Startup Roadkill??....these financing tools will help you avoid the 18 wheelers
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Transcript of Startup Roadkill??....these financing tools will help you avoid the 18 wheelers
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presents
Back to Basics: Financial Fundamentals For Startups
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Get Funded: Financing your Startup August 13, 2013
Smith AndersonSilicon Valley Bank
(617) [email protected]
Twitter: @SmithTown561
Dan AllredSilicon Valley Bank
(617) [email protected]: @dgallred
http://danallred.tumblr.com
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Why We’re Here
Sources of Financing OverviewCrowdfunding: A Kickstarter case study. Equity: What you need to know.Debt: When is it right for you.
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Financing partners take risk
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Bootstrapping • Vendor financing Trade credit Stretching payables
• Customer financing Prepayments, deferred revenue
• Self financing Working without pay Ge>ng others to do the same Personal credit, credit cards, etc.
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Bootstrapping • Amount of capital RelaAvely small amounts
• Use of capital Working capital (brings future cash inflow forward OR delays current cash ouElow)
• Stage of company Useful at all stages, especially startup.
• Who bears the risk & what type Personal risk early, bankruptcy risk later Working capital risk (risk of insolvency)
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Crowdfunding deep dive
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Crowdfunding Then..
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Crowdfunding Then..
• 1884 this project ran out of money.
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Crowdfunding Then..
• 1884 this project ran out of money.
• Joseph Pulitzer wrote an arAcle asking for donaAons to fund project.
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Crowdfunding Then..
• 1884 this project ran out of money.
• Joseph Pulitzer wrote an arAcle asking for donaAons to fund project.
• $100K raised to finish this project in just under 6 months
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Crowdfunding Then..
• 1884 this project ran out of money.
• Joseph Pulitzer wrote an arAcle asking for donaAons to fund project.
• $100K raised to finish this project in just under 6 months
• 125K people donated to this fund.
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Crowdfunding Then..
• 1884 this project ran out of money.
• Joseph Pulitzer wrote an arAcle asking for donaAons to fund project.
• $100K raised to finish this project in just under 6 months
• 125K people donated to this fund.
• GiU from France
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Crowdfunding Then..
• 1884 this project ran out of money.
• Joseph Pulitzer wrote an arAcle asking for donaAons to fund project.
• $100K raised to finish this project in just under 6 months
• 125K people donated to this fund.
• GiU from France
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Crowdfunding: Today and BeyondProduct/Project
• Currently thriving– Pledgie (2006)– Sellaband (2006)– IndieGoGo (2008)– GiveForward (2008)– Kickstarter (2009)– RocketHub (2009)– Fundly (2009)– GoFundMe (2010)– Appsplit (2010) – Microventures (2010)– Fundageek (2011)
• Incredibly powerful momentum in the last few years.
Equity • Not legal…yet• JOBS Act passed July 10th• Accredited vs. non-‐accredited.
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Crowdfunding: A Kickstarter story
To Kickstart? Not to Kickstart?
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
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Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
Not to Kickstart?
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
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Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
• Almost zero risk if market
Not to Kickstart?
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
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Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
• Almost zero risk if market • MarkeAng story done for
you.
Not to Kickstart?
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
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Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
• Almost zero risk if market • MarkeAng story done for
you.• Almost immediate access to
cash
Not to Kickstart?
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
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Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
• Almost zero risk if market • MarkeAng story done for
you.• Almost immediate access to
cash
Not to Kickstart?
Ø No secrets to hide from compeAAon.
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
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Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
• Almost zero risk if market • MarkeAng story done for
you.• Almost immediate access to
cash
Not to Kickstart?
Ø No secrets to hide from compeAAon. Ø Price point
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
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Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
• Almost zero risk if market • MarkeAng story done for
you.• Almost immediate access to
cash
Not to Kickstart?
Ø No secrets to hide from compeAAon. Ø Price pointØ Go to Market Strategy
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
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Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
• Almost zero risk if market • MarkeAng story done for
you.• Almost immediate access to
cash
Not to Kickstart?
Ø No secrets to hide from compeAAon. Ø Price pointØ Go to Market Strategy Ø Runway
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
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Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
• Almost zero risk if market • MarkeAng story done for
you.• Almost immediate access to
cash
Not to Kickstart?
Ø No secrets to hide from compeAAon. Ø Price pointØ Go to Market Strategy Ø Runway Ø Timing
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
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Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
• Almost zero risk if market • MarkeAng story done for
you.• Almost immediate access to
cash
Not to Kickstart?
Ø No secrets to hide from compeAAon. Ø Price pointØ Go to Market Strategy Ø Runway Ø TimingØ Funding Commitments
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
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Is it right for you?
Probably• Hardware with a specific
cost for prototype.• Consumer facing projects• Micro-‐market products• Market unknown products. • One-‐off garage projects• ArAsts• Philanthropists
Probably Not• Large companies• Complex products with
intricate sales cycles• Infrastructure or enterprise
products that are unlikely to touch consumers.
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Angel Investors
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Angels• Class of capital Equity (ownership in company)
• Structure/organizaAon High net worth (HNW) individuals Some groups and clubs Some “super angel” funds
• MoAvaAon/incenAves Upside – stock appreciaAon Most look for an “exit” (i.e. liquidity event
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Angels• Amount of capital $100k to $2mm
• Use of capital Growth capital (i.e. new cash for growth)
• Stage of company Early-‐stage, product/market development
• Who bears the risk & what type Angel investor bears risk Product/market risk, execuAon risk
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Angels• Structure of investment Purchase of common or preferred stock SomeAmes converAble debt iniAally
• Price of investment 25-‐50% of company’s stock ConverAble debt ~25% min ownership
• Monitoring the investment ReporAng Some angels (or groups) want BOD seat
• Value add $$$, industry experAse, connecAons
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Venture Capital
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Venture Capital • Class of capital Equity (ownership in company)
• Structure/organizaAon Limited partnership 10 year funds (invest, grow & harvest)
• MoAvaAon/incenAves Upside (30% IRR and 3x overall for fund) Looking for an “exit” (i.e. liquidity event)
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Venture Capital• Amount of capital $1mm-‐20mm Some seed acAvity as well
• Use of capital Extreme growth capital
• Stage of company Early-‐stage and growth stage
• Who bears the risk & what type Limited partners and general partners Product, market, tech & execuAon risk
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Venture Capital• Structure of investment Purchase of preferred stock SomeAmes converAble debt iniAally
• Price of investment 20-‐40% of company’s stock
• Monitoring the investment ReporAng BOD seats RedempAon rights, registraAon rights
• Value add $$$, industry experAse, capital markets
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Debt
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Debt• Class of capital Debt (senior debt as discussed here)
• Structure/organizaAon Banks (regulated to accept deposits) Finance companies (corporaAons) Debt funds (limited partnerships)
• MoAvaAon/incenAves Banks – interest & fee income Finance companies, funds – interest Venture debt – warrant income
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Debt• Amount of capital $1mm-‐100mm
• Use of capital Working capital Growth capital AcquisiAon capital
• Stage of company All stages
• Who bears the risk & what type The lender
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Debt• Structure of investment Senior secured credit
• Price of investment Interest and fees for established co’s Plus warrants for pre-‐profit co’s
• Monitoring the investment ReporAng Financial covenants AffirmaAve & negaAve covenants
• Value add $$$, connecAons, patern recogniAon
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Case study
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• The early days… -‐Chuck – director of enterprise at Apple -‐Launches Apperian in January 2009 -‐App development for enterprise clients -‐Fee for service work
• How did I finance the business?
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• The early days… -‐Bootstrapping -‐Self-‐financing (and sacrifice) -‐Vendor relaAonships -‐Customer financing
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• Six months later… -‐The dogs are eaAng the dog food -‐iPhone is exploding in the enterprise -‐Recurring service revenues -‐Vision for EASE (Enterprise ApplicaAon Services Environment) plaEorm
How did I finance the business?
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• Six months later… -‐$1mm seed round -‐Common Angels & Launch Capital -‐AddiAonal $500k in Q1-‐10
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• Q1-‐10: the one year old startup… -‐Begin developing EASE plaEorm -‐Acquihire a small development shop -‐Focus solely on enterprise app clients -‐Begin transiAoning from services to products
How did I finance the business?
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• Q1-‐10: the one year old startup… -‐$500k SVB line of credit -‐Leverage A/R with enterprise clients -‐Smooth out cash-‐flow as R&D expense ramps -‐Bridge between payrolls – when flush with A/R but low on cash, uAlize line of credit for payroll, expenses, etc.
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• Q1-‐11: the two year old startup… -‐Enterprise mobility is hot! -‐BYOD, iPad in Xmas 2010 -‐Apperian building out management team -‐Customers converAng from service contracts to EASE plaEorm -‐ Key move: move to recurring SaaS Product
How did I finance the business?
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• Q1-‐11: the two year old startup… -‐$9.5mm series A -‐NorthBridge, Bessemer, Kleiner Perkins -‐1st enterprise investment from KP iFund -‐Over 2 years of cash runway
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• The past two years… -‐ConAnued market expansion -‐MDM, MAM, BYOD, etc. -‐Enterprise security, compliance, etc. -‐DistribuAon partnerships
• Personnel growth– 5-‐20 year one, 40 by year three and 70 year four
How did I finance the business?
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• The past two years… -‐$12.4mm preempAve series B in Mar ‘12 -‐$4.6mm series B extension in Jan ’13 with Intel Capital -‐ConAnued expansion of SVB credit relaAonship each year
• Exit Scenario at 10x revenue – Looking at market trends…
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Questions?
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presents
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