An Insiders View:  How to Raise Money from VCs Bob Dahlberg Partner Horizon Ventures Los Altos, CA Bob at horizonvc com
Agenda <ul><li>VC financing +’s and –’s </li></ul><ul><li>How VCs decide </li></ul><ul><li>The VC dating game </li></ul>
Venture Capital Isn’t Required To Build a Great Business … <ul><li>Broadcom </li></ul><ul><ul><li>No VC money </li></ul></...
VC Financing Comes with Costs… † <ul><li>Fund raising takes time away from serving customers </li></ul><ul><li>False sense...
… But it Sure Can Help <ul><li>Cash to fuel growth </li></ul><ul><li>Strategy / business advice </li></ul><ul><li>Introduc...
Agenda <ul><li>VC financing +’s and –’s </li></ul><ul><li>How VCs Decide </li></ul><ul><li>The VC dating game </li></ul>
We Live in Unprecedented Times <ul><li>Facing the worst economy since the ’30s </li></ul><ul><li>No IPO market </li></ul><...
Against that backdrop .....
How do Most VCs Decide? <ul><li>You’ll first have to understand VC  care abouts .... </li></ul>
VCs Want to do Deals <ul><li>Deliver Big Returns to their LPs </li></ul>SOURCE: TheFunded.com, NVCA / Thompson Reuters Exi...
Good Deals are Hard to Find <ul><li>“ We kiss a lot of frogs to find the prince” </li></ul><ul><li>-- Venture capital indu...
Venture Grade Deals are 1/200 Source: IRS.gov VC Grade Life Style Companies AKA “Walking Dead”
It’s Hard to Spot Winners <ul><li>Every deal has “hair on it”  </li></ul><ul><ul><li>It’s easy to find many, many problems...
VC’s Personal Bias is a Factor <ul><li>Will be working together for 6+ years </li></ul><ul><ul><li>The project must be int...
So How do Most VCs Decide? <ul><li>VCs “ fall in love with the deal ” </li></ul>
Your Start-Up Must Be Attractive Newco!
Attractive is.... <ul><li>Big Market </li></ul><ul><ul><li>Open to disruption </li></ul></ul><ul><li>Customers in pain and...
Agenda <ul><li>VC financing +’s and –’s </li></ul><ul><li>How VCs Decide </li></ul><ul><li>The VC dating game </li></ul>
 
VC Dating is a Grueling Process <ul><li>Requires mental toughness </li></ul><ul><li>You may have to talk to 10 – 40 firms ...
Time Scales 1 Introduction 2 First Date 3 Dating 1 to 6 weeks 2 to 12 weeks Per VC Per VC Per Funding 2 to 26 weeks
It Will Be the Best  Business Advice You’ll ever Get  <ul><ul><li>Listen </li></ul></ul><ul><ul><li>Learn </li></ul></ul><...
Step 1:  Introduction  <ul><li>Goal :  Get the first date </li></ul><ul><li>Strategy : Approach  the right VC, right </li>...
The Right VC, Right <ul><li>Right VCs, </li></ul><ul><li>The Right Way  </li></ul>
The Right VC  has Greener Money <ul><li>VC money is not a bank loan </li></ul><ul><li>Do your homework ! </li></ul><ul><ul...
Funding to Customer Validation <ul><li>Customers </li></ul><ul><ul><li>Consulting engagements </li></ul></ul><ul><ul><li>N...
Approach the Right VC, Right <ul><li>Right VCs, </li></ul><ul><li>The Right Way   </li></ul>
The Right Way <ul><li>“ We only look at deals that are  </li></ul><ul><li>introduced to us by people we know”   </li></ul>...
Study Finds Business Plans a Waste See:  http://www.rhsmith.umd.edu/news/releases/2009/040809.aspx Social connections trum...
The Right Way:  Introduction by Referral <ul><li>Successful entrepreneurs </li></ul><ul><li>Lawyers that work with VCs and...
Sales Tool: The Executive Summary <ul><li>Tool Objective :  To get a meeting </li></ul><ul><li>One pager that covers: </li...
Executive Summary Template www.bandangels.com
How VCs Vet  Your Exec Summary <ul><li>Is the referral source credible? </li></ul><ul><li>Is this company in my geography?...
Rejection <ul><li>“ We can’t kiss all the pretty girls” </li></ul><ul><li>-Bob Kagle, Benchmark </li></ul>
Step 2: The Pitch <ul><li>Goal :  Get the second date  </li></ul><ul><li>Strategy :  Sketch  out a compelling,  exciting v...
“ Pitch” Advice is Abundant -- and not duplicated here <ul><li>Guy Kawasaki, Garage Technology Ventures </li></ul><ul><ul>...
Tell a Simple, yet Compelling Story <ul><li>Your Start-Up is everything to you </li></ul><ul><ul><li>But just another pret...
Story Telling is a Skill <ul><li>Jerry Weissman Coach to CEOs on an IPO Road Show </li></ul>
The Story VCs Want to Hear <ul><li>Big Market </li></ul><ul><ul><li>Open to disruption </li></ul></ul><ul><li>Customers in...
Four Pillars to any VC Pitch <ul><li>+ </li></ul>Team  Technology Product Financials Market
Market Size is  Every VC’s Concern Source: IRS.gov VC Grade 1:200 Market
<ul><li>Market Vetting </li></ul><ul><li>Competition </li></ul><ul><ul><li>VC cliché’:  “No competition = No Market” </li>...
Example:  Competition / Ecosystem  RTLS/RFID YMS TMS WMS Custom Asset Mgmt ERP Over The Road  Trailer/Tractor Tracking Mid...
#1 Cause of Failure is the Lack of Customers  <ul><li>Demonstrate you know your customer cold </li></ul><ul><li>There’s a ...
Example:  Customers Manufacturing Retail Logistics Transportation
2.  Team <ul><li>Show off your leadership aptitude </li></ul><ul><ul><li>Personal results, personal success </li></ul></ul...
Example:  Corporate Organization <ul><li>Disclose: Experience & Holes </li></ul>David Engineering Doug Sales Bob CEO TBH M...
<ul><li>Product Test:  Aspirin or Vitamin?? </li></ul><ul><li>The product has to be compelling  </li></ul><ul><ul><li>Cust...
Feature or  a Company? <ul><li>A Feature? </li></ul><ul><ul><li>Can the incumbent add this feature to an existing product ...
4.  Financials Financials
Cash is King <ul><li>Revenue forecast will likely not materialize,  So </li></ul><ul><ul><li>Is this plan realistic? </li>...
Sequoia Capital’s Directive to CEOs 10/2008
Example: HOW WE MAKE MONEY PRODUCT $ Newco 1.0  SAME PRODUCT 3 REVENUE STREAMS ECU/hours Newco DELPLOYED IN A PUBLIC CLOUD...
Example: BUILD + SELL Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 On-demand LAMP VMWare Beta MySQL Postgres EDB Amazon Platform EDB Private Br...
The Morning After …
What Can You Do? <ul><li>React to the business advice you received </li></ul><ul><ul><li>Adjust as necessary, your busines...
What Will Most VCs Do? <ul><li>Best case:  “Fast no, slow yes” </li></ul><ul><li>Typical:  Innocuous turn down, if at all ...
Rejection <ul><li>Accept rejection gracefully </li></ul><ul><li>There is no rationale argument to bring the VC back </li><...
What Might Happen? <ul><li>When a VC senses love, you’ll hear back </li></ul><ul><li>Be responsive! </li></ul><ul><ul><li>...
Step 3:  Due Diligence <ul><li>Goal :  Receive a term sheet </li></ul><ul><li>Strategy :  Two way test drive </li></ul>App...
Prepare in Advance <ul><li>Executive resumes & references </li></ul><ul><ul><li>Line up references in advance,  </li></ul>...
Typical Due Diligence Process <ul><li>More information  (Exec. resumes, financials, cap table, personal references, etc.) ...
Remember VCs come with Costs… † <ul><li>Fund raising takes time away from serving customers </li></ul><ul><li>False sense ...
So Use Due Diligence as a  Two Way Test Drive <ul><li>Can I work with this team / VC for the next 6 years? </li></ul><ul><...
Syndication: Two Parents are Better than One <ul><li>For the entrepreneur </li></ul><ul><ul><li>More strategic minds aroun...
Getting “Married” <ul><li>Locate a Syndicate Partner </li></ul><ul><li>Term Sheet </li></ul><ul><li>Legal due diligence </...
And Remember… Venture Capital Isn’t Required <ul><li>Broadcom </li></ul><ul><ul><li>No VC money </li></ul></ul><ul><li>Cis...
Entrepreneur Resources <ul><li>Law firm outreach </li></ul><ul><ul><li>DLA Piper Venture Pipeline </li></ul></ul><ul><ul><...
To Your New Venture Success!
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Insiders Guide On How To Raise Venture Capital

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This presentation is based on my six years as an entrepreneur during which I raised over $30M in venture capital, and six years as a VC writing checks to entrepreneurs. This guide describes a process on how to successfully raise money from any investor. It goes way beyond elevator and first pitch advice. Good luck!

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Insiders Guide On How To Raise Venture Capital

  1. 1. An Insiders View: How to Raise Money from VCs Bob Dahlberg Partner Horizon Ventures Los Altos, CA Bob at horizonvc com
  2. 2. Agenda <ul><li>VC financing +’s and –’s </li></ul><ul><li>How VCs decide </li></ul><ul><li>The VC dating game </li></ul>
  3. 3. Venture Capital Isn’t Required To Build a Great Business … <ul><li>Broadcom </li></ul><ul><ul><li>No VC money </li></ul></ul><ul><li>Cisco </li></ul><ul><ul><li>$5M in revenue, profitable before Sequoia invested </li></ul></ul><ul><li>Dell </li></ul><ul><ul><li>Raised money at $60M in revenue </li></ul></ul><ul><li>eBay </li></ul><ul><ul><li>$4.5M in revenue and profitable before Benchmark invested </li></ul></ul><ul><li>Microsoft </li></ul><ul><ul><li>VC funded after being profitable </li></ul></ul><ul><li>The MathWorks </li></ul><ul><ul><li>>$300M in revenue, no VC money </li></ul></ul><ul><li>Oracle </li></ul><ul><ul><li>Government contract funded first product </li></ul></ul><ul><li>SAS Institute </li></ul><ul><ul><li>> $1.9B in revenue, the largest private software company, no VC money </li></ul></ul><ul><li>Siebel </li></ul><ul><ul><li>Customers funded first product </li></ul></ul>
  4. 4. VC Financing Comes with Costs… † <ul><li>Fund raising takes time away from serving customers </li></ul><ul><li>False sense of security: it masks viability </li></ul><ul><ul><li>Money enables costly mistakes </li></ul></ul><ul><ul><li>Money removes spending discipline </li></ul></ul><ul><li>Adds additional master(s) </li></ul><ul><li>You give up a lot of ownership </li></ul><ul><li>Sets the exit strategy and timing </li></ul>† Source: Greg Gianforte, CEO RightNow, http://cet.berkeley.edu/Resources/CETLectures.html
  5. 5. … But it Sure Can Help <ul><li>Cash to fuel growth </li></ul><ul><li>Strategy / business advice </li></ul><ul><li>Introductions: investors, customers and partners </li></ul><ul><li>Recruiting </li></ul>
  6. 6. Agenda <ul><li>VC financing +’s and –’s </li></ul><ul><li>How VCs Decide </li></ul><ul><li>The VC dating game </li></ul>
  7. 7. We Live in Unprecedented Times <ul><li>Facing the worst economy since the ’30s </li></ul><ul><li>No IPO market </li></ul><ul><li>Average time to M&A is 6 years, IPO is 8 years, </li></ul><ul><li>Deal Status </li></ul><ul><ul><li>Most deals in the last 6 months were follow on with existing investors. </li></ul></ul><ul><ul><li>New investors are asking for 30 – 40% down rounds, or are waiting for prices to fall. </li></ul></ul>
  8. 8. Against that backdrop .....
  9. 9. How do Most VCs Decide? <ul><li>You’ll first have to understand VC care abouts .... </li></ul>
  10. 10. VCs Want to do Deals <ul><li>Deliver Big Returns to their LPs </li></ul>SOURCE: TheFunded.com, NVCA / Thompson Reuters Exit Poll and VC Fundraising Q3
  11. 11. Good Deals are Hard to Find <ul><li>“ We kiss a lot of frogs to find the prince” </li></ul><ul><li>-- Venture capital industry cliché </li></ul>
  12. 12. Venture Grade Deals are 1/200 Source: IRS.gov VC Grade Life Style Companies AKA “Walking Dead”
  13. 13. It’s Hard to Spot Winners <ul><li>Every deal has “hair on it” </li></ul><ul><ul><li>It’s easy to find many, many problems </li></ul></ul><ul><ul><li>EBAY: “On-line flea market? Come on!” </li></ul></ul><ul><ul><li>Google: 5 CEO candidates passed before Eric S. “Search is done” </li></ul></ul><ul><li>It is not easy to discern a winner: </li></ul><ul><ul><li>Portfolio returns: 1 @ 10X; 2 @ 1X; [email_address] </li></ul></ul>
  14. 14. VC’s Personal Bias is a Factor <ul><li>Will be working together for 6+ years </li></ul><ul><ul><li>The project must be interesting </li></ul></ul><ul><ul><li>Team compatibility is critical </li></ul></ul><ul><li>The unexpected is going to happen </li></ul><ul><ul><li>Got to get through the hard times </li></ul></ul>
  15. 15. So How do Most VCs Decide? <ul><li>VCs “ fall in love with the deal ” </li></ul>
  16. 16. Your Start-Up Must Be Attractive Newco!
  17. 17. Attractive is.... <ul><li>Big Market </li></ul><ul><ul><li>Open to disruption </li></ul></ul><ul><li>Customers in pain and who buy </li></ul><ul><ul><li>Growing order trend </li></ul></ul><ul><li>Strong product offering / technology </li></ul><ul><ul><li>Differentiated, protected </li></ul></ul><ul><li>Successful Team </li></ul><ul><ul><li>“ A Players” </li></ul></ul><ul><ul><li>Successful Investors / Advisors / Board Members </li></ul></ul>
  18. 18. Agenda <ul><li>VC financing +’s and –’s </li></ul><ul><li>How VCs Decide </li></ul><ul><li>The VC dating game </li></ul>
  19. 20. VC Dating is a Grueling Process <ul><li>Requires mental toughness </li></ul><ul><li>You may have to talk to 10 – 40 firms to find the match </li></ul><ul><li>Success demands careful planning and execution </li></ul>
  20. 21. Time Scales 1 Introduction 2 First Date 3 Dating 1 to 6 weeks 2 to 12 weeks Per VC Per VC Per Funding 2 to 26 weeks
  21. 22. It Will Be the Best Business Advice You’ll ever Get <ul><ul><li>Listen </li></ul></ul><ul><ul><li>Learn </li></ul></ul><ul><ul><li>Accept it </li></ul></ul><ul><ul><li>Bake learnings into your business plan </li></ul></ul>
  22. 23. Step 1: Introduction <ul><li>Goal : Get the first date </li></ul><ul><li>Strategy : Approach the right VC, right </li></ul>Introduction “ The Pitch” Due Diligence
  23. 24. The Right VC, Right <ul><li>Right VCs, </li></ul><ul><li>The Right Way </li></ul>
  24. 25. The Right VC has Greener Money <ul><li>VC money is not a bank loan </li></ul><ul><li>Do your homework ! </li></ul><ul><ul><li>Talk to start-up CEOs </li></ul></ul><ul><ul><li>Actively investing </li></ul></ul><ul><ul><li>Right sector (life sciences vs. semiconductor) </li></ul></ul><ul><ul><li>Relevant portfolio, expertise, and synergies </li></ul></ul><ul><ul><li>Early vs. late stage </li></ul></ul>
  25. 26. Funding to Customer Validation <ul><li>Customers </li></ul><ul><ul><li>Consulting engagements </li></ul></ul><ul><ul><li>Non-Recurring Engineering (NRE) engagements </li></ul></ul><ul><ul><li>Retainer fees from customers </li></ul></ul><ul><li>Government </li></ul><ul><ul><li>Small Business Innovation Research Grants (SBIR) </li></ul></ul><ul><li>Big Companies </li></ul><ul><ul><li>Value-Added Reseller (VAR) agreements </li></ul></ul><ul><ul><li>Divestitures – protected supplier contract with parent for a defined period </li></ul></ul><ul><li>Moonlighting </li></ul><ul><ul><li>Founders waive compensation </li></ul></ul><ul><li>Family, Friends and Fools </li></ul>
  26. 27. Approach the Right VC, Right <ul><li>Right VCs, </li></ul><ul><li>The Right Way </li></ul>
  27. 28. The Right Way <ul><li>“ We only look at deals that are </li></ul><ul><li>introduced to us by people we know” </li></ul><ul><li>– Mike Schuh, Foundation Capital </li></ul>
  28. 29. Study Finds Business Plans a Waste See: http://www.rhsmith.umd.edu/news/releases/2009/040809.aspx Social connections trump business plans by a long shot, says Goldfarb. Thus it is that people who already know VCs and angels have an easier time raising money . The irony, says Goldfarb, is that people who don’t have connections need to go out and make them, which may require that they have a business plan to discuss. But the plan is sort of like a business card, he says – just something that business protocol dictates you carry around.
  29. 30. The Right Way: Introduction by Referral <ul><li>Successful entrepreneurs </li></ul><ul><li>Lawyers that work with VCs and start-ups </li></ul><ul><li>Angel investors </li></ul><ul><li>VCs </li></ul><ul><li>Other service providers: </li></ul><ul><ul><li>bankers, head hunters, … </li></ul></ul><ul><li>Avoid Brokers (= Mothers-in-Law) </li></ul><ul><ul><li>Create a buffer layer in between you and VCs. </li></ul></ul>
  30. 31. Sales Tool: The Executive Summary <ul><li>Tool Objective : To get a meeting </li></ul><ul><li>One pager that covers: </li></ul><ul><ul><li>Contact information </li></ul></ul><ul><ul><li>Customer problem </li></ul></ul><ul><ul><li>Your solution (product/technology) </li></ul></ul><ul><ul><li>Market size </li></ul></ul><ul><ul><li>Competitors </li></ul></ul><ul><ul><li>Team </li></ul></ul><ul><ul><li>Customer proof points </li></ul></ul><ul><ul><li>Funding status </li></ul></ul>
  31. 32. Executive Summary Template www.bandangels.com
  32. 33. How VCs Vet Your Exec Summary <ul><li>Is the referral source credible? </li></ul><ul><li>Is this company in my geography? </li></ul><ul><ul><li>< 1 -2 hours travel time </li></ul></ul><ul><li>Is this a scalable business? </li></ul><ul><li>Is the team credible? </li></ul><ul><li>Are the existing investors credible? </li></ul><ul><li>Can I possibly fall in love with the: </li></ul><ul><ul><li>CEO </li></ul></ul><ul><ul><li>Target market </li></ul></ul><ul><ul><li>Problem being solved </li></ul></ul><ul><ul><li>The technology being developed </li></ul></ul>
  33. 34. Rejection <ul><li>“ We can’t kiss all the pretty girls” </li></ul><ul><li>-Bob Kagle, Benchmark </li></ul>
  34. 35. Step 2: The Pitch <ul><li>Goal : Get the second date </li></ul><ul><li>Strategy : Sketch out a compelling, exciting vision </li></ul>1 Introduction 2 “ The Pitch” 3 Due Diligence
  35. 36. “ Pitch” Advice is Abundant -- and not duplicated here <ul><li>Guy Kawasaki, Garage Technology Ventures </li></ul><ul><ul><li>www.garage.com/resources/building.shtml </li></ul></ul><ul><li>Brad Feld, Mobius Venture Capital </li></ul><ul><ul><li>www.feld.com/blog/archives/2004/06/the_torturous_w.html </li></ul></ul><ul><li>David Cowan, Bessemer Venture Partners </li></ul><ul><ul><li>whohastimeforthis.blogspot.com/2005/11/how-to-not-write-business-plan.html </li></ul></ul><ul><li>Sequoia Capital </li></ul><ul><ul><li>sequoiacap.com /ideas/ </li></ul></ul><ul><li>SVASE www.svase.org/components/uploads/SVASE%2010%20Slide%20Template.ppt </li></ul>
  36. 37. Tell a Simple, yet Compelling Story <ul><li>Your Start-Up is everything to you </li></ul><ul><ul><li>But just another pretty face to the VC </li></ul></ul><ul><li>VCs easily drown in details </li></ul><ul><li>Boredom sets in </li></ul><ul><li>Your goal is simple: </li></ul><ul><ul><li>Get the next date </li></ul></ul>VC Start-Up
  37. 38. Story Telling is a Skill <ul><li>Jerry Weissman Coach to CEOs on an IPO Road Show </li></ul>
  38. 39. The Story VCs Want to Hear <ul><li>Big Market </li></ul><ul><ul><li>Open to disruption </li></ul></ul><ul><li>Customers in pain and who buy </li></ul><ul><ul><li>Growing order trend </li></ul></ul><ul><li>Strong product offering / technology </li></ul><ul><ul><li>Differentiated, protected </li></ul></ul><ul><li>Successful Team </li></ul><ul><ul><li>“ A Players” </li></ul></ul><ul><ul><li>Successful Investors / Advisors / Board Members </li></ul></ul>
  39. 40. Four Pillars to any VC Pitch <ul><li>+ </li></ul>Team Technology Product Financials Market
  40. 41. Market Size is Every VC’s Concern Source: IRS.gov VC Grade 1:200 Market
  41. 42. <ul><li>Market Vetting </li></ul><ul><li>Competition </li></ul><ul><ul><li>VC cliché’: “No competition = No Market” </li></ul></ul><ul><li>Is there room for this start-up? </li></ul><ul><li>Is there any potential to grow fast? </li></ul><ul><li>Is the market big enough to maneuver if the first niche doesn’t work out? </li></ul>Market
  42. 43. Example: Competition / Ecosystem RTLS/RFID YMS TMS WMS Custom Asset Mgmt ERP Over The Road Trailer/Tractor Tracking Middleware/ Fusion Ekahau Aeorscout Laudis Fluensee SystemId Retalix Yardview C3 Red Prairie Manhattan Others… Oracle SAP OAT QualComm Trimble SkyBitz Zebra Newco Asset Control Asset Location Asset Management Oracle WMS Players I2 BEA Microsoft Motorola IBM HP ThingMagic Impinj Alien Size of oval does not represent size of company but rather functional coverage in segment
  43. 44. #1 Cause of Failure is the Lack of Customers <ul><li>Demonstrate you know your customer cold </li></ul><ul><li>There’s a logical reason behind the customer list </li></ul><ul><ul><li>Articulated customer segmentation </li></ul></ul><ul><ul><li>Strategic approach </li></ul></ul><ul><li>List your marquee customers </li></ul><ul><li>Show that customers are helping </li></ul>Market
  44. 45. Example: Customers Manufacturing Retail Logistics Transportation
  45. 46. 2. Team <ul><li>Show off your leadership aptitude </li></ul><ul><ul><li>Personal results, personal success </li></ul></ul><ul><ul><li>Start-up mentality vs. Big company mentality </li></ul></ul><ul><ul><li>Company pedigree – worked at market leaders </li></ul></ul><ul><li>Backed by blue ribbon advisors </li></ul><ul><ul><li>Key: people investors trust </li></ul></ul><ul><li>Expect your backgrounds to be rigorously checked. </li></ul>Team
  46. 47. Example: Corporate Organization <ul><li>Disclose: Experience & Holes </li></ul>David Engineering Doug Sales Bob CEO TBH Marketing 11 Engineers Cory Joe CTO Rob Mark CFO 2 Application Engineers 1 Marketing 2 Salespeople
  47. 48. <ul><li>Product Test: Aspirin or Vitamin?? </li></ul><ul><li>The product has to be compelling </li></ul><ul><ul><li>Customer inertia is huge </li></ul></ul><ul><ul><li>Customers change only when they have to </li></ul></ul><ul><ul><li>“ Don’t fix what isn’t broke.” </li></ul></ul>Technology Product
  48. 49. Feature or a Company? <ul><li>A Feature? </li></ul><ul><ul><li>Can the incumbent add this feature to an existing product easily? </li></ul></ul><ul><li>A Product? </li></ul><ul><ul><li>Part of a full-product portfolio? </li></ul></ul><ul><li>A Company? </li></ul><ul><ul><li>Can the value prop create a substantial business? </li></ul></ul>Technology Product
  49. 50. 4. Financials Financials
  50. 51. Cash is King <ul><li>Revenue forecast will likely not materialize, So </li></ul><ul><ul><li>Is this plan realistic? </li></ul></ul><ul><ul><li>Revenue must not be too big, but not too small </li></ul></ul><ul><li>Spending plan will be scrutinized. </li></ul><ul><ul><li>Cash is King </li></ul></ul><ul><ul><li>Successful CEOs are frugal </li></ul></ul>Financials
  51. 52. Sequoia Capital’s Directive to CEOs 10/2008
  52. 53. Example: HOW WE MAKE MONEY PRODUCT $ Newco 1.0 SAME PRODUCT 3 REVENUE STREAMS ECU/hours Newco DELPLOYED IN A PUBLIC CLOUD APPLICATION DELPLOYED IN A PUBLIC CLOUD Newco X Newco X Newco X ON-DEMAND $ Additional ECU’s Licensed Server ENTERPRISE DELPLOYED AT CUSTOMER SITE APPLICATION DELPLOYED IN A PRIVATE or PUBLIC CLOUD Newco 2.0 On-Premise Q4 2008 $
  53. 54. Example: BUILD + SELL Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 On-demand LAMP VMWare Beta MySQL Postgres EDB Amazon Platform EDB Private Branding V2.0 Release On-premise Glassfish Tomcat OLAP/DW Bundle License Server 3-6 New Components 3-6 New Components 3-6 New Components 3-6 New Components 2-3 Core Enhancements Xen? MSFT? 2-3 Core Enhancements 2-3 Core Enhancements 2-3 Core Enhancements VMWare Production 1 2 3 5 5 6 6 3 $0.3 $0.6 $1.2 $1.2 $1.5 $1.5 $1.8 $1.8 1 2 3 $0.75 $0.75 $1.5 $2.25 $3.0 $2.25 $0.75 ENGINEERING TEAMS SALES TEAMS PRODUCT 4 JBoss TOTAL TEAM EMPLOYEES COST($M): REVENUE ($M): PRODUCT
  54. 55. The Morning After …
  55. 56. What Can You Do? <ul><li>React to the business advice you received </li></ul><ul><ul><li>Adjust as necessary, your business strategy </li></ul></ul><ul><li>Polish your pitch for the next VC </li></ul><ul><ul><li>Incorporate learning from each interaction </li></ul></ul><ul><ul><li>Simplify, Simplify </li></ul></ul><ul><ul><ul><li>Clarify confusing points </li></ul></ul></ul><ul><ul><ul><li>Address objection items </li></ul></ul></ul><ul><ul><ul><li>Rearrange the slide order </li></ul></ul></ul>
  56. 57. What Will Most VCs Do? <ul><li>Best case: “Fast no, slow yes” </li></ul><ul><li>Typical: Innocuous turn down, if at all </li></ul><ul><ul><li>They don’t want to burn any bridges </li></ul></ul><ul><li>Typical: No urgency </li></ul><ul><ul><li>Risk reduces as time passes </li></ul></ul><ul><ul><li>Wait for a milestone </li></ul></ul><ul><ul><ul><li>quarter results </li></ul></ul></ul><ul><ul><ul><li>prototype works </li></ul></ul></ul>
  57. 58. Rejection <ul><li>Accept rejection gracefully </li></ul><ul><li>There is no rationale argument to bring the VC back </li></ul>
  58. 59. What Might Happen? <ul><li>When a VC senses love, you’ll hear back </li></ul><ul><li>Be responsive! </li></ul><ul><ul><li>VC’s like working with responsive people </li></ul></ul><ul><ul><li>You’re building a relationship </li></ul></ul><ul><ul><li>Respond to requests < 24 hours </li></ul></ul>
  59. 60. Step 3: Due Diligence <ul><li>Goal : Receive a term sheet </li></ul><ul><li>Strategy : Two way test drive </li></ul>Approach “ The Pitch” Due Diligence
  60. 61. Prepare in Advance <ul><li>Executive resumes & references </li></ul><ul><ul><li>Line up references in advance, </li></ul></ul><ul><ul><li>Contact people VCs will find </li></ul></ul><ul><li>Financial Quarterlies </li></ul><ul><li>Capitalization table </li></ul><ul><li>Customer / technology references </li></ul><ul><ul><li>Keep them updated on your progress, </li></ul></ul><ul><ul><li>Use them judiciously </li></ul></ul>
  61. 62. Typical Due Diligence Process <ul><li>More information (Exec. resumes, financials, cap table, personal references, etc.) </li></ul><ul><li>Meet with VC’s “expert(s)” </li></ul><ul><ul><li>Portfolio companies, friends, paid experts </li></ul></ul><ul><li>Follow up meeting(s) at your office </li></ul><ul><li>Calls to customers and personal references </li></ul><ul><li>Calls to back-channel references </li></ul>
  62. 63. Remember VCs come with Costs… † <ul><li>Fund raising takes time away from serving customers </li></ul><ul><li>False sense of security: it masks viability </li></ul><ul><ul><li>Money enables costly mistakes </li></ul></ul><ul><ul><li>Money removes spending discipline </li></ul></ul><ul><li>Adds additional master(s) </li></ul><ul><li>You give up a lot of ownership </li></ul><ul><li>Sets the exit strategy and timing </li></ul>† Source: Greg Gianforte, CEO RightNow, http://cet.berkeley.edu/Resources/CETLectures.html
  63. 64. So Use Due Diligence as a Two Way Test Drive <ul><li>Can I work with this team / VC for the next 6 years? </li></ul><ul><li>Is this a quality team / VC? </li></ul><ul><li>Do team / VC listen? </li></ul><ul><li>Is the team/VC honest, ethical, reliable? dependable? </li></ul><ul><li>How do they react being under fire? </li></ul>
  64. 65. Syndication: Two Parents are Better than One <ul><li>For the entrepreneur </li></ul><ul><ul><li>More strategic minds around the table </li></ul></ul><ul><ul><li>Hedge against one VC walking out </li></ul></ul><ul><li>For the VC </li></ul><ul><ul><li>Validates that the start up has legs </li></ul></ul><ul><ul><li>More powder available </li></ul></ul>
  65. 66. Getting “Married” <ul><li>Locate a Syndicate Partner </li></ul><ul><li>Term Sheet </li></ul><ul><li>Legal due diligence </li></ul><ul><li>Cash in the bank </li></ul>
  66. 67. And Remember… Venture Capital Isn’t Required <ul><li>Broadcom </li></ul><ul><ul><li>No VC money </li></ul></ul><ul><li>Cisco </li></ul><ul><ul><li>$5M in revenue, profitable before Sequoia invested </li></ul></ul><ul><li>Dell </li></ul><ul><ul><li>Raised money at $60M in revenue </li></ul></ul><ul><li>eBay </li></ul><ul><ul><li>$4.5M in revenue and profitable before Benchmark invested </li></ul></ul><ul><li>Microsoft </li></ul><ul><ul><li>VC funded after being profitable </li></ul></ul><ul><li>The MathWorks </li></ul><ul><ul><li>>$300M in revenue, no VC money </li></ul></ul><ul><li>Oracle </li></ul><ul><ul><li>Government contract funded first product </li></ul></ul><ul><li>SAS Institute </li></ul><ul><ul><li>> $1.9B in revenue, the largest private software company, no VC money </li></ul></ul><ul><li>Siebel </li></ul><ul><ul><li>Customers funded first product </li></ul></ul>
  67. 68. Entrepreneur Resources <ul><li>Law firm outreach </li></ul><ul><ul><li>DLA Piper Venture Pipeline </li></ul></ul><ul><ul><li>www.venturepipeline.com </li></ul></ul><ul><ul><li>Fenwick & West LLP </li></ul></ul><ul><ul><li>“ Darrell Kong” < dkong@fenwick.com> </li></ul></ul><ul><ul><li>Orrick, Herrington & Sutcliffe LLP’s “Total Access” </li></ul></ul><ul><ul><li>&quot;Chad Lynch&quot; <clynch@orrick.com> </li></ul></ul><ul><ul><li>Pillsbury Winthrop Shaw Pittman LLP’s “Back Stage Pass” </li></ul></ul><ul><ul><li>[email_address] </li></ul></ul><ul><ul><li>Wilson, Sonsini, Goodrich, and Rosati </li></ul></ul><ul><ul><li> wsgr.com/WSGR/Display.aspx?SectionName=practice/venturecapital.htm </li></ul></ul><ul><li>SDForum </li></ul><ul><ul><li>www.sdforum.org </li></ul></ul><ul><li>Silicon Valley Bank’s Venture Exchange </li></ul><ul><ul><li>Shai Goldman, Director, sgoldman@svb.com </li></ul></ul><ul><li>SVASE, Silicon Valley Association of Startup Entrepreneurs . </li></ul><ul><li>www.svase.org   </li></ul><ul><li>The Enterprise Network of Silicon Valley </li></ul><ul><ul><li>Tensv.org </li></ul></ul><ul><li>Women’s Technology Cluster </li></ul><ul><li>www.wtc-sf.org </li></ul>
  68. 69. To Your New Venture Success!
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