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Follow-on Financing
by Anne DeGheest
31 May 2010

On Tuesday May 25, 2010, I taught a course at Stanford University Continuing Studies program on Angel Investing and the specific challenges in getting follow-on financing.

Here are some key takeaways:

  • Do a reality check on the company status: did they meet their milestones? Is the opportunity turning into of a product or a large business? Has there been any significant product and market validation since the last round? How much money weill be needed to get to break-even?

 

 

  • What are the risk levels?
    o Product Risk 
        Working? pilot? IP? Regulatory? Cost?
   o Market Risk
       Market size? Pay? Why? Proof?
   o People Risk
       Meet prior milestones? Team?
   o Financial Risk
      Cash in/out at exit? M&A in that space?

 

 

  • How much money will be needed?

   o This Round
       Needed to reach next inflection point?
       Milestones?
       Sensitivity analysis on best vs. worst case scenario
       Analysis on best vs. worst case scenario

 o Next rounds

       To break even or exit

       Milestones?

   o Investors type
     
 angels vs. venture capitalists vs. corporate investments

 

 

  • Get a "Lead"
   o Need third party to anchor deal
       Valuation and term sheet
       30 to 50% new money committed
       Help round up the syndicate
       Share due diligence
   o Issues
       Valuation vs. other "Terms"
       Full ratchet, participative preferred, board seats

 

 

  • Role of Angels/Board Member
   o Coach entrepreneur/team on presentation
   o Challenge fund raising strategy
       Type of investors: angels, VC, corporate
       Money needed
       Milestones and inflection points
       Financial Projections
   o Open VC doors
   o Attend some meetings (feedback)
   o Follow up with VC
       get concerns/objections and push them along

 



tagsTopics: Angel funding, Conferences, Entrepreneur



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