Zachariah George shares his insights on what investors are looking for so that you can learn how to create a business that is going to get noticed.
The purpose of the clinic is to better equip entrepreneurs and companies looking for funding with practical tools in creating a business plan that is investor ready.
This session will focus on financial readiness and is applicable to all levels of knowledge and experience.
U-Start is a boutique advisory firm that matches investors with entrepreneurs. Join the U-Start community or follow @Zack_CPT.
Digital Transformation in the PLM domain - distrib.pdf
Getting investment ready tech4 africa (zach)
1. Understanding Investment
Valuation Methodologies
Access to Capital
Zachariah George
Chief Operating Officer
U-START Africa
rzgeorge@u-start.biz
@zach_cpt
2. 2
PART 1:
UNDERSTANDING INVESTMENT AND
MAXIMIZING WAYS TO GET FUNDED
4. 4
1. VERIFY. VERIFY. VERIFY.
It takes time and patience to develop solid leads for investors. You can attract investors for a
small business with preparation, planning, strategy and proper research.
IDEA
Think of a realistic idea for a product or service, identifying a gap in the market that
you can fill. Get an idea going and achieve a small success to prove it works.
Investors are more confident investing in ideas that have already been proven.
Timing is key!! (Google, Instagram)
TEAM
Consider what experience you have. Consider hiring people to fill the gaps in your
skills or knowledge. Management experience is always a positive factor, since it
directly relates to the credibility of the management team in the eyes of the investor.
Teaming up with a co-founder who does bring the necessary experience, finding a
mentor who carries personal credibility, or organizing a board of advisors with
relevant experience and expertise are all ways of addressing the issue.
5. 5
1. VERIFY. VERIFY. VERIFY.
PROOF OF CONCEPT
Can you turn your idea into a profitable business? You should be able to
demonstrate this in your business plan, which will set out your goals and how
you plan to achieve them.
SOURCE OF INVESTMENTS
How much money will you need to get started? Perhaps you can cover all the
start-up costs out of your own resources, otherwise you need to investigate
other sources of funding such as a bank loan or by selling part of your
business to an investor. Determine the type of capital to be attracted
FEASIBILITY. SUSTAINABILITY. SCALABILITY
Pinterest, Twitter, Uber – Sky high Valuations despite
minimal revenue!
6. 2. FIND THE RIGHT INVESTORS.
Getting the right investors for your project is just as important as being able to attract investors.
6
Here’s what we advise upcoming entrepreneurs look for in their investors:
DIVERSITY: The more well-rounded your
investment group is, the better suited
they’ll be to address the challenges your
company will face. Look for investors with
diverse backgrounds and experiences
POSITIVITY: Supportive people can be the
difference between a project’s success and
failure. No company can grow without
encountering problems. Finding people
who remain confident through these times
can improve your chances of success
CREATE AN INVESTOR LIST AND CONTACT THEM
7. 7
The idea is important to explain
but not as important as to whom the idea is to be sold
Every investor has their own criteria
to judge companies and investment
opportunities. Before presenting
your business plan learn which kind
of fund they handle, the last
investment closed, their track record
and professional background.
Don’t waste time and money by
sending a great idea to the wrong
firm!
3. KNOW YOUR AUDIENCE
8. Many investors receive up to 5,000 projects per year. Only 10% of these plans are seriously
considered, and 1-2% are actually funded. In a situation like this, the smallest details
(punctuation, grammar, appealing graphics and concise writing) could mean the difference
between you and the others. Ensure that your plan has all pertinent information and answers
any questions that may arise.
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4. ATTENTION TO DETAIL
BE CONVINCING AND CLEAR
If you participate at events and
conferences, prepare a 30-second
elevator pitch, pass out business
cards and start establishing a first
connection.
9. 9
5. BE COMMUNICATIVE AND HONEST
Here are qualities we strongly believe are key with any investor:
Communication :
Honesty : Being truthful is obviously non-negotiable. If you misrepresent yourself or your business,
you’ll be dead in the water.
10. 10
Investors are looking for three things: the people behind an idea, the idea itself and an answer
to the question:
HOW WILL I GET MY MONEY BACK?
There isn’t often a clear indication of how and when a return will be generated. If you are
three-for-three in terms of offering investors what they’re looking for, that also means you’ll
have a real business plan with cash flows, specific ROI projections and a true understanding of
your market.
Professional investors will look to tangible
indicators of success (website traffic,
conversion rates, your ability to launch) and
validation of the business model in
evaluating a company’s prospects.
Be very realistic with your projections. Think
carefully about cash-flow and bear in mind
that not all clients will pay promptly.
6. DATA AND REALISTIC PROJECTIONS
11. 11
7. SCALE YOUR COMPANY. THINK GLOBAL.
1. Leave regional business models. In order to attract serious investors
think about a scalable business on the first day.
2. Convince a VC that your venture targets a strong market with a valuable
product. It follows logically that a combination of these two factors could
mean your product will gain share rapidly in a fast-growing market —
and that would give the VC a return on investment.
3. Understand markets’ dynamics, its operations and possible strategic
industrial partners. If it’s possible forge partnerships proving your
viability and position you for success and scaling.
4. Be prepared to relocate your company, if necessary.
12. Interest among investors to tap into more start-ups outside
of their traditional heartland of Silicon Valley is growing.
Silicon valley is overcrowded not just with companies but
also sharp-elbowed VCs jockeying for pole position to fund
them.
“Three key components stick out when it comes to
companies from this region:
• they think global from day one,
• they’re lean
• they put a user-friendly design at the forefront of their
agenda.
12
8. HAVE NORDIC DNA
We live in the “age of excellence” where products are either gorgeous or they’re ugly. There are
only 10s, with no room for 7s, 8s or 9s. Don’t leave design or branding for another day—do it right
now.
This makes the products and businesses scalable from very early on
13. 9. BE «SoMoLo»
A big investor mantra over the past few years has been “SoMoLo,” an acronym for three
megatrends
13
SOCIAL
MOBILE
LOCAL
Investors are looking at very LOCALLY FOCUSED companies – like UBER, Yelp, Trulia,
locally focused companies, that thanks to the advent of the mobile phone and social
media can refer and capture the market both offline and online.
These companies think and grown locally have a global vision to scale both nationally
and globally. Creating a company focused at the local level is a challenge but it is very
rewarding and gratifying, so investors are attracted to them!
The advantages? Ability to CREATE ECONOMIES of SCALE and NETWORK
ECONOMIES, difficult to replicate in a short time.
14. 14
10. TAKE RISKS
Save a significant sum of your money to invest in the
business before seeking investors for the rest. If you
approach an investor after you have put time and your
money on the line, he may take your idea more seriously.
“Why should anyone else be willing to risk his or her
money in your business idea?"
«Having Skin in the Game» Tim W. Knox
16. Groupon and its ‘True’ Valuation
• “Groupon Valued At $250 million” – TechCrunch, December 17, 2009
• “Groupon Raises Huge New Round at $1.2 Billion Valuation” – TechCrunch, April 13, 2010
• “It’s Official: Groupon Announces That $1.35 Billion Valuation Round” – TechCrunch, April 18, 2010
• [Moment of Context #1: "Google's Groupon Offer: $5.3 Billion" - All Things D, November 29, 2010 ]
• “Groupon’s Valuation Could Be As High As $7.8 Billion” – TechCrunch, December 28, 2010
• “Groupon Closing $950 Million Round, Valued At $4.75 Billion” – TechCrunch, December 28, 2010
• “Groupon Said To Be Valued At, Like, $15 Billion” – TechCrunch, January 13, 2011
• “SharesPost Report: Groupon Is A Deal At $6 Billion” – TechCrunch, February 3, 2011
• “Is Groupon Worth $25 Billion? Revenue Now ‘Multiple Billions Of Dollars’” – TechCrunch, March 17, 2011
• [Moment of Context #2: Groupon files their S-1, opening their finances to the world - June 2, 2011.
• “Groupon’s IPO Valuation Could End Up Being Less Than $6 Billion” – TechCrunch, October 3, 2011
• [Moment of Context #3: "Groupon Seeks Valuation at Close to $12 Billion" - Dealbook, October 19, 2011 ]
• To be fair, TechCrunch was far from the only offender on playing in Groupon’s crazy sandbox o’ numbers.
• [Moment of Context #4, from March 17, 2011: "Groupon Valuation Soars as Possible I.P.O. Nears." The article noted that
Groupon's then-possible I.P.O. could "value the company at close to $25 billion, according to a person close to the matter who
was not authorized to speak because the talks were private." The article appeared in Dealbook. ]
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17. 17
Misconceptions about Valuation
• Myth1:A valuation is an objective search for “true” value
– Truth 1.1: All valuations are biased. The only questions are how much and in
which direction.
– Truth 1.2: The direction and magnitude of the bias in your valuation is directly proportional to who pays you
and how much you are paid.
• Myth2:A good valuation provides a precise estimate of value
– Truth 2.1: There are no precise valuations
– Truth 2.2: The payoff to valuation is greatest when valuation is least precise.
• Myth3:The more quantitative a model, the better the valuation
– Truth 3.1: One’s understanding of a valuation model is inversely proportional to the number of inputs
required for the model.
– Truth 3.2: Simpler valuation models do much better than complex ones.
Young companies are difficult to value:
o Some are start-up and idea businesses, with little or no revenues and operating losses.
o Even those young companies that are profitable have short histories,
o Many of the standard techniques used to estimate cash flows, growth rates and discount rates either do not
work or yield unrealistic numbers,
o The fact that most young companies do not survive has to be considered somewhere in the valuation.
18. 18
Setting up the Value of a Company
• Valuation:
- Looking backward: Cost – No.s: can be sunken cost
- Looking at the present: Comparables
- Looking towards the future: Market perspective / revenues
• Most often: Value ≠ Cost
• Plan for follow-on financing rounds:
While fixing current valuation, anticipate next rounds & leave space
for up-valuation
Investor’s value
Founder’s pre-money
value
Post Money Valuation
CASH
Pre Money Valuation
• Business idea creates
business opportunities
• Readiness to ‘Jump’
• Achievements/Assets
(Patents)
• Typically not based on
revenues
• Definitely not zero
Determining Future Value
• New R&D results (‘Milestones’)
• Patents filed and granted
• Corporate deals
• Set up of labs, etc.
• New employment
• Research grants
• Commitments of renowned VCs
• Income
20. 20
Angel Investors: Valuing Pre-Revenue Companies
The Scorecard Method
Compares the target co. to typical angel-funded startup ventures and adjusts the average valuation of
recently funded companies, to establish a pre-money valuation of the target.
1. Strength of team (weighting factor WF = 0-30%)
2. Size of the opportunity (WF = 0-25%)
3. Product/ Technology (WF = 0-15%)
4. Competitive environment (WF = 0-10%)
5. Marketing/ Sales/ Partnerships (WF = 0-10%)
6. Need for additional investment (WF = 0-5%)
7. Other factors (WF = 0-5%)
The Venture Capital Method
uses three scenarios, base, low and high cases, to estimate the valuation range. heavily depended on the
projected sales revenues at the time of exit (harvest or terminal value).
1. Pre-money valuation = Post-money valuation - angel investment
2. Post-money valuation = Terminal Value / anticipated return on investment (ROI)
3. Terminal value = (Net-After Tax Profit in exit year)*(Industry price / Earnings ratio)
21. Venture Capital Method: An Example
Terminal Value: TV is the anticipated selling price (or investor harvest value) for the company at some point
down the road; let’s assume 5-8 years after investment. The selling price can be estimated by establishing a
reasonable expectation for revenues in the year of the sale and, based on those revenues, estimating earnings
in the year of the sale from industry-specific statistics. For e.g., a software company with revenues of $20m
in the harvest year might be expected to have after-tax earnings of 15%, or $3m. Using available industry
specific P/E ratios, we can then determine the T.V. (a 15X P/E ratio for our software company would give us
an estimated Terminal Value of $45m). It is also known that software companies often sell for two times
revenues, in this case, then, a Terminal Value of $40m. OK…let’s split the difference. In this example, our
Terminal Value is $42.5m.
Anticipated ROI: Angel investing is risky business. Based on the Wiltbank Study, investors should expect a
27% IRR in 6 years. Most angels understand that half of new ventures fail and the best an investor can expect
from nine of ten investments is return of capital for a portfolio of ten. Consequently, the 10th investment
must be a home run of 20X or more. Since investors do not know which of the ten will be the homerun, all
investments must demonstrate the possibility of a 10X-30X return. Let’s assume 20X. Assuming our software
entrepreneurs needs $500,000 to achieve positive cash flow and will grow organically thereafter, here’s how
we calculate the Pre-money Valuation of this transaction:
Post-money Valuation = Terminal Value ÷ Anticipated ROI = $42.5m ÷ 20X = $ 2.125m
Pre-money Valuation = Post-money Valuation – Investment = $2.125 – $0.5m = $1.625m
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22. 22
Venture Capital Method: An Example (Contd.)
vcmethod.com
Venture Capital Method
Discount the Terminal Value to Present Value
Annual Earnings(Projected NI) 1 $2,500,000.00 (at exit date)
In Year 2 5 (at exit date)
PE(multiple) 3 15
Required Rate of Return 4 50%
Value of firm 5 $4,938,271.60
Calculate the Required Ownership Percentage
Initial Investment 6 $3,500,000.00
Equity Stake 7 70.88%
Current Outstanding Shares 8 1,000,000 (pre)
Total Outstanding Shares 9 3,433,476 (post)
VC Owns # Shares 10 2,433,476
Share Price 11 $1.44
Pre-Money Valuation 12 $1,438,271.60
Post-Money Valuation 13 $4,938,271.60
Notes:
1 Projected Net Income at exit date.
2 Investment exit year.
3
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5
6
7
8
'9-11
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The choice of multiple for the valuation is something that will be a matter of discussion during the venture capital
negotiations. PE ratios for comparable public companies will be used as a benchmark to select a PE for the
company, recognizing that PE ratios for public companies are likely to be higher due to their greater liquidity relative
to a private company.
The venture capital investor uses the target rate of return to calculate the present value of the projected terminal
value. The target rate of return is typically very high (30-70%) in relation to conventional financing alternatives.
Here the terminal value is discounted to the present value. The terminal value of the company is estimated at a
specified future point in time. That future point in time is the planned exit date of the venture capital investor, typically
4-7 years after the investment is made in the company.
Investment amount Entreprenuer is seeking.
VC requires this ownership %. Valuation assuming no future dilutionF. ormula: Initial Investment / Value of the Firm
The company currently has [8] shares outstanding, which are owned by the current owners. If the venture capitalist
will own [7]% of the shares after the investment (thus, 1-[7]% owned by the existing owners), the total number of
shares outstanding after the investment will be [8]/(1-[7]%) = [9] shares. Therefore the venture capitalist will own [10]
of the [9] shares.
Since the venture capitalist is investing [6] to acquire [10] shares the price per share is [6]/[10] or [11] per share
Pre-Money Valuation = New Price x Old Shares: [11] x [8]
Post-Money Valuation = New Price x Total Shares: [11] x [9]
23. Convertible Note Financing
A convertible note is a loan that typically automatically converts into shares of preferred stock upon the closing of a Series A
round of financing.
Conversion Discount: A conversion discount (or “discount”) is a mechanism to reward the noteholders for their investment risk
by granting to them the right to convert the amount of the loan, plus interest, at a reduced price (in percentage terms) to the
purchase price paid by the Series A investors.
For example, if the investors in a $500,000 convertible note seed financing were granted a discount of 20%, and the price per
share of the Series A Preferred Stock were $1.00, the noteholders would convert the loan at an effective price (referred to as the
“conversion price”) of $0.80 per share and thus receive 625,000 shares ($500,000 divided by $0.80). That’s 125,000 shares
more than a Series A investor would receive for its $500,000 investment and a 1.25x return on paper ($625,000 divided by
$500,000). (The foregoing example does not include accrued interest on the loan, which is typically about 5%-7% annually.
Discounts generally range from 10% (on the low side) to 35% (on the high side), with the most common being 20%
Conversion Valuation Cap: A conversion valuation cap (or “cap”) is another mechanism to reward the noteholders for their
investment risk. Specifically, a cap is a ceiling on the value of the startup (i.e., a max $amount) for purposes of determining the
conversion price of the note — which (like a discount) thereby permits investors to convert their loan, plus interest, at a lower
price than the purchase price paid by the Series A investors. Using the example above, let’s assume the cap were $5 million and
the pre-money valuation in the Series A round were $10 million. If the noteholders invested $500,000 and the price per share
of the Series A Preferred Stock were $1.00, the noteholders would convert the loan at an effective price of $0.50 per share
($5,000,000 divided by $10,000,000) and thus receive 1,000,000 shares ($500,000 divided by $0.50), which is 500,000 shares
more than a Series A investor would receive for its $500,000 investment and a 2x return on paper ($1,000,000 divided by
$500,000), not including any accrued interest on the loan. Notice that if there were a 20% discount and no cap, the noteholders
would only receive 625,000 shares or a 1.25x return, as noted above.
23
24. Valuing Post-Revenue Companies
The 4 most commonly used techniques are:
1. Market Valuation - Comparable companies analysis involves the comparison of operating metrics
and valuation multiples for public companies in a peer group (the comparable "universe") to those
of a target company.
24
2. Comparable Transactions Method - based on the premise that the value of a company can be
estimated by analyzing the prices paid by purchasers of similar companies under similar
circumstances.
3. Discounted Cash Flow (DCF) Analysis - In simple terms, discounted cash flow tries to work out
the value today, based on projections of all of the cash that it could make available to investors in
the future.
4. Multiples Method (or Earnings Multiples) - Consists of calculating a company's value by
multiplying its sales by a factor used in the industry.
IN SUMMARY –
1. Valuation is trying to assess the current value of a future potential -> a projection
2. Trying to calculate your value? More and art than a science (50+methods …).
3. Anticipate the future valuation be at different milestones : the financing plan ?
Conclusion: the value = what the investor is ready to pay and that you’re ready to accept : you value
the money
26. 26
Which Investors?
Founders (mandatory) : ____________
Friends : ____________
Family : ____________
Fools : ____________
Foundations : ____________
Family Offices : ____________
Business plan awards/grants : ____________
Economic Promotion (guarantees) : ____________
Research Projects (TIA, …) : ____________
Bank (Mezzanine Financing) : ____________
Business Angel (BA) : ____________
Venture Capitalist (VC) : ____________
Suppliers/Customers ? : ____________
Industrial Partners ? : ____________
Bank (Classical instruments) : ____________
IPO (Initial Public Offering) : ____________
Early Stage
Later Stage
27. 27
Preparation of a Financing Round
• Plan early – time is negotiation power (6–12 months)
• Availability of management – time consuming process
• Be well prepared and execute fast
• Co-operate with experienced advisors (lawyers, IP, fiduciaries)
• Negotiate essential and delicate terms early (Term Sheet)
• Disclose everything
• Define your type of investor: long and short list
• Action plan
• Very often (always?) several financing rounds needed (infrastructure, growth,…)
• Each round (can be) divided into milestone payments
• With every round the share price (valuation) should increase (value creation)
• New investors will receive shares (new or existing), diluting the previous shareholders.
• Co-financing very common
• EXIT usually not possible from round to round
30. 30
Bootstrapping: Pulling Yourself Up!
Bootstrapping literally means developing the company with little or no outside funding (no salary, alternative
revenues for founders/company (consulting, etc.), support for partners (suppliers). Bootstrapping is not for
everyone!
Why go bootstrap:
• Build your business on a legitimate, real-world value proposition
• Initiate the critical sales learning process sooner, not later
• Don’t waste money; make it
• Accelerate time-to-market and time-to-profitability
• Be less likely to make big, fatal financial mistakes
• Force yourself into unconventional thinking
• Have more freedom and flexibility
• Own much, if not all, of what you create
The Dangers Involved in Raising External Money:
• Masks hard questions about viability
• Raising money takes time away from customers
• Adds an additional set of masters
• With money you can make a fatal mistake
• Money removes spending discipline
• Fixes your exit strategy and timing
• You sell your equity very dearly
31. 31
Business Angels (BAs) and How They Invest?
• Wealthy individuals ready to invest own money
o Often providing “smart money”: Experience, network in industry, knowledge and providing a mentor
role
o Whole spectrum: Philanthropic to exclusively financially motivated individuals
• How to find the right BA
o Keep on being active: Internet research, activate network, call potential BA clubs, go to conferences,
pitch to everybody, …. and evaluate!
• How to raise capital from BAs
o Sign up people they know or have heard of
o Don’t underestimate them: Be professional
o Understand their motivation
o Enable them to live your story
• Investment focus of BAs
o Early stage of company, often 2nd round of financing for high-growth start-up (after FFF, competitions,
etc.)
o Usual investment amount: USD 100K – 1m. Can also go much higher : ”Super angels”
o Focus of investment: Depending on background of BA
o Often investing in clubs / with other individuals
o Investment instrument: Convertible Loans (postponed valuation) or Equity
o Expecting high returns and looking for important stake (professional BAs: 20% equity and 10x over 5
years)
32. o sourcing opportunities: systematic and network
o shaping opportunities: prioritization, resources,
32
Venture Capitalists: Structure & Strategy
• VCs invest the money of their Limited Partners into “good ideas” and seek a financial return over a (defined)
time period.
• Not own money - have to raise funds / have investors
• Exiting deals is compulsory
• Core competency is (should be):
o people interaction: network, connections
o strategy
o expertise bundling
o risk management
• VC investment strategy is mostly defined along:
o thematic focus
o geographic area
o stage of financing
o investment size per invested company
o investor role: lead, co-lead
• Portfolio perspective:
• At the end of the day it is all about opportunities:
o focus creates expertise
o manage risk
o risk diversification (technology, indication, market,…)
risks based
o opportunity costs
34. 34
What VCs Look For:
• Experienced management
• A strong value prop:
• Competitive product/tech
platform
• “Open seas” market
• Financials
• Cash runway to exit
• Strong, aligned investors
• Translating into foreseeable exit opportunity
• Via trade sale or IPO
• Within 3 to 5 years
• With >3x multiple or >100% IRR
Exits for Investors:
• EXIT: the liquidity event – when investors get their money back, conditions the investor’s ROI
• Exit pathways have to be prepared (discussed) at the time of investment
• The business will we built to be a “nice bride for the wedding time”
Exit Options:
• Acquisition by a large company - the most common
• Initial Public Offering (IPO) – very rare
• Partial exit : Licensing per product, joint ventures
• But also… high level of dividends (for BAs)
35. 35
The Terms that Matter:
• Price / Valuation
• Type of security: preferred shares
• Liquidity preference over precedent rounds
• Anti-dilution protection
• Right of first refusal
• Drag along rights
• Vesting on founders’ shares and ESOP
• Board membership and voting rights
• Time-specific exclusivity
36. 36
Choose Investors Like They Choose Enterprises
If you have a good opportunity, VCs will spot you ! But you still have to do your homework (due diligence !):
• Identify them at Conferences / previous deals
• Criteria for selecting Investors (BAs, VCs)
o Personal fit – relationship – trust
o Understanding of the field
o Deep pockets and dry powder
o Sweet equity (e.g. geographic network for fundraising and business development)
o Investment time horizon
• Convincing the investors
o Be prepared! (Document preparation, industry network)
o Active network of advisors: science & business
o Create a sense of urgency
o Build up VC relations management: track, update, follow-up
o Communicate, communicate, communicate!
• Be aware: You need to work/deal with the investors you select for the next couple of years; divorce is not a
baked-in option
• Nevertheless: It does not matter how much you love each other, the investor eventually wants a successful
exit
• Usually, the investor has many eggs, you only have one
37. THANK YOU
!
Zachariah George
Chief Operating Officer
U-START Africa
rzgeorge@u-start.biz
@zach_cpt
Notes de l'éditeur
Investors can provide more than capital to your business — they can become resources for organizing, marketing, and realizing ideas. Knowing what to look for in an investor and being able to attract the best kind of investors are vital skills for any new entrepreneur.
How does one get an investment for an idea that seems obvious? Very simple: Understand what angel investors and VCs are looking for and give it to them. Investors have pattern recognition, and they are driven by four Fs: fortune, fame, fear and fun.
Social clearly has been delivering huge, as evidenced by the very strong performance of the Facebook, LinkedIn and Twitter IPOs.
Mobile has arrived with a vengeance, with smartphones and tablets already generating more traffic for many consumer online businesses than PCs.
in the past year, local has flourished as an investment category.
When I talk about local here, I’m focusing primarily on technology businesses that power online-to-offline commerce. Typically, they are two-sided marketplaces, with offline local businesses on one side and consumers on the other. They usually roll out on a city-by-city basis, and require a sales effort to sign up small businesses to populate and/or monetize the marketplace.
For more traditional “brick and mortar” companies, the ability to get to “proof of concept” through bootstrapping methods is much more difficult. It is also likely that the amount of all-in professional capital necessary to support a company in this category to an acceptable exit—including the amount of so-called “seed stage” funding—is substantially higher than for a social media or gaming company, for example. As a result, there may be a lower expectation that founders will be able to bootstrap to get to professional funding, but the emphasis will be commensurately higher on the other investment basics, including size of the market, likely market impact of the technology, barriers to entry, credibility of the management team and the like. As a result, the bar to funding for companies in this category is fundamentally as high.