Kyle Redinger, Co-Founder VividCortex
RAISING MONEY FOR A
TECH STARTUP
VividCortex
•  Database performance for MySQL
•  Save $$$ on hardware provisioning
•  Run your system faster
•  Reduce dia...
Agenda
•  Background
•  Setting Expectations
•  Fundraising Protocol
•  Cap Tables, Options & Term Sheets
•  Post-Financin...
BACKGROUND
I’m one of many founders
About Me
•  Founded 6
companies
•  Exited one
company
•  Learned
Learning from
many mistakes
•  Background in
finance, M&A...
About You
•  Smart,
networked,
capable
•  Technically
proficient
•  Do you have
the hunger?
•  It’s your day to
shine
www....
SETTING EXPECTATIONS
Why Have a Company?
www.vividcortex.com | info@vividcortex.com
Why Have A
Company?
•  Create Wealth?
•  Solve a Problem?
•  Be Your Own Boss?
...
www.vividcortex.com | info@vividcortex.com
There is only one
reason for a company
•  Create Wealth?
•  Solve a Problem?
• ...
www.vividcortex.com | info@vividcortex.com
There is only one
reason for a company
A company
exists to
create value
for int...
It’s About the Money
www.vividcortex.com | info@vividcortex.com
So, you understand a company
and have an idea, what’s next?
Ideas aren’t worth anything.
www.vividcortex.com | info@vividcortex.com
Everyone has them.
L
www.vividcortex.com | info@vividcortex.com
www.vividcortex.com | info@vividcortex.com
J
Don’t worry!
Companies
create stakeholder
value by organizing
broad skill sets and
scarce resources
into goals.
www.vividcortex.com | i...
www.vividcortex.com | info@vividcortex.com
Broad Skill Sets
•  Vision
•  Build
•  Market
•  Sell
•  Motivate
•  Fundraise
...
You probably don’t realize the
skills your team lacks
You need to de-risk.
Startups are a constant
de-risking process
Expectations
Summary
•  Companies
need to make
money
•  Create value by
executing
•  Build a diverse
team from the
start
w...
FUNDRAISING PROTOCOL
How Do I Raise Money?
Fundraising
Basics
•  Ask for introductions from
investors, peers, rich people
•  Never cold call/cold email
•  Get on the...
Simplified Fundraising Path
Idea	
  	
  
Stage	
  
Early	
  
Stage	
  
Product	
  &	
  
Market	
  Fit	
  
Scale	
  
www.vi...
Fundraising Path Goals
Idea	
  	
  
Stage	
  
Early	
  
Stage	
  
Product	
  &	
  
Market	
  Fit	
  
Scale	
  
www.vividco...
Fundraising Path Investor Drivers
Idea	
  	
  
Stage	
  
Early	
  
Stage	
  
Product	
  &	
  
Market	
  Fit	
  
Scale	
  
...
We Raise from Venture Capital
Right?
www.vividcortex.com | info@vividcortex.com
www.vividcortex.com | info@vividcortex.com
NO
We Raise from Venture Capital
Right?
www.vividcortex.com | info@vividcortex.com
Venture Capital Is
Not Your Friend
•  2% Management
Fees; 1% Invested
•  Fund-l...
VCs are Good for Scale
www.vividcortex.com | info@vividcortex.com
Large pools of capital, for post-technology risk expansi...
Fundraising Path Cash Sources
Idea	
  	
  
Stage	
  
Early	
  
Stage	
  
Product	
  &	
  
Market	
  Fit	
  
Scale	
  
www....
Fundraising
Protocol Summary
•  Understand the
goals for each
stage
•  Customer
financing is the
best capital
•  VCs are
o...
FUNDRAISING MATH
Follow the Money and Terms
Defining Important Terms
•  Valuation
•  Common Shares
•  Preferred Shares
•  Option Pool
•  Liquidity Preferences
•  Cont...
Defining Important Terms
•  Valuation
•  Common Shares
•  Preferred Shares
•  Option Pool
•  Liquidity Preferences
•  Cont...
Defining Important Terms
•  Valuation
•  Common Shares
•  Preferred Shares
•  Option Pool
•  Liquidity Preferences
•  Cont...
Defining Important Terms
•  Valuation
•  Common Shares
•  Preferred Shares
•  Option Pool
•  Liquidity Preferences
•  Cont...
Defining Important Terms
•  Valuation
•  Common Shares
•  Preferred Shares
•  Option Pool
•  Liquidity Preferences
•  Cont...
Defining Important Terms
•  Valuation
•  Common Shares
•  Preferred Shares
•  Option Pool
•  Liquidity Preferences
•  Cont...
Defining Important Terms
•  Valuation
•  Common Shares
•  Preferred Shares
•  Option Pool
•  Liquidity Preferences
•  Cont...
Defining Important Terms
•  Valuation
•  Common Shares
•  Preferred Shares
•  Option Pool
•  Liquidity Preferences
•  Cont...
Defining Important Terms
•  Valuation
•  Common Shares
•  Preferred Shares
•  Option Pool
•  Liquidity Preferences
•  Cont...
Imagine the Following Capital
Needs for a Startup
www.vividcortex.com | info@vividcortex.com
Idea	
  	
  
Stage	
  
Early	...
Terms Create
Vastly Different
Outcomes
Example Time
www.vividcortex.com | info@vividcortex.com
•  Example Link: http://goo.gl/LuFltg
•  Examples 1 – 4: Terms
•  ...
Obligatory
Cat Photo
www.vividcortex.com | info@vividcortex.com
Summary of Term Impacts
www.vividcortex.com | info@vividcortex.com
Type	
   1	
  -­‐	
  Simple	
   2-­‐	
  Double	
  Dip	
...
Valuation
Doesn’t
Really
Matter;
Ownership
and
Preferences
Matter
www.vividcortex.com | info@vividcortex.com
Beware the
Option Pool
Shuffle
Options are for
hiring, not
screwing
founders
www.vividcortex.com | info@vividcortex.com
POST-FINANCING
OBLIGATIONS
Understand
Future Goals
Monthly Investor
Reports
• Executive
Summary
• Sales,
Marketing,
Tech,
Operations,
Goals
• No Bullshit
www.vividcortex.com...
Be Honest
Live Long
and
Prosper
Thanks!
KYLE@VIVIDCORTEX.COM
Picture Credits
•  https://flic.kr/p/zBdU7
•  https://flic.kr/p/95NBqw
•  https://flic.kr/p/6p5bdN
•  https://flic.kr/p/vK...
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Raising money for a Tech Startup

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Raising money for a Tech Startup

  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

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