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Venture Capital
Is It For You?
Is Your Venture Ready?
by
Barry G. Bisson P.Eng (NB)
3 Principles of Sound Finance
The business is adequately capitalized
 The capital structure of the business has
an appropriate mix of debt and equity
 The financing need is addressed with the
appropriate type of financing

“Money is Time”
The source of funds for your business is
money from customers, ie. SALES!
 The best “outsider” money for your
business is “smart money”
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Consider “Bootstrapping” Options
Convert “fixed costs” (incurred whether or
not a sale is made) to “variable costs”
(incurred only when a sale is made)
 Outsourcing – reduce capital needs
 Universities – expertise, pro bono work
 Suppliers – terms, loans, leads, etc.
 Factors – advance money, reduce
collection risk
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Consider “Bootstrapping” Options
Public relations – free advertising, eg.
Obama and his Blackberry
 Government – loans, grants, tax incentives
 Incubators – lower start-up costs
 Barter
 Testing – before entering a large market,
gain insights
 Licensing

Consider “Bootstrapping” Options
Per Inquiry Ads - pay % of sales
generated by ad
 Pricing – get it right, don’t leave precious
cash on the table
 Staging – try to leave as many options
open as possible, try to defer investments
if possible
 Mentors free advice from experienced
skilled people

Consider “Bootstrapping” Options
Relationship building – in every facet of
your business
 Selling – persuading people to take a
favorable action for all parties
 Be the CEO – “Chief Everything Officer”
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Conventional Financing

Assets
Inventory &
receivables
 Land & buildings
 Equipment & vehicles
 Other
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Liabilities &
Equities
Operating line of
credit
Mortgage
Term loan
Share capital &
retained earnings
VC Financing
Fills the cash gap between cash needs to
finance high growth and cash available
from earnings and conventional financing
 Giving up a piece of the pie to grow a
bigger pie

Capital Markets Playing Field
Phase I
Knowledge
Acquisition
Phase II
Concept
Investigation
Basic
Design
Phase III
Prototype
Building
Market
Entry
Manufacturing
Ramp-up
Government Programs
Public Issues
Commercial Banks
Non-Financial Corporations
Seed Funds
Venture Capital Funds
Wealthy Family Funds
Private Investors
Faminly and Friends
Personal Savings
10
The Business Life Cycle
Typical SME Growth Profiles
60
High-Growth Firm
Sales ($ millions)
50
40
30
Moderate-Growth Firm
20
VC Prospects
10
Low-Growth Firm
0
1
2
3
4
5
6
Years
7
8
9
10
Magnitude of Investment
Typically >$1.0 million for institutional
 Small deals too costly
 Typically less than $10 million in Canada
 Most deals $1.0-$3.0
 Based on business plan pro formas

Investment Time Horizon
4-7 years
 How long will it take to create value?
 Years to cash flow breakeven?
 “Money is time”

The VC Life Cycle
Submit business plan
Preliminary assessment
 Meet the people
 Light due diligence
 Term sheet
 Heavy due diligence
 Investment memorandum
 Commitment letter
 Shareholder’s agreement
 Grow the company
 Exit in 4-7 years
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VC Investment Criteria
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Exponential growth potential
Attractive industry
Sustainable advantage platform
Excellent team “execution”
Owners receptive to involvement of outsiders
Owners willing to share the wealth creation
Credible exit alternatives (4-7 years out)
Ingredients-The Value Proposition

Why will/do our customers buy or
product?
 Ease
the Pain
 Improve Revenue/ Productivity/Profitability
The Ingredients-The Business
Model
Implies having a well defined business
model that says, “I know who my
customers are, what they need, how I will
meet their needs, how I will reach them,
how I will service them, how I will
continue to best my competition and how
I will make money”.
 Revenue sources, cost drivers, critical
success factors, investment requirements
alll make sense

Internal Rate of Return (IRR)
VC Investments and IRR
% Ownership Required
VC Target IRR
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Seed
Startup
First stage
Second stage
Bridge
Restart
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IRR>80%
50-70%
40-60%
30-50%
20-35%
??
“The Golden Rule” of Venture Capital
“He who has the gold rules”