Business plan consulting and financial model preparation for high-tech entrepreneurs seeking venture capital

Dear Friend,

Akira Hirai photoHello again - this is the November installment of Cayenne's newsletter for entrepreneurs. In case you missed our previous issues, you can read them on our website. (Note: to see why you are receiving this, or if you wish to opt out, please refer to the bottom of this message.)

Today's edition includes an update on the 2009 Green Build Expo from Paul Sereiko, a cautionary tale about the need for entrepreneurs to start thinking early about exit planning issues by Rick Tifone, and a brief funding update from me.

If you ever have any questions, comments, or suggestions, please feel free to contact me directly. We look forward to having you in our community of entrepreneurs!

Best regards,

Akira Hirai, Managing Director
Cayenne Consulting, LLC

Phone 714.TOP.PLAN direct
Email akira@caycon.com
LinkedIn http://www.linkedin.com/in/akirahirai
Twitter @akira_hirai

Funding Update

By Akira Hirai, Phoenix, AZ

The MoneyTree report of U.S. venture capital activity for the third quarter was just released by PriceWaterhouseCoopers and the National Venture Capital Association.

The $4.8 billion invested in Q3 is a significant jump from the $4.1 billion in Q2 and $3.3 billion in Q1, but still well off of the $7.1 billion invested during Q3 of last year. The number of deals has remained in the 600 to 700 range each quarter this year, compared to 900 to 1,100 per quarter last year. Clean Tech experienced an 89% increase in Q3 over Q2. As in previous quarters, the four strongest sectors remained biotechnology, industrial/energy (including green tech), software, and medical devices. Very little money - only $633 million - flowed to companies raising venture capital for the first time, down from over $1.5 billion during Q3 of last year.

Meanwhile, several weeks ago, the Center for Venture Research released their analysis of the angel investor market for the first half of 2009. The CVR reported that 24,500 ventures raised capital during this period from 140,200 individual investors. Although the dollars raised fell relative to the first half of 2008, the total number of investments increased slightly.

Combining this data with anecdotal evidence from elsewhere, it's clear that great opportunities are still finding investors. It's obviously harder to raise capital than it was before, but I think we all knew that. The keys to funding success haven't changed much: create a great opportunity with a lot of growth potential, develop as much traction as possible before trying to raise capital, and package the venture in the most compelling way you can when you take it to the investor community. We can help you with that last part.

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It's Never Too Early to Plan Your Exit

By Rick Tifone, Pittsburgh, PA

Most entrepreneurs are so excited about starting and growing their businesses, they often forget the end game until it's too late. Proper exit planning can help maximize the value of your venture, minimize the tax consequences of the transition and allow the business owner to control the process. Here's a sad but all-too-common story about a hypothetical business – Stevenson Consulting – to illustrate our point:

Mike and Bill Stevenson were two owners of a thriving IT Consulting company. What began as a business planning meeting quickly turned into a discussion about: "We're getting out of business, how do we do it?" As successful as they were, they were tired of staff issues, changing technology, and the day-to-day grind of running a multi-million dollar company.

A sale to a third party was not an option because Mike and Bill were not willing to stay on after a sale. And they had failed to develop a strong management team, which any savvy purchaser would require as a condition of purchasing the company. Transferring ownership to a group of key employees was also out of the question. None had been groomed to take on this type of responsibility and nothing had been done to fund this type of buyout.

Neither owner had children who were experienced enough to take over the business, so their only remaining option was to liquidate.

Mike and Bill's highly profitable company had little worth beyond the value of its tangible assets. After the sale of those assets, dozens of employees lost jobs, the business disappeared, and Mike and Bill left millions of dollars on the table.

You've put your energy and your capital into building a business. This business most likely accounts for more than 90% of your net worth. Why not protect that investment so that it can be monetized on your terms? Learn how Cayenne's Exit Planning practice can help you prepare for one of the most important financial events of your life: the transition out of your business.

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Greenbuild Shows Entrepreneurial Spirit is Alive and Well

By Paul Sereiko, Boston, MA

Eco-conscious product suppliers and their prospective customers descended en masse last week on Phoenix for the annual Greenbuild convention. It is quite an event with over 1,800 exhibitors, several full days of educational conferences, and headline 'bring on the crowd' brand names offering inspiration and entertainment. To wit, the marquee event was held at Chase Field, home of the Arizona Diamondbacks, and included a speech from Al Gore and a concert by Sheryl Crow!

Beyond the headliners I was really impressed with the level of entrepreneurship on display at Greenbuild. I think a good way to measure entrepreneurship in a sector is by the amount of small sized booths at an event. Entrepreneurs typically can't pay much, so they buy the smallest space available and go pitch their tent. The bottom line … lots of small booths at Greenbuild.

Among the areas where it seems Entrepreneurs are diving into the green space are:

  • Green Roofs, which are essentially a container of live plants and a drainage system that can be snapped together on a rooftop. Once installed, the systems dramatically reduce the heat absorption of the rooftop and thus reduce energy costs. There were at least 20 companies present at the show from various regions of the country marketing differentiated products and business models in this category.
  • Energy Efficiency Analysis and Improvement Service Providers offer a relatively low-cost capital efficient way for entrepreneurs to enter the green space. Residential and commercial energy efficiency plans employ a myriad of techniques from lighting and HVAC system improvement to insulation and window improvement to reduce energy expense in a structure. Given the multiple tools available, it’s not surprising that entrepreneurs have rushed to develop services and business models to help building owner get the most energy efficiency improvement per dollar spent … and prove the savings through software and reporting tools.
  • Geothermal Heat Pumps rely on temperature differential between ground and below ground levels. Certainly more capital intense than the first two items, this category represents an area where entrepreneurs with a mechanical focus are probing.

I believe next year’s show will be in Chicago, and if it’s anything like this year’s, it won’t be one to miss.

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