The document outlines financial fundamentals for startups seeking funding, including various financing sources such as crowdfunding, angel investors, and venture capital. It emphasizes the importance of understanding the risks and benefits associated with each funding type, including self-financing and the role of financial partners. Furthermore, it provides historical examples and case studies to illustrate successful fundraising strategies and market validation.

1. presents
Back to Basics: Financial
Fundamentals For Startups

2. Get Funded: Financing your Startup
August 13, 2013
Smith Anderson
Silicon Valley Bank
(617) 796-6958
Smanderson@svb.com
Twitter: @SmithTown561
Dan Allred
Silicon Valley Bank
(617) 796-6904
dallred@svb.com
Twitter: @dgallred
http://danallred.tumblr.com

3. Chuck Goldman
Apperian
CEO and Co-Founder
cgoldman@apperian.com
Arye Barnehama
Melon
Co-Founder
arye@usemelon.com

4. Why We’re Here
Sources of Financing Overview
Crowdfunding: A Kickstarter case
study.
Equity: What you need to know.
Debt: When is it right for you.

5. Financing partners take risk

6. Bootstrapping
• Vendor
financing
Trade
credit
Stretching
payables
• Customer
financing
Prepayments,
deferred
revenue
• Self
financing
Working
without
pay
Ge>ng
others
to
do
the
same
Personal
credit,
credit
cards,
etc.

7. Bootstrapping
• Amount
of
capital
RelaAvely
small
amounts
• Use
of
capital
Working
capital
(brings
future
cash
inflow
forward
OR
delays
current
cash
ouElow)
• Stage
of
company
Useful
at
all
stages,
especially
startup.
• Who
bears
the
risk
&
what
type
Personal
risk
early,
bankruptcy
risk
later
Working
capital
risk
(risk
of
insolvency)

8. Crowdfunding deep dive

9. Crowdfunding
Then..

10. Crowdfunding
Then..
• 1884
this
project
ran
out
of
money.

11. Crowdfunding
Then..
• 1884
this
project
ran
out
of
money.
• Joseph
Pulitzer
wrote
an
arAcle
asking
for
donaAons
to
fund
project.

12. Crowdfunding
Then..
• 1884
this
project
ran
out
of
money.
• Joseph
Pulitzer
wrote
an
arAcle
asking
for
donaAons
to
fund
project.
• $100K
raised
to
finish
this
project
in
just
under
6
months

13. Crowdfunding
Then..
• 1884
this
project
ran
out
of
money.
• Joseph
Pulitzer
wrote
an
arAcle
asking
for
donaAons
to
fund
project.
• $100K
raised
to
finish
this
project
in
just
under
6
months
• 125K
people
donated
to
this
fund.

14. Crowdfunding
Then..
• 1884
this
project
ran
out
of
money.
• Joseph
Pulitzer
wrote
an
arAcle
asking
for
donaAons
to
fund
project.
• $100K
raised
to
finish
this
project
in
just
under
6
months
• 125K
people
donated
to
this
fund.
• GiU
from
France

15. Crowdfunding
Then..
• 1884
this
project
ran
out
of
money.
• Joseph
Pulitzer
wrote
an
arAcle
asking
for
donaAons
to
fund
project.
• $100K
raised
to
finish
this
project
in
just
under
6
months
• 125K
people
donated
to
this
fund.
• GiU
from
France

16. Crowdfunding:
Today
and
Beyond
Product/Project
• Currently
thriving
– Pledgie
(2006)
– Sellaband
(2006)
– IndieGoGo
(2008)
– GiveForward
(2008)
– Kickstarter
(2009)
– RocketHub
(2009)
– Fundly
(2009)
– GoFundMe
(2010)
– Appsplit
(2010)
– Microventures
(2010)
– Fundageek
(2011)
• Incredibly
powerful
momentum
in
the
last
few
years.
Equity
• Not
legal…yet
• JOBS
Act
passed
July
10th
• Accredited
vs.
non-­‐accredited.

17. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
Not
to
Kickstart?
• Kickstarter
-­‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter

18. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
Not
to
Kickstart?
• Kickstarter
-­‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter

19. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
• Almost
zero
risk
if
market
Not
to
Kickstart?
• Kickstarter
-­‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter

20. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
• Almost
zero
risk
if
market
• MarkeAng
story
done
for
you.
Not
to
Kickstart?
• Kickstarter
-­‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter

21. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
• Almost
zero
risk
if
market
• MarkeAng
story
done
for
you.
• Almost
immediate
access
to
cash
Not
to
Kickstart?
• Kickstarter
-­‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter

22. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
• Almost
zero
risk
if
market
• MarkeAng
story
done
for
you.
• Almost
immediate
access
to
cash
Not
to
Kickstart?
Ø No
secrets
to
hide
from
compeAAon.
• Kickstarter
-­‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter

23. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
• Almost
zero
risk
if
market
• MarkeAng
story
done
for
you.
• Almost
immediate
access
to
cash
Not
to
Kickstart?
Ø No
secrets
to
hide
from
compeAAon.
Ø Price
point
• Kickstarter
-­‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter

24. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
• Almost
zero
risk
if
market
• MarkeAng
story
done
for
you.
• Almost
immediate
access
to
cash
Not
to
Kickstart?
Ø No
secrets
to
hide
from
compeAAon.
Ø Price
point
Ø Go
to
Market
Strategy
• Kickstarter
-­‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter

25. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
• Almost
zero
risk
if
market
• MarkeAng
story
done
for
you.
• Almost
immediate
access
to
cash
Not
to
Kickstart?
Ø No
secrets
to
hide
from
compeAAon.
Ø Price
point
Ø Go
to
Market
Strategy
Ø Runway
• Kickstarter
-­‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter

26. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
• Almost
zero
risk
if
market
• MarkeAng
story
done
for
you.
• Almost
immediate
access
to
cash
Not
to
Kickstart?
Ø No
secrets
to
hide
from
compeAAon.
Ø Price
point
Ø Go
to
Market
Strategy
Ø Runway
Ø Timing
• Kickstarter
-­‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter

27. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
• Almost
zero
risk
if
market
• MarkeAng
story
done
for
you.
• Almost
immediate
access
to
cash
Not
to
Kickstart?
Ø No
secrets
to
hide
from
compeAAon.
Ø Price
point
Ø Go
to
Market
Strategy
Ø Runway
Ø Timing
Ø Funding
Commitments
• Kickstarter
-­‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter

28. Is
it
right
for
you?
Probably
• Hardware
with
a
specific
cost
for
prototype.
• Consumer
facing
projects
• Micro-­‐market
products
• Market
unknown
products.
• One-­‐off
garage
projects
• ArAsts
• Philanthropists
Probably
Not
• Large
companies
• Complex
products
with
intricate
sales
cycles
• Infrastructure
or
enterprise
products
that
are
unlikely
to
touch
consumers.

29. Angel Investors

30. Angels
• Class
of
capital
Equity
(ownership
in
company)
• Structure/organizaAon
High
net
worth
(HNW)
individuals
Some
groups
and
clubs
Some
“super
angel”
funds
• MoAvaAon/incenAves
Upside
–
stock
appreciaAon
Most
look
for
an
“exit”
(i.e.
liquidity
event

31. Angels
• Amount
of
capital
$100k
to
$2mm
• Use
of
capital
Growth
capital
(i.e.
new
cash
for
growth)
• Stage
of
company
Early-­‐stage,
product/market
development
• Who
bears
the
risk
&
what
type
Angel
investor
bears
risk
Product/market
risk,
execuAon
risk

32. Angels
• Structure
of
investment
Purchase
of
common
or
preferred
stock
SomeAmes
converAble
debt
iniAally
• Price
of
investment
25-­‐50%
of
company’s
stock
ConverAble
debt
~25%
min
ownership
• Monitoring
the
investment
ReporAng
Some
angels
(or
groups)
want
BOD
seat
• Value
add
$$$,
industry
experAse,
connecAons

33. Venture Capital

34. Venture
Capital
• Class
of
capital
Equity
(ownership
in
company)
• Structure/organizaAon
Limited
partnership
10
year
funds
(invest,
grow
&
harvest)
• MoAvaAon/incenAves
Upside
(30%
IRR
and
3x
overall
for
fund)
Looking
for
an
“exit”
(i.e.
liquidity
event)

35. Venture
Capital
• Amount
of
capital
$1mm-­‐20mm
Some
seed
acAvity
as
well
• Use
of
capital
Extreme
growth
capital
• Stage
of
company
Early-­‐stage
and
growth
stage
• Who
bears
the
risk
&
what
type
Limited
partners
and
general
partners
Product,
market,
tech
&
execuAon
risk

36. Venture
Capital
• Structure
of
investment
Purchase
of
preferred
stock
SomeAmes
converAble
debt
iniAally
• Price
of
investment
20-­‐40%
of
company’s
stock
• Monitoring
the
investment
ReporAng
BOD
seats
RedempAon
rights,
registraAon
rights
• Value
add
$$$,
industry
experAse,
capital
markets

37. Debt

38. Debt
• Class
of
capital
Debt
(senior
debt
as
discussed
here)
• Structure/organizaAon
Banks
(regulated
to
accept
deposits)
Finance
companies
(corporaAons)
Debt
funds
(limited
partnerships)
• MoAvaAon/incenAves
Banks
–
interest
&
fee
income
Finance
companies,
funds
–
interest
Venture
debt
–
warrant
income

39. Debt
• Amount
of
capital
$1mm-­‐100mm
• Use
of
capital
Working
capital
Growth
capital
AcquisiAon
capital
• Stage
of
company
All
stages
• Who
bears
the
risk
&
what
type
The
lender

40. Debt
• Structure
of
investment
Senior
secured
credit
• Price
of
investment
Interest
and
fees
for
established
co’s
Plus
warrants
for
pre-­‐profit
co’s
• Monitoring
the
investment
ReporAng
Financial
covenants
AffirmaAve
&
negaAve
covenants
• Value
add
$$$,
connecAons,
patern
recogniAon

41. Case study

42. • The
early
days…
-­‐Chuck
–
director
of
enterprise
at
Apple
-­‐Launches
Apperian
in
January
2009
-­‐App
development
for
enterprise
clients
-­‐Fee
for
service
work
• How
did
I
finance
the
business?

43. • The
early
days…
-­‐Bootstrapping
-­‐Self-­‐financing
(and
sacrifice)
-­‐Vendor
relaAonships
-­‐Customer
financing

44. • Six
months
later…
-­‐The
dogs
are
eaAng
the
dog
food
-­‐iPhone
is
exploding
in
the
enterprise
-­‐Recurring
service
revenues
-­‐Vision
for
EASE
(Enterprise
ApplicaAon
Services
Environment)
plaEorm
How
did
I
finance
the
business?

45. • Six
months
later…
-­‐$1mm
seed
round
-­‐Common
Angels
&
Launch
Capital
-­‐AddiAonal
$500k
in
Q1-­‐10

46. • Q1-­‐10:
the
one
year
old
startup…
-­‐Begin
developing
EASE
plaEorm
-­‐Acquihire
a
small
development
shop
-­‐Focus
solely
on
enterprise
app
clients
-­‐Begin
transiAoning
from
services
to
products
How
did
I
finance
the
business?

47. • Q1-­‐10:
the
one
year
old
startup…
-­‐$500k
SVB
line
of
credit
-­‐Leverage
A/R
with
enterprise
clients
-­‐Smooth
out
cash-­‐flow
as
R&D
expense
ramps
-­‐Bridge
between
payrolls
–
when
flush
with
A/
R
but
low
on
cash,
uAlize
line
of
credit
for
payroll,
expenses,
etc.

48. • Q1-­‐11:
the
two
year
old
startup…
-­‐Enterprise
mobility
is
hot!
-­‐BYOD,
iPad
in
Xmas
2010
-­‐Apperian
building
out
management
team
-­‐Customers
converAng
from
service
contracts
to
EASE
plaEorm
-­‐
Key
move:
move
to
recurring
SaaS
Product
How
did
I
finance
the
business?

49. • Q1-­‐11:
the
two
year
old
startup…
-­‐$9.5mm
series
A
-­‐NorthBridge,
Bessemer,
Kleiner
Perkins
-­‐1st
enterprise
investment
from
KP
iFund
-­‐Over
2
years
of
cash
runway

50. • The
past
two
years…
-­‐ConAnued
market
expansion
-­‐MDM,
MAM,
BYOD,
etc.
-­‐Enterprise
security,
compliance,
etc.
-­‐DistribuAon
partnerships
• Personnel
growth
– 5-­‐20
year
one,
40
by
year
three
and
70
year
four
How
did
I
finance
the
business?

51. • The
past
two
years…
-­‐$12.4mm
preempAve
series
B
in
Mar
‘12
-­‐$4.6mm
series
B
extension
in
Jan
’13
with
Intel
Capital
-­‐ConAnued
expansion
of
SVB
credit
relaAonship
each
year
• Exit
Scenario
at
10x
revenue
–
Looking
at
market
trends…

52. Questions?

53. presents
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