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Intro to Startups and VC

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If you're a college student, learn more about startup internships and careers. What roles are a fit for interns and recent grads, how do you find them, and how do you pick a good startup to work for? If instead you want to start your own business, how do you fund it?

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Intro to Startups and VC

  1. 1. 1 Intro to Startups and VCs Jan 2017
  2. 2. Objectives 2 What are the tradeoffs in working for a startup? How do I find startups? How do I know a startup is a good one? What is venture capital?
  3. 3. A quick bit about HPVP and me Happy to chat more any time 3 • Twitter: @guyhturner • Co-founded HPVP with Ira Weiss • Mgmt Consultant • Angel • Engineer • Cornell University (BS), Chicago Booth (MBA) • 2.0 kids • Twitter: @hydeparkvp • Early-stage software startups at $0-3M ARR raising $1-6M rounds • Midwest focus • $25M Fund I, $65M Fund II • Have invested in multiple university seeded startups (U of I, U of C, U of M, U of MN)
  4. 4. What Facebook, Google and other BigCos/BigTechs want you to believe - Secure - High pay - Clear career milestones - Best senior leadership - Unbelievable benefits - Risky - Low pay - Undefined career path - No mentorship Startups BigTech
  5. 5. How I see it Startups BigTech “Don’t ask what seat, just get on the rocket ship”
  6. 6. Reality is in the middle and about fit - Secure - High pay - Clear career milestones - More formal training - Moderate risk - Moderate pay with upside - Accelerated learning curve - It is what you make it Startups BigTech ? What’s the best fit for you?
  7. 7. Startup paths: Build or sell! Developer Sales (and marketing) Computer science CE, EE …or whatever… Marketing Communications Economics …or whatever… … also analytics, data scientis, customer success
  8. 8. Here or there? …the real economics Source: Angellist, http://money.cnn.com/calculator/pf/cost-of-living/ 95 70 70 115 85 90 $0K $20K $40K $60K $80K $100K $120K $140K Developer Sales Marketing Early Career Salaries - Nominal Chicago SF 143 105 105 115 85 90 $0K $20K $40K $60K $80K $100K $120K $140K $160K Developer Sales Marketing Early Career Salaries - SF Dollars Chicago Adjusted SF Quality of life a major consideration
  9. 9. Where do you find startups? Startup career fairs VC Portfolios Midwest Everywhere Ann Arbor Minneapolis CincinnatiNebraska Madison St. Louis hydeparkvp.recruiterbox.com
  10. 10. What should you look for? • Do you like the people? • Do you trust leadership? • Do you like the culture? • Can you learn from your direct supervisor/team? • Do you love the product? Fit with you The 5 Ms • Industry experience • Leadership/scaling/startup experience • Been there done that • Size (>$500M?) • Growth rate (>10%?) • Level of competitiveness • Business model fit to market/customer • Are they selling? More now than before? • Are they building barriers? Partnerships? • DO THEY GET STUFF DONE? • Strength of business model • Uniqueness and resulting barriers • IP • 18 to 24 months of runway Market Mgmt Momentum Magic Money
  11. 11. Screening shortcut: the VC screen VCs invest in <1% of deals they see… but they also make lots of mistake! Sourcing Screening Due Diligence The Deal Portco Mgmt 3000 1000 30 10 5 On the radar 300 Initial meeting Second meeting Deep dive Terms/TS Deal closed Let the VCs do the work for you. Look for funded startups!
  12. 12. Now it’s time to negotiate: Meet TransparentCareer.com • Find what others exactly like you are getting paid • Find where your peers are going • Arm yourself with information
  13. 13. Startups or BigTech not interesting? Then start your own and raise $$$! …but how?
  14. 14. Why raise VC? Growth requires $... 14 Startup $0-10M Growth $10-50M Developed $50M+ Amount Type Purpose Friends & Family Angels Small VCs VCs Venture lenders Private equity PublicBanks Test idea Test marketing approach SCALE!! Liquidity for founders, employees and investors $250K <$1M $2-3M $5-10M Sky is the limit What does “scale” mean? • Build products before they’re sold • Hire people before they “produce” • Pursue customers before they pay Rev
  15. 15. … from different types of investors 15 Who they are Hold period Why they invest Friends & family Angels VCs Venture Lenders Private equity Obvious Individuals and groups $25M - $1B funds with institutional money $100M - $1B funds with institutional money $250M - $10B funds with institutional money They love you!! For fun and $$ Want 30%+ returns; Invest on growth Want 18%+ returns; Invest in cash flows Want 20%+ returns; Invest in cash flows with equity and debt ??? 5-10 yrs 5-10 yrs 5-7 yrs 2-5 yrs
  16. 16. Tiered equity structure grows with $ 16 Founders Founders Angels Common Common Options F&F Founders Options F&F Common Angels Founders Options F&F Preferred Preferred VCs Common Debt? TechS TechS TechS
  17. 17. Mechanics: Pre/post money valuation 17 Pre-money valuation Round size + = Post-money valuation Ex: $5M $2M $7M
  18. 18. Entrepreneurs weigh money/terms and “value add” when choosing VC - Strategic and opp advice - Customer, financing, acquirer connections - Brand signal for talent, other funders, etc - Valuation - Size of round - Other financial terms - Control terms Money Value add In the end, relationship matters the most. It’s a marriage.
  19. 19. So what do VCs look for… Scalable - Software - High fixed cost, low marginal cost - Tech dev and customer acquisition greatest cost - Invest capital now for profit at scale later - >75% gross margin Not scalable - Service - Low to high fixed cost, high marginal cost - Scales with bodies - <<50% gross margin - Profitable at small scale In between - Tech enabled service - Medium fixed and medium marginal cost - Scales with bodies and capital - 40-60% gross margin
  20. 20. … fit and 5Ms (same things you should look for) • Stage (seed or A) • Round size ( $0.75M – $2.5M) • Industry (any that is “scalable”) • Geography (Midwest) Fit with fund strategy The 5 Ms • Industry experience • Leadership/scaling/startup experience • Degrees, etc (eg, signals) • Size (>$500M?) • Growth rate (>10%?) • Level of competitiveness • Business model fit to market/customer • Are they selling? More now than before? • Are they building barriers? Partnerships? • DO THEY GET STUFF DONE? • Strength of business model • Uniqueness and resulting barriers • IP • Price and other terms Market Mgmt Momentum Magic Money
  21. 21. How do I get to VCs? 21 Descendingorderofvalue 1 Current / past portfolio company CEO Example introduction sources 2 Trusted colleague, partner, friend of investor 3 Another investor in the current round 4 Advisor / mentor from founder’s network 5 An investor who’s not investing Cold outreach6
  22. 22. 22 Thank you! Please reach out with any questions guy@hydeparkvp.com Twitter: @guyhturner

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