Startup Secrets - Funding Strategies to Go the Distance

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START UP SECRETS

An insider’s guide to unfair competitive advantage

Funding Strategies to Go the Distance

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AgendaMany ways to fund your startup Develop a funding strategy Remove the mystique of VC


Have a question? Tweet them!

@underscorevc#startupsecrets

Proprietary and Confidential 4

Sex, Relationships

& Money

This could get complicated, but it needn’t!

Funding Strategies to Go the Distance @underscorevc startupsecrets.com


Raising money is like sex.


Everyone wants to know about it.Few people talk about it openly.


Everyone wants to know about it.Few people talk about it openly.People are afraid to ask …




Everyone wants to know about it.Few people talk about it openly.People are afraid to ask …It’s fun once you get it!




Should you even raise money?• If you don’t know, the answer is no!• Do the work first

Example reasons for a “no”• No need!• Personal: risk aversion, lifestyle, control• Business: small potential• Other: not for profit, or research

Funding Strategy



Ideation Confirmation Creation Validation Repeatability Scalability Profitability Predictability

Overview




Overview

Increasing VALUE

Decreasing RISK




Overview

Increasing VALUE

Decreasing RISK

Product Market

Fit

PrototypeProblem Fit

Value PropIdea Fit

MVP & MVSCustomer Fit

CompanyExecution Fit

CompanyPublic Market Fit

Company

Business Model

Fit




Overview

Increasing VALUE

Decreasing RISK

The two best times to raise capital

With all the potentialor

Plenty of proof



Funding vectors – matching expectations & outcomes



Equity• Angel• Accelerators• Seed, Venture Capital (including Strategic / Corporate investors)• Growth, Private Equity• Public Markets

Other• Bootstrap• Friends & Family• Debt• Grants, subsidies, off balance sheet

Alternatives• Business Crowdfunding (e.g. AngelList), Products/Services (e.g.

Kickstarter)

Typical Sources



What’s right for you?

LargeSmall

Capital

Potential

Intense

Efficient



Sex, Relationships & Money

This could get complicated, but it needn’t! simplified.



What’s right for you?

LargeSmall

Capital

Potential

Intense

Efficient

VC



Venture CapitalSeed: ~ $100K to $1-3m• See later

A to IPO• $Millions, multiple rounds

Stage development participation, involvement• Active (board seat)• Passive (follow “lead” investors)



VCs receive ‘000s of plans



This is what happens to most



Research

Fit: Geography, Sector, Stage Portfolio: Complementary, competitive? Partner(s) Track Record Capital, free capital, reserves



Target, be selective and focus Fit: Geography, Sector, Stage Portfolio: Complementary, competitive? Partner(s) Track Record Capital, free capital, reserves



Build a relationship

You could be partners for several years …



Triangulate ways to connect

Find someone who knows the VCGet a warm introductionInteract on lineUse your initiative!



Process?



Process FrameworkYou

• Research• Connect• Meet• Motivate• Diligence• Fit check• Pitch• Legal• Celebrate (briefly!)

The VC

• Thesis• Qualify• Meet• Prioritize• Engage• Socialize• Partner meeting• Final diligence• Fund



First connection: Who, what, why?

Make a connectionEstablish• Who are you (relevant experience)• What do you do (uniquely well for who)• Why does it matter (market opportunity)

Investors often have ADD• Not value add – A.D.D. !• Limit the agenda, control the discussion, get the first meeting!



First meeting

Tell your story …

See “Getting behind the perfect pitch”



Process – build momentumYou


The VC




Incomplete stand outs are better than complete stand ups.We looking for outstanding:• People• Technology or other disruption• Market opportunity

One outstanding of the above literally stands out vs. all good, but none great

We don’t expect complete• Team• Product• Value prop• GTM plan• Business model

Entrepreneurs don’t need all the answers!• Self aware, listening, leaders ….



Dating and Validating

Why diligence is so important to YOU too!



Dating – evaluating investors:Everyone’s money is the same colorGet to know the partnership and their portfolioThis is NOT an arranged marriage! Pick your partner.• Level of insight and experience• Track record is great but it’s history• Talk to others who have worked with them

Will they be a balance for you?Good self-aware mentor?

• Find someone who is genuinely motivated to set you up for success.• If you don’t have comfort and personal chemistry … KEEP LOOKING!

See LinkedIn article here.


http://www.linkedin.com/today/post/article/20130206211336-1893586-who-are-the-best-venture-capitalists-pure-investors-or-operators?trk=prof-post


Expectations of your VC?Operating experience?Investment experience?Hands on/off?Thoughts:• Team and board building• Remove roadblocks• Reveal opportunities to accelerate• Strategic insight• Access to resources, network



Validating the VC’s workGet to know the team• Time, References, etc.

Understand the business• Value prop, biz model

Check under the hood• e.g. Expert opinion on TechValidate assumptions• GTM, speak to customers, partners



Process – term sheet timing …

You


The VC


Term sheet?

Term sheet?



Funding strategy questions

First question• How much do you need?



How much do you need?Run the numbersBuild the assumptionsAssess the dependenciesDefine the milestones

Enough to build real value• 18 months of runway typically



More important than the spreadsheetAssumptionsThings to testMinimally: cash flow projectionOptimally: Financial forecast



FinancialsP&L Cash Flow• 6 quarters for cash flow, requirement

For sizing the business, overall capital requirement (informs investor for their reserves)• Annual P&L, CF up to 5 years thereafter;

Highlighting if applicableCash flow positiveBreakeven

Suggested information / detail as needed for the above• Headcount• Bookings• Revenue

May need to break out things like Services depending on your business• Gross Margin• Expenses

Major categories like R&D, Sales, Marketing, G&A shown as needed• Profit/Loss• Cash



Realistic optimists?



Funding strategy questionsFirst question• How much do you need?

Second question• How much do you want?



How much do you want?Enough to build real value

Define the milestones• Key hires• Product beta, ship• First customers• Channel Partners• Etc…

18 months of runway typically



Funding strategy questionsFirst question• How much do you need?

Second question• How much do you want?

Final question• What should you raise?



What should you raise?One strategy (dilution sensitive, risk tolerant)• Raise just what you need• Just before you need it?

Another strategy (dilution insensitive, risk intolerant)• Raise more than you need• Well before you need it

Either way• Timing is everything so plan• Assume the unexpected



Predictability of your business• Your execution• Market adoption• Cash flows (business model)• Potential outcome (risk / return)

Competitors’ balance sheets Valuation…

Factors

Funding Strategies to Go the Distance @underscorevc startupsecrets.com 65


The sixty four million dollar question…

Valuation



Valuation vectors



Don’t just value – evaluate …Always be one round ahead in your thinking

Proof (Metrics, Milestones per earlier)Customers, Partners, GTM, BizModel, Product

Allow for UnknownsTime to fundraise

Capital to capitalize!



Ultimate exit potential (if you must)

Potential acquirers• Their motivations• Recent transactions in the space

- $ paid and valuations basis

Independent beyond IPO• Comparable valuations

– Data for these like revenues, growth rates, market cap



Build relationships between financing rounds

Always ready to close

“ABC: Always Be Closing”



The most important capital you’ll raise

Human capital

Invest in it with your option pool!



Investor fit Amount of capital raised Human Capital (option pool) Timing

(To clear the bar: Clean Terms)

What really matters



Raising money is like sex

It needn’t be complicatedIt’s fun when you get it!So pick your passion not your poison



T 617.303.0064 @underscorevc

53 State Street, 10th Fl Boston, MA 02109

Thank you!

Startup Secrets - Funding Strategies to Go the Distance

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