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Bootstrap, Angel or Venture: Determining the Right Financing Strategy for Your Startup


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This presentation was shared at Dreamforce 2016 to help early-stage cloud business application startup teams understand how investors will evaluate their markets so they can plan the right financing strategy from the beginning.

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Bootstrap, Angel or Venture: Determining the Right Financing Strategy for Your Startup

  1. 1. Matt Holleran General Partner, Cloud Apps Capital @cloudappsvc Bootstrap, Angel or Venture: Determining the Right Financing Strategy for Your Startup Judy Loehr Venture Partner, Cloud Apps Capital @cloudappsvc
  2. 2. Forward-Looking Statements Statement under the Private Securities Litigation Reform Act of 1995: This presentation may contain forward-looking statements that involve risks, uncertainties, and assumptions. If any such uncertainties materialize or if any of the assumptions proves incorrect, the results of, inc. could differ materially from the results expressed or implied by the forward-looking statements we make. All statements other than statements of historical fact could be deemed forward-looking, including any projections of product or service availability, subscriber growth, earnings, revenues, or other financial items and any statements regarding strategies or plans of management for future operations, statements of belief, any statements concerning new, planned, or upgraded services or technology developments and customer contracts or use of our services. The risks and uncertainties referred to above include – but are not limited to – risks associated with developing and delivering new functionality for our service, new products and services, our new business model, our past operating losses, possible fluctuations in our operating results and rate of growth, interruptions or delays in our Web hosting, breach of our security measures, the outcome of any litigation, risks associated with completed and any possible mergers and acquisitions, the immature market in which we operate, our relatively limited operating history, our ability to expand, retain, and motivate our employees and manage our growth, new releases of our service and successful customer deployment, our limited history reselling products, and utilization and selling to larger enterprise customers. Further information on potential factors that could affect the financial results of, inc. is included in our annual report on Form 10-K for the most recent fiscal year and in our quarterly report on Form 10-Q for the most recent fiscal quarter. These documents and others containing important disclosures are available on the SEC Filings section of the Investor Information section of our Web site. Any unreleased services or features referenced in this or other presentations, press releases or public statements are not currently available and may not be delivered on time or at all. Customers who purchase our services should make the purchase decisions based upon features that are currently available., inc. assumes no obligation and does not intend to update these forward-looking statements.
  3. 3. Speakers 3 Melissa Burnell Senior Regional Manager, ISV & Channel Alliances Matt Holleran General Partner Judy Loehr Venture Partner Blakely Graham Product Design and co-founder Rupert Mayer CEO and founder Ray Hein CEO and co-founder
  4. 4. Agenda Modern cloud business application startups The new market landscape 3 financing myths 2 financing realities 3 cloud business application financing options The new venture financing model for cloud business app startups Framing your market size Venture math Panel discussion Q&A 1 2 3 4 5 6 7 8 9 10
  5. 5. 5 IF multi-billion $ market, THEN venture to MOVE FAST IF < multi-billion $ market, THEN bootstrap and accelerate The short answer - someone who’s never built a cloud business application company Sounds like a lifestyle business “ ”
  6. 6. Modern cloud business application startups look different than ten years ago 6 BUILD ON CLOUD PLATFORMS ENTERPRISE-READY  Enterprise customization, security, reliability & performance LEVERAGE APP MARKETPLACES AWARENESS & CREDIBILITY  Get in front of Salesforce Admins and users  Trust from being AppExchange certified AND SOME THINGS STAY THE SAME MUST BE GREAT PRODUCT  Solve a real problem  Good user experience MUST SELL YOUR PRODUCT  Clear messaging & GTM strategy  Your own sales team MAKE CUSTOMERS SUCCESSFUL  Provide great customer support  5-star ratings matter
  7. 7. There are a growing # of business software markets 7 CRM HCM/HRM ERP Finance & Accounting Marketing PLM Billing PSA GRC IT Management Analytics Collaboration & Productivity Customer Success Project Management IP Management Risk Management Tax Management MORE CATEGORIES Client server 1990’s SaaS 1.0 2000’s Modern cloud business applications 2010+ Sold to IT Sold to VPs Available to all business users
  8. 8. Four ways investors view the different types of cloud business app companies within SaaS The new cloud business app market landscape Complex and mission-critical enterprise apps Apps for a broad range of departments and specific business users Apps and tools that solve a repetitive use case and save business users time Business solutions built for a specific ecosystem of SaaS users Enterprise Cloud New cloud business application markets SaaS Tools Ecosystem Apps 8
  9. 9. Startup financing myth #1: “IPO or Bust” 9 Series CSeries ASeed $50M$6 – 8M$500k - $1M Not the right financing strategy for every cloud business software startup Series B $25M Series D $75M IPO Modern cloud application companies no longer need $150M+ capital to get to IPO TRADITIONAL VENTURE FINANCING PATH
  10. 10. Startup financing myth #2: Angel funding means my company is a good fit for venture financing 10 “Look Ma – I got angel funding so Series A will be a breeze.”
  11. 11. Startup financing myth #3: you can bootstrap your way to a global category leading company 11 “I’ll just take a little Seed funding and go win in my big competitive market.”
  12. 12. Reality #1: venture funding isn’t right for every startup ECOSYSTEM APPS < $ BILLION MARKETS “Killer Features” Requires ecosystem expertise Important functionality Single ecosystem solutions Specialized Markets Real value for specific business users Not a big enough market to support a future public company 12 > $ BILLION MARKETS Multi-Billion Category Large global serviceable market Robust product & roadmap Path to be a $100M ARR company VENTURE-BACKABLENOT VENTURE-BACKABLE
  13. 13. Reality #2: Angel or Seed isn’t enough if you’re going after a big market; big markets require venture to go faster Can’t go after the global market quickly enough Gives competitors a chance to gain momentum and solidify a leadership position in the market 13 Frame & deliver on GTM strategy Hire key executives Expand your product $3-6M IT TAKES To hire the right executives and lay the right foundation for future category leadership 17
  14. 14. VENTUREBOOTSTRAP “ACCELERATE” There are different paths to financing modern cloud business app startups today 3 cloud business application financing options • <$1B serviceable market, or • Single ecosystem products • $2B+ serviceable market • Potential to be a global category leading company • Path to $100M ARR Grow more slowly, but keep 100% ownership Seek ~$1M financing to accelerate customer acquisition & revenue growth IMPLICATIONS Need $3 - $6M to hire key executives, build full product and demonstrate customer success – the foundation for a future global category leading company. 13 Founders elbow grease until revenue can fund hires & GTM investment
  15. 15. The new venture financing model for modern cloud business application companies Series CClassic Series A Series B Series D Classic Series A is the right amount to hire key executives, demonstrate customer success and refine your CAC model. Series B goes toward hiring more executives and team members and scaling your customer acquisition and success model. Series C enables you to invest in large enterprise customer acquisition and success – globally. Series D is where you prepare your company for the public markets. $8-10m $20m$3-6m $50m Primary capital Primary capitalPrimary capital Primary and secondary capital 19
  16. 16. BOTTOMS UP Best for clarity & conviction MARKET RESEARCH “What do others say?” % of TOTAL MARKET How big is your slice? It’s important to size your market the same way investors will So how big is your market? • Analyst firms • Published research • Press releases • Analyst firms • Published research • Press releases • Conventional wisdom • Government statistics • Detailed NAICS codes • LinkedIn research • Industry-specific research 10% category spend on analytics Example: 14
  17. 17. Venture math: bottoms up # users example # users # sweet spot users Avg Price TAM % Serviceable SAM In U.S. 2,078,420 415,684 $1,200 $498,820,800 90% $448,938,720 Global 6,235,260 1,247,052 $1,200 $1,496,462,400 80% $1,197,169,920 User-based approach, apply reasonable “sweet spot” % for your product, ex: 20% Use 3x for global estimates Use average annual user price TAM = # users or companies x ACV $ % Serviceable = those who are able to buy (aren’t under a rock and don’t already have something) SAM = TAM & % serviceable Bottoms-up approach is the most compelling and actionable GUIDELINES 15
  18. 18. Venture math: bottoms up # companies example # employees # U.S. companies $ACV per company $ TAM (U.S.) % Serviceable $ SAM (U.S.) 1 to 9 150,000 $3,000 $450,000,000 40% $180,000,000 10 to 49 50,000 $12,000 $600,000,000 50% $300,000,000 50 to 100 35,000 $50,000 $1,750,000,000 80% $1,400,000,000 101 to 499 10,000 $100,000 $1,000,000,000 80% $800,000,000 500+ 5,000 $200,000 $1,000,000,000 80% $800,000,000 TOTAL 250,000 $ 4,800,000,000 $ 3,480,000,000 This approach allows you to be realistic about how much different size companies will pay for your product and how realistic it is to reach prospects in different segments 16
  19. 19. VENTURE $2B+ SAM BOOTSTRAP <$500M SAM “ACCELERATE” $500M - $1B SAM Pursuing the right financing strategy will save you time and result in the best outcome for your startup Recommended cloud business application financing strategies • Get initial customers to fund your development • Typically no stock plans • Founders own 100% of company • Assume minimal income for first 1 – 2 years • Self-fund until you can demonstrate customer success & revenue • Take ~$1-2M to grow faster • Ownership depends on source of financing • $2B+ serviceable market • Path to $100M ARR • Potential to be a global category leading company Revenue-based loans ($15k+ MRR) High-value angels 17 $3-6m Classic Series A
  20. 20. Panel 20 Matt Holleran General Partner Judy Loehr Venture Partner Blakely Graham Product Design and co-founder Rupert Mayer CEO and founder Ray Hein CEO and co-founder
  21. 21. Bracket Labs: modern productivity apps built on Lightning 21 • TaskRay solves post-sales project and process management for Salesforce customers • Top 10 paid app on the AppExchange • 1200+ customers; 140+ 5-star reviews Bootstrap • $40k personal investment • Privately held S Corp • Employees have options • First revenue within 6 months, now profitable OUR TEAM CLOUD PLATFORM FINANCING STRATEGY Sales, co-founder Product Design, co-founder Lead Developer, co-founder
  22. 22. Ipfolio: modern cloud IP management software 22 • Going after $500M IP portfolio software market • Compete against incumbent on-premise systems Rupert Mayer CEO & founder 15 years experience in IP management industry “Accelerated” financing • Personal investment • Value-add angels • Revenue-based financing OUR TEAM CLOUD PLATFORM FINANCING STRATEGY
  23. 23. Propel PLM: enterprise cloud product lifecycle management 23 • Going after $17B global PLM software market • Compete against Oracle and a handful of SaaS PLM providers CEO co-founder VP PM co-founder CTO co-founder OUR TEAM CLOUD PLATFORM FINANCING STRATEGY $4.2M Classic Series A venture financing
  24. 24. Panel 24 Matt Holleran General Partner Judy Loehr Venture Partner Blakely Graham Product Design and co-founder Rupert Mayer CEO and founder Ray Hein CEO and co-founder
  25. 25. Thank Y u