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INTERSECTION CAPITAL
THE BIG IDEA in 142 WORDS
THE CAPITAL MARKETS ARE UNFORGIVING
VELOCITY IS A NEW METHOD for VELOCITY reaching the minds of the investors. investors.
b FINDING A USE FOR CAPIAL is easy. Raising it in the capital markets
is harder. I you don’t dierentiate, break through the market clutter, capture imagination and attention and get investors motivated about your deal, then capital will raise slowly. b
Why does diferentiation matter?
Sometimes it doesn’t. When you are presenting a deal to peopl e you know and have worked with beore, then almost any pitch will do. Tey’ll talk to you long enough — hours i necessary — to understand the structure, capital stack, and value. A discussion is going to happen because you are known and trusted. But when you are trying to reach investors you don ’t know well, a dierent psychology is in eect. It’s harsh but true — the quality of your deal book and investor package will determine how many people will look at the deal, consider it, and invest. Te potential pay o is huge.
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THE PROBLEM CON ONFU FUSI SING NG ID IDEA EASS AND AND DE DEAL ALSS ST STRUG UGGGLE TO RA RAIS ISEE CA CAPI PITTAL Tere is a undamental disconnect disconnect between the way investor decks are prepared and the way they are received A DISCONNECT by investment unds, venture capital and private equity. As a result, at the crucial moment, when it is most important to be convincing, nine out o ten times we are not. Our most important deal points have have a surprisingly low low chance o getting through. through. You need to understand why this disconnect occurs in order to x it, overcome it, and successully raise capital. Tis book is devoted to telling you how.
TOD ODAAY, DEA DEALL PA PACK CKAAGIN INGG IS IS AN AN AD ADVAN ANCCED SK SKIL ILLS LSET ET dfa
FOR YEARS EXECUIVES HAVE DUIFULLY PUBLISHED HE BASICS OF A DEAL IN HEIR OFFERING MEMORANDUM: product/asset; proorma; price; revenue streams; management bios; and the capital stack. Tis is the standard dealbook checklist. A quick way to know you’ve done your job. I you don’t include these things, then you have no chance at all.
SPEED
EXECUTION
KNOW-HOW
BANDWIDTH
Te way things used to be, if you included all these items, you were more likely than not to succeed. But things have changed. Inserting the basic deal points into the standard template is just not enough.
THE TYPICAL INVESTOR DECK:
Tere’s a new standard: compelling content that is ruthlessly distilled and delivered with visual and narrative power.
Agenda and Company Snapshot Company Snapshot
Agenda •
Background
Here’swhereyou He re’swhereyou get to put whatyoudo,whoyoudoitfor
Businessfocus
andwhythatmattersinone t ersinone Current Customers, Partners, Discussions thinsentence.
– Ma Marrk t v rrv rv ii w –Team
Listyourtarget customers
(today& future) bybig-name us ocategorieslikeand mers pe ne “health
Target markets
care,” “IT” orsimilar
– NewCo Business and Business Model •
Company& BusinessDetails – Progress & Mile stones – Company metrics
Partners& s & Customers
Listactualpartners and customersthatyou’ve customersthatyou vehad had materialconversationswith
Employees
ListFTE andcontractors separately; notefoundersvs. employeesifappropriate
Investors
CapitalFactory,anyoneelse? p y, y
Founded
Q? 2010
Headquarters
Austin,Texas
Financing Details •
Customers & Pipeline
•
FinancialOverview
•
Financing & Use of Proceeds
ExistingInvestors –Founders seed funded the company for 3 months
– Competition •
ar ners
•
Approximately$100kinvestedbyfounders& i l 1 ki familyil
–Raised $20k from Capital Factory •
Commonstock,$xyz valuation
Bookings:$xyz million seemtobe 4to6 onaverage;dealsizeis$50k-$250k 2009EFinancials Salescycles Revenue:$xyzmillion • • •
Would likequarter;1-2active to raise $zyxsales cycles next Expense: $xyz thousand Trainingchannelpartnersthis Pip i lliini filil l d u –Lasts p t hr hhr u hhcompany i in sii d s a ll s12 c months ll d- ca llnin a nd m mai ilil r s p nns •
–Use of proceeds 4
• •
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Hiring2 ii people:developer,sales l l l InvestCoVentures,July162010 Presentedto Incrementalservercapacity needtorunbusiness
Criti c altool/servicewe caltool/servic Presentedto InvestCoVentures,July16 2010 •
–Timing: would like to close in next 90 days 6
PresentedtoInvestCoVentures,July162010
YOU MAY HAVE A SRONG OFFERING, BU BECAUSE HE MARKE HAS OVERWHELMED INVESORS with too many o every kind o deal, it’s hard to get attention. Te bottom line: a weak pitch aects the velocity o capital.
BORING AND COMPLEX DEALS DONT DO WELL IN TODAY’S MARKET
A standard that has suddenly become exceptionally important because boring and complex deals have become invisible.
There is a new standard: compelling content content that is ruthlessly distilled and delivered with visual and narrative power.
HOT COGNITION
RAISE CAPITAL EXPANDINVESTORBASE
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STAGE 1: VELOCITY™ CREATES AN INSTANT POSITIVE REACTION QUICKLY PASS HROUGH PRIMARY SCREENS
Research suggests that humans can categorize others in less than 150 ms. Within moments, they’ve made lasting judgments about your character, your status -- and your deal. Beore you even know it, the investor you are trying to reach has decided what kind o deal you have and i he’s interested at all.
TO D A T O R S L I D A V
1
VALIDATORS
These are conscious and subconscious nancial markers o deal quality.
OO K Y H O S ENTRY HOOKS N T R O E
2
Immediately overcome rejection triggers by conrming why this deal is worth spending time on.
SIGNPOSTS
TI R A T I V E
N A R
3
NARRATIVE
Long-orm writing that is easy to read, intriguing and novel. Explains uniqueness and advantage in plain english.
ST T S G NPO S S I G
4
Strategically located to vector reader to a decision to engage with you.
RAISE CAPITAL
FRAMING THE DEAL
The way issues are framed is critical Framing inormation creates a convenientmentalshortcutor the investor. That’s important because human beings are by nature “cognitive misers”, meaning they preer to do as little thinking as possible.
Framing helps package inormation and data in a way that encourages certain interpretations - and discourages others.
A rame is a way people have to interpret inormation and to understand and respond to events. When you set the rame you control the agenda. Every situation can be seen rom many dierent angles. Frame control is about controlling which angle it is seen rom.
On the conscious level, Velocity carries the reader through the basic things they need to know – the pro orma, underwriting considerations, upside/ downsides, assumptions, competition, sources/uses, sources/use s, track record. It does this quickly and completely, and in an intriguing way that complies with FINRA guidelines. On the subconscious level, we provide the inormation ows in a pattern that is comortable to the reader, moving concepts and ideas orward to the cognitive part o the brain without triggering skepticism or doubt. Tis is another critical point in the engagement process – once their natural skepticism is set aside, the reader is inclined to reach a positive conclusion. Which makes the decision to move your deal orward a sae and logical decision.
CATCHING THE BLACK SWAN EVENT SEVEN PERCENT of angel investments generate 70 percent liquidity in the market. Now imagine this market as economists do, as a game of chance.
Framing provide people a quick and easy way to process inormation. So people use rames to make sense o incoming messages. This gives you, the ramer o the inormation, enormous power to choose how your audience will interpret the message. Frames construct a point o view that encourages the acts o a given situation to be interpreted in a contrarian or dierent way. I an investor detects subtle cues indicating that you have low status or that the deal is weak -- the proposal is toast.
The Game:if you hit a deal, you get 12x return.
But picking the right dealis hard.
Let’s look at the market as awheelof chance. You only make money on black or gray.
Enter the Black Swan Event:rare but very profitable..
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Almost no one has much better than a1 in 10 hit rate.
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Your gut tells you the wheellooks like abad bet. But the math says it has ahigh return.
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Many go 0-for-10.
Making it very risky.
Willyou hit a“Swan” in 5 spins? Your gut says “no.”
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Willyou hit aSwan in 10 spins? Maybe.
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But, in 125+ spins you’ll hit “Swans” often enough to earn aconsistently high return.
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So how do you get at the winners?
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TYPICAL DEAL summary
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MM A R RY S U
KEY INVESTMENT MERITS
Facts and inormation have no meaning unto themselves. Frames ocus your attention and that’s how they provide the meaning. Frames create relevance by including some inormation – and excluding other.
FINRACOMPLIANT
PROTECT VALUATION www.intersectioncapital.com
STAGE 2: GET THROUGH ANALYSIS Te Evaluation Stage: When the reader decides to invest time with your deal book, a new level o communication begins. Using a technique called FRAMING, we simpliy and organize complex material into blocks o inormation that are li nked together in a way that guides the reader to a specic set o conclusions about your deal. Tose conclusions are: Tis is a quality deal that deserves consideration, that involves quality people that I should know. I need to know more about them. FRAMING elevates the status o your deal book rom being one among many to being something special.
EXPANDINVESTORBASE
by
Your pitch book will receive only a quick scan at rst. This will be triage, at best, as the analyst is looking or a atal faw –– any atal faw –– that will justiy tossing your pitch book into the recycle bin.
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PROJECTED FIRST-YEARYIELD
9.0 %
Forthe yearendingDecember31, 2012
EXISTING LOAN
GOLDMAN SACHS
the projectedfinancialyieldofthe Fundis anticipatedto report Net OperatingIncome (“NOI”)from leasingactivityof $1.63million, and$6.52million from service andFBOrelated revenue. Te revenues are primarilythe result relative position ofthe property within the competitive set in the availabilityofassets. Forthe projectedyearendingDecember31, 2012, the in-place revenue streams project a total of$8.50 million ofNOI, an increase overthe previous year. b We don’t care what anyappraisalsays. Here’s howNexxica analyzes an asset priortoinvestingits own capital:
DEAL SIZE
$24.44M UNDERWRITING
$24.47 M (Aug.7foracquisition 2009) APPRAISEDVALUE In everyportfoliowe acquire ortarget –we stands M toreason, as principles, over TOTALEQUITY commit ourown capital. It$7.02
time, we have identifiedthe crucial difference between notes that
andthose M that don’t. IN-PLACEDEBTofferdownside protection$17.42
VERIFY ASSE VALUE with NEXXICA CAPIAL
$3.58 M EQUITYSUBSCRIBED Tere’s nomore simple truth$3.44 Mare mechanical(forexample, in EQUITY REMAINING in this business: the “market 1,000 foreclosures performedby In ourfirst screen, much like anyone else, we value” ofan asset doesn’t mean ourselves as managers, 100% PUBLIC Locatedinthe anythinguntilyou heart omiddleamerica,a community percent ) look at Zillow, Redfin, MLS, Realtor.com. Tis knowhow the witha10 were successful. SOURCES helps us get a baseline undestandingofthe tax growthrebate,the property hasfxed-leasetenantseachwithlong-term underwritingwas performed. market andthe asset. contractsthrough2013. Nothingis more important tous Duringthe holdingperiod of because as managers we have a note, the servicercollects performeddue diligence on over rent, maintains the file and Next, we finda prominent RealEstate Agent in the localmarket that understands the nuances ofthat 5,000 notes, have acquired distributes payments. One LOCAL location. Severalhours ofconversation maytake more than 1,000 andwe know the note refinances, then XYZ AGENT place between us andthe localagent. In many the rigors anddiscipline that are happens. In the event ofd efault, markets,wehave pre-existingrelationships. needed. AAA companydoes HIS. Tese are mechanicalprocesses that Tis brings us tothe centralbrief, selectedinformation are easytomanage. Tis summary, which contains pertainingtothe business andaffairs of theProperty, has been preparedbyMAP toprovide generalinformation about the A memberfrom the Nexxica team willmake a Property. Tisusiness is not an off ertosell, ora solicitation ofan off ertobuy securities, as such an offerorsolicitation can onlycome throughphysicalinspection the offering’s private placement memoranidea ofourb and ofthe propert yand buildthe yand SITE dum (“PPM”). Tis materialcannot, anddoes not,talk replace the PPM, andthe PPMsupersedes this materiali n allrespects. Tis investmentcase involves various degrees ofrisk, i ncluding certainlywhat must be the most file with first-handevaluation ofthe asset Ifyou toinvestors who VISIT the speculativemarket andfinancingrisks associatedwith fluctuations in therealestatemarket includingtax status, liquidity, andfees, expenses, andotherrisk factors. Please andthe market. In manycases the site inspection important ofthesection current have succeededwith acquiring refertothelesson “Risk Factors” ofthe PPM.” willinclude the RealEstate Agent. mortgage crises: Residential notes, they’lltellyou, the keyis mortage notes is a commodity acquiringassets at significant
[email protected] business. Tere is a large and discount totrue market value. Even ifArchbay, Wells FargoandWaichovia has previouslyownedthe note (a common scenario) effi cient infrastructure toaquire, What trulydistinguishes our TITLE there can still be issues with title. Te keyto manage, service, foreclose and assets is the depth ofour NOTATION findinganyglitches is a fullreviewofthe conversellthese commodityassets. underwritingprocess. Here’s sation logs with the owner- this is heartbeat of Similarto the purchase ofother howwe doit: everynote andtells the whole story. commodities, the keyrisk is in pricing, orunderwriting. Te MERS was establishedas a clearinghouse and otherfunctions ofthe business MERS computerregistrythat totrack ownership changes in mortgages. Sort ofa CarFax for mortgage title. Ifthere is anyissue with title
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nexxica
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ACCESS TO CAPITAL STAGE 3: EXPAND THE INVESTOR POOL At this stage, your deal has been screened. Te reader has made the decision to involve others. Tis is an important stage because the decision to sponsor a prospective investment involves social and career risk. No one wants to recommend a low-quality deal, and Velocity takes takes the risk out o doing so. Te quality o your presentation is so unique and so high that Velocity deal book will be respected and remembered. Our experience has shown that in most instances, your Velocity deal book will be shared and discussed as something novel, unique and worthy o serious consideration.. In most cases, when it consideration reaches the stage where it is socially shared, you will be contacted. Meetings will be set. At this point in the process, the investor has reached several important and highly positive conclusions about your deal and your rm. Tey hold a preconceived idea that you oer quality deals and that they should be a member o your investor pool. Your Velocity deal book has done it’s job, and the rest is up to your team.
VELOCITY is used in these capital markets
EARLY STAGE
PRIVATE EQ.
TECHNOLOGY
RENEWABLES
40% 20 % 15% 25 % APPROXIMATE
APPROACH INVESTOR
APPR OXI MATE
PITCH
APPROXIMATE
MEET
TERM SHEET
A PPROXIMATE
FUND
ACCELERATE THE TIMELINE TO CAPITAL
become immediately active in the capital markets
WHAT YOU CAN EXPECT FROM VELOCITY™ VELOCIY DEAL BOOKS INSANLY CONVEY QUALIY, SUREY AND RUS to your new investors. Tey bring high-priority status and attention to your deals, and makes all this happen within minutes. * Your deal books will pass through initial screens successully successu lly and be marked as important materials that require evaluation. * Tey will successully pass through the review process quickly. * Your cost to acquire new investors will dramatically all, as the call-back rate rom Velocity™ deal books is much higher than with conventional OMs.
* You will close nancings aster and more efciently than ever beore.
* You will nd yoursel in the desirable position o being able to select the best investors or your pool and your style o investing. Instead o INSTANT ATTENTION taking what you can get, you can ACCEPTANCE decide who are the best t or your organization and investment MEETINGS opportunities. Imagine that. INVOLVEMENT
* Your close rate will be much higher, as i nvestors will come into your meetings with desire rather than skepticism. At this stage, it’s yours to lose.
RAISE CAPITAL
RAISE CAPITAL
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EXPAND INVESTOR BASE
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VELOCITY PITCHES: OVERVIEW
EXECUTE WITH A STRATEGY
Many o the neuro-scientic methods used to produce Velocity™ pitch books are derived rom path-breaking work done by Intersection Capital ounder Oren Kla, and are described in his book, “Pitch Anything”(McGraw-Hill, 2011).
Wehaveraised over $400M withVELOCITY pitchesin pitche sin 27deals,and arecurrentlyraising l yraising $250M.
EXPERIENCE
McGraw-Hillispublishing our book, PITCHANYTHING, based onthesemethods, co-authored withaHarvard/ Columbia/UCSDcognitivepsychologist.
COGNITIVE SCIENCE
Thesedeal packagesarepossible becauseo our fnancialacumenand abilityto structurethecap sheet/capitalstack. a lstack.
FINANCE
E:
NERSHIP
TOTAL
100%
BAJALLC
I
E
r in ci l r m i n u t n ti l l y inv t l n i inv t r
51%
PRICE
$24.44M $12.46M $11.97 97
NOI
$1.71M
$ 87 4K 4K
$ 84 0K
$ EQUITY
$7.02M
$3.58M
$3.44M
T t l c i t li t i n f t h u j c t r r t yi 1 2 5m illi n rjct 212 r in ci l r l c n i 3 5. f u i yt l n i nv t r .
i
r imtly
$ DEBT
71%
%LTV
71%
-
71%
RIGINATING DER TY
L LC i l m n i n-h u r
th t i th i t r yt m n m n t r u .
We all like to think that others judge us careully and objectively on our merits. Tey don’t . In hurried business situations in which executivess must evaluate dozens o deals in a executive week, or even a day, they are rarely willing to expend the eort necessary to look into the deal and its underwriting. Tey classiy deals in a matter o seconds. Tey use negative stereotyping to rapidly identiy the no-go ideas. All you have to do is all into the common a low status negative stereotype, and the pitch will be over beore it has begun in act, many deal evaluations are strictly a process o elimination; in our experience, only 1% o ideas make it beyond the initial minutes o a pitch. Tese kind o elimination’s are too easy or investors to
make, because negative impressions tend to be more salient and memorable than positive ones. o avoid ast o elimination, successul pitchers - only 25% or less o those we observe do this - turn the tables on the investors in ways we describe in this book. By doing so, they induce investors to judge them as high status. Executives who know what they are doing when pitching a deal to a new contact/ investor/corporation investor/co rporation deliberately level the status dierential between themselves and people they are pitching to.
HE FACORS that determine the speed o a capital raise are price, people and execution. Once the price is set and the deal team is chosen, what matters most is execution: how many qualied investors can be shown the deal, agree to take a meeting, and commit to participate.
Velocity deal books succeed where conventional OMs ail because they are novel, deeply insightul, intriguing, and answer the important questions beore they are even asked. Tey anticipate the key decision points in the capital raising process, and position your oering or early success.
Our methods make it possible to rapidly expand your investor pool and complete nancings in l ess time. Execution - attracting new investors to your
CONNEC WIH US to learn more. +310.359.0779 okla@intersectioncapital.com
