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How to Successfully Fund Your Startup


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How to Successfully Fund Your Startup

  1. 1. How to Successfully Fund Your Startup #alternativefunding
  2. 2. About Your Hosts 2 R. Branden Harper Director Sirk Roh Chief Operating Officer
  3. 3. Agenda • Fundraising game plan • Fundraising decision points – it’s about more than just the money! • Fundraising profile • Funding paths • Funding options at different stages of the development process • Equity vs debt considerations • Preparing your company for investment capital
  4. 4. Fundraising Game Plan • How much money do you need to raise? • What’s that money going to be used for? • At what cost and with what terms and conditions? • What type of capital is the best fit for your company, and why? • Where do you find the type of financing you need? • Milestone financing
  5. 5. Fundraising Decision Points • Equity Valuation? What % is worth taking on investment? • Control Are you the driver? Who makes key decisions? • Value-add More than just money? • Risk Tolerance Personal assets? • Timeframe How long will raising funds take? • Horizon Exit strategy? Build to exit? Build and hold? • Culture Is there alignment?
  6. 6. Your Company’s Fundraising Profile Stage, Traction & Capital Requirement What is the current company stage? Rate of growth? How big is your addressable market? Higher/lower than $1B? Ready for scale? o Product-Market fit? o Revenue / pricing model? o What does your sales pipeline look like? How long are sales cycle? o How much capital do you need to get to the next stage? Team Well-rounded and committed team able to handle increased complexities? Need for key hires?
  7. 7. Funding Paths Around Milestones
  8. 8. Ideation ($0M) Bootstrap / Self Credit Family & Friends
  9. 9. Launch and Traction ($0-1M) • Operating: customer and vendor terms • Crowdfunding • Incubators • Revenue-based financing • Angels
  10. 10. Growth and Scale ($1-5M) • Operating: customer and vendor terms • Crowdfunding • Revenue-based financing • Angels + • Strategic investors • Banks
  11. 11. Breakout and Beyond ($5M+++)
  12. 12. Equity / Debt Considerations Bank / Debt Revenue-Based Finance Venture Capital Guarantees & Controls Financial Covenants Sometimes Personal Guarantees No Financial Covenants No Personal Guarantees Partner in the Business (Board Seat, Voting Rights) Added Value Low / None Medium High Dilution None / Low None High Payment Flexibility Low: Fixed Payments Medium: Variable Payments High: No Payments Speed 4-8 months 4 weeks Highly variable. Typical 3-6 months focused effort
  13. 13. Revenue-Based Financing Up to $1M or 33% of annualized revenue run rate › No set interest rate › Matures in 5 years or when cumulative payments equal a set amount, usually 1.5 – 2.5x principal › Monthly payments are a fixed percent of revenue, 2-8% range › Small cash upside participation Example Loan › Annual Revenues: $1M › Principal: $200K › Maturity: 5 years › Payment: 5% of monthly revenue › Repayment: 1.75x principal [$350K] › Upside Participation: $50K at liquidity event CumulativePayments Principal Loan Maturity 1.5x to 2.5x Principal
  14. 14. Fundraising Prep Know Your Numbers • Historical/Projections • Ability to defend your assumptions: growth, capital requirements • Pivots, capitalization, customers Document Your Company • One-page/Executive Summary/Deck/Product Demo Activate Your Network Legal + Accounting Customer, Vendor, Partner References Keep Momentum • Follow up, set target dates to funding, sense of urgency
  15. 15. Q&A and Thank You! 15 R. Brandon Harper @lightercapital Sirk Roh 415.234.3437 @EarlyGrowthFS