience

Amount of money that they will typically invest
What stage of business do they invest in
(Homework beforehand) What
restrictions/requirements do they have to
work on
Their successes (easily found online) are an
indicator of investment profile


 What investors look for in companies?

A reasonable ROI
A serial entrepreneur
Customer or market data
Finances, finances and finances
They listen to each other, when you talk to
one, you talk to all
At the end of DD, then they bet on the Jockey,
but the horse gets you to the race track.
 Wrapping up

We have discussed sources of funding and

stages of business growth
We have discussed pitfalls to avoid
We dispelled the myth that there are no good
deals/funding
It is time to put the lessons to action
 Where do you get funding? It depends….
 Figuring Out Your Capital Requirements

 • Step #1 – Financially model your business (5-year

projections)
• Step #2 – Take very conservative scenario, and

calculate the
 cumulative negative cash flow = your total
capital requirements
• Step #3 – Break down
Cumulative total
negative capital requirements
cash
flow
into logical
+ = total capital requirements
 rounds/tranches (timing and $ amounts), with
milestones for each
Break-even point
 -


Copyright © 2003-2006,

Cash Flow $0 Time CompanyCrafters LLC
Case Study
Who are these guys?
These guys?
This?
And this?
Who is this?
 Funding Exercise
Bootstrapping Funding Sources
 Identify who has  FFF
provided feedback  The Market (See )
on your product or  Business Plan
service Competitions
 Describe user  Grants
experience (w/o
 Loans
product)
 Equity Investors
 Day in the life of buyer
(w/o product)  Identify Milestones to

 Process they would Funding

need to go through 

to buy and benefit

from your product