Raising money for a Tech Startup
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Raising money for a Tech Startup

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Raising money for a Tech Startup Presentation Transcript

  • 1. Kyle Redinger, Co-Founder VividCortex RAISING MONEY FOR A TECH STARTUP
  • 2. VividCortex •  Database performance for MySQL •  Save $$$ on hardware provisioning •  Run your system faster •  Reduce diagnosis and resolution time •  Make your people happy •  Free 30 day trial at vividcortex.com www.vividcortex.com | info@vividcortex.com
  • 3. Agenda •  Background •  Setting Expectations •  Fundraising Protocol •  Cap Tables, Options & Term Sheets •  Post-Financing Obligations www.vividcortex.com | info@vividcortex.com
  • 4. BACKGROUND I’m one of many founders
  • 5. About Me •  Founded 6 companies •  Exited one company •  Learned Learning from many mistakes •  Background in finance, M&A, and startups •  CrossFit www.vividcortex.com | info@vividcortex.com
  • 6. About You •  Smart, networked, capable •  Technically proficient •  Do you have the hunger? •  It’s your day to shine www.vividcortex.com | info@vividcortex.com
  • 7. SETTING EXPECTATIONS
  • 8. Why Have a Company?
  • 9. www.vividcortex.com | info@vividcortex.com Why Have A Company? •  Create Wealth? •  Solve a Problem? •  Be Your Own Boss? •  Create Jobs? •  Save the World? •  Advance Humanity? •  Be Bold? •  Organize the World’s Information? •  Hack on Some Amazing Engineering?
  • 10. www.vividcortex.com | info@vividcortex.com There is only one reason for a company •  Create Wealth? •  Solve a Problem? •  Be Your Own Boss? •  Create Jobs? •  Save the World? •  Advance Humanity? •  Be Bold? •  Organize the World’s Information? •  Hack on Some Amazing Engineering?
  • 11. www.vividcortex.com | info@vividcortex.com There is only one reason for a company A company exists to create value for internal and external stakeholders •  Create Wealth? •  Solve a Problem? •  Be Your Own Boss? •  Create Jobs? •  Save the World? •  Advance Humanity? •  Be Bold? •  Organize the World’s Information? •  Hack on Some Amazing Engineering?
  • 12. It’s About the Money www.vividcortex.com | info@vividcortex.com
  • 13. So, you understand a company and have an idea, what’s next?
  • 14. Ideas aren’t worth anything. www.vividcortex.com | info@vividcortex.com Everyone has them.
  • 15. L www.vividcortex.com | info@vividcortex.com
  • 16. www.vividcortex.com | info@vividcortex.com J Don’t worry!
  • 17. Companies create stakeholder value by organizing broad skill sets and scarce resources into goals. www.vividcortex.com | info@vividcortex.com
  • 18. www.vividcortex.com | info@vividcortex.com Broad Skill Sets •  Vision •  Build •  Market •  Sell •  Motivate •  Fundraise •  Operate •  Make Hard Decisions •  Etc.
  • 19. You probably don’t realize the skills your team lacks
  • 20. You need to de-risk. Startups are a constant de-risking process
  • 21. Expectations Summary •  Companies need to make money •  Create value by executing •  Build a diverse team from the start www.vividcortex.com | info@vividcortex.com
  • 22. FUNDRAISING PROTOCOL
  • 23. How Do I Raise Money?
  • 24. Fundraising Basics •  Ask for introductions from investors, peers, rich people •  Never cold call/cold email •  Get on the phone •  You are doing sales •  Know your elevator pitch •  Actually listen to people •  Ask for explanations of “no’s” www.vividcortex.com | info@vividcortex.com
  • 25. Simplified Fundraising Path Idea     Stage   Early   Stage   Product  &   Market  Fit   Scale   www.vividcortex.com | info@vividcortex.com
  • 26. Fundraising Path Goals Idea     Stage   Early   Stage   Product  &   Market  Fit   Scale   www.vividcortex.com | info@vividcortex.com Founding  Team   &  Vision   Proof  of   Concept   Early  Customers   Repeatable   Model  
  • 27. Fundraising Path Investor Drivers Idea     Stage   Early   Stage   Product  &   Market  Fit   Scale   www.vividcortex.com | info@vividcortex.com Founding  Team   &  Vision   Proof  of   Concept   Early  Customers   Repeatable   Model   Story  Telling   Technical   ExecuBon   Visibility  to   Future  Revenue   Business  Model   and  $$$  
  • 28. We Raise from Venture Capital Right? www.vividcortex.com | info@vividcortex.com
  • 29. www.vividcortex.com | info@vividcortex.com NO We Raise from Venture Capital Right?
  • 30. www.vividcortex.com | info@vividcortex.com Venture Capital Is Not Your Friend •  2% Management Fees; 1% Invested •  Fund-life problems •  Terms not aligned with founder interests •  Only 3 in 10 deals create returns •  Mostly risk-averse •  Good old white male network
  • 31. VCs are Good for Scale www.vividcortex.com | info@vividcortex.com Large pools of capital, for post-technology risk expansion.
  • 32. Fundraising Path Cash Sources Idea     Stage   Early   Stage   Product  &   Market  Fit   Scale   www.vividcortex.com | info@vividcortex.com Founding  Team   &  Vision   Proof  of   Concept   Early  Customers   Repeatable   Model   Story  Telling   Technical   ExecuBon   Visibility  to   Future  Revenue   Business  Model   and  $$$   Founders   Angels   Angels,   Business,  VC   Angels,   Business,  VC,  PE  
  • 33. Fundraising Protocol Summary •  Understand the goals for each stage •  Customer financing is the best capital •  VCs are overrated www.vividcortex.com | info@vividcortex.com
  • 34. FUNDRAISING MATH
  • 35. Follow the Money and Terms
  • 36. Defining Important Terms •  Valuation •  Common Shares •  Preferred Shares •  Option Pool •  Liquidity Preferences •  Control Rights •  Dividends •  Convertible Note www.vividcortex.com | info@vividcortex.com
  • 37. Defining Important Terms •  Valuation •  Common Shares •  Preferred Shares •  Option Pool •  Liquidity Preferences •  Control Rights •  Dividends •  Convertible Note www.vividcortex.com | info@vividcortex.com •  Valuation is the price at which an investor can purchase ownership in your company.
  • 38. Defining Important Terms •  Valuation •  Common Shares •  Preferred Shares •  Option Pool •  Liquidity Preferences •  Control Rights •  Dividends •  Convertible Note www.vividcortex.com | info@vividcortex.com •  Common Shares represent the last group of investors to be paid in an exit event.
  • 39. Defining Important Terms •  Valuation •  Common Shares •  Preferred Shares •  Option Pool •  Liquidity Preferences •  Control Rights •  Dividends •  Convertible Note www.vividcortex.com | info@vividcortex.com •  Preferred Shares have rights that make them more valuable than common shares, e.g. getting paid first in an exit event.
  • 40. Defining Important Terms •  Valuation •  Common Shares •  Preferred Shares •  Option Pool •  Liquidity Preferences •  Control Rights •  Dividends •  Convertible Note www.vividcortex.com | info@vividcortex.com •  Option Pools are rights to purchase shares at a specific price and are typically issued prior to a funding round, diluting the prior round of investors.
  • 41. Defining Important Terms •  Valuation •  Common Shares •  Preferred Shares •  Option Pool •  Liquidity Preferences •  Control Rights •  Dividends •  Convertible Note www.vividcortex.com | info@vividcortex.com •  Liquidity Preferences define which class of shareholder gets paid and when.
  • 42. Defining Important Terms •  Valuation •  Common Shares •  Preferred Shares •  Option Pool •  Liquidity Preferences •  Control Rights •  Dividends •  Convertible Note www.vividcortex.com | info@vividcortex.com •  Control Rights represent things like board seats and protective provisions for certain events.
  • 43. Defining Important Terms •  Valuation •  Common Shares •  Preferred Shares •  Option Pool •  Liquidity Preferences •  Control Rights •  Dividends •  Convertible Note www.vividcortex.com | info@vividcortex.com •  Dividends are typically accrued amounts that increase the value of preferred shares.
  • 44. Defining Important Terms •  Valuation •  Common Shares •  Preferred Shares •  Option Pool •  Liquidity Preferences •  Control Rights •  Dividends •  Convertible Note www.vividcortex.com | info@vividcortex.com •  Convertible Notes represent a typical structure of financing that allows a company to raise capital in anticipation of a future round of funding.
  • 45. Imagine the Following Capital Needs for a Startup www.vividcortex.com | info@vividcortex.com Idea     Stage   Early   Stage   Product  &   Market  Fit   Scale   $20,000   $1,000,000   $2,000,000   $5,000,000  
  • 46. Terms Create Vastly Different Outcomes
  • 47. Example Time www.vividcortex.com | info@vividcortex.com •  Example Link: http://goo.gl/LuFltg •  Examples 1 – 4: Terms •  Example 5: Valuation •  Via Twitter on @kyleredinger •  Goal: Turn terms into math
  • 48. Obligatory Cat Photo www.vividcortex.com | info@vividcortex.com
  • 49. Summary of Term Impacts www.vividcortex.com | info@vividcortex.com Type   1  -­‐  Simple   2-­‐  Double  Dip   3  -­‐  Dividends   Suck   4  -­‐  Home  Run   Exit  Value   $15  Million   $15  Million   $15  Million   $100  Million   Dividends   0%   0%   10%   10%   Liquidity   Preference   Simple   ParBcipaBng   Preferred   Simple     ParBcipaBng   Preferred     Take  Home   $3.5  Million   I’m  screwed.   I’m  screwed.   $10M   (everyone   wins)  
  • 50. Valuation Doesn’t Really Matter; Ownership and Preferences Matter www.vividcortex.com | info@vividcortex.com
  • 51. Beware the Option Pool Shuffle Options are for hiring, not screwing founders www.vividcortex.com | info@vividcortex.com
  • 52. POST-FINANCING OBLIGATIONS
  • 53. Understand Future Goals
  • 54. Monthly Investor Reports • Executive Summary • Sales, Marketing, Tech, Operations, Goals • No Bullshit www.vividcortex.com | info@vividcortex.com
  • 55. Be Honest
  • 56. Live Long and Prosper
  • 57. Thanks! KYLE@VIVIDCORTEX.COM
  • 58. Picture Credits •  https://flic.kr/p/zBdU7 •  https://flic.kr/p/95NBqw •  https://flic.kr/p/6p5bdN •  https://flic.kr/p/vKxjC •  https://flic.kr/p/4dufn •  https://flic.kr/p/jBWiKw •  https://flic.kr/p/hKKCJo •  https://flic.kr/p/fG1LBu •  https://flic.kr/p/9MaLTw •  https://flic.kr/p/Djx5w •  https://flic.kr/p/725MMR •  https://flic.kr/p/mcAd2 •  https://flic.kr/p/ddCVmu •  https://flic.kr/p/7jEKQ •  https://flic.kr/p/7n4MH9 •  https://flic.kr/p/g1eSFB •  https://flic.kr/p/4h4MV •  https://flic.kr/p/bc6MYii www.vividcortex.com | info@vividcortex.com