How to Attract INVESTORS Pan Stanford Series on Renewable Energy — Volume How to Attract INVESTORS a personal guide to understanding their mindset and requirements editors Preben Maegaard Uffe Bundgaard-Jørgensen Anna Krenz Wolfgang Palz The Rise of Modern Wind Energy Wind Power for the World Published by Pan Stanford Publishing Pte Ltd Penthouse Level, Suntec Tower Temasek Boulevard Singapore 038988 Email: editorial@panstanford.com Web: www.panstanford.com British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library How to Attract Investors: A Personal Guide to Understanding Their Mindset and Requirements Copyright © 2017 Pan Stanford Publishing Pte Ltd All rights reserved This book, or parts thereof, may not be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording or any information storage and retrieval system now known or to be invented, without written permission from the publisher For photocopying of material in this volume, please pay a copying fee through the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA In this case permission to photocopy is not required from the publisher ISBN 978-981-4745-20-8 (Hardcover) ISBN 978-981-4745-21-5 (eBook) Printed in the USA Contents Preface Introduction 1 Investors and Funding 1.1 Introduction 1.2 The Deal Funnel: Survival of the Fittest 1.3 What Makes the Private Equity Sector so Difficult to Understand? 1.3.1 Influence of Risk on Investment Preferences 1.4 How It All Started 1.5 Venture Fund and Its Performance Challenge 1.6 Business Angels 1.6.1 Other Relevant Investors with Alternative Investment Objectives 1.7 Management of Risk 1.7.1 Venture Capital Risk Management 1.7.2 Business Angels Risk Management 1.8 Conclusion about Risk Taking 1.9 How Difficult Can It Be to Convince Investors to Invest? 1.10 Attracting Investors 1.10.1 Explain What You Are Doing 1.11 Investors and Funding 1.12 Funding via Debt, Equity or Public Grants 1.12.1 Introduction 1.12.2 Banks as Lenders and Investors as Providers of Private Equity 1.12.3 Loans 1.12.4 Mezzanine Debt 1.12.5 Equity xi xvii 1 12 13 15 20 22 24 27 29 30 31 33 33 35 37 37 39 40 40 41 vi Contents 1.12.6 Cost of Financing Should Not Be the Only Factor Influencing the Choice 1.13 Grants as a Funding Source for Business Innovation 1.13.1 Grant Optimising 41 42 48 2.1 Introduction to the “Three Circles” 53 2.4 Connecting the “Dots” or Missing Them 61 2 Business or Just a Dream: The Business Plan Puzzle 2.2 The Market 2.3 Technical Solution and “Missing the Beat” 2.5 Sales, Selling and Product Delivery 2.6 Textbook Management and the Team 2.7 The Business Plan Puzzle 2.8 Competition and Competitors 2.9 Innovation, Products and Production 2.10 Marketing, Sales and Internationalisation 2.10.1 Marketing and Sales 2.10.2 Internationalisation 2.10.3 Promising Markets 2.10.4 Standardisation or Adaptation 2.10.5 Choice of Entry Mode 2.10.6 Internationalisation and Marketing Plan 2.10.7 Monitoring of the Process 2.10.8 Fish Cannot See Water: The Challenge of Cultural Differences 2.10.9 Currency Risk 2.10.10 Law, IPR Regulation and Jurisdiction 2.11 Operations and Management 2.11.1 Management Team 2.11.2 Leaders and Imposters 2.12 Business Models and Value Chains 2.12.1 Value Chain Analysis 2.13 Business Model Concept 2.13.1 Business Models and Product Adaptation 53 55 59 64 68 70 73 78 82 85 88 89 92 93 96 97 98 99 100 102 102 104 113 115 119 121 Contents 2.14 Business-Modelling Process 2.14.1 Processes Described in Textbooks Do Not Replace Need for Imagination 2.15 Timing 2.15.1 Competitors and Funding Pitfalls 126 134 137 140 2.16 Competitor Analysis with Respect to Products and Business Models 2.16.1 Customer Preferences and Business Models 2.17 ESCO Model as Remover of Customer Risk Concerns 2.17.1 Summing Up 2.18 IPR and Freedom to Operate 2.18.1 Introduction 2.18.2 Patent Strategy Consideration 2.18.3 Intellectual Property Rights 2.18.4 Intellectual Property Protection 2.18.5 Value and Use of IPR Protection 2.18.6 “Freedom to Operate” Analysis 2.18.7 Rights Conferred by the Patent 2.18.8 IPR Infringement 2.19 Patenting as a Business Strategic Decision 2.19.1 Patenting or Not? 2.20 Certification and Regulatory Compliance 2.21 Agreements 2.21.1 Term Sheet 2.21.2 Shareholders Agreement 2.21.3 Subscription Agreement 2.21.4 Articles of Association 2.21.5 Rules of Procedures for Board of Directors 2.21.6 Decision Making 140 145 147 152 153 153 154 155 155 156 158 160 162 164 165 169 174 174 174 175 175 175 176 3.1 Funding, Liquidity and Investors 3.2 Investors’ Interest 179 188 3 Ready to Meet with Investors and Accept Their Investments and Conditions? 179 vii viii Contents 3.3 Contacting Investors 3.3.1 Business Plan 3.3.2 Investment Summary 3.3.3 First Investor Approach 3.4 Negotiation with Investors 3.4.1 Due Diligence 3.4.2 Term Sheet and Shareholders Agreement 3.4.3 Negotiating the Funding Plan and Structure 3.4.4 Milestone Payment Solutions 3.4.5 An Unhealthy Grant-Optimising Strategy from Real Life 3.4.6 Investors Are Only “Visiting Guests” 3.5 Negotiating the Terms of Investment 3.5.1 Lessons Learned (from This and Other Cases) 3.5.2 Other Standard Clauses in Term Sheets and Shareholders Agreements 3.6 Risk of Dilution 3.7 Investment, Management and Board 3.8 Do It Yourself (DIY) or Get Help from an Advisor 3.8.1 Should He “DIY” or Find an Advisor? 3.8.2 Ideal Role of the Innovation Professional 3.8.3 Adjusting Misconceptions and Expectations 196 196 198 200 202 203 205 209 220 Life with Investors 231 232 243 246 247 247 249 4.1 Introduction 4.2 The Limit to Rational Decisions 4.3 Right or Wrong Decisions? 4.4 Relationship with Investors 4.5 Can We Learn? 4.6 How and Why Decisions are Made? 4.7 Negotiations and the Process 4.7.1 Valuation 4.7.2 Total Funding Requirements 4.7.3 Milestones 4.7.4 Investors’ Success Criteria: The Profitable Exit 251 255 264 269 283 285 289 289 293 293 295 223 225 226 230 251 Contents 4.8 Board Composition 4.9 The Exit: A Dream Scenario or Nightmare? 4.10 To Sum Up Annexures 296 298 305 1a Full Business Plan Checklist 309 1b Investor Search and Negotiation Checklist 313 2 References 317 3 Patenting and Other Forms of Intellectual Property Rights Protection 321 4 Examples of Strategic Steps to be Considered in an Infringement Case 325 5 The “Rosetta” Term Sheet 329 6 Investment Theory for “Dummies” 337 7 Further Readings and Few Abstracts 349 Index 357 ix 352 Annexure tion as a generalization–instantiation process: investors generalize the culpability to the industry category and perceive the instantiation of generalized culpability within the industry bystander firms This theoretical separation allows us to hypothesize the factors that affect the degree to which both of these elements of the contamination process occurs Specifically, we predict that characteristics of the misconduct firm or event—factors that lend to investors’ familiarity with the misconduct firms, or that prompt attributions of blame for the misconduct—affect the potency of the generalization of culpability to the industry, while characteristics of the industry bystander firms—investors’ familiarity with such firms, or factors that lend to investors’ perceptions that they have strong governance—affect the firms’ vulnerability to being perceived as instantiating the generalized culpability We tested our hypotheses on a sample of 725 firms across 84 financial misconduct events, and the results of our event analyses broadly support our predictions Our study thus has implications for future research on the social view of financial markets, organizational misconduct, and corporate governance Are entrepreneurial venture’s innovation rates sensitive to investor complementary assets? Comparing biotech ventures backed by corporate and independent VCs Alvarez‐Garrido, Elisa; Dushnitsky, Gary Strategic Management Journal, 2015, No Pagination Specified http://dx.doi.org/10.1002/ smj.2359 abstract Entrepreneurial ventures are a key source of innovation Nowadays, ventures are backed by a wide array of investors whose complementary asset profiles differ significantly We therefore assert that entrepreneurial ventures can no longer be studied as a homogeneous group Rather, we harness the inherent dichotomy in the profiles of independent VCs and corporate investors to study ventures’ innovation outcomes Our sample consists of 545 U.S biotechnology ventures founded between 1990 and 2003 and backed by independent venture capitalists (VCs) or corporate VCs (CVC) We find CVCs’ investees exhibit higher rates of innovation output, compared to independent VC‐backed peers Moreover, the Further Readings and Few Abstracts performance of CVC‐backed ventures is sensitive to their ability to leverage corporate assets, underscoring the role of CVC accessibility and FDA approval requirements as the mechanisms associated with CVC contribution Copyright © 2014 John Wiley & Sons, Ltd The influence of angel investor characteristics on venture capitalist decision making Drover, Andrew William Dissertation Abstracts International Section A: Humanities and Social Sciences, 76(2-A(E)), 2015, No Pagination Specified abstract It is well established that the social relations of an organization can serve as an important signal of perceived quality (Reuber and Fischer, 2005; Suchman, 1995) Here, an organization’s patterns of affiliations are often used by third parties to make inferences about intrinsic quality, which can assist in shaping the perception of that venture (Gulati and Higgins, 2003; Pollock et al., 2010) By extension, this dissertation focuses on how organizational affiliations influence the process of venture capital investment decision making Specifically, given that angel investors often invest prior to venture capitalist involvement, I draw on signaling theory to explore whether certain characteristics of affiliated angel investors can influence the judgement of venture capitalists Taking a multi-study approach, I explore this effect through the sequential evaluative process In study one, I leverage conjoint analysis to investigate the influence of affiliated angel characteristics within the initial screening stage— i.e whether awareness of certain distinguishing characteristics of vested angels increases the probability that a venture reaches the formal due diligence stage Study two focuses on the final investment decision; I utilize logistic regression on a secondary dataset of angelbacked ventures in an attempt to understand whether ventures backed by certain angels stand a higher probability of securing venture capital financing than ventures absent such affiliations Significant effects from both studies support the idea that angels indeed influence the evaluation and investment activity of formal venture capital investors 353 354 Annexure Investor biases in financial decisions Sahi, Shalini Kalra, Copur, Zeynep (Ed), 2015 Handbook of Research on Behavioral Finance and Investment Strategies: Decision Making in the Financial Industry Advances in finance, accounting, and economics (AFAE) book series, pp 147–169 Hershey, PA, USA: Business Science Reference/IGI Global, xxxii, 525 pp http://dx.doi org/10.4018/978-1-4666-7484-4.ch009 abstract Financial Decisions involve making choices between various investment alternatives, with the aim of increasing the individual’s net worth The investor today is exposed to various investment options, but does not have the knowledge and capability of evaluating all the options and making a rational decision Due to the limitation in the information processing capacities of the individuals, their beliefs and preferences, the investment decision-making process, gets biased This chapter highlights ten such biases and throws light on how they impact investment behaviour, both positively and negatively This understanding of investor psychology will generate insights that will benefit the financial advisory relationship Further for Individuals, recognizing how the biases impact their financial decisions, can help create self-awareness and an understanding that would help them in better financial management, in case these tendencies are leading them to make unsatisfactory investments Investor regret: The role of expectation in comparing what is to what might have been Huang, Wen-Hsien; Zeelenberg, Marcel Judgment and Decision Making, 7(4), 2012, 441–451 abstract Investors, like any decision maker, feel regret when they compare the outcome of an investment with what the outcome would have been had they invested differently We argue and show that this counterfactual comparison process is most likely to take place when the decision maker’s expectations are violated Across five scenario experiments we found that decision makers were influenced only by forgone investment outcomes when the realized investment Further Readings and Few Abstracts fell short of the expected result However, when their investments exceeded prior expectations, the effect of foregone investment on regret disappeared In addition, Experiment found that individual differences in the need to maximize further moderated the effects of their expectations, such that maximizers always take into account the forgone investment The final experiment found that when probed to make counterfactual comparisons, also investments that exceed expectations may lead to regret Together these experiments reveal insights into the comparative processes leading to decision regret Trust between entrepreneurs and angel investors: Exploring positive and negative implications for venture performance assessments Bammens, Yannick Journal of Management, 40(7), 2014, 1980–2008 http://dx.doi.org/10.1177/0149206312463937 abstract The study of trust-related outcomes has had a long tradition in the organizational literature However, few have considered potential darker sides of trust or have explored its effects in the setting of entrepreneurial ventures This study does so by examining how perceptions of entrepreneurs and angel investors concerning the degree of trust in their relationship impact the latter’s assessments of venture performance Hypotheses are tested using survey data from the lead entrepreneur and angel investor of 54 ventures Results indicate that angel investors evaluate portfolio company performance more positively when they perceive high trust, whereas entrepreneurs’ trust perceptions are negatively associated with angel investors’ assessments of venture performance Further, these effects are partially mediated by the quality of information exchanges between both parties Together, these findings point to the benefits as well as threats that come with the presence of strong trust in entrepreneur–angel investor relationships Do investor capabilities influence the interpretation of entrepreneur signals? Theory and testing in the private equity setting Gera, Azi Dissertation Abstracts International Section A: Humanities and Social Sciences, 70(9-A), 2010, 3532 355 356 Annexure abstract Informing outsiders of the potential and quality of the organization in a way that will benefit the organization and avoid putting it at risk is a challenging task in competitive settings Under conditions of uncertainty, in which external entities are imperfectly informed about the organization, outsiders will seek for signals of quality Current research of interfirm signaling has focused on the sender’s ability to generate signals In this dissertation, I propose that receivers of signals are heterogeneous in their ability to interpret signals and that this heterogeneity significantly influences the outcome of the interaction between signaler and interpreter I apply this insight in an entrepreneurial setting to explain differences in signaling to venture capitalist and informal private equity investors (business angels) over the early stages of a firm’s lifecycle The findings have strong implications for entrepreneurial firms’ strategy and, generally, to signaling theory I argue that signals are multifaceted Outsiders may base their decisions on two aspects of signal: the informative aspect, which relays direct information on the capabilities of the organization; and, the legitimizing aspect, which conveys legitimacy through actions of third-party entities The use of each aspect is determined by the abilities of the sender to generate the signal and the receiver to interpret it I posit that the informative aspect of the signal will be prominent when both the sender’s and the receiver’s abilities are high When either the sender’s ability to generate a signal, or the receiver’s ability to interpret it, is limited, the legitimizing aspect of the signal will be prominent When both the sender and the receiver possess low signaling abilities, the interpretation will be based on idiosyncratic data This dissertation explores the differences between these two facets of signals, and the usefulness of each signal aspect when considering the organization’s target audience The first essay explains the purpose of the two signal aspects for stakeholders and the recursive nature of interpretation The two following essays test the theory by utilising two large datasets of private equity investment solicitations The second essay evaluates the effectiveness of the legitimizing aspect of the signal as a mechanism for screening startups’ funding solicitations The third essay compares the informative and legitimizing aspects of signals as decision making mechanisms for both angel and venture capital investors Index adaptation 89, 92, 117, 126, 245, 280 ADIZES, Ichak Kalderon 68, 69, 110 Adizes dimensions 112 advisors 4, 5, 107, 192, 194, 195, 200, 202, 205, 206, 221, 225, 246–250, 254, 258, 262, 317, 319 commercial 192 experienced 32, 313 neutral 230 affiliate 86, 169 agreements 24, 43, 71, 73, 100, 101, 174, 175, 177, 187, 188, 194, 195, 219, 220, 222, 227–231, 240, 241, 313, 315 balanced 229 buy–sell 176 cross-licence 157, 325 distribution 100 fixed fee 196 formal investment 174 joint venture 100 legal 220 non-solicitation 333 pre-nuptial 205 alliance 94–96 ambitions 23, 33, 103, 113, 137, 250, 271, 273–276, 284, 285, 299, 307, 308 analysis close 135, 180 complete 145 comprehensive 91, 310 in-depth 249 logistic 115 macro-level 90 non-destructive 87 analytical models 76, 185, 255 anchoring effect 256, 261, 262, 266, 267, 271–273, 284, 286, 291 corporate 271, 272, 276, 279 subconscious 263 angel investments 14, 22 angels 14, 20, 21, 30 anti-dilution 9, 229, 233, 268, 304, 305, 330 Apple 69, 80, 85, 103, 124, 125, 152 articles of association 175 assessment 78, 112, 114, 131, 136, 137, 182, 262, 310 human 112 initial 182 neutral 200 assets 2, 10, 26, 30, 39, 41, 42, 94, 100, 202, 253, 330 bankable 35 financial intangible 155, 156 low-risk 30 traded assumptions 7, 24, 26, 35, 36, 44, 71, 78, 109, 117, 139, 145, 180, 186, 187, 213, 255 built-in 291 overoptimistic 238 transparency 255 unchallenged 182 Atlas 20 balanced score card 18, 28 balance sheets 40, 41, 183, 312 fragile 84 bank loans 183, 234, 264, 269, 296 bankruptcy 42, 105, 221, 260, 264, 268, 295 banks 2, 3, 17, 26, 35, 38–40, 42, 99, 145, 195, 196, 198, 219, 234, 264, 313 local 192 strong 40 358 Index barriers 169, 170, 245 cultural 67 regulatory 129 temporary 170 worst 24 battle 302 legal 155, 274 up-hill 163 battlefield 144 bells and whistles benchmark 18, 29, 36, 85, 90, 186, 207, 212, 228 accumulated 265 industry performance 17 standard 23 Bernoulli’s assumptions 307 Bernoulli’s utility theory 287 biased intuition 286, 288 biomass 115–117, 119 Black Wings 30 blue ocean strategy 14, 73, 74, 76, 122, 128, 132, 141, 144, 197, 317 board 177, 231, 233, 243–245, 260, 266, 268, 269, 271–273, 275, 278, 279, 282–288, 294, 296–298, 300–302, 332–334 board composition 190, 268, 272, 289, 296–298 board meetings 64, 221, 244–246, 268, 272, 279, 281, 294, 296, 297 board members appointed 245, 246, 298 experienced 244 investor-appointed 244 investor-representative 245 non-executive 281 board of directors 33, 42, 63, 81, 176, 177, 196, 243, 244, 249, 271, 283, 301, 333 bonds 10, 26, 29, 30 budgets 5, 82, 97, 98, 139, 140, 170, 180, 184–186, 197, 199, 207, 208, 227, 228, 261, 262, 272, 289, 290, 292, 293 budget simulations 185, 186 business 23, 53–56, 64–68, 70–72, 74, 84–86, 108–116, 118–120, 142–146, 156–158, 162–164, 186, 187, 195–198, 262–264, 297, 298 booming 123 convincing 263 food 167 general 136 innovative 63 language-teaching 142 local 136 service-oriented 236 strategic 38, 154 world-class 55, 164 business angels 3, 6, 9, 11–13, 20–25, 29–31, 48, 50, 51, 192, 232–234, 236, 237, 240–243, 247, 264, 303, 304 active 21 high-profile 260 rational 30, 31, 236, 240 registered risk-taking 25 business angels networks 6, 192 business cases 34, 46, 62, 103, 108, 119, 127, 136, 146, 186, 251, 256, 264, 266, 271 fantastic 85 high growth 23 successful 54, 143 weak 68 well-formulated 201 business concept 5–7, 13, 14, 23, 37, 70, 82, 138, 159, 186, 197, 272, 273, 280–282, 292 business decisions 150, 245, 266 business development 11, 19, 33, 69, 84, 186, 188, 198, 241 business idea 14, 53, 68, 70, 114, 131, 198, 200, 202 business models 42, 43, 58, 59, 75, 78, 80, 94, 95, 113, 114, 119–123, 125, 126, 128–131, 133–137, 139–152, 197, 277, 311 advanced 279 Index competing 78, 136, 152 favourable 59 optimal 119 prototype 151 restaurant’s 113 term 113 traditional 151, 279 website’s 113 business objectives 17, 129, 133, 229 business opportunities 1, 23, 33, 55, 72, 81, 83, 114, 144, 190, 197 business plan 2–7, 37, 70–72, 189, 191, 196–200, 202, 204, 249, 259, 261, 262, 289, 290, 292–294, 309–312, 314 business plan puzzle 43, 44, 53, 70, 71, 102, 196, 198, 204 business strategy 37, 72, 75, 89, 128, 129, 132, 133, 144, 196, 203, 272, 273, 277, 280, 281, 285, 294, 326, 327 business venture 80, 113, 197, 263, 289, 306 buyer acceptance 92, 337 buyers 92, 93, 99 BVCA 5, 19 capital 10, 12, 15–18, 21, 22, 26, 27, 30, 222, 250, 274, 331 capital contributions 175, 176 capital gains 23, 27, 284 capital requirement 15, 43, 47, 71, 73, 137, 144, 203, 234 cash 11, 48, 166, 222, 226, 231, 274, 287, 293, 295, 300, 302 cool 149 short-term 274 cash flow 233, 291 discounted 290 expected 39 positive 213 CE mark 172, 173 certification 43, 71, 73, 170–173, 180 chairman 105, 106, 243, 245, 260, 283–285, 319 chairperson 244, 296–298, 302, 303, 305 choice 26, 27, 39, 41, 96, 97, 99, 100, 121, 122, 140, 149, 152, 245, 247, 257, 278, 280, 284 complex 149 free 121 hard 200 lucky 224 strategic 152 technology-related 121 wrong 152 clauses 230, 231, 300 acts of god 230 complicated 230 share transfer 300 tag-along and drag-along 231 technical 232 closed-end funds 15–17, 265 collateral 40–42, 264 company structure 52, 221, 251, 253 company value 47 compensation 50, 153, 161, 259 competing solutions 54, 59, 77, 114, 125, 144, 145 competitor analysis 54, 74, 77, 78, 114, 128, 140, 141, 143–145 competitors 43, 59, 69, 71–75, 77, 78, 125, 128, 141, 143–145, 150, 152, 156, 157, 163, 166, 324–327 compromise 222, 291, 326 connecting the dots 62, 63 consultants 68, 71, 306, 331 consumers 58, 74, 85, 86, 118, 119, 143, 156 convertible loans 38, 210–212, 216, 224, 226, 229, 236, 254, 293 copyright 1, 53, 155, 156, 179, 251, 322, 323 corporations 15, 20, 26, 61, 68, 106, 154–156, 318, 319 costs 57, 58, 95, 99, 100, 113, 114, 116–118, 136, 138, 139, 142, 143, 148, 153–155, 159, 160, 162–166, 184, 185, 247, 345 accumulated 154 359 360 Index associated 137, 277 fixed 94 legal 334 operating 76 opportunity 180 overhead 95 patenting 167 sunk 287 transportation 90 crisis 190, 251, 293, 296 cross-licence agreement 157, 325 crowdfunding 3, 241, 269 cultures 65–67, 98, 101, 271, 272, 318 currency 9, 10, 99 currency risk 99 curves 14 customer preferences 76–78, 281 customer reactions 83, 149, 213, 272 customers 54, 55, 74–77, 79–88, 121, 125–129, 131–133, 140, 141, 145–147, 149, 170, 171, 223, 252, 254, 278, 279, 281 end-user 127 hungry 113 individual 281 online 113 real life 81 regular 168 satisfied reference 168 deal funnel 4, 5, 7, 190 debt 37, 39, 41, 334, 337 decisions 27, 28, 42, 87–89, 139, 164, 189, 202, 203, 244, 245, 255–257, 259–261, 269–273, 276, 279–281, 284–289, 318 desperate 285 executive 88 negative 285 no-go 203 real-life 25, 255 strategic 159, 164 unilateral 271 unwise 288 wise 245 wrong 222, 263–265, 267, 278, 282 design 95, 120, 123, 132, 137, 141, 144, 146, 155, 159, 167, 168, 323 registered 167, 323 technical 131, 135 DE VRIES, Manfred 69, 104, 109, 112, 318 dilemma 294 prisoner’s 302, 306 dilution 22, 40, 51, 205, 219, 232, 233, 235–237, 239–242, 268 DIRZYTÉ, Aistë 261 discount rate 290, 343–346 disputes 164, 167, 176, 296 distributors 93–95, 97, 129, 278 diversion 229, 271, 280, 284, 288, 294 dividends 23, 41, 330–332 DIY see it yourself it yourself (DIY) 32, 151, 246, 247, 249 dreams 37, 47, 104, 105, 109, 276, 282, 296, 299–301 blurred 299 sweet 70 unrealistic 37 dream scenario 213, 215, 219, 298 due diligence 5, 6, 9, 42, 59, 190, 200, 202, 203, 205, 241, 250, 289 complicated 295 formal 202 in-depth 31 due diligence process 44, 198, 202–205, 220, 226, 249 early investors 14, 48, 234–237, 240, 242, 300, 301 EBAN see European Business Angel Network EBITDA 199 Energy Service Company (ESCO) 120, 125, 146, 148, 150, 151, 279 enterprise resource planning (ERP) 124 Index entities 21, 55, 93, 117, 136, 224, 252, 253, 299 financial 295 international 251 legal 253, 325 entrepreneurs 6–9, 12–14, 46–51, 110–112, 186–189, 200, 201, 203–209, 212, 213, 223–226, 240–250, 257–261, 267–271, 279–286, 288–300, 302–308 brilliant 21 imaginary 246 innovative 243 retired 21 serial 259, 299 stubborn 274 technology-focused 122 equity 37–41, 210, 211, 216, 223, 227, 233, 251, 334 ERP see enterprise resource planning ESCO see Energy Service Company ESCO Model 120, 147, 149, 151 EU Commission 46, 64, 192, 194, 238, 243, 262 Euribor 35, 36 European Business Angel Network (EBAN) 6, 192 European Investment Fund 19 European Venture Capital Association (EVCA) 5, 19, 63, 64, 81, 192, 238 EVCA see European Venture Capital Association exit 11, 18, 20, 47–50, 187, 188, 190, 199, 200, 213, 225, 228, 240, 241, 253, 287, 295, 296, 298–303 eventual 188, 254 profitable 189, 295 short-term 88 simple 295 successful 27, 28, 36, 237, 299 trade sale 295 exit route 190, 287, 300, 301 exit value 47, 49, 50, 188, 210, 212, 213, 290, 303, 304 adjusted 47 budgeted 47 estimated 48 Facebook 62, 67, 103, 140, 151 failure 14, 20, 27, 55, 84, 100, 152, 234, 247, 251, 260, 264, 280, 288 business 219 commercial 81 financial 225 family, friends and fools (FFF) 22, 48, 234 FDA see Food and Drug Administration feedback 108, 169, 203, 279 constructive 272 happy customer 81 unfiltered 272 FFF see family, friends and fools financial institutions 15, 17, 99, 271, 337 financial investors 22, 23, 295, 296, 300 financial resources 89, 120, 152, 306 limited 121, 236, 240 strong 120 substantial 243 financial strength 73, 94, 96, 147, 164, 165, 238, 327 fish bone 79, 80, 276 Food and Drug Administration (FDA) 172 founders 33, 42, 48–51, 69, 82, 124, 167, 228, 267, 268, 283, 303, 304, 318, 329, 333–335 freedom to operate 168 freedom to operate analysis 158–160, 167, 168, 170 funding 1–4, 8–12, 20–22, 24–26, 32–44, 46, 48, 50–52, 71–73, 181–183, 221–223, 234–236, 245–249, 252, 253, 285–287 bridge 245 complicated 252 external 213, 246 milestone-based 294 seed 22 361 362 Index temporary 236 unplanned 266 fund managers 15, 16, 18, 30, 259 funds 3–5, 9, 11, 12, 15–22, 24–28, 31, 35, 36, 189–192, 233, 234, 260–262, 264, 265, 270, 271, 275, 276, 284, 285, 287, 288 angel/seed 49 contingency 293 evergreen 17, 31 managed 21 mutual 15, 26, 264 private 18 unsecured 35 game 18, 28, 109, 219, 281, 302, 307, 322 non-zero-sum 307 zero-sum 307 game changer 60, 62 GATES, Bill 14, 103 Gillette model 151 GLADWELL, Malcolm 61, 318 Googling 112 grants 29, 37–39, 42–49, 51, 52, 156, 227, 312 H2020 50 research 37, 46 grave mistakes 44, 112 growth 17, 23, 24, 38, 65, 101, 111, 203, 233, 246, 300, 301 international 84 long-term 88 organisational 111 rapid 19, 134 slowing 55 sustain 233 guarantee 39, 40, 42, 168, 169, 341 H2020 SME Insrument 42–48, 50, 243, 262, 263 HAMMERICH, Kai 13, 65, 66, 317 harvesting 120, 146 hearing aid 56–58, 75, 131, 171 high net worth individuals (HNW individuals) 29 HNW individuals see high net worth individuals hurdle rate 17, 18, 28, 29, 31 IKEA 85, 103, 145, 146, 148–150, 152 illusions 104, 106–109, 112 imagination 54, 64, 103, 134, 279 impatience 338, 339, 344 imposters 104, 106–109, 194, 318 impression 153, 180, 232, 262, 263, 274 first 256, 263 individual investors 3, 4, 12, 20, 24, 70, 186, 263, 264, 319 industrial customers 267, 278 industry 3, 12, 13, 16–19, 27, 79, 86, 90, 94, 105, 113, 141, 143, 152, 153, 156, 170 conservative 279 food 170 hydrocarbon 275 meat 95 offshore 270 retail 262, 265 initial public offering (IPO) 9, 15, 124, 234, 241, 253, 283, 295, 299 innovation 37, 38, 46, 78, 79, 81, 111, 155, 180, 306 innovation process 74, 78, 80, 81 institutional investors 15–19, 26, 27, 31, 35, 36 Intel 1, 2, 14 intellectual property (IP) 96, 154–157, 163, 167, 325 intellectual property rights (IPR) 23, 73, 101, 153–159, 162–166, 191, 197, 199, 223, 225, 250, 252–254, 321, 323, 325, 326 internal rate of return (IRR) 9–11, 22, 35–37, 47, 50, 51, 184, 186, 207, 208, 211–213, 216, 267, 268, 290, 303, 346, 347 internationalisation 62, 82, 83, 85, 87– 89, 91, 93, 95, 97, 99, 101, 221 international markets 89, 124, 170 international sales 23, 98, 168, 170 invention 122, 153–156, 162, 163, 165, 200, 274, 321, 322, 324 Index inventor 23, 155, 165, 274 investment cases 23, 47, 211, 221, 238, 239, 254, 255, 263, 303, 306, 347 investment decisions 24, 31, 242, 255–257, 260, 263, 288, 308, 342 investment opportunities 2, 6, 8, 11, 12, 31, 32, 34, 35, 44, 46, 53, 188, 191, 199, 201–203, 312, 314 investment preferences 3, 12, 191, 248, 314 investments 5–7, 9–12, 14–19, 21–24, 30, 31, 47–51, 183–189, 199–202, 204–219, 224–231, 245–250, 264–268, 286–288, 303–305, 346, 347 early stage 20, 37, 288 equity 41, 42, 211, 226, 227 failed 22 first-time 288 fund 48 high-risk 30 investor’s 267 risk-free 304 risk-taking 242 investment strategy 16, 17, 25, 29, 219, 224, 313, 315 investment summary 7, 72, 189, 196, 198–200, 202, 314 investors 1–12, 15–20, 22–27, 33–39, 41–44, 46–51, 70–73, 80, 81, 102–104, 107–113, 179–192, 194, 196–236, 240–302, 304–309 active 203 brave 55 business angel 22, 234 calm 266 entrepreneur 248 excited foreign 221 founding 48, 51, 281 rational 11 risk-adverse 10 unethical 226 IP see intellectual property iPad 62, 73, 124, 140, 152, 153, 168, 282 IPO see initial public offering IPR see intellectual property rights IPR protection 101, 121, 156, 157, 159, 324 IRR see internal rate of return ISO certification 131, 170, 171 JOBS, Steve 69, 103, 111, 153, 319 KAHNEMAN, Daniel 25, 256, 257, 286, 317 KIM, W Chan 14, 54, 74, 76, 279, 317 KISS principle 199, 202 leaders 61, 68–70, 103, 104, 106, 112, 274, 318 LEWIS, Richard D 13, 65, 66, 317, 318 licences 107, 129, 154, 156, 158–160, 163, 165, 327, 330 LinkedIn 112 liquidity 40, 41, 72, 73, 140, 179, 181, 183, 185, 187, 209–211, 221, 236, 276, 278, 280, 293–295 regain 295 liquidity gap 182–184, 209 logo 159, 167, 168, 322 losses 30, 36, 106, 153, 163, 234, 263, 279, 284, 286, 287, 301, 307, 345 management 16, 17, 72, 73, 87–89, 102, 103, 111, 137, 176, 177, 190, 204, 243, 245, 246, 265, 277–281, 284, 298–302 cross-cultural 96 shelf-edge 143 management buy-out 296, 301 management team 7, 17, 25, 27, 28, 33, 36, 37, 54, 55, 63, 68, 85, 86, 98, 102, 103, 110–112, 259, 265 managers 16, 18, 20, 31, 63, 79, 84, 109, 176, 265, 266 MAUBORGNE, Renée 14, 54, 74, 76, 279, 317 MBI 17 363 364 Index MBO 17 Mezzanine debt 40 Microsoft 85, 103, 124 milestones 63, 196, 205, 210, 211, 221, 222, 225, 229, 245, 266, 272, 280, 285, 289, 293, 294, 298 model 5, 73, 95, 117, 119, 125, 146, 147, 151, 152, 220, 279, 291 bait and hook 123, 151 crowdfunding economic 185 marketing 151 Moore’s law 60 National Venture Capital Association (NVCA) 5, 12 natural gas 117, 118, 230 NDA see non-disclosure agreement negotiations 5, 190, 202–207, 209, 211, 213, 215, 217, 219–223, 225–228, 253, 255, 289, 291, 314, 315 asymmetrical 203 complicated 230 heart-breaking 220 heated valuation 220 tricky 300 net present value (NPV) 9, 166, 184, 290, 342, 344, 345 non-disclosure agreement (NDA) 100, 200 non-executive director 22, 177 NOYCE, Bob 1–4, 14, 103 NPV see net present value NVCA see National Venture Capital Association obligations 222, 245, 284, 286, 294, 332 obsolete 59, 60, 111, 137–139 Oracle 103 OSTERWALDER, Alexander 83, 125, 126, 279, 317 PAEI 68, 110 partners 58, 66, 67, 94, 95, 97, 127, 129, 133, 135, 194, 198, 262, 264, 265, 284, 288, 292 patenting 154, 156, 164, 165, 167, 321, 323 patents 151, 153–157, 159–167, 321, 323, 325, 327 hostile 327 national 322 petty 321 strategic 157 third-party 165 pitfalls 96, 99, 248, 269 plans 1, 2, 63, 69, 72, 129, 133, 266, 271, 272, 280, 283, 285, 288, 292, 294, 298 platform 3, 86 burning 74, 86–88, 153 portfolio companies 11, 15, 16, 18, 20, 27, 28, 36, 70, 195, 241, 243, 266, 271, 281, 288, 293 post money 214, 215, 217, 218 PPU Maconomy 84, 96, 123 pre money 214, 215, 217, 218 pre-money valuation 9, 50, 51, 183, 187, 204, 206–208, 212, 213, 216, 219, 220, 224, 227–229, 235, 237, 238, 241, 253 pre-screening function private equity 2, 9, 26, 28–30, 39, 177, 235, 264, 293 prisoner’s dilemma 302, 306 professional investors 9, 63, 191, 264, 269, 270, 288, 291 profiles 55, 69, 70, 103, 109, 123, 167, 190 projects 3, 6, 8, 11, 31, 32, 35, 38, 46, 47, 148, 188–192, 200–205, 259, 287, 289, 343, 344 bad capital-intensive 241 energy-efficiency 148 high-reward 14 protection 30, 51, 153, 154, 156, 157, 160, 164–167, 321–324 environmental 173 legal 100, 155, 321 Index trademark 167, 322 utility model 321 provisions 40, 58, 120, 148, 175, 229–231, 268, 292, 302, 333, 334 anti-dilution 226, 232 company issues 330 deadlock 176 dispute resolution 176 minority protection 176 pre-emption rights 231 pruning 118, 120, 145, 147 fruit tree 76 public grants 1, 37, 39, 41, 48, 51, 223–225, 242, 251, 252, 254, 313 punishment 18, 29, 63, 199, 292 puzzle 43, 70, 72, 73, 82, 102 real estate agents 32, 247 regulations 97, 101, 161, 170, 173, 227 regulatory barriers 59, 121, 126, 174 regulatory requirements 311 repayment 38–41, 209, 212, 264, 342 revenues 38, 99, 113, 131, 139, 147, 154, 166, 180, 182, 184, 185, 199, 212, 213, 345, 347 revenue stream 23, 33, 129, 133, 165, 166, 293 risk 10–13, 18–20, 24, 25, 27–30, 36, 46–51, 93, 146, 147, 149, 201–203, 234, 235, 242, 243, 255–257, 284–287, 325, 326 currency exchange 99 financial 146, 147 human 264 irreversible 263 legal 100 technological 149 risk-adjusted ROI 8, 11, 23, 25, 26, 47, 49, 184, 185, 314 risk factors 8, 80, 184, 186, 190, 345 risk of dilution 232, 233, 235, 237, 239, 241, 242, 291 risk–reward ratios 20 robot 79, 80, 94, 95, 276–279 Rosetta term sheet 175, 232, 329, 331, 333, 335 rules of procedures 175 rumours 223, 278 Ryanair 85, 144, 151, 152, 169 sales 43, 59, 60, 64, 65, 71–75, 82, 83, 85, 86, 94, 95, 115–117, 137–140, 163–166, 168, 212, 213, 276–278, 327, 333–335 efficient 88 postponed 297 technological 155 sales forecasts 102, 139, 182 savings 18, 25, 26, 29, 75, 87, 128, 143, 147, 148 energy 125, 148 SBIR see Small Business Innovation Research scenarios 47, 185, 186, 208, 210, 216, 238, 240, 289 seed shares 329–333 share buyback 301 shareholders 17, 24, 40, 41, 48, 84, 175, 176, 213–219, 231, 269, 271, 297, 299–303, 305, 330–332, 335 shareholders agreement 174, 176, 177, 205, 206, 226–228, 231, 232, 237, 241, 244, 249, 250, 253, 268, 292, 293, 296, 299, 300, 302 shares 48, 50, 176, 185, 210–219, 227– 229, 231, 233, 235, 236, 240, 241, 289, 290, 295, 299–305, 329–332, 335 SINGER, Isaac Merritt 122, 164 skills 69, 95, 106, 110, 306 administrative 68, 109, 110 conceptual 103 entrepreneurial 111 human 310 innovative 111 management 164 psychological 279 Skype 14, 55, 56, 81, 142, 152, 282, 289 small and medium enterprises (SMEs) 3, 38, 63, 85, 86, 91–94, 158, 242, 243 Small Business Innovation Research (SBIR) 37, 42, 44 365 366 Index SME grant 44, 46, 47 SMEs see small and medium enterprises Starbucks 14, 123, 151, 168 strategic value 164, 166, 274, 325 strategy 43, 64, 69, 71, 72, 74, 83, 88, 92, 144, 190, 196, 310–312, 314, 317, 319 convincing 72 cut your losses 259 entrepreneur’s 71 expensive 254 grant optimising 252, 254 longsighted funding 254 market segmentation 85 red ocean and blue ocean 141 subscription agreement 175, 232 surprises 13, 64, 83, 101, 170, 186, 203, 266, 293 SWOT analysis 90 System 257, 258, 261, 266–268, 291, 306 System 257–259, 266–268, 291, 306 taxes 92, 96, 200, 257 technology 107, 108, 114–117, 120, 122, 123, 134, 143, 145–147, 152, 153, 156–159, 164–166, 187–191, 273–278, 281, 282, 310, 311, 325 digital 60 etching 137 Nespresso 83 photonic 62 third-party 157 unforeseen 294 technology transfer officers (TTOs) 250 three circles 34, 53, 54, 70, 114 time preference 337, 339, 340 trademark 153, 155, 156, 157, 167, 168, 322, 323 trade sales 15, 33, 213, 253, 269, 295, 300, 301 trade secrets 155, 323, 324 TTOs see technology transfer officers Turnkey model 146, 150, 151 unique selling proposition (USPs) 139, 191, 199 users 55, 57, 74, 75, 80, 83, 92, 97, 116, 117, 125, 127, 129, 131, 133, 143, 146 USPs see unique selling proposition utility models 155, 321, 322 value chain analysis 43, 71, 73, 113–118 value chains 113–115, 117, 119, 133, 149, 152 venture capital fund 1, 19, 28, 238 classical 19 venture fund 15, 17, 19, 26, 40, 157, 233, 264–266 vision 86, 103, 104, 106, 109, 123, 201 voting rights 42, 176, 216, 226–228, 233, 244, 286, 296 critical 213 double 228 substantial 11 weaknesses 90, 102, 137, 201, 204 wheel 159, 160 willingness to take risk 12, 25, 30, 319 WOM see word of mouth word of mouth (WOM) 85 world market 56, 57, 85 .. .How to Attract INVESTORS Pan Stanford Series on Renewable Energy — Volume How to Attract INVESTORS a personal guide to understanding their mindset and requirements editors Preben Maegaard... to give a “behind the curtain” view on who investors are and probe a little into part of their mindset It also provides an insight into how to attract their attention and understand their preferences... to answer all types of questions about the story This book is also about how to find who the right investors are and how to meet with them and negotiate a fair and balanced deal If you have already