The Startup Guide - Raising Venture Capital

Startup
Guide
2013 Edition
The
SHARE FREELY
Building a Better World Through Entrepreneurship
RYAN ALLIS With Ellen Daly

CEO of Connect.com
More slides at www.startupguide.com
RAISing VENTURE CAPITAL

STARTUPGUIDE.COM 465
ENTREPRENEURSHIP
ABOUT THIS PRESENTATION
THIS presentation IS PART OF A LARGER slide DECK on building a better world through entrepreneurship
For more slides & CONTENT visit:
Startupguide.com
entrepreneurship Raise funding or bootstrap
YOU HAVE TO DO WHATEVER IT TAKES TO KEEP COSTS LOW UNTIL YOU HAVE REVENUE
THE #1 mistake I see First time entrepreneurs Make is raising too much MONEY TOO SOON
Dont raise outside CAPITAL UNTIL AFTER YOU KNOW YOU HAVE SOMETHING THAT CUSTOMERS ARE WILLING TO PAY FOR
TO TEST DEMAND BEFORE YOU RAISE MONEY BUILD AN INEXPENSIVE PROTOTYPE and improve it UNTIL YOU KNOW CUSTOMERS LOVE IT
Unless youre building a product Like a new drug that requires massive upfront investments dont raise Outside capital until after You have proven customer demand
IF YOU RAISE MONEY TOO SOON AND DonT YET HAVE SOMETHING CUSTOMERS WANT INVESTORS WILL EAT YOU FOR BREAKFAST
YOUR GOAL IS FOR EVERYONE TO DO WELL--CUSTOMERS, EMPLOYEES, INVESTORS & YOU SO DonT PLAY WITH INVESTOR MONEY UNTIL YOU KNOW YOU HAVE SOMETHING THAT THE MARKET REALLY WANTS
PRO TIP: GET AS FAR AS YOU CAN WITHOUT RAISING OUTSIDE CAPITAL
AT ICONTACT WE BOOTSTRAPPED
FOR THE FIRST 3 years (2003-2006)

WE GOT to $1.5 million in annual sales BEFORE WE RAISED ANY FUNDS BEYOND A $5,000 loan
HOW? BY KEEPING COSTS LOW UNTIL WE GOT REVENUES NOT TAKING SALARIES FOR 3 years AND DOING SERVICE WORK ON THE SIDE FOR FUNDS TO LIVE OFF OF
We LIVED IN THE OFFICE ATE RAMEN NOoDLES
AND Jumped IN DUMPSTERS TO RECOVER PROOF OF PURCHASE TAGS FOR REBATES

IN THE BEGINNING DO WHATEVER IT TAKES
TO KEEP COSTS LOW

RYANs 3 RULEs OF BUSINESS:

1. 2. 3. CREATE PRODUCTS CUSTOMERS LOVE RECRUIT TRULY EXCELLENT PEOPLE Dont raise venture capital until you have revenue & PROVEN CUSTOMER DEMAND
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STARTUPGUIDE.COM
TOO MANY STARTUPS FAIL BECAUSE THEY RAISE VENTURE CAPITAL BEFORE THEY HAVE REVENUE AND BEFORE THE ENTREPRENEUR HAS BUILT SOMETHING CUSTOMERS LOVE
THE ABSOLUTE BEST SOURCE OF FUNDING IS FROM
PAYING CUSTOMERS
Venture capital is LIKE THE GOLDEN MUSHROOM IN MARIO KART IT MAKES YOU GO FASTER BUT If you accelerate TOO QUICKLY IN THE WRONG DIRECTIon
YOU FALL OFF A CLIFF
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483
entrepreneurship Raise funding
JUST BECAUSE MONEY IS AVAILABLE DOESnt MEAN its good for you OR that your company is ready
entrepreneurship Raise funding OR BOOTSTRAP
OUTSIDE CAPITAL SHOULD BE USED AS FUEL TO ACCELERATE WHEN YOURE ALREADY MOVING IN THE RIGHT DIRECTION
WHERE TO LOOK DEPENDS ON HOW MUCH YOU NEED AND HOW FAR ALONG YOU ARE
HEREs a chart of THE DIFFERENT TYPES OF MONEY BY STAGE

MONEY NEEDED SIDE JOBS CREDIT CARDS YOUR SAVINGS Friends & Family KICKSTARTER/Fundable BANKS Angel investors SUPER ANGELS SEED STAGE VC Growth StAGE VC Mezzanine debt LATE Stage VC PRIVATE EQUITY PUBLIC MARKETS PIPES CORPORATE BONDS
STARTUPGUIDE.COM
<$50k Yes YES Yes Yes Yes
$50k-$500k Yes if PRUDENT Yes if available Yes if available YES Yes YES
$500k to $1M
$1m to $5m
$5M to $25M
$25M to $100M
>$100M
Yes YEs YES YES YES YES YES YES YES YES YES YES YES YES YES YES YES YES YES
487
A great source to find early Stage angels is
AngelList.com
ALSO CHECK OUT THE NEW Peer-to-peer investing sites That have launched FOLLOWING the PASSING OF THE U.S. JOBS ACT of 2012 THE BEST ONE IVE SEEN Is
FUNDABLE.com
OTHER BUSINESSES LIKE DALTON CALDWELLs APP.NET HAVE BUILT KICKSTARTER-LIKE PLATFORMS OF THEIR OWN TO FUND THEIR EARLY EXPENSES
DO YOUR BEST TO AVOID RAISING MORE THAN 1x your current ANNUALIZED REVENUE
AS AN EXAMPLE, HERE iS Icontacts CAPITAL RAISED OVER 4 financing rounds

Date June 2003 May 2006 June 2007 August 2010 Capital raised to balance ANNUALIZED sheet REVENUE $5k $500k $5.3M $25M $5k $1.5M $5.5M $38M CAPITAL Source FRIEND IDEA FUND Updata JMI EQUITY Capital type LOAN SEED STAGE SERIES A SERIES B $16m $27M $100M $16.5M $32.3M $125M Approx. PreMoney VALUTION Approx Postmoney valuation Approx % of COMPANY SOLD 0% 3% 16% 20%
NOTE THAT OUR ANNUAL REVENUE WAS ALWAYS HIGHER THAN THE AMOUNT OF MONEY WE RAISED
YOUR NEGOTIATING POWER is BASED ON

LEVEL OF NEED FOR THE MONEY YOUR EXPERIENCE YOUR TEAM PRODUCT & TECHnOLOGY COMPETITION OTHER TERM SHEETS QUALITY OF YOUR ADVISORS
THE MOST IMPORTANT INVESTMENT TERMS VALUATION OPTION POOL SIZE LIQUIDATION PREFERENCES FOUNDER REVESTING PREFERRED VETO RIGHTS TYPE OF PREFERRED STOCK BOARD SEATS
STARTUPGUIDE.COM
! THE HIGHEST VALUATION IsnT ALWAYS BEST
494
FACTORS IN SELECTING YOUR INVESTORS CHEMISTRY WITH THE PARTNER OPERATIONAL EXPERIENCE CURRENT PORTFOLIO ALIGNMENT PARTNER/FIRM EXIT RESULTS EXECUTIVE RECRUITING ABILITY TERMS OF INVESTMENT
TECH STARTUP PRE-REVENUE VALUATION GUIDELINES

VALUATION RANGES FROM $1M To $25M depending on Factors like CEO Past exits TEAM EXPERIENCE NUMBER OF USERS NUMBER OF ENGINEERS LOCATION OF COMPANY
496
STARTUPGUIDE.COM
PRE-REVENUE VALUATION EXAMPLE

INCORPORATED b2c tech COMPANY RUN BY FIRST TIME ENTREPRENEUR with 1 engineer
Pre-Money Valuation: $1m-$3m


INCORPORATED b2c tech COMPANY RUN BY FIRST TIME ENTREPRENEURS who have been through y combinator with a good idea AND 2 engineers
Pre-Money Valuation: $4m-8m


tech COMPANY run By experienced CEO with 10 years c-level experience, $100m prior Exit, & 5 engineers
Pre-Money Valuation: $10m-20m

TECH POST-REVENUE VALUATION GUIDELINES

1x to 12x revenue based on factors like

STARTUPGUIDE.COM
AMOUNT OF REVENUE REVENUE GROWTH RATE NUMBER OF USERs/customers TYPE OF REVENUE CEO/TEAM EXPERIENCE COMPANY MARKET LOCATION OF COMPANY
500
AS YOU GO ABOUT FUNDRAISING YOU USUALLY WANT TO CREATE A COMPETITIVE PROCESS

BUILD YOUR FUNDING PROCESS TO ENSURE YOU RECEIVE
MULTIPLE TERM SHEETS

HAVE ACCESSIBLE IN YOUR HEAD VALUATION COMPARABLES

RECENT SIMILAR Venture Deals Recent SIMILAR M&A deals Public comparables
RAISE MONEY ONLY FROM SMART PEOPLE YOU REALLY LIKE YouLL BE MARRIED to Them FOR THE NEXT 3-10 years
WAIT TO RAISE Your series A UNTIL You HAVE PROVEN MATHEMATICALLY THAT X DOLLARS SPENT BRINGS Y DOLLARS BACK
STARTUPGUIDE.COM
And make sure y is >4 times x!

505
Startup Guide
2013 Edition
The
SHARE FREELY
Building a Better World Through Entrepreneurship
RYAN ALLIS With Ellen Daly

CEO of Connect.com
More slides at www.startupguide.com

The Startup Guide - Raising Venture Capital

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The Startup Guide - Raising Venture Capital

Uploaded by

Startup

Building a Better World Through Entrepreneurship

RYAN ALLIS With Ellen Daly

RAISing VENTURE CAPITAL

ABOUT THIS PRESENTATION

For more slides & CONTENT visit:

entrepreneurship Raise funding or bootstrap

entrepreneurship Raise funding or bootstrap

entrepreneurship Raise funding or bootstrap

entrepreneurship Raise funding or bootstrap

entrepreneurship Raise funding or bootstrap

entrepreneurship Raise funding or bootstrap

entrepreneurship Raise funding or bootstrap

entrepreneurship Raise funding or bootstrap

entrepreneurship Raise funding or bootstrap

FOR THE FIRST 3 years (2003-2006)

entrepreneurship Raise funding or bootstrap

entrepreneurship Raise funding or bootstrap

entrepreneurship Raise funding or bootstrap

We LIVED IN THE OFFICE ATE RAMEN NOoDLES

AND Jumped IN DUMPSTERS TO RECOVER PROOF OF PURCHASE TAGS FOR REBATES

entrepreneurship Raise funding or bootstrap

IN THE BEGINNING DO WHATEVER IT TAKES

TO KEEP COSTS LOW

entrepreneurship Raise funding or bootstrap

RYANs 3 RULEs OF BUSINESS:

entrepreneurship Raise funding or bootstrap

entrepreneurship Raise funding or bootstrap

THE ABSOLUTE BEST SOURCE OF FUNDING IS FROM

entrepreneurship Raise funding or bootstrap

YOU FALL OFF A CLIFF

entrepreneurship Raise funding

entrepreneurship Raise funding OR BOOTSTRAP

entrepreneurship Raise funding or bootstrap

entrepreneurship Raise funding or bootstrap

HEREs a chart of THE DIFFERENT TYPES OF MONEY BY STAGE

<$50k Yes YES Yes Yes Yes

entrepreneurship Raise funding or bootstrap

A great source to find early Stage angels is

entrepreneurship Raise funding or bootstrap

entrepreneurship Raise funding or bootstrap

entrepreneurship Raise funding or bootstrap

entrepreneurship Raise funding or bootstrap

AS AN EXAMPLE, HERE iS Icontacts CAPITAL RAISED OVER 4 financing rounds

entrepreneurship Raise funding or bootstrap

YOUR NEGOTIATING POWER is BASED ON

entrepreneurship Raise funding or bootstrap

! THE HIGHEST VALUATION IsnT ALWAYS BEST

entrepreneurship Raise funding or bootstrap

entrepreneurship Raise funding or bootstrap

TECH STARTUP PRE-REVENUE VALUATION GUIDELINES

entrepreneurship Raise funding or bootstrap

PRE-REVENUE VALUATION EXAMPLE

Pre-Money Valuation: $1m-$3m

entrepreneurship Raise funding or bootstrap

PRE-REVENUE VALUATION EXAMPLE

Pre-Money Valuation: $4m-8m

entrepreneurship Raise funding or bootstrap

PRE-REVENUE VALUATION EXAMPLE

Pre-Money Valuation: $10m-20m

entrepreneurship Raise funding or bootstrap

TECH POST-REVENUE VALUATION GUIDELINES

entrepreneurship Raise funding or bootstrap

AS YOU GO ABOUT FUNDRAISING YOU USUALLY WANT TO CREATE A COMPETITIVE PROCESS

entrepreneurship Raise funding or bootstrap

BUILD YOUR FUNDING PROCESS TO ENSURE YOU RECEIVE

MULTIPLE TERM SHEETS

entrepreneurship Raise funding or bootstrap

HAVE ACCESSIBLE IN YOUR HEAD VALUATION COMPARABLES

entrepreneurship Raise funding or bootstrap

entrepreneurship Raise funding or bootstrap

And make sure y is >4 times x!

Building a Better World Through Entrepreneurship

RYAN ALLIS With Ellen Daly

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