High Growth Business Formation: Aaaron Holiday/General Assembly

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Individuals who are considering and/or founding a high growth business will learn about essential components involved in starting a scalable company, raising capital, and creating materials and …

Individuals who are considering and/or founding a high growth business will learn about essential components involved in starting a scalable company, raising capital, and creating materials and presenting to investors.

Want to learn more? Join Front Row today and access on-demand videos, livestreams, and much more: http://bit.ly/1aqAivV

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  • 1. HIGH GROWTH BUSINESS FORMATION: THE ORIGINS OF A SUCCESSFUL COMPANY Aaron Holiday
  • 2. GET THE FULL EXPERIENCE: LEARN WHAT YOU WANT, WHEN YOU WANT Unlimited access to all upcoming live streams On-demand streaming classes taught by top practitioners A growing video library, updated weekly Get access for only $25 USD/month. No risk—you can cancel at any time! START 14-DAY FREE TRIAL
  • 3. HIGH GROWTH BUSINESS FORMATION HIGH GROWTH BUSINESS DEVELOPMENT LIFE CYCLE: 6 STAGES
  • 4. AGENDA ‣ Idea Generation ‣ Ownership ‣ Legal Entity ‣ Business Model ‣ Revenue Streams
  • 5. HIGH GROWTH BUSINESS FORMATION IDEAS ARE WORTHLESS, BUT STRONG TEAMS WILL BUILD BIG BUSINESSES IDEAS ‣ There are NO unique ideas ‣ Ideas are NOT defensible ‣ Ideas are binary and static VS TEAMS ‣ There is only ONE team ‣ Teams take action ‣ Teams learn and pivot After identifying a promising business idea, SHARE that idea with others and form a powerful team around the idea to prove the value hypothesis IDEA GENERATION OWNERSHIP LEGAL ENTITY BUSINESS MODEL REVENUE LANDSCAPE
  • 6. HIGH GROWTH BUSINESS FORMATION KEY QUESTIONS TO ASK WHEN ACCESSING HIGH GROWTH BUSINESS OPPORTUNITY: ‣ Do I have the right team and access to the right people? ‣ Is there a market dislocation or a real paradigm shift in: Regulatory environments Complexity or access to needed technology Business Models Consumer Behavior Natural Orders Traditional Operations ‣ How big is the market? (Top Down, Bottom Up, number of people and number of entitites) ‣ What is required for short-run and long-run success? IDEA GENERATION OWNERSHIP LEGAL ENTITY BUSINESS MODEL REVENUE LANDSCAPE
  • 7. HIGH GROWTH BUSINESS FORMATION IT’S NOT YOURS, A BUSINESS IS OWNED BY MANY INDIVIDUALS AND ENTITIES COMPANY FORMATION POST QUALIFIED EQUITY FINANCING Business Owners ‣ Co-founders ‣ Early employees and management ‣ Family, friends, and angel investors ‣ Advisors IDEA GENERATION OWNERSHIP Business Owners ‣ Co-founders ‣ Early employees and management ‣ Family, friends, and angel investors ‣ Advisors ‣ Venture Capitalists and Seed Investors ‣ Debt holders (non equity) LEGAL ENTITY BUSINESS MODEL REVENUE LANDSCAPE
  • 8. HIGH GROWTH BUSINESS FORMATION IT’S NOT YOURS, A BUSINESS IS OWNED BY MANY INDIVIDUALS AND ENTITIES COMPANY FORMATION POST QUALIFIED EQUITY FINANCING Hypothetical Hypothetical IDEA GENERATION OWNERSHIP LEGAL ENTITY BUSINESS MODEL REVENUE LANDSCAPE
  • 9. HIGH GROWTH BUSINESS FORMATION DECIDING WHEN TO DIVIDE THE BUSINESS AND HOW TO ALLOCATE OWNERSHIP Allocate equity ownership sooner rather than later 1. Decide key business drivers and allocate a weight for each drivers 2. Assign founders and investors percentages based on performance and expectations 3. Use weighted average calculation to determine fair ownership IDEA GENERATION OWNERSHIP LEGAL ENTITY BUSINESS MODEL REVENUE LANDSCAPE
  • 10. HIGH GROWTH BUSINESS FORMATION DECIDING WHEN TO DIVIDE THE BUSINESS AND HOW TO ALLOCATE OWNERSHIP INITIAL EQUITY ALLOCATION BASED ON KEY BUSINESS DRIVERS Total Allocation Seed Investors Option Pool 20% 50% 50% 0% 0% Pre-existing IP or Technical Expertise 20% 30% 70% 0% 0% Intellectual Capital & Business Development 18% 45% 55% 0% 0% Sacrifice & time commitment 15% 60% 40% 0% 0% Startup funding 15% 16.67% 16.67% 66.67% 0% Option Pool 12% 0% 0% 0% 100% 100% OWNERSHIP Co-founder #2 Direction, Vision, and Leadership IDEA GENERATION Co-founder #1 35.60% 42.40% 10% 12% LEGAL ENTITY BUSINESS MODEL REVENUE LANDSCAPE
  • 11. HIGH GROWTH BUSINESS FORMATION CAP TABLE Co-Founders Contribution Share Allocation Share Class Ownership Date: 1/1/2011 Co-founder 1 424,000 Common Stock 42.40% Company Formation Co-founder 2 356,000 Common Stock 35.60% Team member 1 – Common Stock 0% Team member 2 – Common Stock 0% 120,000 Options 12% $100,000 100,000 Warrants 10% $100,000 1,000,000 LEGAL ENTITY BUSINESS MODEL Investment: $100,000 Total Shares: 1,000,000 Management Team Employee Ownership Option Pool Seed Investors Angel 1 Angel 2 Angel 3 Early Stage Investors VC #1 (Seed Investors) VC #2 VC #3 VC #4 Total IDEA GENERATION OWNERSHIP 100% REVENUE LANDSCAPE
  • 12. HIGH GROWTH BUSINESS FORMATION HIGH GROWTH VENTURE BACKABLE STARTUPS SHOULD CONSIDER C OR S CORPS C Corporation SHAREHOLDERS & LIABILITY S Corporation ‣ No restrictions on ownership and supports multiple classes of stock (creating voting rights) ‣ Owners are NOT personally responsible for business debts and liabilities ‣ Restricted to 100 shareholders and single class of stock ‣ Shareholders must be US citizens ‣ Owners are NOT personally responsible for business debts and liabilities ‣ Taxed at the entity level ‣ C Corporations pay taxes on corporate income TAXATION ‣ Pass through taxation ‣ Profits/losses are reported on the owners’ personal tax ‣ Double Taxation: Corporate income is taxed first at the business level and again at the individual level if distributed to owners in the form of dividends returns and any tax due is paid by the owners at the individual tax level C Corporations and S Corporations Share Many Similarities ‣ Limited liability protection ‣ Structure: shareholders and board of directors ‣ Separate legal entities created by state filing SIMILARITIES ‣ Corporate formalities: bylaws, issuing stock, filing annual ‣ Filing documents – Articles of Incorporation reports, shareholders and directors meetings, etc. Form a C Corp if the business plans to raise capital and issue different classes of stock IDEA GENERATION OWNERSHIP LEGAL ENTITY BUSINESS MODEL REVENUE LANDSCAPE
  • 13. HIGH GROWTH BUSINESS FORMATION BUILD A HIGH GROWTH BUSINESS, NOT A FEATURE OR A PRODUCT People/ Team Legal Products/ Services Finances Intellectual Property (IP) Value Hypothesis Growth Strategy Activities Costs Revenue Streams Your Business Barriers to Enter; Gate to Revenue; Access to Customers; Access to Capital Customers Distribution Technology (APIs, Cloud) Suppliers Marking Channels Partnerships Investors (Angels, VCs) Debt Market Complements Share Business Economy & Ecosystem Threats Threats are not only competition, but anything that takes away resources from the shared business economy and ecosystem IDEA GENERATION OWNERSHIP LEGAL ENTITY BUSINESS MODEL REVENUE LANDSCAPE
  • 14. HIGH GROWTH BUSINESS FORMATION REVENUE IS A FUNCTION OF CUSTOMERS, PRODUCT/SERVICES, AND YOUR BUSINESS’S VALUE PROPOSITION People/ Team Legal Products/ Services Finances Intellectual Property (IP) Value Hypothesis Growth Strategy Activities Costs Revenue Streams Your Business Customers Distribution Technology (APIs, Cloud) Suppliers Marking Channels Partnerships Investors (Angels, VCs) Debt Market Complements ‣ Identify which customers are willing to pay for your products/services and understand your value proposition to determine pricing power ‣ Build detailed financial models to project your revenues based on data you’ve collected and realistic projections using trends and comparable data The detailed analysis’s are for your business; you will not prepare detailed analysis for investors, rather you will share the analysis that is being used to govern your business IDEA GENERATION OWNERSHIP LEGAL ENTITY BUSINESS MODEL REVENUE LANDSCAPE
  • 15. HIGH GROWTH BUSINESS FORMATION UNDERSTANDING THE INTRICACIES AND METRICS OF YOUR SELECTED REVENUE STREAMS Important questions to ask: ‣ Who’s paying ‣ # of paying customers? ‣ Where are the customers? IDEA GENERATION OWNERSHIP ‣ Why are they paying? ‣ Where’s the evidence? ‣ What’s the churn? ‣ What’s the LTV? ‣ How do you acquire them? ‣ What’s the alternatives? LEGAL ENTITY BUSINESS MODEL REVENUE LANDSCAPE
  • 16. HIGH GROWTH BUSINESS FORMATION THERE ARE SEVERAL CONSIDERATIONS FOR REVENUE STREAMS, CHOOSE THE OPTIONS THAT MEET YOUR CUSTOMER’S BUYING POWER AND BUSINESS GOALS ‣ Subscription Revenue ‣ Affiliate Models ‣ Virtual Goods ‣ Transaction Revenue ‣ Service Sales ‣ Licensing ‣ Commerce Sales ‣ Advertising Revenue ‣ Payments Processing ‣ Premium Revenue ‣ Share Revenue ‣ Big Data/Analysis IDEA GENERATION OWNERSHIP LEGAL ENTITY BUSINESS MODEL REVENUE LANDSCAPE
  • 17. HIGH GROWTH BUSINESS FORMATION UNDERSTANDING THE INTRICACIES AND METRICS OF YOUR SELECTED REVENUE STREAMS ‣ Subscription Revenue Subscription fees Periods Per user fees ‣ Transaction Revenue Transaction fee Pricing Volume Inventory ‣ Affiliate Models CPA CPC ‣ Premium Revenue Conversion ‣ Advertising Revenue Impressions CPM, CTR, etc. ‣ Service Sales ‣ Share Revenue Fee types ‣ Virtual Goods Frequency % Split ‣ Payment Processing ‣ Licensing Transaction fee Fees IDEA GENERATION ‣ Product Sales Currency type Exchange rate ‣ Big Data Analysis Analysis fee OWNERSHIP LEGAL ENTITY BUSINESS MODEL REVENUE LANDSCAPE
  • 18. HIGH GROWTH BUSINESS FORMATION AARON HOLIDAY ‣ Blog: www.aholidayiii.com ‣ Twitter: @aholidayiii ‣ Email: aaron.holidayiii@gmail.com