Introduction to Community. Development Venture Capital

Transcription

1 Introduction to Community Development Venture Capital

2 A workshop presented by the Community Development Venture Capital Alliance

3 Structuring the Investment and Adding Value After the Investment New Markets Venture Capital Fund (NMVC) Rural Business Investment Company Fund (RBIC)

4 Structuring the Investment Value of Company Pricing designed to achieve 10X return Amount to be Invested Invest $1.0 Million in XYZ Corp to get 10X return, how much (%) of company will we need? Need to get $10.0 Million at Exit Exit Value estimated at $60 Million Need to own 17% of company ($10M/$60M)

5 Term Sheet: Overview of Basic Terms Security Convertible, Participating Preferred Amount of Series What are Use of Funds? Capitalization Pre & Post Money Cap Tables Dividends

6 Term Sheet: Overview of Basic Terms Anti-Dilution Exempt Issues, e.g. Management Registration Rights Rights of First Refusal Tag-along Rights Drag-along Rights Unlocking Provision Pre-emptive Rights

7 Term Sheet: Overview of Basic Terms Redemption Rights 4-5 Year Period Board of Directors Usually no more than 5 Directors Employment Agreements Affirmative Covenants of Issuer D&O Liability Insurance Key Person Life Insurance

8 Term Sheet: Overview of Basic Terms Negative Covenants of Issuer Common Dividends Change Organization Structure Loan or Guaranty Redeem Outstanding Stock No Change in Management Control Compensation New Subsidiary Capital Expenditure

9 Term Sheet: Overview of Basic Terms Cure if Breach PROXY Exclusivity Due Dilligence Historical Financial Statements, 3 years Financial Projections, 3 years Capital Structure Product & Customer Information Competition Marketing, Sales & Distribution Information Research & Development

10 Definitive Documents

11 The Deal is Done Very Best Time Before Exit

12 Investee Board of Director Management Firestone Board of Director OVC Board of Director

13 Investee Board of Management Responsibilities of a Board Member When does a board member serve the Company When does a board member serve the secured and unsecured creditors? Contrast between board member responsibility and shareholder responsibility Example: Tricycle

14 Post Investment Activities Board of Directors Meetings Regular calendar for year Committee Assignments Compensation Audit Consistent Review of Monthly Results Backlogs Visibility of the next month Insist on Formal Minutes Hold management accountable Always be Prepared

15 Post Investment Activities Treasurer Activities Working Capital Bank Relationships Consulting Activities Strategic Plan Marketing Management Financial Forecast Cash Management Plan Vendors Customers

16 Post Investment Activities Workouts When is this necessary? First step Desired result How long does this take?

17 Useful Links Sample Due Diligence Checklist Sample Business Plan Outline Financial Glossary Business Research Resources Online Technology and Finance Periodicals

18 Investing With Vision Ray Moncrief Fund Manager P.O Box London, KY