Financing a Startup

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  • 1. Visit evisors.com to browse all mentors who can help you with: • Informational Interviews • Resumes & Cover Letters • Mock Interviews …and more! Hosted by: Career Advisors on Demand..com/webinars
  • 2. Financing a Startup The Who, What, When and How’s featuring: Michael Horowitz Associate Hosted by: Caitlin Quan Evisors Marketing & Operations Associate Hosted by: Career Advisors on Demand..com/webinars
  • 3. 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. Hosted by: Career Advisors on Demand..com/webinars
  • 4. Agenda 1. About Me 2. Sources of Capital – Know Your Audience 3. How to Pitch a VC 4. Financing Considerations 5. Q&A Hosted by: Career Advisors on Demand..com/webinars
  • 5. About Me • Associate @ Bessemer • University of Pennsylvania | 2010 • Goldman Sachs (SSG) | 2009 • BlackRock (PMG) | 2008 • Weather Risk Solutions (Startup) | 2006 - 2010 Hosted by: Career Advisors on Demand..com/webinars
  • 6. 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! Hosted by: Career Advisors on Demand..com/webinars
  • 7. 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 Hosted by: Career Advisors on Demand..com/webinars
  • 8. 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 Hosted by: Career Advisors on Demand..com/webinars
  • 9. 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
  • 10. 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 Hosted by:See the rest at evisors.com/webinars/webinar/73
  • 11. 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 Hosted by:See the rest at evisors.com/webinars/webinar/73
  • 12. 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 Hosted by:See the rest at evisors.com/webinars/webinar/73
  • 13. Connect Book your one-on-one session with Michael at www.evisors.com/expert/1975 Michael Horowitz Associate Hosted by:See the rest at evisors.com/webinars/webinar/73
  • 14. Questions & Answers Hosted by:See the rest at evisors.com/webinars/webinar/73
  • 15. 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
  • 16. Questions & Answers Question 2: Can you advise on how to gauge the timing and depth of financing? Hosted by:See the answer at evisors.com/webinars/webinar/73
  • 17. Questions & Answers Question 3: Are there any models that combine crowd- funding with angel investing? Hosted by:See the answer at evisors.com/webinars/webinar/73
  • 18. Questions & Answers Question 4: What methods are there to measure the cost of customer acquisition? Hosted by:See the answer at evisors.com/webinars/webinar/73
  • 19. Questions & Answers Question 5: Would you suggest working for a few years vs. moving straight into your venture? Hosted by:See the answer at evisors.com/webinars/webinar/73
  • 20. Questions & Answers Question 6: Situational funding question Hosted by:See the answer at evisors.com/webinars/webinar/73
  • 21. Questions & Answers Question 7: How do you create proposals that fit the objectives of the person who has the money? Hosted by:See the answer at evisors.com/webinars/webinar/73
  • 22. Questions & Answers Question 8: Are there important cultural differences between the USA and Europe when raising capital? Hosted by:See the answer at evisors.com/webinars/webinar/73
  • 23. Get the latest updates on upcoming webinars by following us: Register for live webinars and view all our recordings at: www.evisors.com/webinars facebook.com/Evisors twitter.com/Evisors pinterest.com/Evisors linkedin.com/company/Evisors Hosted by:See the rest at evisors.com/webinars/webinar/73