Advice - Is Your Business Underfinanced?

Join the club.

As we move from an industrial to an information and service society, a new generation of companies is spawning. Entrepreneurs no longer have to buy expensive equipment or inventories to get their businesses started. They rely instead on their intellectual capital.

Two simple examples are software developers and consultants. These entrepreneurs depend more on their own skills, time, and knowledge than any other “fixed” asset.

The good news is that these types of businesses are easy to set up and have minimal associated costs. The bad news is that because you don’t have many fixed assets, traditional lending institutions like banks don’t know how to valuate your business.

You can have rapidly growing revenues and still be underfinanced.

In fact, the statistics show that if you are a high growth company, you are more likely to be underfinanced!

Overall, 20.7% of companies are underfinanced. But when you look at companies that have grown their revenues by 20% or more over the past three years, you’ll find that 30.8% of them are underfinanced!
It is obvious from this data that it is the young, high performing companies that are currently experiencing the greatest difficulty in obtaining the financing they need to operate their businesses.

For more information, visit www.EvanCarmichael.com.

Link - Pillars of Venture Capital Investing

In his recent post, VC Jason Ball discusses the three main pillars of venture capital investing:

1. Management

2. Large Market

3. Sustainable Competitive Advantage

He also discusses cluster investing - it's worth a quick read.

For more information, visit www.EvanCarmichael.com.

News - Lawmaking and Venture Capital

Lawmaking and Venture Capital

"How the challenges are viewed by partners at Kleiner Perkins, Benchmark, and Redpoint.

Geoff Yang: (Mr. Yang is a founding partner of Redpoint Ventures.) Let's open it up to any questions in the audience.

Audience question: Joe, California just passed Prop 71 which is going to put $3 billion into stem cell, obviously earlier stage. Can you talk about how you see that evolving and the role that venture capital might play in that down the road?

Joe Lacob: (Mr. Lacob is a partner with Kleiner Perkins Caufield & Byers.) Well, it is obviously an enormous amount of money to go into a field that has frankly enormous potential. And it is early. There have been stem cell investments by venture capitalists. I did my first stem cell investment, if you want to call it that—now you have to be careful what you call a stem cell investment—in 1988, and it was pretty successful. It happened to be a device for selecting stem cells for bone marrow transplant patients, and it went public and did very well.

But generally speaking, we're just learning a lot in that field. So the fact that the government led by our fearless leader here has elected not to back that area, essentially…very little dollars are going into it. The people of the state of California, I can't tell you how much I applaud for making the decision they did, because it is a great thing to do for society and will lead to great drugs hopefully and treatments and cures for diseases. That's a lot of money. You can make a lot of impact, and good things will happen from this. A lot of smart are people involved.

It also is going to lead to tremendous creation, over time, perhaps not today, of companies that will evolve from the technologies that can be licensed out from the universities and institutes where this work is going to be funded. It's not ready for prime time; you may see a few dribble out here and there. We don't have any investments in stem cells. I supported that initiative financially; it's a matter of public record. I'm incredibly proud of that effort and of the people of California for voting it because it's going to have an enormous impact.

And California, here we are first to put an enormous amount of resources behind this. As a result, we are going to have an influx of companies over time in this state that will be unbelievable. It's going to create jobs, it's going to create opportunities, and you will see some tremendous things happen from it. I'm very, very optimistic."

Read more here.

For more information, visit www.EvanCarmichael.com.

Advice - How to Get in Contact with Northern Crown Capital

There are 2 ways that Matthew, Robert, and Michael can help your business raise capital:

1) Become your intermediary
· If you are based in Ontario and are looking for an intermediary to help introduce you to venture capitalists, present your case, and negotiate and close the deal on your behalf, visit www.evancarmichael.com for how to get in contact with Northern Crown Capital.

2) Review your business planIf you are looking to raise capital for your company and would like to know what investors would think about your business plan, you can get it professionally critiqued by Northern Crown Capital. Visit www.evancarmichael.com for more information.

For more information, visit www.EvanCarmichael.com.

Link - Top VCs For 2004

Entrepreneur.com came out with a list of the top venture capital funds by number of deals for 2004. The top 6 are listed below. Click here to see the full article.

No. Deals in 2004*

VC

Location

15	Maryland Technology Development Corporation	Columbia, MD
12	Draper Fisher Jurvetson	Menlo Park, CA
12	Ignition Partners	Bellevue, WA
11	Austin Ventures	Austin, TX
9	Mobius Venture Capital	Palo Alto, CA
9	Versant Ventures	Menlo Park, CA

For more information, visit www.EvanCarmichael.com.

News - Startup Financing

"Q: I have been planning to set up a new tech company and will try to get venture capital financing. Should I set up my new company as a corporation, or can I start it as a sole proprietorship and then later incorporate? What resources can you point me to to become better educated about obtaining venture capital?

A: You'll eventually need to structure your business as a corporation if you want venture capital investment. And you should definitely incorporate before you hire any employees, solicit investors, or enter into any partnership arrangements with other companies.

But it's fine to start out as a sole proprietorship, especially if you're not yet sure whether your idea will fly.

"If this is just a guy writing code in his bedroom, he should start as a sole proprietor and then switch," said Nathan Beckord of VentureArchetypes, a San Francisco firm that advises startups."

You mention looking for venture capital. Many novice entrepreneurs think that VCs are the first stop for funding. In fact, there are other sources of capital you need to tap into first -- your own money, then funding from family and friends, then possibly individual "angel" investors."

Read more here

For more information, visit www.EvanCarmichael.com.

Advice - Most Important Lessons from Northern Crown Capital To You

· Michael
o Use an intermediary. The benefits of using one have been discussed throughout this program. Hopefully you will use Northern Crown Capital, but if not there are many good ones out there.
o Remember that in most cases, the deal you end up with is not the deal you thought you would get when you started. You have to be flexible and able to turn on a dime in order to make the deal progress.

· Matthew
o Deal with people of quality. Associate yourself with experienced people who have gone through several cycles and have a proven track record in a wide variety of industries.
o Do not be greedy. In the market the bears can make money, the bulls can make money but pigs go to slaughter. If you are too greedy, you cannot make a deal. Markets will change. Windows open and windows close. To some extent investing is a fashion business. Certain types of deals are in fashion and then they are out. When money is being made available you are better off to take it when it is being offered.
o Always be very open and candid in your discussions. Do not hide. Do not play games. Be totally open. And whatever you do, do not bluff. An investor will find out quickly when you are bluffing and you will lose the deal.

· Bob
o Financing is just one f the tools you need to build a good company. It is like the blood in your body. Financing is not the heart and soul – your business is.Good entrepreneurs build great companies because they are good at motivating their employees, excellent at working with suppliers, have an obvious ability to satisfy customers and they also treat the venture capitalist as a supplier, albeit a supplier of money and not a physical product. If you think of investors with a “me against them” attitude or with any degree of hostility you should not enter into the deal. You will need their support when times get tough. A good working relationship with investors will help ensure your long term success.

For more information, visit www.EvanCarmichael.com.

Update - Finding Angel / Startup Capital

Another frequent question I get asked by entrepreneurs is “How do I get angel investment?” It is difficult for financial intermediaries to get involved in raising angel financing because the sizes are typically too small to justify the work put in. It is the same amount of work raising $500,000 as it is $5,000,000 and sometimes more work because you’re not dealing with professional investors.

That being said, I’ve put together a series on my website on raising angel and startup capital – it covers topics like who angels are, what questions they will ask you, how to be best prepared, what they look for in a deal, and so on. Click here to check it out.

For more information, visit www.EvanCarmichael.com.

News - U.S. Venture Capital Spending Down 5%, on Pace for $21 Bln Year

U.S. Venture Capital Spending Down 5%, on Pace for $21 Bln Year

"U.S. venture capital spending fell almost 5 percent in the second quarter and first half, suggesting an annual investment rate of about $21 billion for a second year, a survey said.

Venture capitalists invested $5.77 billion in companies in the three months ended June 30, down 4.8 percent from $6.07 billion a year earlier. That brought the first half to $10.64 billion, down 4.7 percent from $11.17 billion, according to a survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association in Arlington, Virginia.

Venture capital spending has hovered between $4 billion and about $6 billion a quarter for 13 quarters, the survey said. Pension funds continue to put money in venture capital funds in hopes of higher returns than from stocks and bonds. Competition among venture firms to invest in companies with established revenue is driving up prices, investors said."

Read more here

For more information, visit www.EvanCarmichael.com.

Advice - How an Intermediary Can Help Close the Deal

· An intermediary can help save you a lot of time which you can then use to concentrate on running your business. An intermediary will help prepare you for going into the market, set up times and appointments and guide you through the presentations, get you to the point where you have a legally binding term sheet, and then close the deal by making sure that al the needed documentation is completed.
· This is not always a smooth procedure and requires someone to manage the process to ensure that your legal bills do not get out of hand.As an example, Robert from Northern Crown Capital was working with a well known law firm that was taking a long time to close his client’s deal. In Robert’s experience there was nothing that would indicate several more days were necessary so he flew out to see the lawyers who were 3 times zones away, walked into their office and made sure they finished the paperwork. The deal was closed 48 hours later. In fairness, the laywers may have had bigger and more important deals on the table at the time but from Robert’s perspective they were holding up his client and it was his responsibility to ensure the deal was completed.

For more information, visit www.EvanCarmichael.com.

Link - Executive Viewpoints: Jeffrey Nolan of SAP Ventures

Blogger Anita Campbell yesterday interviewed Venture Capitalist Jeffrey Nolan from SAP Ventures about RFID, where the hot opportunities are, and how they evaluate opportunities.

He ends with “When you are talking about what you are doing, relate it in terms of what actual customers are doing and how they are benefiting.”

Read the full interview here.

For more information, visit www.EvanCarmichael.com.

News - Venture capital flowing easier

Venture capital flowing easier
Investments still down from 2004

"Private investors bumped up funding to early-stage U.S. companies in the second quarter, compared with the gloomy picture that surfaced in the beginning of 2005.

But venture capital investment in both the Bay Area and the nation was still down from the same period last year, when rising numbers had fueled hopes that venture firms were emerging from the dot-com slump.

The U.S. venture capital industry posted 524 deals from April through June, 7 percent more than the first three months of the year. The deals raised $5.39 billion, a 14 percent increase. But compared with the second quarter of 2004, the number of deals was down 11 percent, and they raised 6 percent less capital."

Read more here.

For more information, visit www.EvanCarmichael.com.

Advice - Venture Capital Governance

Requirements

· Once a venture capitalist becomes an investor they will want board representation. They will either nominate their own staff members or an outside representative of mutual consent. The last thing a venture capitalist wants to do, however, is run your company. They have enough problems trying to run their own firm and do not want to get involved in the operations of your business.
· Board members want to stay informed, monitor your progress and feel comfortable with the progress that is being made.
· A board of directors is like your own private management consultancy group. Some entrepreneurs are very good at getting the most out of their directors and some are not. Understand that directors are the cheapest consultants working for corporations.
· Board members are elected to represent shareholders. Since the venture capitalists will become significant shareholders, they will usually request at least one seat on your board.
· The board of directors is responsible for broad policies and strategies for your company. Directors will want to know what your budgets will be, who you are hiring and help you develop your ongoing business plan.
· Remember that the board of directors is in a position legally to approve or disapprove your actions.
· The frequency of meetings is usually a direct result of how effective you are at using your board and how well your group works together. The board can provide strategy and policy recommendations but can also help in specific ways such as introducing you to key players in the industry.
· Some of the items that directors care about are law suits, environmental problems, and when you are about to sign a major new contract. Directors are highly allergic to unexpected bad news and unexpected good news. Make sure to keep your board and bankers informed at all times.Generally, governance is a great help to you more than it is a hindrance. It will keep you focused on your business and help you grow. This is of particular importance if you have aims of one day going public.

For more information, visit www.EvanCarmichael.com.

Link - In Defense of Free

NYC Venture Capitalist Fred Wilson wrote an interesting piece for entrepreneurs who have a “give it away for free” approach to building momentum for their companies.

“Because free is a great way to make money. You just have to know how you are going to get paid for being free.”

Read the full post here.

For more information, visit www.EvanCarmichael.com.

News - Venture capital again a hot topic

Venture capital again a hot topic

"Venture capital is back in vogue, rebounding from the dot-com crash of the late 1990s.

The money flowing into venture capital funds is on pace to increase for a third year. The private equity industry is in the middle of one of the strongest fundraising periods in recent history.

According to a report from the National Venture Capital Association and Thomson Venture Economics, venture capitalists raised $6.1 billion for future investments during the second quarter of 2005, reflecting a renewed appetite for taking risks among some investors. The second quarter, which saw an increase of 87.7 percent from the same period last year, was the second quarter in the past three with more than $6 billion in fundraising. Only $3.5 billion in venture funding was raised during the entire year of 2002."

Read more here

For more information, visit www.EvanCarmichael.com.

Link - Work / Life Balance

For those of you who are struggling to find a work / life balance being an entrepreneur and putting the kind of hours into your business that a required to make it a success, VC Brad Feld shares his views on the topic.

He explains how burnout impacted his personal life and provides some guidelines for entrepreneurs to follow to keep the work / life balance such as Spend Time Away, Life Dinners, Segment Space, Be Present, and Meditate.

For more information, visit www.EvanCarmichael.com.

Update - Sample Business Plan Online

One of the most frequent questions I get asked is "What should my business plan look like?" While there is no one way to write a business plan, it's important that it clearly explains what you do and the opportunity at hand to an investor in clear language. Most of the business plans that I see are full of technical jargon and are missing huge chunks of vital information.

We see so many business plans that if it's not well prepared, you're probably not going to get a meeting. Don't make it easy for us to say no.

For some general rules and a quick overview of what a business plan should look like, check out the new Sample Plan section on my site. Of course, you can always submit your summary if you feel like your plan is already complete.

For more information, visit www.EvanCarmichael.com.

News - Tech Capital Partners Announces Initial Close of Second Fund

Tech Capital Partners Announces Initial Close of Second Fund

"Tech Capital Partners Inc. has completed an initial closing of its second fund, Tech Capital II Limited Partnership, with $50 million in commitments.

Tech Capital II limited partners include the Business Development Bank of Canada (BDC) Venture Capital, EdgeStone Capital Venture Fund of Funds LP, and OMERS Capital Partners.

Tech Capital II Fund brings the total capital under management by Tech Capital Partners to $85 million."

Read more here

For more information, visit www.EvanCarmichael.com.

Update - VC Headlines On Website

I've added a new section to my website which displays the latest news on raising capital. Included are general sections on angel investors, startup financing, and venture capital.

Also included are venture capital headlines by industry and region.

For more information, visit www.EvanCarmichael.com.

Advice - How Venture Capitalists Structure Their Investments (Continued)

· A 30% annual return may sound high to you. The reason why venture capitalists require such a high return is that anyone can purchase shares in the public markets in major companies and get a 15 to 18% return on their equity. Venture capitalists do not have this flexibility because, as a private company, your shares are not very liquid. Investors are locked in for a period of years and face the risk of your company failing. They therefore need a higher rate of return to compensate for this risk.
· Of every 10 investments, no one can predict at the outset which will be successful and which ones will not. On average 1 to 2 will be very successful, 1 to 2 will go bankrupt and the rest will be what are known as the “walking wounded.” They will continue to operate but investors will never recover their investments in these companies. Venture capitalists therefore need to average out the good investments against the bad to ensure their 30% annual return.
· An example is a department store that is unsure which items will sell the best over the next season. For that reason store managers will put a high markup at the beginning and at some point have to mark some of the products down. They just do not know which products they will have to mark down at the beginning of the season.

For more information, visit www.EvanCarmichael.com.

Link - Monetizing Mobile Content

The mobile content market is set to grow to over $59bn globally in 2009 according to Ovum and Juniper and is an obvious area of interest for venture capitalists. Just look at Newbury Ventures' recent $5 million investment into Echovox, a mobile billing and content delivery solutions provider for brand name clients such as Reuters, M6, RTL Group, Nestlé and le Temps.

For those interested in keeping up to date with the trends in the mobile content market, a useful blog I've found is MocoNews.net. It's a valuable news site dedicated entirely to the mobile content sector.

For more information, visit www.EvanCarmichael.com.

How Venture Capitalists Structure Their Investments

· It is first important to understand how venture capitalists achieve their targeted rates of return of 30% per year. Not every company will make this return on equity but there are ways around it.
· Much depends on the exit value of your company. A 30% rate of return reflects a price-earnings ration of 3. If the investor can exit at a higher price-earnings ratio they will earn more than their 30% desired return.
· Another way to reach this target is by offering options. An option is the right to purchase shares of your company in the future at a pre-determined price today. If you grow at 20% annually and your earnings were 100 in the first year, your earnings would be 120 in the second year and 145 in the third. By using options the investor can then immediately purchase additional shares at 100 and sell them for 145 which can be added to their 20% annual return to reach the desired 30%.
· A 30% return is an average figure and relates to the degree of perceived risk. If you have an early stage company you will need to provide a high rate of return. If you have a more mature business that has traction and you need financing for expansion or working capital, 30% may not be the required target due to the lower risk level.
· Younger companies may also be forced to give up a disproportionately high percentage of shares to compensate for the high degree of risk. However, venture capitalists will frequently sell a certain amount back to you based on you meeting clearly defined performance objectives.Another investment structure is subordinated debt. This usually caries a high yield and is usually not accompanied by equity. Subordinated debt is ideal for companies with solid cash flow and who need addition capital to grow thereby raising the value of their shares before raising any equity capital.

For more information, visit www.EvanCarmichael.com.

Venture capitalists turn to China's tech market

Venture capitalists turn to China's tech market

"Accel Partners, one of the biggest Silicon Valley venture capital firms, said Tuesday that it would form a partnership with the venture capital arm of International Data Group, a U.S. publisher and media company, to create a $250 million fund to invest in Chinese technology companies.

The move is one of the biggest yet for a Silicon Valley venture capital firm into the fast-growing but increasingly competitive Chinese technology market.

Like other foreign investors, U.S. venture capitalists and private equity firms have been rushing into China over the past few years in search of the Chinese equivalents of Yahoo, Google, eBay or Amazon.com"

Read more here.

For more information, visit www.EvanCarmichael.com.

What Happens After the Due Diligence Process

· If the venture capitalists are interested in your company after completing their due diligence, they will offer a binding term sheet. It will reflect the draft term sheet that has already been agreed to but this one will be a legal contractual agreement. Then the real negotiations start.
· There are different types of financing to consider: debt, equity, and mezzanine.
· Debt financing is the most objective and is therefore the easiest to negotiate. If you have the assets to support the debt and the income to support the interest payments, the negotiation period will be very short.
· Equity financing negotiating is more complicated and revolves around agreeing on valuation and percentage ownership. Discussions usually requires several days.
· Mezzanine financing involves a mix of equity, debt, convertible debentures and preferred shares. Negotiating the technical aspects of each so that an agreement can be reached between the investor and your company can be time consuming.
· Another dictating factor is the number and variety of financing offers that you receive. It is the intermediary’s role to help you bring more than one offer to the table and assist you in evaluating and negotiating which one is best suited to your company’s needs based on their previous experience.
· Venture capital term sheets are time limited. You have to quickly make up your mind if you want to accept or reject the offer. The short time period is in place to prevent you from using one term sheet to solicit new offers from other venture capitalists.

For more information, visit www.EvanCarmichael.com.

Pharma shift determines venture capital landscape

Pharma shift determines venture capital landscape

"According to new data, venture capital funding is on a downswing with a demand for acquisitions shifting in the pharmaceutical sector. The news could signal a trend towards the acquisition of compounds, rights, licenses and product lines, rather than deals for entire companies.

A new report revealed that during the first half of the year ended June 30, 2005, the pharmaceutical sector captured far less of the total venture capital committed to health care than during the first six months of last year.

Merger and acquisition statistics for the first half of this year revealed changes in deal volume and in total finance committed. The number of mergers and acquisitions in the pharmaceutical sector was down for the first half of 2005, with just 57 deals, compared to 84 in the first half of 2004."

Read more here.

For more information, visit www.EvanCarmichael.com.

How Long the Due Diligence Process Takes

· The due diligence process will very rarely last one or two weeks.

· Remember that the venture capitalist is also working on other transactions beyond your company.
· The due diligence will typically last at least one month. If there are any complex issues such as environmental approvals that have not yet been met, further delays are likely.
· When you are considering raising capital, make sure to get all your company records and documentation together in advance. You do not want to wait until you get a draft term sheet before trying to find important documents that the venture capitalist will need to move forward.
· More and more venture capitalists are also worrying about environmental assessments. You may consider getting your company and property assessed before approaching an investor.The venture capitalists will also want to speak with your clients, suppliers and bankers to get an understanding of how your company is regarded by the outsiders who deal with you on a daily basis.

For more information, visit www.EvanCarmichael.com.

Health Care Venture Capital Market Heats Up With More Deals and More Dollars In 2005, According to Healthcare Corporate Finance News

Health Care Venture Capital Market Heats Up With More Deals and More Dollars In 2005, According to Healthcare Corporate Finance News

"NORWALK, Conn., July 14 /PRNewswire/ -- Health care venture capital results for the six months ended June 30, 2005 primarily reveal rising trends, according to Healthcare Corporate Finance News, published by Irving Levin Associates, Inc. The total amount of venture funding committed to health care companies and the overall number of health care venture capital financings increased during the first half 2005. However, both the average and median sizes of health care venture capital deals decreased by approximately 16% during the first six months of the year ended June 30, 2005, compared with the first six months of the previous year.

Already this year, health care companies have secured approximately $3.9 billion in venture funding, compared with about $3.6 billion for the first six months of last year. So far, 235 venture financings in the health care sectors have been announced during 2005, compared with 186 that were announced during the first six months of 2004.

"Spin-out companies emerging from universities and corporations account for a number of the smaller deals," commented Gretchen S. Swanson, Editor of Healthcare Corporate Finance News, "and others may be accounted for by investors being skeptical of firms without proven products or seasoned management teams, but still willing to support specific initiatives such as clinical tests, FDA applications and product trials." Forty-eight health care companies announced venture capital rounds of $25 million or more during the first half of this year, compared with 55 for the first half of last year. Deals in this range account for approximately 54% of all venture capital committed to health care companies during the six months ended June 30, 2005, but by comparison, accounted for approximately 65% of all health care venture capital raised during the same period of 2004."

Read more here.

For more information, visit www.EvanCarmichael.com.

ready2invest south east prepares angels to fly

ready2invest south east prepares angels to fly

"'ready2invest,' a programme aimed at recruiting and supporting angel investors to help innovative entrepreneurs, has now been expanded to the South East under the leadership of FSE (Finance South East) and the support of SEEDA (South East England Development Agency). It follows the successful launch in London last year of ready2invest by London Business Angels, supported by the London Development Agency.

ready2invest South East has been designed specifically for new or would-be investors in unquoted companies or for those simply looking to refresh their knowledge. The programme provides individuals with the necessary skills and information through a workshop based approach which incorporates direct experience from practised investors and issues such as the Enterprise Investment Scheme (EIS) and legal considerations. Business Angels receive ongoing advice and mentoring from experienced investors, and network with like-minded individuals interested in entrepreneurial businesses.

ready2invest is aimed at angel investors with an entrepreneurial background and a strong interest in helping to build, support, mentor and invest in innovative young companies. Typically this means individuals with high net worth or high earnings and who are willing to invest at least £25,000 per annum in angel transactions as well as people already making private investments and wish to access further investment opportunities"

Read more here.

For more information, visit www.EvanCarmichael.com.

$387m in venture capital raised in Q2

$387m in venture capital raised in Q2

"IVC Research Center: The average venture capital financing round in the second quarter of 2005 was $3.9 million, up 6% from the previous quarter.

The following are the findings of the quarterly survey conducted by the IVC Research Center. This survey, conducted with the cooperation of the Israel Venture Association (IVA), reviews capital raised by private Israeli high-tech companies from Israeli venture capital funds and from other investors. The survey is based on reports from 100 venture investors of which 60 are Israeli management companies and 40 are other mostly foreign investment entities.

In the second quarter of 2005, 98 Israeli high-tech companies raised $387 million from venture investors both local and foreign. The amount was up 11% from the $350 million raised by 102 companies in the previous quarter and was 14% higher than the $338 million raised by 91 companies in the second quarter of 2004. In the first half of 2005, capital raised was $737 million, up 15% from the levels of the first half of 2004.

IVC and Giza Venture Capital chairman Zeev Holtzman, “The 15% increase in capital raised by Israeli high-tech companies in the first half reflects continuousness of the high level of activity in the Israeli high-tech sector. We foresee stability in the second half of 2005 that will bring us to approximately $1.5 billion in capital raised for the full year.”

In the second quarter of 2005, the average company financing round was $3.9 million, an increase of 6% from the previous quarter and 15% from the second quarter of 2004. Sixty-two companies attracted more than $1 million in the second quarter. Of these, 11 companies raised more than $10 million each, and 10 companies raised between $5 million and $10 million each."

Read more here.

For more information, visit www.EvanCarmichael.com.

What the Venture Capitalist Due Diligence Process Looks Like

- The venture capitalist due diligence process is intense and can take weeks or months depending on the complexity of your company. It will be the most intensive look at your company that you have ever experienced.
- The venture capitalists will want to know everything from your standard articles of incorporation, directors, and shareholder agreements up to the details of how your business processes are run.
- The purpose of the initial meeting and draft term sheet is to get an approval in principle. From there the venture capitalist will carefully examine the details of your company before making an official offer.
- An intermediary can be helpful in speeding up the process, especially when dealing with the lawyers on both sides. The intermediary is responsible for "cracking the whip"
and ensuring the process is progressing. The faster you can make lawyers work, the lower your bill will be. Generally, if you give lawyers enough time, they will make sure to use it and bill you accordingly.

For more information, visit www.EvanCarmichael.com.

The Next Steps After The Meeting

· If the venture capitalists are interested, they will very quickly come up with a draft term sheet for you which gives an overview of the conditions under which they would make an investment in your company. (see next page for a sample term sheet)
· They provide a draft term sheet so that they can get an understanding of what the deal could look like and ensure that there is not a disconnect between you and them on valuation, methodology or type of financing.
· The draft term sheet is not a commitment on the part of the venture capitalist. It is not a legally binding agreement. It is a proposed framework under which the venture capitalist is prepared to do business. The most important element of the draft term sheet is the valuation. If you are too far apart on valuation the deal will not go any further.
· The due diligence process is not a 24 or 48 hour process, it is quite time consuming. In order to save time the draft term sheet is put forward to ensure that a negotiable transaction can be reached before investing further effort.
· There are also considerable up front fees that the entrepreneur will have to pay. Among these are the venture capitalist’s legal fees. Some venture capital firms will also require a $20,000 to $30,000 non-refundable payment up front before going forward.
· The time period given to accept or reject the draft term sheet is not very long. You will have to commit to it or drop it fairly quickly.

For more information, visit www.EvanCarmichael.com.

Angels In America

Angels In America

"New York Angels

New York City

These angels are much more Wharton than MIT -- they're management types, as opposed to techies. Most of New York Angels' companies are further along than is typical for angels, and as you would expect out of New York, the group's portfolio has a lot of media businesses. The New York Angels prefer to see innovative applications for existing technologies, as opposed to brand-new technologies. A good example is Adapt Media, which pioneered selling advertising on scrolling displays atop taxicabs. "It was a weird medium that hadn't been tried before; would anybody actually buy it?" says the group's director, Chris Saxman. The group's website has a one-page submission form. (Don't forget the $150 filing fee.) Firms that look promising to Saxman go to a monthly screening session; survivors are invited to present at the full group's monthly breakfast meeting. Investments are strictly the decision of individual members; a typical deal will attract four to eight members, each kicking in $25,000 to $100,000."

Read more here.

For more information, visit www.EvanCarmichael.com.

Icrossing gets $13M venture capital infusion

Icrossing gets $13M venture capital infusion

"Icrossing Inc., a national independent search engine marketing firm with offices in Scottsdale, landed a venture capital investment of $13 million Tuesday and added two board members in the process.

The deal includes new investors RRE Ventures of New York City and Generation Partners of San Francisco. The investment banking firm Piper Jaffray represented icrossing in the transaction.

"While we were already operating profitably, we saw the opportunity to further capitalize on the rapidly accelerating need for Fortune 1000 firms to deploy comprehensive search strategies," said icrossing Chief Executive and Chairman Jeffrey Herzog."

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How Intermediaries Can Help

· Preparing for the meeting is a key role of intermediaries. They will go through a number of rehearsals with you and sit down for several sessions that could last for a couple of hours each to go over the likely questions you will be asked. They will also make sure you have the right answers committed to memory and can back up your assumptions properly.
· A successful meeting with venture capitalists will result in good chemistry having been developed early on and at the end of the meeting. The venture capitalists will have openly expressed an interest in moving on and there will be a general level of enthusiasm at the end as supposed to the objective analysis of the business plan which occurs at the beginning of the meeting.
· The intermediary knows the venture capitalists and their different accounts. Intermediaries know the sensitive points and help tailor each presentation to the particular venture capitalist. Every venture capitalist will have a different approach and the intermediaries will help you prepare for their potentially hostile questions.
· Preparing for the meeting is much like preparing for a case in court. You only have one chance at it and you better do it right!

For more information, visit www.EvanCarmichael.com.

$10 million seed fund about to take off

"$10 million seed fund about to take off

Venture fund will invest in early-stage life sciences companies across the state

A group of state and local leaders active in the venture-capital, life-sciences and economic-development industries quietly has been soliciting investments for a locally based venture fund to provide seed capital for Kentucky and Louisville-area life-sciences companies.

The effort is being led by George Emont, a partner with Triathlon Medical Ventures LLC.

Triathlon, a $96 million venture capital fund based in Cincinnati, opened an office in Louisville in October. Investors in Triathlon include: the University of Louisville, Norton Healthcare Inc., Jew­­ish Hospital HealthCare Services Inc. and the Louisville Presbyterian Theological Seminary, according to a previous Business First report.

Emont said he cannot publicly discuss his efforts to raise investments for the Kentucky Seed Capital Fund because of U.S. Securities and Exchange Com­mission rules related to soliciting investments"

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RSS lures venture capital dollars

RSS lures venture capital dollars

" A group of investors has created a venture capital fund to raise $100 million to fund start-ups and others developing technology based on the RSS Web publishing format."

"RSS Investors, based in Cambridge, Mass., was formed last week to target the relatively new but fast-growing technology, with particular areas of interest being news aggregation, blogs, new classes of search engines and data aggregation in the financial and medical industries."

"RSS, or Really Simple Syndication, allows people to subscribe to news alerts, blog posts and other online information that is then automatically forwarded to their computers, phones and handheld devices."

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For more information, visit www.EvanCarmichael.com.

CIIB calls on angels to help entrepreneurs

CIIB calls on angels to help entrepreneurs

"The Cayman Islands Investment Bureau (CIIB) is looking at the idea of establishing an ‘Angel Investor Network’ and will be holding a meeting on Thursday 14 July for both local entrepreneurs and local investors to discuss the idea and bring the two parties together."

"An angel investor network is an organisation of established businesspeople that mentor and provide capital to small local businesses, especially those that local loan establishments consider too risky. Moreover an angel investor generally wants less control of a company than a regular investor and will expect a slower return on the investment they make. Angel investor groups can be great sources of private capital."

"The CIIB meeting is being organised to offer a forum for investors to discuss aspects such as the structure of the organisation, membership criteria, and the investment process."

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For more information, visit www.EvanCarmichael.com.

Length of the First Meeting

· The first meeting will very rarely last more than an hour. It is really designed solely to understand if you have the "horses for the courses." This can certainly be understood in that first hour. The due diligence process will then follow.

Your Objective in the First Meeting

· To persuade the venture capitalist to move to the next level.

For more information, visit www.EvanCarmichael.com.

Other Information the Venture Capitalist Will Ask For

· Venture capitalists will not go into too much detail in the first meeting.
· They essentially want to meet your team and assess them. They will then decide if they want to move forward with you or not and begin their due diligence procedure, a process which continues right up until closing day.
· Ultimately the potential investors wants to make sure that they clearly understand how your business operates and how your team can work together to fulfill the objectives of the company.

For more information, visit www.EvanCarmichael.com.

Important Business Plan Questions They Will Ask

· The main questions about your business plan will surround the assumptions you have made. Mistakes are most often made at the assumption level. Prepare for your assumptions to be tested.
· Avoid unstated or assumed assumptions. Make sure to write down every assumption that you have made in your financial projections. This is a critical part of developing the persuasion chain and convincing the venture capitalist to understand your numbers and eventually invest in your company.
· Intermediaries such as Northern Crown Capital will ensure that you are ready. They know the questions that are likely to be asked and ensure that you have the right answers memorized before going in. You must be confident when walking in the room and in answering every question if you hope to instill confidence in the venture capitalists.

For more information, visit www.EvanCarmichael.com.

Major Questions You Should be Prepared For

· The first meeting is primarily a question and answer session to see if you have the right management team in place. However, the venture capitalist can have specific questions for you to test such things as your technology. They may bring in a technology expert to get further clarification on points made in your business plan.
· The venture capitalist can also use this meeting to test you on sensitive areas such as your company valuation and the eventual exit strategy. Investors will not want to go too far down the road with you if you cannot agree to basic terms with them. If you think your company valuation is $100 million and they determine your value to be $20 million, you have a sizable gap that may be too large to close and come to mutually acceptable terms on.
· Another potential problem is that if you are wedded to your company and do not ever want to sell, it decreases the likelihood of an investor exit which lowers your chance of receiving the necessary capital you need to grow.
· One example from Northern Crown Capital's experience was when they found a perfect venture capital match for their client but the company’s management started disagreeing in front of the venture capitalists during the meeting. The marketing people were arguing with the research people and the venture capitalist needless to say did not invest.

For more information, visit www.EvanCarmichael.com.

"Angel investors are individuals who invest in emerging business ventures. Angels typically provide both capital and know-how to companies who are in either their start-up or expansion phases. To reflect the increased risk of investing in such firms, angels seek a higher rate of return versus traditional public stock investments."

"Angel investors fulfill the financing need that exists between capital provided by friends and family and capital provided by venture capitalists. Individual angel investors often write checks from $25,000 to $100,000. Recently, angel investing has become more organized, and angel groups often invest from $250,000 to $500,000 at a time to deserving ventures."

"In identifying and attracting an angel investor, companies should seek angel groups that are located in their region. For instance, the Tech Coast Angels have funded over 85 Southern California-based companies since 1997. When seeking individual angel investors, it is critical to network in order to create a personal connection between yourself and the angel. Also, ideally the individual has experience within your specific field so he/she can provide industry contacts and operational expertise in addition to capital."

Read more here.

For more information, visit www.EvanCarmichael.com.

What Happens in the Meeting

· Meetings with venture capitalists are also referred to as "the dog & pony show." It provides the first opportunity for investors to meet the management of your company face to face and assess the people behind the business. You could have a brilliant business plan backed by poor management. This will only become apparent to the venture capitalist in the meeting.
· There is an old British banking expression that asks: "Is someone the horse for the course?" In other words, do you have the right management team for the task at hand. It then follows that different horses are needed for different courses.
· The point of this initial meeting is to test the management face to face. The venture capitalist wants to build confidence with the management team.
· The intermediary's prime role is to get a "dog & pony show" together with a number of venture capitalists.
· The venture capitalist may question your business plan to test you. Make sure to have someone with you who understands the finances and who knows the product or technology.
· The meeting will usually start off with a 5 minute update as to what has happened since you submitted your business plan. The rest of the meeting will be a question and answer session.
· People like to do business with people who they have an affinity for. The development of trust between yourself and the investor is paramount. They must get a feeling that they can work with you and that there is positive chemistry.
· As an example, an entrepreneur who walks into a meeting dripping in gold, diamonds and flamboyant suits will have a hard time raising capital because the venture capitalists will not feel comfortable with this person.

For more information, visit www.EvanCarmichael.com.

The Intermediary's Role in Putting the Plan Together

· Intermediaries do not put your plan together but will help you clarify your offering. They will know how attractive your proposal looks from an investor's point of view and be able to help you improve it
· The basic business plan is put together by the entrepreneur and the intermediaries know what the venture capital hot buttons are and how to turn them on or off. They can help ensure that the most attractive elements of your plan are clearly brought up to maximize the chance of investment by the venture capitalist.
· As an example, there are many entrepreneurs who have intelligence, common sense, and a great business sense but are not skilled at writing things down on paper and creating a logical business plan. Northern Crown Capital has helped such individuals in clarifying their business plan and assisted them in then going after a significant capital investment.

For more information, visit www.EvanCarmichael.com.