Raising money for a Tech Startup

Kyle Redinger, Co-Founder VividCortex
RAISING MONEY FOR A
TECH STARTUP

VividCortex
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www.vividcortex.com | info@vividcortex.com

Agenda
•  Background
•  Setting Expectations
•  Fundraising Protocol
•  Cap Tables, Options & Term Sheets
•  Post-Financing Obligations

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,
and startups
•  CrossFit

About You
•  Smart,
networked,
capable
•  Technically
proficient
•  Do you have
the hunger?
•  It’s your day to
shine

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?

There is only one
reason for a company
•  Create Jobs?
•  Be Bold?
Information?
Engineering?

There is only one
reason for a company
A company
exists to
create value
for internal
and external
stakeholders
•  Create Jobs?
•  Be Bold?
Information?
Engineering?

It’s About the Money

So, you understand a company
and have an idea, what’s next?

Ideas aren’t worth anything.
Everyone has them.

L

J
Don’t worry!

Companies
create stakeholder
value by organizing
broad skill sets and
scarce resources
into goals.

Broad Skill Sets
•  Vision
•  Build
•  Market
•  Sell
•  Motivate
•  Fundraise
•  Operate
•  Make Hard
Decisions
•  Etc.

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

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”

Simplified Fundraising Path
Idea

Stage

Early

Stage

Product
&

Market
Fit

Scale


Fundraising Path Goals
Idea

Stage

Early

Stage

Product
&

Market
Fit

Scale

Founding
Team

&
Vision

Proof
of

Concept

Early
Customers

Repeatable

Model

Fundraising Path Investor Drivers
Idea

Stage

Early

Stage

Product
&

Market
Fit

Scale

Founding
Team

&
Vision

Proof
of

Concept

Early
Customers

Repeatable

Model

Story
Telling

Technical

ExecuBon

Visibility
to

Future
Revenue

Business
Model

and
$$$

We Raise from Venture Capital
Right?

NO
We Raise from Venture Capital
Right?

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

VCs are Good for Scale
Large pools of capital, for post-technology risk expansion.

Fundraising Path Cash Sources
Idea

Stage

Early

Stage

Product
&

Market
Fit

Scale

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

Fundraising
Protocol Summary
•  Understand the
goals for each
stage
•  Customer
financing is the
best capital
•  VCs are
overrated

Defining Important Terms
•  Valuation
•  Common Shares
•  Preferred Shares
•  Option Pool
•  Liquidity Preferences
•  Control Rights
•  Dividends
•  Convertible Note

•  Valuation
•  Option Pool
•  Dividends
•  Valuation is the price
at which an investor
can purchase
ownership in your
company.

•  Valuation
•  Option Pool
•  Dividends
represent the last
group of investors to
be paid in an exit
event.

•  Valuation
•  Option Pool
•  Dividends
have rights that make
them more valuable
than common shares,
e.g. getting paid first
in an exit event.

•  Valuation
•  Option Pool
•  Dividends
•  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.

•  Valuation
•  Option Pool
•  Dividends
define which class of
shareholder gets paid
and when.

•  Valuation
•  Option Pool
•  Dividends
represent things like
board seats and
protective provisions
for certain events.

•  Valuation
•  Option Pool
•  Dividends
•  Dividends are
typically accrued
amounts that increase
the value of preferred
shares.

•  Valuation
•  Option Pool
•  Dividends
•  Convertible Notes
represent a typical
structure of financing
that allows a
company to raise
capital in anticipation
of a future round of
funding.

Imagine the Following Capital
Needs for a Startup
Idea

Stage

Early

Stage

Product
&

Market
Fit

Scale

$20,000
$1,000,000
$2,000,000
$5,000,000

Terms Create
Vastly Different
Outcomes

Example Time
•  Example Link: http://goo.gl/LuFltg
•  Examples 1 – 4: Terms
•  Example 5: Valuation
•  Via Twitter on @kyleredinger
•  Goal: Turn terms into math

Obligatory
Cat Photo

Summary of Term Impacts
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)

Valuation
Doesn’t
Really
Matter;
Ownership
and
Preferences
Matter

Beware the
Option Pool
Shuffle
Options are for
hiring, not
screwing
founders

Monthly Investor
Reports
• Executive
Summary
• Sales,
Marketing,
Tech,
Operations,
Goals
• No Bullshit

Picture Credits
•  https://flic.kr/p/zBdU7
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