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Strategic Ventures & Research,
Inc. (SVR) provides venture advisory services, offering a unique combination
of financial acumen, marketing expertise and recognized operating
experience. SVR consults, advises, and invests in all of its clients.
Strategic Ventures & Research, Inc.
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SVR Newsletter
Summer 2011
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Welcome to the
Summer Edition of SVR's Newsletter. Here you will find updates on the
recent happenings at SVR along with discussions of important issues
facing investors and entrepreneurs.
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Locus Energy Applies for NJ EDA Funding Program
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SVR portfolio company, Locus Energy,
(www.locusenergy.com) is seeking $1MM of equity financing to take
advantage of a NJ state EDA funding program that offers a $1MM
matching low interest loan and grant. Locus Energy is a growing
provider of asset management services to residential and commercial
distributed energy systems:
- Locus now monitors
over 2,500 residential sites, 300 commercial sites and 80,000
third party micro-inverters
- Locus has seen impressive sales growth in
2010 and is on track to quadruple revenues in 2011
- Locus opened an
office in San Francisco, hired an Executive Vice President of
Business Development, and initiated a focused international
sales effort
- Locus has become the
leading 3rd party monitoring solution for residential and small
commercial solar PV and is positioned to become a leader in the
large commercial space
Exploiting this program, Locus Energy will pursue a
new round of equity financing to further catalyze sales and product
development growth, to accelerate the Company's successful domestic
and international market penetration, strengthen its IP position, and
provide enhanced working capital coverage.
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Valuation Isn't Everything
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Early stage entrepreneurs raising capital are often fixated
on trying to get the highest valuation for their company. However,
they fail to see that price isn't everything. An undue focus on
valuation can lead to problems down the road.
Valuation should match the stage of a company. Even if
an entrepreneur negotiates a "better" valuation, if it
doesn't match the growth and risk stage of the company, it is not a
good deal. While a high price reduces dilution, it also creates a
higher bar for future rounds. If the company is overvalued in an early
round it will be difficult to reach the next appropriate valuation by
the time capital is needed again. In the worst case, the next round
will be a "down round," meaning that the subsequent
valuation is lower than the previous valuation. This is extremely
destructive for the early investors' and founders' shares in the
company. When founders and employees lose stake in the company, it
significantly dampens inertia and negatively effects company morale.
The terms of a capital raise are often given second
consideration, but terms and valuation are equally important. For
example, a common term that VC's will include is a liquidity
preference. This means that at a liquidity event (IPO, acquisition,
etc.) the VC has a senior claim over all other equity claims. In the
best case scenario, this type of term has little impact on the
founder or other early investors because the company will have enough
money to payout all shareholders with a sizeable return. However, in
the cases when the company is sold for only a modest price, the
liquidity preference can be extremely detrimental. The return to
equity is used to pay the liquidity preference holders first and then
split amongst the remaining equity holders. In the worst cases some
investors are kept whole but the founder is left with nothing.
Maximizing valuation can be a distracting aspect of
raising capital so it is important to have an appropriate and
realistic valuation and a clear head when negotiating the
terms.
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If you are interested in learning more
about SVR, please contact Mitchell Hauser at mhauser@svrglobal.com (718)
433-4111 x 5 or Abe Goldstein at agoldstein@svrglobal.com
(718) 433-4111 x4.
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