exploration seed finance alex atkins 20150713
TRANSCRIPT
VC, Angels & Crowdfunding:
A potential source of funding for exploration &
minerals technology firms.
AIG SEMINAR: VALUE CREATION VIA EXPLORATION13th July 2015 - Alex Atkins
Source: Atkins 2015, MBA(Fin) Final Project
Startup Funding is at the High Risk – High Reward End of the Investment
Spectrum• Exploration, R&D, Tech = “Greenfields”
• > 50% startups fail
• 1 in every 100 deliver >10x rewards
• “Winners” pay for “Losers”
Defensive
Aggressive
Competition for limited funds
• Tech is cool: low cost, globally scalable, fast exit! Lots of low hanging fruit.
• Resources: high CAPEX, long term, “unknown unknowns”.
Fundable Startup Criteria
Cohen, BS & Kador, J 2013, ‘What Every Angel Investor Wants You to Know’, McGraw-Hill
“Tech rocks!” in
the eyes of investors
What are the risks and requirements of seed
finance sources?
Investors stick to certain
life cycle stages• CSEF: seed, FF&F,
democratization of capital
• Angels: seed/startup, higher risk, lower value
• VC: developed/ proven, less risky, higher value. Don’t invest until out of “valley of death”.
Oz Crowdfunding Portals
Investors’ different requirements
Increasing Risk Decreasing RiskDecreasing Value Increasing Value
Funding Round
Seed SeriesA SeriesB SeriesC IPO/ Trade sale
Investment type
Convertible Debt
Common Stock
Preferred StockCommon & Preferred
StockInvestor type Angels & CSEF VC Investment Banks
Required Return
5-10 x >30% 4-5 x Proof of Business Model
Investment (AUD)
$10k - $1M $1M – 10M + $10M(ASX Listing Reqt market cap)
Actual IRR (%)
27% (2.6x: angels) 27 - 36.4% Stockmarket (7-15%)
Years to Exit 3 - 6 6 - 10 Liquid
Atkins 2015, MBA(Fin) Final Project Research
Risk - return statistics for five asset classes
(1983 to 2003)
Asset Class E[r]arith Std Dev,
Australian Shares 15.99% 21.99%
Australian Bonds 11.51% 7.03%
Cash 9.26% 4.44%
International Shares 14.89% 22.63%
Property 14.27% 12.82%
Atkins 2015, MBA(Fin)
Since 2008, returns ~ 5% less
Which investor is right for your startup/ exploration
company?
Let’s compare VCs, Angels & CSEF
VC’s are great if you can get the right ones on
board from the start, but they are risk averse & need
you to be out of “valley of death”
($$$)
VC’s• DD: 3-6 months; Fees: 15%; Exit: <10 yrs• VC’s on Board = Loss of control but gain expert• VC’s protect their share in future funding rounds (anti-
dilution clauses, warranties).• Get expert help to prevent losing economic benefits &
control• VC conflict of interest (concurrent multiple fiduciary
duties)• Exit = IPO in US• Exit = Trade sale Aust
If you can’t get VC’s on board, find an Angel (or Angel
Syndicate) who can add hands-on value from their past experience. Will do riskier, earlier stage
ventures.
Angels• DD: 1-3 months; Fees: legal costs; Exit: 3-6 yrs
• Angel on Board = Loss of control, gain expert
• Angel could be a micro-manager (term sheet details can prevent this)
• If use convertible notes instead of equity, have liabilities on balance sheet (trading while insolvent) & owe fiduciary duties to creditors
• Follow on funding may not be possible
If you can’t get VC or Angel, can
try Crowdfunding = FF&F (friends,
family & fools/fans)
Equity – CSEF or Debt - P2P
Crowdfunding• DD: 1-3 months; Fees: 5-8%; Exit: 3-6 yrs
• Limited to <$2M fundraise
• Weaker investor protection
• Onerous investor management
• Contract law confusion for cross-border platforms (esp. during platform insolvency)
• No secondary market, illiquid
• Risk of fraud, cyber attack, money laundering
• Hard to get follow on funding?
Growth by Crowdfunding Model Prediction 2015 = US$34.44B
Source: http://www.forbes.com/sites/chancebarnett/2015/06/09/trends-show-crowdfunding-to-surpass-vc-in-2016/
CSEF Legislation is coming
• CSEF legislation is already in place in US (JOBS Act), NZ, Italy.
• Legislation coming in Australia (expect end 2015), Canada, France, UK.
Currently Available in Australia:
• 20/12 Rule <$2M (s708 Corporations Act)
• ESVCLP (VC: $10-100M) (tax free)
Australia: (Fees 5-8% of raise)•ASSOB: Since 2005; 20/12 Rule
•VentureCrowd: Artesian VC (link to Sydney Angels)
•OurCrowd: Israel VCs
•CrowdfundUp: WA Real Estate
•OzCrowd; Equitise (NZ);
•FatHen (WA); Kickstarter (US)
•Indiegogo (US)
Mining:•KlondikeStrike (Canada)
•TruCrowd (Texas US)
•VentureFounders (UK)
•ExplorationFunder (US)
Mining Crowdfunding Portals
CSEF Examples
CSEF Example: Planetary Resources
• Raised funds within 20 days in 2013
• Equity crowd funded US $1M through Kickstarter
• Funds are to launch a space telescope to identify possible asteroids ideal for mining
Planetary Resources Website
Source: InvestorIntel (2014)
“Finding & Funding” Process – same for VC,
angels & CSEF
Framework for Assessing Startup Fundability (Neiderer 2015)
Due Diligence• Same processes for all three (VCs most
stringent), includes consideration of:
– Corporate Governance
– Management Team/ Board of Directors
– Business Model
– Financial Viability
– Product/ Services
– Operations
– Legal
Email me for checklists & templates
Term Sheets & Cap Tables (Owner %,
Valuation)• Negotiation of terms of engagement &
ownership rights
• Deal terms should protect early stage investors & align all parties (founders & multiple funding round investors have divergent interests)
• Traps! Seek expert advice
Conclusions• Early stage funding is high-risk high-return
• There’s not enough capital to fund all the startups/ greenfields projects
• Competitive process + networks to find funding
• The team is seen as more important than the product/ project
• Ability to execute strategy & implement plans is seen as crucial
Conclusions• VC may be too conservative for green-fields
• Angels pool may not be big enough
• Crowdfunding represents an opportunity to tap into a large (global) pool of people making small investments. – Diversification of risk – Democratisation of capital– Nascent: few examples
