Fundraising Series (Part One) - "Building Your Story"

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Learn what investors really want to know about your company. During the Fundraising Series, you will have the opportunity to:
Review an operating plan; Analyze and build your target market size; Study market strategy; Understand your competitive landscape; Build your financial model; Construct an investor value proposition
Speakers:David Ehrenberg, Founder, Early Growth Financials; Sean Jacobsohn, Partner, Emergence Capital; Arif Janmohamed, Partner, Lightspeed Venture Partners; Steph Palmeri, Principal, SoftTech VC See archived livestream video https://new.livestream.com/orrick/yourstory

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Fundraising Series (Part One) - "Building Your Story"

  1. 1. day and The Fundraising Series (Part One) – “Building Your Story” April 10, 2013Featuring: • David Ehrenberg, Early Growth Financial Services • Arif Janmohamed, Lightspeed Venture Partners • Stephanie Palmeri, SoftTech VC • Sean Jacobsohn, Emergence Capital Partners
  2. 2. Agenda8:00 am – 8:05 amChad Lynch - Introduction8:05 am – 8:45 amDavid Ehrenberg – Creating Your 3-Year Financial Plan with Q&A8:45 am – 9:30 amArif Janmohamed – Constructing Your Value Proposition with Q&A9:30 am – 10:10 amStephanie Palmeri – Understanding Your Competitive Landscape / Market Sizing / Q&A10:10 am – 11:00 amSean Jacobsohn – Go-To-Market Strategy / Q&A
  3. 3. CREATING YOUR 3-YEAR FINANCIAL PLAN David Ehrenberg CEO Early Growth Financial Services
  4. 4. 2About Early Growth Financial Services• Extensive experience working with companies at all stages of development• Help startups keep internal resources focused on their business• Specialize in venture funding, debt financing, mergers & acquisitions, strategic planning, corporate strategy, business and financial plans, corporate governance, and creating company infrastructure• Operational expertise includes: accounting, HR, legal, facilities, IT, and administrative functions Early Growth Financial Services: Providing the seeds to help your company grow.
  5. 5. 3David Ehrenberg Bio• CEO Early Growth Financial Services• CFO for Abound Logic• Controller for Microsoft• Key member of finance team at Extreme Networks and Voice Stream Wireless• CFO for Radiant Research• Mergers and acquisition work for Deloitte & Touche• CPA• MBA from University of Washington• BS Accounting and Finance from Georgetown University Early Growth Financial Services: Providing the seeds to help your company grow.
  6. 6. 4Presentation Overview• What is a financial model?• Process for creating a financial model• Goals, objectives, and milestones• Bottom-up financial projections• Spend• Budgeting• Top-down projections• Cost assumptions• Reforecasting Early Growth Financial Services: Providing the seeds to help your company grow.
  7. 7. 5Why a 3-Year Financial Model?• Provides a comprehensive financial picture• Forces you to evaluate key performance drivers• Validates your assumptions• Puts challenges into perspective• Creates iterative process which continuously improves your assumptions• Gives you insight into your business model• Clarifies your decision-making process (short-term and long-term)• Gives you the leverage of an accurate baseline valuation Early Growth Financial Services: Providing the seeds to help your company grow.
  8. 8. What Goes into a 3-Year Financial Model? Major objectives Timeline Milestones Key Key variables assumptions Trending analysis Early Growth Financial Services: Providing the seeds to help your company grow.
  9. 9. Identify major objectives for your companyAssess where you are and what you want to achieve: Venture funding and Positive cash burn and negative cash burn no venture funding What do you want to What are the goals you want to accomplish with next raise? achieve during this time period? Early Growth Financial Services: Providing the seeds to help your company grow.
  10. 10. Process for Creating Financial Model1. Go to stakeholders and members ofexecutive team – what do they need toachieve objectives (revenue, product,market, strategic, etc.)?2. What is needed from aprogrammatic perspective?3. Compile this information and goback to CEO (maybe executive team)to discuss total amount requestedrelative to milestones4. Dialogue about what is wanted andtradeoffs5. Use dialogue to create a bottom-upforecasting budget Early Growth Financial Services: Providing the seeds to help your company grow.
  11. 11. 9Bottom-Up Financial Projection 3. Headcount projections / milestone funding 2. Calculate spending necessary to achieve revenue/development 1. Project revenue growth over the next one to three years Early Growth Financial Services: Providing the seeds to help your company grow.
  12. 12. Spend for Bottom-Up Projections• Customer/Cost details• Human resource costs• Consultant and professional services• Research and development• Office and admin• Capital spending Early Growth Financial Services: Providing the seeds to help your company grow.
  13. 13. Budgeting• Budgeting created on accrual basis: budgeting versus actual results• Difference between cash and accrual is around capital expenditures• Report budget by department and major cost drivers (expense categories and revenue categories)• Plan actions: how quickly will this impact revenue and what will you be able to achieve based on spending• Identify key variables• Identify key revenue assumptions• Run different scenarios (need to be able to easily adjust key assumptions to do this) Early Growth Financial Services: Providing the seeds to help your company grow.
  14. 14. Budgeting Exercise• If company has been around for a while, look at historical costs• Start from a milestone perspective: what do you need to accomplish before you run out of money or in a specific time period• Ask budget owners what they need to accomplish goals• Tradeoffs• Trending analysis• Trending initiative Early Growth Financial Services: Providing the seeds to help your company grow.
  15. 15. Why Top-Down Projection?• Bogus projection as compared to bottom-up projections• Requested as part of investment pitch deck to prove venture opportunity• VCs want to make sure there is a major opportunity – big potential market• Exercise to sit down with CEO and head strategy folks• Use data to see how quickly you can get penetration Early Growth Financial Services: Providing the seeds to help your company grow.
  16. 16. 14Top-Down Financial Projections 1. Start with market size 2. Identify your particular segment 3. Extrapolate to calculate total potential revenue Early Growth Financial Services: Providing the seeds to help your company grow.
  17. 17. Check Cost Assumptions• Finance team has obligation to check cost assumptions: • Salary • Recruiting costs • Cost per square feet for real estate • Etc. Early Growth Financial Services: Providing the seeds to help your company grow.
  18. 18. Reforecasting• Don’t do a 5-year plan, at most 3-year plan• Every year is an annual budgeting exercise• Update your budget on a quarterly basis (at least)• For investors do it on a quarterly basis for first year and then annually after that• What’s realistic in terms of timeline and reforecasting on monthly or quarterly basis? Early Growth Financial Services: Providing the seeds to help your company grow.
  19. 19. 17Final Thoughts“The point of financial projections is to tell a story withnumbers—a story about opportunity, resourcerequirements, market forces, growth, milestoneachievements, and profits.Your job is to create a numerical framework thatcomplements and reinforces the vision you’ve painted withwords.” – Guy Kawasaki Early Growth Financial Services: Providing the seeds to help your company grow.
  20. 20. 18Contact Info Early Growth Financial Services David Ehrenberg dehrenberg@earlygrowthfinancialservices.com http://earlygrowthfinancialservices.com/ (415) 234-EGFS (3437) Follow us @EarlyGrowthFS Early Growth Financial Services: Providing the seeds to help your company grow
  21. 21. 19 Providing the Seeds to Help Your Company GrowEarly Growth Financial Services: Providing the seeds to help your company grow.
  22. 22. Constructing your value propositionFundraising Series Part OneArif Janmohamed @arifj April 10, 2013
  23. 23. What is a value proposition?  The purpose of a value proposition is  To ultimately inform a choice/decision  A customer value proposition should  Articulate the purpose of the product  Identify the relevant target audience  Capture the significance to the prospective user  Specify the category as a reference point  Explain the uniqueness of the offeringLightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 2
  24. 24. Say again? Attribute Points to consider Purpose  What does the product or service do? Audience  Who will use, buy, etc. the product or service?  How large is the addressable market? Significance  What are the key benefits from using the product now?  Why will the user care? Is it a painkiller or vitamin? Category  In what category does the product compete?  Is this a favorable or unfavorable category definition? Uniqueness  How does this offering differ from substitutes?  What are the key dimensions for differentiation?Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 3
  25. 25. 3 key investor considerations  Is the team equipped to build and sell this product?  Is the market worth going after?  Does the plan have sustainable leverage?Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 4
  26. 26. The opening act You have 3 minutes…  What have you accomplished  Why is your product important  How can you do this better than others … before a decision is made (if you’re so lucky) The rest of the hour you’re either  Changing his/her mind  Supporting the decision (Remember, good investors should stay engaged and ask questions, but it’s your job to make sure they do – through bold statements, informative facts, etc.)Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 5
  27. 27. Why is a value prop important? The value proposition is key for investors to understand your business  It is your elevator pitch – the simpler, the better  It forms the storyline for the investor presentation  It eventually becomes a part of the investment thesis The investor is not an expert in your business… YOU are!  Teach them as much as you can without reinventing the wheel And the investor uses it to do his/her job  Is the purpose worth taking on startup risk?  Is the audience large enough, but targeted?  Is the significance valuable enough to customers?  Is this an attractive category for investment?  Is there something particularly unique about this startup?Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 6
  28. 28. Takeaway The value proposition is ALL an investor needs to know about your business. So, make sure you concisely emphasize the points that make your business a compelling investment opportunityLightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 7
  29. 29. Back to the 3 considerations People, market, product  Exceptional entrepreneurs passionate about customers  Large, rapidly growing market demanding a solution  Innovative and differentiated product with sustainable advantage What do you need?  A plan to get to market and reach profitability  The team to execute on this plan  Technology / product that will winLightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 8
  30. 30. Remember their checklist   Exceptional team   Compelling product value  Passionate entrepreneurs  Technical/market advantage  Driven to succeed  Clear value proposition  Unique insights  Focus, focus, focus  Desire world-class mgmt  Leverages trends/standards  Founderitis-free  Roadmap for expansion  Operate ethically  Defensible barriers   Large, rapidly growing market   Realistic go-to-market plan  Total addressable market  Marketing, sales,  Acute pain demands solution distribution, pricing  Devotion to customer  Operating plan consistent  Business model profitability  Financing and milestones  Competitive landscape clear  Liquidity options  Low/efficient burnLightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 9
  31. 31. Manage the process Step 1: Step 3: Step 5: Contact VC Firm Due Diligence Close Financing Day 21 Day 60 Day 1 Day 90 Step 0: Step 2: Step 4: Decision to raise Initial Presentation Sign Term Sheet  Ask yourself if you need venture financing  Sell the story about your vision  The goal is to convince others of your business  Raising financing is about managing a process  Listen to feedback along the way, iterateLightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 10
  32. 32. To cap it off…  Articulate your business value  Think like an investor  Create the story and tell it  Begin with the customer value proposition  Construct an investor value proposition: team, market, and product  Manage fundraising as a process  Reminders  Focus on the business fundamentals  Emphasize the points of validation  Be transparent about challenges  Iterate, iterate, iterate!Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 11
  33. 33. Arif Janmohamed arif@lightspeedvp.com @arifj
  34. 34. MARKET SIZING& COMPETITIVE LANDSCAPESteph Palmeri, SoftTech VC / @stephpalmeriTOTAL ACCESS Fundraising Series, Part IApril 10, 2013 Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  35. 35. Our Three Asses Rule This Presentation’s Focus Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  36. 36. proprietary & blackbox.vc Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistributeconfidential
  37. 37. Big-Ass Market* “Big enough” stress test – Greater than $1B market opportunity – Company, not feature – How does your startup get to $100M in revenue? • 10% of $1B market v. 50% of $200M (unrealistic!)* By raising capital, you commit to match return expectations Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  38. 38. Market Types Existing Resegmented New Market Market Market better, faster, fundamental brave new cheaper shifts, niche world which one is you? Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  39. 39. Market Analysis 101* Problem definition: – What are the underlying needs you solve?* Identify your customers – What do they look like? – How are you helping them? – Are your users also your buyers? (who pays?!)* Addressable Market = # Customers * LTV – What is the relevant market? – Your expected share? (be reasonable, its not 100%!!) – Growth / overall market potential? Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  40. 40. Top Down Market Sizing Addressable Market1. Industry, analysts estimates, ≠ Total Market Size market data, etc. Total Apparel2. Broken down to appropriate Market (US) sub-segment by: 1. Product Category 2. Geography Total Kid’s Apparel Market (US) 3. Vertical 4. Sales Channel 5. Customer Total Online Kid’s 6. Etc….. Apparel Market (US)Total Address Market (topdown) Your revenue if you captured 100% of your addressable market. Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  41. 41. Bottom Up ApproachIdentify & multiply the following:# of potential customers x est. revenue per user per year Total Addressable Market(bottom up) Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  42. 42. Now Compare Top Down Bottom Up V. Addressable Addressable Market Market …. are they reasonably close? Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  43. 43. Market Sizing Tips* Existing: Known customer + understood need – Know entities make it ‘easier’, for you and investors – Understand market nuances, don’t be careless* New markets: New customer + new use case – Emerging macro trends – Adoption rate assumptions – Timing matters creativity + basic algebra + educated guesses = bullshit but shows us how you think about your space Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  44. 44. proprietary & blackbox.vc Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistributeconfidential
  45. 45. Market AttractivenessSize matters… (but don’t overlook)* Competition* Monetization potential* Market Growth* Market Share* Timing Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  46. 46. Competitive landscape Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  47. 47. You’ll probably have a slide thatlooks something like this…Feature list YOU! Giant Fledging Not even in Incumbent Competition your marketFeatureeveryone has ✓ ✓ ✓ ✓Feature thatsome of the ✓ ✓competition hasUnnecessaryfeature your ✓competition cutFeature youthink you have ✓ ✓Feature youwish you had ✓ ✓ Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  48. 48. … or this... Fast Your Logo Here! Others Others OthersTraditional Others Modern Others Others Others Others Slow proprietary & blackbox.vc Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute confidential
  49. 49. Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  50. 50. but regardless… explain your startup in the context of the environment in which you operate including those who you partner with and those who you compete against and those who keep you awake at nightproprietary & blackbox.vc Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistributeconfidential
  51. 51. overview* Competitive Landscape – Examine the macro business environment – Review your competition (past, present, future) – Benchmark yourself* Competitive analysis – The classic SWOT analysis* Competitive advantage Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  52. 52. Classic completive analysis* Examine the macro business environment – Economic + political trends – Cultural + social shifts – Technological innovation – Regulations + legislation* Know the industry ecosystem surrounding your startup – Competitors (direct, indirect, potential entrants) – Suppliers/Partners – Substitutes – Customers Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  53. 53. Pop QuizQ: Is your industry one or more of the following: a. Considered crowded? b. Fairly complex? c. Scary to investors? Show investorsA: Consider making an how much you know (and they ecosystem slide don’t) about your space… OWN IT! Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  54. 54. Competitive analysis* Comparisons you might put in a competitive grid: – Products / feature set You Them – Customers Feature #1 – Market share Feature #2 – Distribution strategy Feature #3 – Technology – Pricing Wow, your startup – Resources  are they well funded? takes all the boxes on your arbitrary grid! Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  55. 55. SWOT Analysis –Your Competitive Position Strengths: why you kick ass Weaknesses: why you don’t kick ass - Team - Team - Technology - Lack of Technology - Scalability - Scalability issues - Execution - Inability to execute - Customer acquisition & retention - Unreliable product/service - Distribution - Poor distribution Opportunities: why you might kick ass Threats: why you might not kick ass - Early mover - Competitors w/ more $ - Emerging segments - Emerging segments - New technology - New technology - New distribution channel - New distribution channel - Changing tastes - Changing tastes - Etc. - Etc. Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  56. 56. Competitive advantage* Barriers to entry* Create a long-term sustainable advantage – Continuous learning & innovation – Excellence and speed in execution* Don’t obsess about others – A little competition is healthy – Keep an eye on competition but don’t loose focus on what’s really important … the customer Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  57. 57. VC’s perspectiveWhat VC’s Say What VC’s MeanWho do you compete with How are you different from the 15today? other dating services I this week?Who will you compete with When does Facebook plan to dotomorrow? this?I’d like to better understand how Sorry, I was busy admiring my newyou are different, what’s your iPhone 5 when you told me about itcompetitive advantage? just now.[Insert name here] just raised Your competition has deep$50M from these 10 firms, how pockets…will anyone be willing to fundare you differentiated? your next round? Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  58. 58. How to reach Steph Palmeri: w: www.softtechvc.com b: www.stephpalmeri.com t: @stephpalmeri Prepared Exclusively for Orrick’s TOTAL ACCESS, Do to redistribute
  59. 59. Go-To-Market for Startups Sean Jacobsohn @sjacobsohn April 10, 2013
  60. 60. Types of Business Development Referral partnerships Product integrations Corporate development Reseller partnerships
  61. 61. Referral Partnerships Typically product and services companies Co-marketing investment Equitable referral volume Examples: Trustnode, Workday
  62. 62. Product Integrations Extend product capabilities Build vibrant developer ecosystem Desired partner has become a market leader at significant scale Examples: Salesforce, Box, Yammer
  63. 63. Corporate Development Expand into new geographies Add product capability quicker Eliminate competition Examples: WageWorks, Xactly
  64. 64. Reseller Partnerships Outflank competition Broader market coverage Cost-effective customer acquisition Examples: Cornerstone, Adaptive Planning
  65. 65. Challenges with Reseller Partnerships Value proposition for the partner Channel conflict Negotiation of terms Enablement of the partner post-signing
  66. 66. Partner Enablement Executive sponsorship Build a business plan with metrics Training Start with small wins
  67. 67. Tips for Launching Business Development Organizational alignment and expectations Dedicate sufficient resources Leverage partners who’ve had success with a 3rd party product Focus on meaningful partnerships with fewer companies

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