Strategic investors are continuing to provide early and later-stage capital to emerging companies. From Intel to Google, we are seeing corporate venture and corporate development teams from large companies making investments in early and growth stage companies. We will discuss the following questions: What are they looking for? What is the impact on valuation? What competitive issues should be considered? October 2, 2013 8:30AM – 10AM – Stamford March 5, 2014 8AM – 9:30AM – Hartford April 16, 2014 8AM – 9:30AM – New Haven

1. Funding Options for CT
Companies
Presented to
Crossroads Venture Group
Boardroom Series
Liddy Karter, Managing Director
Hitesh Shah, Vice President
2013

2. Background
●
Enhanced Capital Partners, Inc. (“ECP”) is a diversified, national asset management firm
providing financing to small-business in U.S. markets that have been underserved by
traditional sources of capital
●
Founded in 1999 by former Welsh Carson Managing Partner Andrew Paul, ECP has gained
experience in targeted investing through years of participation in numerous state and
federal public-private partnerships
●
Working with small businesses for over 12 years has allowed ECP to develop an investment
approach that combines innovative structures and conservative investment principles to
provide a dual bottom line return for our collective partners
●
Our collaboration with marquee investment partners like Berkshire Hathaway and Vulcan
Capital provides our portfolio companies with a variety of funding options
●
Office Locations in 10 States and Washington DC (Alabama, Colorado, Connecticut, Florida,
Louisiana, Mississippi, New York, Oregon, Tennessee, Texas, Wyoming)
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Confidential

3. ECP’s Platform
Office
locations in
10 States
and DC*
Enhanced
Equity Fund
& Sopris
Capital
Berkshire
Hathaway /
Vulcan
Capital
ECP
Federal &
State New
Market Tax
Credits
19 State
Focused
Funds
National
Middle
Market
SBIC Fund
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Confidential

4. Connecticut Fund
● Enhanced Capital Connecticut is Certified by the DECD as Fund Manager under
the Connecticut Insurance Reinvestment Fund (“IRF”) Act Program pursuant to
Public Act 10-75, Sec. 14
● Investment Criteria:
● Headquartered in Connecticut
● Less than 250 employees
● Less than $10M in Net Income in previous fiscal year
● At least 80% of employees are CT residents or at least 80% of payroll is paid to CT residents
● 3% Preseed investments – target met
● 25% Green technology
● ECP’s investment profile – Debt investment in $500,000 to $5,000,000 range
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Confidential

5. Connecticut Team
Elizabeth (“Liddy”) Karter - Managing Director, Connecticut
●
Liddy serves as a Managing Director of Enhanced Capital and is responsible for overseeing investment
activity in Connecticut. She brings experience in clean tech venture capital, corporate finance, and
early stage company management.
●
Prior to joining Enhanced Capital, she was a Managing Partner at IRON Ventures, a venture fund
investing in sustainable business ventures enabling symbiotic reuse of energy, industrial material and
water.
●
Prior to IRON Ventures, Liddy was CEO of Resource Recovery Systems, Inc., a nationwide recycling
company and CFO of Netkey, Inc., an ecommerce software company. Prior to that, she was Vice
President of the Financial Services Group at Morgan Stanley.
●
Liddy is active in angel investing and serves on the Board of the Angel Capital Association. She is
Executive Director of the Connecticut Venture Group, a statewide trade association for venture funds
in Connecticut and serves as a Mentor at the Yale Entrepreneurial Institute.
●
Liddy received an MBA from Yale University and a BA in from Columbia University.
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Confidential

6. Connecticut Team
Hitesh Shah – Vice President, Connecticut
●
Hitesh serves as a Vice President at Enhanced Capital and focuses on investment activities
in Connecticut.
●
Prior to Enhanced Capital, he was an Analyst at Connecticut Center for Advanced
Technology’s (CCAT) Entrepreneur Center, a physical and virtual incubator for technology
led small businesses.
●
Prior to CCAT, he was an Analyst at Connecticut Technology Council’s (CTC) statewide
virtual incubation program for small businesses. Prior to CTC, he was a Financial Analyst at
a small ceramics manufacturing company in India.
●
Hitesh graduated with an MBA from University of Hartford and a BS in Accounting from
University of Pune.
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Confidential

7. Representative CT Portfolio
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Confidential

8. Representative CT Portfolio
7
Confidential

9. Equity- Early Stage
● Focus on Angels and Funds
● Angel Investor Forum
● Centripetal Capital
● Boston and NY groups
● Family Offices
● Funds
● Launch
● Vital
● Elm street
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Confidential

10. Equity – Early Stage
•Overview
•Know your Investors
•Define the company
•Growth strategy
•Capital plan
•Connections
9

11. First, we willCompany
clarify
Match Investors tocycle…. the
investment
Company
Seedproduct
development
Early StageBegin
sales
Series
A or BRamp up
sales
Collateral
Common/
Founders
Stock
Common,
Preferred
or Bridge
Preferred
Convertible
Players
Founders
3Fs,
SBIR,
University
Angels,
VC
Boutique
VC
Series
C or DProduct
extension
Preferred,
Mezzanine,
Debt
IPO/M&A
Listed
Equity
Investment
Private Eq
managers,
Inv. Banker
Hedge
funds
10

12. Angels are not VC’s
What they have in common
How they are different
Play in a similar space on the investment VCs have fiduciary responsibility to
continuum
their Limited Partners
Look for similar things in a business plan
Angels risk their own capital – no
need to invest
Only invest if outlook is for
> 10X return minimum
VC’s invest larger $ ~10x more than
angels.
Expect to invest in multiple rounds
VCs may require control. Define
control
Portfolio approach: 2+ 7+ 1
Fund cycle affects VC investing
Time horizon is 5+ years
Angels 50k deals/yr - VC 4k deals/yr:
Both ~$20B+
11

13. Pick the Right Business
● Industry Sector- Fast and Hot
● Innovative/Established,
● IT/Green Tech/Manufacturing, Medical Device
● Model- Capital light
● Product/Service,
● Direct/Indirect
● Market – Addressable
● B-B/B-C, Size
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Confidential

14. Key Features
● Huge Market Need/Value Proposition
● Barriers to Entry
● Patents/Trade Secrets/Capital Advantage
● Team
● Experienced/friends?
● Collateral
● Building/Standard equipment/PG
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Confidential

15. PreRev, PreMoney Value ~$1.8M.
● Negotiation
● Capitalization table
● What’s the right number?
● Methods
● Meeting the investors needs
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Confidential

16. Sources of Value
• Numbers:
projections, comps, 18m
• Product – High margin, Necessary
• Clients – Recurring? $1B market?
• Intellectual Property
• Management: track record,, team
• Competition: ability to raise money
• VC: life cycle of fund
• Industry: hot or not, economy
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Confidential

17. First Investors Take 10 % – 30%
New money $1m
$1m = 25%
$ 3m = 75%
Pre-money valuation $3m
Post-money
valuation = $4m
16

18. Exec Summary and Deck
Executive
Summary
Business
Plan
Investor
Deck
Purpose: get them to
read your business plan
Purpose: get them to
meet with you
Purpose: get them to
invest in you
• Must grab attention
• Must be brief
• Must be comprehensive
• Must be professional
Must be brief
Must be expandable
17

19. Know Your Numbers
•Financial Model - Details
•Cash Flow - Don’t be shy
•Potential vs. Risk
•Expect to be wrong
• Know why
•Use Comparables
18

20. Funding Strategy- Simple
• 2011:
$200,000 invested by founders @$500k pre
• 2012: $100,000 friends and family with a postmoney valuation of $1.5M
• Currently looking to raise $500,000 with a premoney valuation of $2M
•Revenues $800k
• Expect to do a $10M VC round early 2014 @$10M
pre.
•TTM EBITDA - $1M
19

21. Use of proceeds


Sales & marketing
Big salaries for
management
Distribution partners
Paying off debt
Some product
development
Too much product
development
20

22. Funding Timing
•CEO’s Main Job
•Constant Process
•Networking
•Build LT Relationships
•Create confidence
lkarter@enhancedcapital.com
21
Equity Financing in CT

23. Start-up to Growth Capital
•CT Tech Council – Innovation Ecosystem
•www.ct.org
•Tech Start, Pre-Seed program
•www.ctinnovations.com
•Angel Investor Forum
• www.angelinvestorforum.com
• Crossroads Venture Group
•www.cvg.org
•DECD Express Loans
•http://www.ct.gov/ecd/cwp
•Enhanced Capital
•www.enhancedcapital.com
lkarter@enhancedcapital.com
22
Equity Financing in CT

24. Corporate VC 40% of Start up $
● The number of CVCs actively
investing is steadily on the rise. In
Q2’13, 66 different CVC investors
participated in at least one
investment which was up 40%
versus the number of participating
CVCs in Q3’11.
Confidential

25. CT Based Fortune 500 Companies
8 General Electric, Fairfield, $147 B
50 United Technologies, Hartford, $59.8 B
84 Aetna, Hartford, $36.6 B
103 Cigna, Bloomfield, $29.1 B
112 The Hartford Financial Services Group, Hartford, $26.4 B
131 Xerox, Norwalk, $22.4 B
241 Praxair, Danbury, $11.2 B
245 Stanley Black & Decker, New Britain, $11.1 B
340 Charter Communications, Stamford, $7.5 B
351 Terex, Westport, $7.3 B
399 EMCOR Group, Norwalk, $6.3 B
400 Starwood Hotels & Resorts, Stamford, $6.3 B
438 W.R. Berkley, Greenwich, $5.8 B
473 Priceline.com, Norwalk, $5.3 B
489 Pitney Bowes, Stamford, $5 B
492 Frontier Communications, $5 B
Confidential

26. CVC Growing
Confidential

27. CVC- $7B market
Confidential

28. CT Investment Highlights
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
STATE
Deals
Amount
Deals
Amount
Deals
Amount
Deals
CT
13
60,168,000
12
18,644,200
10
24,952,100
16
Rank
12
13
13
23
20
23
10
Amount
Deals
51,363,000
12
15 11
Amount
Deals
32,374,700
Amount
18
40,435,000
19 10
17
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Confidential

29. CT Investment Highlights
CA
MA
NY
CT
VC $ Invested
$ 12,864,904,100
$
3,005,281,900
$
2,088,210,300
$
149,124,800
VC $/Capita 1 job/$25k VC
$
338
514,596
$
452
120,211
$
107
83,528
$
42
5,965
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Confidential

30. CT is in the middle
●CAL
●MA
●NY
●>>>>CT
Confidential

31. Seed and Early for Corporate VC
40%
Confidential

32. Matchmaking- Corporate VC Sectors
● Internet
● Mobile
● Life Sciences
● Mostly just looking for a match
Confidential

33. Late Stage Equity
● Investment bankers and intermediaries
● Private Equity
32
Confidential

34. Debt
● Banks are back – 5%
● Private Debt a good option – see funds and I-bankers.
8%
● Mezzanine – 14%
● With State Support – 12% all in with equity kicker
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Confidential

35. What is Mezzanine Debt?
● Mezzanine debt or mezzanine capital is a form of hybrid
capital that has been around for 30 years and which can be
structured as either preferred equity or unsecured debt. It is
generally referred to the layer of debt that sits between
senior debt and equity. Mezzanine debt lays claim to a
corporation’s assets, yet also incorporates equity-based
security options in its structure. It is senior only to common
shares and is often a more expensive form of financing
because of its positioning and inherently higher level of risk
to the lender. And unlike Venture Capital, Mezzanine debt is
used for adolescent and mature companies who are cash
flow positive that need capital for a number of growthrelated uses.
Confidential

36. Mezz. Debt benefits
● Mezzanine debt provides the following benefits:
● The company being funded gains capital while increasing their leverage
● The senior secured lender sees an injection of new opportunity equity
●
●
●
●
●
●
and reduced leverage
The mezzanine debt provider can put its capital to use at an attractive rate
Shareholders avoid unnecessary dilution from new equity (which is also
the most expensive form of capital)
The company sees a lower cost of capital when compared to equity
The company receives less rigid terms when compared to senior debt
The company's weighted average cost of capital (WACC) can be reduced
The company's return on equity (ROE) can be increased
Confidential

37. Contact Information
● Liddy Karter
● Email: lkarter@enhancedcapital.com
● Phone: (203) 376-7958
● Hitesh Shah
● Email: hshah@enhancedcapital.com
● Phone: (203) 614-8771
Enhanced Capital Connecticut:
1055 Washington Blvd, 8th Floor
Stamford, CT 06901
Phone: (203) 614-8770
Fax: (203) 614-8769
Website: www.enhancedcapital.com
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Confidential