Funding and growth in Silicon Valley

MINISTRY OF FOREIGN AFFAIRS OF DENMARK EKSPORTRÅDET – THE TRADE COUNCIL

”From Idea to IPO” Funding & Growth in Silicon Valley

MINISTRY OF FOREIGN AFFAIRS OF DENMARK EKSPORTRÅDET – THE TRADE COUNCIL

Sunil Maulik, Ph.D. [email protected]

MINISTRY OF FOREIGN AFFAIRS OF DENMARK EKSPORTRÅDET – THE TRADE

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Start Your Motor!

Why start up a company?

•  What is the current market Dynamic?

•  What are your Long-‐Term goals?

•  Investors like Big Ideas – what is yours?

The Silicon Valley mantra “Go big or go

home!”


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Taking the leap

TransiRoning from career to startup •  Build a prototype and get customer feedback

•  Establish a team willing to work for stock

•  Get as much done without paying salaries: – First product – First customers – Business plan; markeRng plan


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Get the funding you need

Sources of Funding

•  Boot-‐Strapping (Customer Funded)

•  Angel Investors •  Corporate Capital •  Venture Capital •  Other – Going public (IPO) – Secondary markets

Boot-‐Strapping (Customer Funded)

•  Get customers to pre-‐pay for the product

•  Create a process for acquiring early customers

•  Offer discounts or revenue-‐share •  Give the customer a significant up-‐side See KickStarter (www.kickstarter.com)

Angel Investors

•  Write small checks ($25K-‐$250K)

•  Finds or advises company: – Business development – Engineers

•  Can introduce company to VCs

Some Famous Silicon Valley Angels

•  Y-‐Combinator •  Founders Fund •  Angel List •  500StartUps

Danish Example – AppHarbor

•  Founded Sept 2010 by Rune Sørensen, Troels Thomsen and Michael Friis.

•  Y-‐Combinator Funded •  Easy to use development pladorm for .NET developers

•  Example of ‘Pladorm as a Service’ (PaaS)


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CorporaRons as investors/partners

Corporate Funding

•  Strategic investors – not looking to get lots of money back (Return on Capital) • Want early view into technology • Want early view into compeRRon •  Expect discount on business partnership •  May want exclusivity

Danish Example -‐ MemoLane •  Founder: Eric Lagier •  A pladorm for collecRng and connecRng thoughts, pictures, messages

•  Integrates with your social networks Total: $2.5M Seed Funding: Niklas Zennstrom/Janus Friis (Skype) Series A, 11/09 Digital Garage $500k Series B, 9/10 August Capital, Atomico $2M


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Reach for the sky! – Venture Capital

Venture Capitalists •  Lots of money •  Lots of experRse and help •  Expensive money! •  Look for scalable companies ($500MM+ valuaRons) •  Looking for disrupRve technology in huge markets

Venture Capital •  VCs can bring credibility with customers

•  VCs can get major partnership deals

•  VCs can recruit professional management

•  VCs also sit on boards of large public companies, private equity funds, etc.

Disadvantages of Venture Capital •  Requires huge amounts of Rme/effort to get

•  Puts negaRve pressure on founders

•  Requires accountability (must hit milestones)

•  Doesn’t allow for early flexibility •  VCs may take your company in a direcRon that is not of interest to you

Financing Roadmap -‐Friends & Family

-‐Individual Angels -‐Early Customers -‐Early-‐stage VCs (Series ‘A’) -‐Later-‐stage VCs (Series ‘B’ and ‘C’) -‐Private Equity (If needed-‐Series ‘D’) -‐IPO or Acquisi4on


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Raising VC Money – The Pot at the end of the Rainbow

What do VCs look for?


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•  Big, bold Idea •  AuthenRcity, Integrity, MoRvaRon (A.I.M.) •  A+ DNA (Ability to hire a winning team) •  Rapid IteraRons & Pivot (R.I.P.)

How to raise VC money •  Need a track-‐record (if not you, then your team)

•  IdenRfy unfair advantages that benefit your company

•  Determine if your idea has economic power

Demonstrate unambiguously how you

create value for the customer

How to raise VC money (cont.)

•  Show a huge market opportunity

•  Demonstrate venture-‐scale returns

•  IdenRfy clear milestones to first year revenue

•  Provide signed customer/partner relaRonships

What numbers do VCs look at?

•  VCs want at least 10x Return on Investment (RoI)

•  IRR (Internal Rate of Return) is also important

•  VCs invest money for their LPs (Limited Partners) with an expected IRR of 30%

•  VCs want to make money for their funds so they can raise new funds

Example -‐ Zendesk •  Started in Denmark •  First Funding from Boston •  Now Headquartered in San Francisco •  HelpDesk and Support Infrastructure for sonware companies Total Funding: $25.5M Seed, 6/08 Christoph Janz $500k Series A, 5/09 Charles River Ventures $1M Series B, 8/09 Benchmark Capital, Charles River Ventures $6M Series C, 12/10 Matrix Partners, Benchmark Capital, Charles River Ventures $19M


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You’re Off! – Now What?

OK – you’re funded!

•  Rapidly expand partnerships: – Customers – Distributors – Channels – Suppliers

•  Keep shipping products: – Regular release/update schedule – New funcRonality (get customer feedback!)

How to go from one to one thousand (any units!)

•  IdenRfy a big company that must sell your product in order to increase their revenue

•  IdenRfy complementary company(s) that you can merge/acquire

•  IdenRfy internaRonal partners that have access to large markets

•  Change (pivot) your business-‐model to dramaRcally increase revenue

The Start-‐Up Curve

Summary

•  To be big – think big! •  Investors want to invest in big ideas •  Prove that you have a disrupRve technology

•  Describe how you will efficiently capture a sliver of a huge market

•  Show that you can scale to capture the rest of the market