IRP for Founders_Introduction meeting_v1.7_ENG

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IRP By Beels-Logotyp_Text-White.pdf

COPYRIGHT BEELS CONSULTING AB 2018

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[Audio] By connecting your business plan to your financing plan IRP verifies whether or not venture capital is the best way to finance your company. If that is the case the IRP results in an investment offer that more efficiently can be match to the suitable type of investor. This ensure that you and the investors have joint expectation on your companies future and potential return.

IRP connects the business plan and the financing plan! The business development process The financing process

THE INVESTMENT READINESS PROCESS (IRP)

IRP ensures that founders and investors have joint expectations

Idea for illustration: Kjell Håkan Närfelt, Vinnova

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WHAT COMPANIES ARE SUITED TO IRP?

Startups or scaleups with a business plan with focus on growth

The growth plan needs to be financed, and the founders want support in determining how

The founders are open to bringing in external venture capital

Ideally, the founders have not yet met with investors…

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+50 IRP CERTIFIED COMPANIES

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[Audio] All business involves risk. But the earlier in the development process a company is, the greater the risk. Companies that don't have " traction", in other words sales, entail a very high risk. According to Forbes and Failory, even startups that have sales only have a one-in- ten chance of truly succeeding.

ONLY ONE IN TEN SUCCEED

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According to Failory and Forbes!

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[Audio] Investors who are prepared to invest in startups are generally known as angel investors. But this type of angel investor needs to create an investment portfolio in order to reduce the risk in the total investment. Let us consider an example based on the principle that "only one in ten succeed". In this case, the companies are startups with a certain amount of sales. The angel invests MSEK 1 in 10 companies, in other words MSEK 10. Of these, the angel decides to make a further investment of MSEK 1 in half of the companies, in other words, a further MSEK 5. After perhaps 5 years, one of the companies is acquired and generates 5 times the investment, and one of the companies is listed on a stock exchange and generates 20 times the investment. The other companies do not generate a return. In this case, the angel has received MSEK 30 and has doubled their total investment of MSEK 15. BUT - this means that all of the companies must initially have the potential to generate 10 times the investment! As a founder you must be aware that you can only invest everything in one of these ten. In other words, you are also an investor - and you are taking a much greater risk. If you are to give 5 years of your time and work for a lower salary than in a normal job… What return do you require on your investment??

ALL COMPANIES MUST HAVE THE POTENTIAL TO GENERATE +10 TIMES THE INVESTMENT IN ORDER FOR THE ANGEL TO BE ABLE TO DOUBLE THEIR INVESTMENT!

M€ 0,1 TO 10 STARTUP´S IN THE FIRST ROUND = M€ 1

1 GENERATES 10 TIMES THE INVESTMENT = M€ 2 1 GENERATES 5 TIMES THE INVESTMENT = M€ 1

THE FOUNDER INVESTS EVERYTHING, WITH A 1 IN 10 CHANCE OF SUCCEEDING!

TOTAL M€ 3

THE ANGEL’S DILEMMA

M€ 0,1 TO 5 STARTUP´S 5 IN THE SECOND ROUND = M€ 0,5

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[Audio] Founders love their product, and they know their market like the back of their hand. That's how it should be. And that's what they should be focused on. But obtaining capital from investors requires focusing one's attention in a completely different direction. Now it is the company itself that is the product, and the market consists of potential investors. How well do you know this market? And do you know what you can offer it? In other words, what "investment offer" do you have? Just as you package your product and position it for the market, you also need to formulate your investment offer and position it in order to find the right customer, in other words, the right investor(s).

THE FOUNDER’S DILEMMA

?

Founders want to and should focus on their idea and their customer

Obtaining capital from investors requires the founders’ time and attention

The angel investor is a customer with individual needs and preferences

All investors want to receive a return on their capital

WHAT INVESTMENT OFFER DOES THE FOUNDER HAVE?

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[Audio] In order to explain how risk and value are connected, we have placed the company's development phase on the x-axis, and different types of investors on the y-axis. CLICK Hopefully, the value in the company increases as the company becomes more developed. The reason for the staircase effect is that the shares in the company gain a new value in conjunction with a new share issue by the company. In this model we are assuming that the first investments have been made with own funds or grants/ loans from e.g. public enterprises. When the company has a minimum viable product ( MPV), there is an opportunity to target a share issue at pre-seed investors. This could involve several million kronor, with the investment coming from local angel networks or private individuals. In certain cases, more active angel investors may invest " pre traction", in other words, before the company has "repetitive sales", although in such cases the risk in the company is great. CLICK Perhaps it is 1 in 20 of these that actually finds a paying market ( market fit) and then succeeds in growing and achieving a successful exit. CLICK When the sales are up and running, the risk in the company reduces drastically. Note how the " stairs" meet and change places. Symbolically, the value becomes greater than the risk. CLICK But Angels and Seed Capital (e.g. family offices and smaller VC companies) still want to see a potential return of 10 times the investment. As a typical rule of thumb, it can be said that the investor who invests "pre traction" must invest in 20 companies in order to spread the risk, and all of the companies must therefore have the potential to generate 20 times the investment. VC companies prefer to get involved much later when the risk is lower, although with a much greater amount of capital, perhaps MSEK 30 in a Series A round. If they have an investment horizon of 5 years and want a 20% return per year, the company potentially needs to be able to generate 5 times the investment. When the company reaches a Private Equity investment or IPO ( stock exchange listing), the initial investors and the founders often perform an exit, either completely or partially.

Investor type

Development stages

Risk

+20 times 10 times Expected return 5 times

Family Offices

Angels

Venture Capital

Private Equity

Stock exchange

Grants/Own

Sales

THE RISK AND VALUE RETURN MODEL

M€ 0,1–1 M€ 0,01–0,1 M€ 2-10 M€ 1–2 M€ +10 Capital requirements

Value

Angel networks

Government

Pre seed seed A-round B-round

Proof of Concept

Proof of Tech

Pre Proof of Business

Proof of Business

Proof of Scale

Mature of Exit

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[Audio] We have presented four examples to illustrate the different types of strategies that various investors may have. The quotes have been approved by the investors, and they show, for example, the difference in views held by GP Bullhound and STOAF regarding the importance of the founders in relation to the technology. Or the different strategies that investors may have in order to reduce risk. Take Walerud Venture, who invest in few companies and compensate this approach with operational engagement. As opposed to Byrenius, who spreads his investments in many companies, although this requires that the companies are operationally self-sufficient. What type of investor suits your situation?

INVESTORS ARE DIFFERENT

Our companies often have revenues but seldom positive results, as they invest everything in growth. We primarily invest in companies with major global growth opportunities. The team that runs the company is really the most important factor. /Ann Grevelius, GP Bullhound

STOAF looks for "Black Swans", investment objects that have a disruptive technological advantage and major market potential. Such unique circumstances can offset an initially weak entrepreneurial team. /Lennart Ohlsson, Ph. D. Ek. STOAF, Innovation market etc.

Together, the three of us work on slightly less than a half-time basis in each project. This equates to a maximum of two projects each. We invest up to around MSEK 10. /Jane Walerud, Walerud Venture

I invest small amounts in impact tech companies that take in MSEK 2-5 and have the potential to reach 1 billion in turnover. They must also be operationally self-sufficient. /Eric Byrenius, investor, formerly Online Pizza

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[Audio] Som exempel på hur olika strategi olika investerare kan ha har vi tagit med fyra exempel. Citaten har godkänts av investerarna och visar t ex skillnaden i syn på grundarnas betydelse i förhållande till teknologin mellan GP Bullhound och STOAF. Eller hur olika strategier investerare kan ha för att minska risk. Waleruds som går in i få bolag och kompenserar med att engagera sig operativt. Att jämföra med Byrenius som sprider investeringar i många bolag vilket dock kräver att de är självgående. Vilken investerartyp passar er?

ANOTHER ANGELS PRINCIPLES

I want to invest in founders based geographically close to me so that I can meet face to face with them regularly I prefer to back female founders but it is not a must I like consumer ideas more than enterprise I like to co-invest with other investors that I respect I’m not investing if the founders aren’t still involved I don’t want to invest if the founders aren’t full-time dedicated I will not invest if the cap table is unequal or there are investors who are not adding value but own a significant part of the business or if the founder does not own a meaningful stake of his/hers own business I am not looking to invest in big rounds, but angel or seed stage opportunities. /Sophia Bendz, Atomico

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[Audio] A common attitude on the part of founders is to try to achieve as high a valuation as possible in the first round, whatever the cost. This is natural, as they want to maintain control of the company, and at the same time own a sufficiently large share to make a lot of money in conjunction with an exit. The challenge lies in offering a share issue that provides sufficient potential return for the investor in relation to the current development phase of the company.

We want to achieve as high a valuation as possible. We don’t want to become too diluted too early and lose control. /Founder

HOW DO FOUNDERS THINK?

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THE INVESTMENT READINESS PROCESS

IRP is a well structure and effective learning and development process supervised and tailored for the specific company by the IRP Instructor supported by a cloud based documentation tool .

Tasks excited online by Founders

Presentations, literature and templates

Value-driving factors

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2

3

4

5

6

7

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MEETING 1 2 h

MEETING 2 2 h

MEETING 3 2 h

MEETING 4 2 h

MEETING 5 2 h

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KPI progression

Strategic Roadmap

Exit strategies

Financial forecast

Fictitious valuation

Financing design

Investment offer

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1-2 w

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1-2 w

Graphic 34

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Instructor led meetings online or IRL

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Cloud based software for documentation

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TASK 1 VALUE-DRIVING FACTORS

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TASK 2 KPI PROGRESSION

abstract

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TASK 3 STRATEGIC ROADMAP

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Calculate the accumulated cash flow to obtain the total capital requirement

Do a Worst Case e.g. that one or more of your risk scenarios become reality.

Financial forecast and total capital requirement

TASK 5 FINANCIAL FORECAST

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TASK 7 FINANCIAL DESIGN

Total

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TASK 8 INVESTMENT PROPOSAL

60 48 36 24 12 -12 2020 Revenue 2021 — EBIT 2022 2023 Acc Result 2024 2025

Revenue: M€ 6 EBITA: M€ 2,4

EXIT to a major telecom company EBITA: M€ 2,4*9 valuation multiple 13 times the money for 1st round investors

Exit Trade Sale Valuation: M€20

6 5 4 3 2 1 0 -1

2020 2021 2022 2023 2024 2025

Revenue

EBITDA

Acc. Cash

M€

2nd round: M€ 0,9 Pre money: M€ 3,1 18 months runway Milestone 2 Revenue

Milestone 3 Profitable

Milestone 1 Launch 1st round: T€ 300 Pre money: M€ 1,2 12 months runway

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The members of the founder team are in complete agreement about the company’s goal There is a well-prepared plan with milestones for achieving the goal The plan is realistic and is described in financial terms and figures There is a financing plan to facilitate implementation of the plan and achievement of the goal There is a return defined for investors

OBJECTIVES OF IRP

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Value-driving factors KPI progression Strategic roadmap and milestones Financial forecast Exit strategy Valuation model Investment design including: Total capital requirement and number of investment rounds Pre-money valuations Potential return for investors Dilution effect for founders Investment offer

RESULTS

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Time: to achieve optimal effect from the meetings with investors Energy: able to better understand an investor’s decision Confidence: by knowing what you want and how you are going to achieve it, operationally and financially The right valuation: investment offer with accepted dilution effect The right co-owners: greater likelihood that you and the investor have matching expectations

WHAT DO THE FOUNDERS GAIN?

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Through IRP I gained a much better understanding of what investors expect of me and the company’s development. Before IRP I focused solely on the company’s product/service, without thinking that much about what an investor expects to gain from the process.

WHAT DO FOUNDERS SAY?

“The knowledge in IRP gave us a sense of security”, “we dared to impose higher demands when we performed our new share issue”, “IRP gave us the idea of performing reverse due diligence – we examined our investors, with very successful results”.

IRP is a method that is good in so many more ways than just simply preparing a company for an investment. IRP is also a tool for clarifying the company’s goals and vision and the founders’ drivers and personal goals.

IRP was incredibly valuable for us. We thought we were on top of things, but it turned out we had a lot left to do before we could deem ourselves ready for the next round.

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CUSTOMER QUOTES

“IRP has given us the opportunity to take stock and reflect on how we actually want to build our company. It is well worth the hours it took to complete!” Niklas Ericson and Joel Glemne, Skira AB

“Through our work with – Investment Readiness Process – we were well prepared for meeting the investors. We spoke their language, which enabled us to quickly match the right investors with OneRepay’s investment needs in the long term.” Henric Rudin and Heléne Haglund, OneRepay Sweden AB

“Gimic has completed IRP. This gave us a large amount of knowledge about how investors think, and the information and documentation we need.” Marcus Nilsson, CEO Gimic AB

“In the current investment round for our company, the issue of valuation has been raised a number of times. Having completed an IRP, and with the support of the documentation it produced, it is much easier to explain, in a credible manner, how we have arrived at our valuation.” Niclas Kihlbaum, Binary Brains

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WHAT DOES THE EVALUATION SURVEY SAY?

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Beels Consulting AB was founded in 2010 by Björn Larsson, who has worked with startups and has been active in sectors such as Business Development, EdTech and Personal Mobility, including as CEO of Create Business Incubator Mälardalen, interim CEO of Västerås Science Park and co-founder/CEO of Zoomability AB a Medtech company. Under Björn’s management, Zoomability performed five investment rounds with local angel investors and seed funds, and at later stages with larger angel investors and a national investment fund. In 2016, Zoomability received an acquisition bid with exclusivity from a global company. The negotiations ended with Zoomability not being acquired. When Björn left the company at his own request, the Board had decided to proceed with an IPO and the company is now listed. Since 2016, Björn has interviewed investors and angel investor networks, studied literature relating to startup/ scaleup investments, and attended investor training courses at Connect Sverige and STOAF. Björn managed the Investerarskolan project on assignment of Create and Almi Företagspartner Mälardalen, and he is a co-founder of Västerås Tech Invest AB. ”Investment Readiness Process by Beels” has been developed by Björn Larsson based on theories and practice in combination with systematised and in-depth reflection regarding Zoomability’s financing journey. The aim is to provide knowledge and methodology to founders intending to finance their company’s development through share issues to external investors.

IRP By Beels-Logotyp_Text-White.pdf

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IRP By Beels-Logotyp_Text-White.pdf