Pillsbury June 20 Fundraising Jeff Stewart

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The Funding Lifecycle

The Founder Institute June 20, 2011

Presented By: Jeff Stewart



W hat W e Hope To Address Today:

How does startup funding work?

When can my company raise capital?

How does one begin the fundraising process?

How much money should I raise, and how long should that

money last?

What are the stages in a typical funding lifecycle?

What are the milestones and expectations?

What are some tips and tricks to succeed?



Jeff s 6 Milestones of Valuation:

Fully VettedInitial Idea

Value

Time

Full-Time

Team

First PayingCustomer

FunctionalProduct

Positive CashFlow

Multiple ExitOpportunities

Your Funding Strategy, and Execution Planshould work ³hand in glove´



The Right Investors Can Help:


Value

Full-Time

Team


FunctionalProduct

Positive CashFlow


Time

Investors can Help in 3 ways:Achieve milestones sooner (Compress X Axis)

Superior step-up (Expanded Y Axis)

Help prevent you from running out of money



W hat You W ant:


Value

Full-Time

Team


FunctionalProduct

Positive CashFlow


Time

Good Investors can:Provide outside perspectiveGive you a dry run for a saleIntroduce key hiresLend CredibilityProvide CashIntroduce CustomersIntroduce Exit OpportunitiesIncrease Exit Valuations



W hat You W ill Get:


Value

Full-Time

Team


FunctionalProduct

Positive Cash

Flow

Time

³Entrepreneurship is often 2 steps forward, 1 step back´



W hat You Don t W ant:


Value

Full-Time

Team


FunctionalProduct

Time

Company runs out of money!



Budgeting and Cash Flow:

R ule 1: Don t Run out of Money

R ule 2: The rule of 2x3 It will take either twice as long and cost threetimes as much or it will take three times as long and cost twice as

muchR ule 3: You can t choose or predict which it will be!

R ule 4: Be very frugal, make every penny count

R ule 5: Don t be too frugal, know where to invest

R ule 6: Don t Run out of Money



³There are plenty of investors that want to invest. Good teams withgood business models will get funded´

Joseph Bartlett - 1994



W hich Source Is Right For You:

1. Sweat equity, and the kindness of others

2. Customer Funding (Revenue)

3. Vendor/Supplier Funding (Payables and Special Agreements)

4. Friends and Family (the 3 Fs)

5. Angel wannabes (Accredited via inherited wealth or dental school)

6. Angels (Accredited via relevant business success)

7. Venture Capital Seed Stage

8. Venture Capital Later Stage

9. Strategic Inventors

³Where you are in milestones achievement should drive who you approach´



Pipeline Rules of Thumb:

Have a pipeline report

Investors often lead to more investors

Your pitch will get better Manage urgency and timing

Leads can be elusive, be your own lead

Example Funding Pipeline ReportInvestor Type Chance Amount Expect NotesBob Smith Angel 5% 25,000$ 1,250$ in Aspen till JuneFrank LLc Seed VC 30% 100,000$ 30,000$Donna Jones Angel 30% 100,000$ 30,000$ PassedJeff Duke Angel 80% 50,000$ 40,000$ ReviewingLarry Leftco Friend 100% 25,000$ 25,000$ CommitedSam Socks Angel 30% 100,000$ 30,000$ Meet FridayKen Kim Super Angel 90% 75,000$ 67,500$West W heeler Angel 30% 25,000$ 7,500$Don Obon Seen VC 20% 250,000$ 50,000$ Follow UpJames Jones Angel 2% 50,000$ 1,000$

282,250$



Know W hat To Expect:

Median Pre-Money Value (Millions):

*Data courtesy of Cooley Godward Kronish, based on their internal deal flow



Are You Being Careful?

Not all rounds are up:

*Data courtesy of Cooley Godward Kronish, based on their internal deal flow



Beware: Bad Investors Can Kill Your Business

Investors can add enormous value up till just before they

invest ( enjoy the process )

They might add value after they invest, but you need to be

intelligent, strategic and proactiveThe right investors should save you time, not cost you time

The wrong investors can kill your business

The wrong terms can kill your business

³Time is your most precious resource« having useful investors is an investment of your time´



Have big aspirations

Seek the right amount of

capitalBeware Evil

Have Fun



Stewart s Approach To Fundraising:

Assume revenue is the best form of fundingAssume outside investors, or more importantly, the process of raisingoutside money, will make your business more valuable and impactfulNever need to raise money, AL W AYS have plan B

ALW AYS have competing fundraising choices

Plan ahead 2 to 5 years

Be intelligent about your choices (Security types, terms, conditions,preferences, governance)

Check references and reputation, It s not all about valuationConsider long term equity value and liquidity events

Drive the process.. don t be a victim



Creating Choices and Competition:

Control Burn, more then spend (discretionary vs.non-discretionary)

Good Angels will introduce you to good VCs

Good VCs will attract more VCsMultiple referrals are key

Try to have an open instrument (the ability to close

anytime)Use convertible bridge structures when appropriate



Beware of Piers:



O ther Tips and Tricks:

Protect and Inform your existing investorsUnderstand Blue Sky LawsThe right Attorney can helpThink InternationalTour NY, then Boston, then Silicon ValleyInclude both East and W est coast AngelsGo big, or go home!

Pillsbury June 20 Fundraising Jeff Stewart

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