WHY DO STARTUPS RAISE MONEY? Troy Vosseller
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WHY DO STARTUPS RAISE MONEY?
Troy Vosseller
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#1 GOAL:
GROWTH
WHY DO STARTUPS RAISE MONEY?
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COMPETITIVE LANDSCAPE INTELLECTUAL PROPERTY
CAC < LTV (SUBSCRIPTION/SAAS)
WHY DO STARTUPS RAISE MONEY?
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COMPETITIVE LANDSCAPE
WHY DO STARTUPS RAISE MONEY?
“”5
Your margin is my opportunity.
JEFF BEZOS
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INTELLECTUAL PROPERTY
WHY DO STARTUPS RAISE MONEY?
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CAC < LTV (SUBSCRIPTION/SAAS)
WHY DO STARTUPS RAISE MONEY?
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CAC*3 < LTVCAC: Customer Acquisition Cost
LTV: Lifetime Value
WHY DO STARTUPS RAISE MONEY?
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PAYBACK PERIOD < 12 MONTHSPayback Period: Length of time to recover CAC
WHY DO STARTUPS RAISE MONEY?
PITCHING 14
OFFERI promise to give you a dollar in 12 months…
…IF you give me a quarter today.
12 Months
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WHY DO STARTUPS RAISE MONEY? 18
SOURCES OF CAPITALEquity
Angels, Angels Networks, Seed Funds, VCs, Family Offices, Corporate VCs, Crowdfunding
Pros: Available at pre-product/pre-revenue stage, adding outside expertise
Cons: Giving up equity, loss of control
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Amazon
EQUITY
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SOURCES OF CAPITALConvertible Debt
Convertible Notes, SAFEs
Pros: Available at pre-product/pre-revenue stage, low transaction fees
Cons: Giving up equity, loss of control, unclear dilution effects
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CONVERTIBLE DEBT
WHY DO STARTUPS RAISE MONEY?
• The Ultimate Guide to Understanding Convertible Debt • The Truth About Convertible Debt at Startups and the Hidden Terms
You Didn't Understand • Announcing the SAFE - A Replacement for Convertible Notes • Convertible and SAFE Notes
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SOURCES OF CAPITALTraditional Loans
Banks, P2P Lending, Venture Debt, SBA Loans
Pros: No dilution
Cons: Require traction, liquidation preference, personal guarantee
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TRADITIONAL LOANS
WHY DO STARTUPS RAISE MONEY?
• Prosper • Lending Club • Kabbage • SBA Loans • Doyenne Group • Venture Debt: Silicon Valley Bank, Wintrust, Square 1 Bank • Community/Economic Development Organizations:
• Wisconsin Economic Development Corporation • Madison Development Corporation • Milwaukee Economic Development Corporation • WWBIC
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SOURCES OF CAPITALRevenue-based Financing
Lighter Capital
Pros: No dilution
Cons: Require traction, liquidation preference
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SOURCES OF CAPITALPO Financing / Factoring
Turn your receivables into cash
Pros: No dilution
Cons: Require receivables, leaving money on the table
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SOURCES OF CAPITALCredit Cards / Student Loans
Using your personal credit
Pros: Availability
Cons: High interest, personal guarantee
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SOURCES OF CAPITALGrants / Prizes / Competitions
Pitch Contests, SBIR/STTR
Pros: No dilution
Cons: Lack of accountability
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GRANTS / PRIZES / COMPETITIONS
WHY DO STARTUPS RAISE MONEY?
• UW-Extension Center for Technology Commercialization • Governor’s Business Plan Contest • INSITE Entrepreneurship Guide (UW-Madison) • Wisconsin School of Business Business Plan Competition • UWM La Macchia New Venture Business Plan Competition • UW-Whitewater Warhark Business Plan Competition • Transcend Madison Competition • UW-Madison Computer Sciences NEST Competition
WHY DO STARTUPS RAISE MONEY? 29
SOURCES OF CAPITALCash Flow
Profit!
Pros: No dilution
Cons: May not be sufficient to fuel high growth
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