Financing a Startup

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Financing a StartupThe Who, What, When and How’s

featuring:

Michael HorowitzAssociate

Hosted by: Caitlin QuanEvisors Marketing & Operations Associate





Disclaimer

Everything you are about to hear represents my own personal opinions and not those of

my employer or colleagues.

For the sake of time, I’m also generalizing a lot – don’t take any of my comments as

applying specifically to any one firm.





Agenda

1. About Me

2. Sources of Capital – Know Your Audience

3. How to Pitch a VC

4. Financing Considerations

5. Q&A





About Me

• Associate @ Bessemer

• University of Pennsylvania | 2010

• Goldman Sachs (SSG) | 2009

• BlackRock (PMG) | 2008

• Weather Risk Solutions (Startup) | 2006 - 2010





Before you raise money…

• Do I really want to do this?– Lifestyle change– Committing to a larger exit– Dilution– Loss of control

• And is now the right time?– Do I have a team? Product? Customers?– Am I approaching key inflection points that might significantly raise the value of my

business?

• That said…– VC’s can add lots of value:

• Cash to grow more quickly• Recruiting help• Customer or advisor intros• Strategy and benchmarking advice – we’ve been there before!





Where should you look?

• How much do you need?– <$50k

• Friends and family – Common source for initial funding; be wary of ruining relationships• Seed programs (Y Combinator, TechStars, RockHealth, ImagineK12…) – money, space and mentoring

– $50 - 250k• Individual angel investors - often past or current CEOs or successfully founders

– $250k - $1m• Syndicates of angel investors, super angel funds (SV Angel, Chris Sacca, Box Group, 500 Startups…)

– $1m - $3m• Early-stage venture funds (First Round, True Ventures, Felicis Ventures, Thrive, Lerer Ventures…)

– $3m - $20m• Venture funds (Bessemer, Accel, Sequoia, Benchmark, Matrix, Redpoint, NEA…)

• What about…– Banks

• Banks generally want to lend against predictable, proven businesses

– Crowdfunding• Kickstarter – non dilutive funding• FundersClub, Seedinvest and others

– AngelList





What do these people want?• Know Your Audience

– Angel investors are looking for a return, but generally are looser with terms than venture firms (no board seats, small positions, limited protections)

– Venture funds will be more heavily involved – on your board, owning more of the company, obtaining more rights and protections

– Angels and funds have sector and stage focuses – be sure they fit with your company!

• Also consider…– What is the fund’s approach to making follow-on investments (and does it have the funds)?– Who is the specific person you will be working with and how well do you get along?– What are your/the investor’s expectations for how involved they will be?

…and how can I find them?

• NETWORK, NETWORK, NETWORK– Most investors get way more inbound inquires than they can spend time on– We don’t have time to read and evaluate long business plans (or even short ones)– The best way to get in touch is through a connection – LinkedIn, startup lawyers, connections

in the VC’s portfolio, social media engagement, conferences…– Always be ready with a QUICK (30 second) elevator pitch





How to pitch an investor• The Perfect Pitch Deck

– ~10 slides– Clearly stated problem – is this something people care about?– Market – is the market big enough?– Solution (tech/product explanation) – demos are good if they are short and they work – just

convince me you’re taking an interesting / reasonable approach– Team – do you have the right people for the job?– Business model – can this make money?– Competition – who else is doing it and why are you better?– Traction – share whatever data you have that shows your business is working– Financial info – have you raised money before? What are the company’s financials?

• Common mistakes– “We have no competition”– “We conservatively project $100m revenue in 3 years”– “If we just get 1% of this massive market we’ll be a big company…”– “I can’t tell you more until you sign an NDA”

Hosted by:See the rest at evisors.com/webinars/webinar/73



What are you being judged upon?

• A lot of it is YOU!

• Then it depends on the stage of the company– Pre-product: Team + Market– Pre-launch product: Team + Market + Product– Recently launched product: Team + Market + Product + Initial Traction

• What is “traction”?– Downloads/Signups/Registrations– User engagement (# of visits, frequency of visits, number of interactions/visit…)– Monetization (free to paid %, customer lifetime value, churn…)– User acquisition cost

• BVP has some great resources:– 10 Laws of Cloud Computing– 10 Laws of eCommerce


https://bvp.box.com/10lawsofcloudcomputing

http://www.bvp.com/sites/default/files/bessemer_top_10_laws_ecommerce_oct2010.pdf

http://www.bvp.com/sites/default/files/bessemer_top_10_laws_ecommerce_oct2010.pdf



What to know about financing

• Convertible Notes vs. Priced Rounds– Convertible notes delay pricing of the round (generally for a discount in the future)– Deal docs are simpler– Can work out poorly in tough financing environments

• Liquidation Preferences– Common, Preferred and Participating Preferred

• Option pools and vesting– Often come out of the founder’s stake

• Protective provisions:– Standard blocks on exits, issuance of new stock, sale of assets…– Anti-dilution protection– Redemption rights– ROFR’s




A note on hardware startups

• A lot of the pre-presentation questions were about hardware startups• They still get funded, but it can be difficult• Lower margins than software, require a lot of $$$ to scale• When you can build Instagram on a few million…• Some current successful hardware startups: Nest, Lytro, e la carte, Sonos, Jawbone,

Fitbit, Pinnacle Engines*• Who’s funding them? Redpoint, Andreessen, Foundry, KPCB, Khosla, *Bessemer… • Kickstarter can be your best friend here – prove demand, raise non-dilutive funds• Lemnos Labs – hardware incubator




Connect

Book your one-on-one session with Michael at

www.evisors.com/expert/1975

Michael HorowitzAssociate


http://www.evisors.com/expert/1975



Questions & Answers




Questions & Answers

Question 1:

Is there an age limit where venture capital firms are reluctant to invest in?

Hosted by:See the answer at evisors.com/webinars/webinar/73



Questions & Answers

Question 2:

Can you advise on how to gauge the timing and depth of financing?




Questions & Answers

Question 3:

Are there any models that combine crowd-funding with angel investing?




Questions & Answers

Question 4:

What methods are there to measure the cost of customer acquisition?




Questions & Answers

Question 5:

Would you suggest working for a few years vs. moving straight into your venture?




Questions & Answers

Question 6:

Situational funding question




Questions & Answers

Question 7:

How do you create proposals that fit the objectives of the person who has the money?




Questions & Answers

Question 8:

Are there important cultural differences between the USA and Europe when raising capital?




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