This document discusses various sources of funding available for entrepreneurs and startups. It begins by describing the different types of startup ventures including lifestyle businesses, small businesses, scalable startups, buyable startups, large companies, and social entrepreneurs. It then discusses "bootstrapping" options like using personal funds, friends and family, small business loans/lines of credit, and bartering. It also covers competitions, crowdfunding, strategic partnerships, angel investors, and venture capital. For each funding source, it outlines the advantages and disadvantages. The document emphasizes the importance of traction and real customers for convincing investors. It provides tips on focusing a pitch and impressing investors with a clear business model and achievable milestones

1. Sources of Funding
(How Entrepreneurs & Investors
Find Each Other!)
Marty Kaszubowski
President, General Ideas
@MartyKasz

2. A Startup Is a Temporary Organization
Designed to Search for a Repeatable
and Scalable Business Model
• Failure is an Integral Part of the
Search for the Business Model
• No Business Plan Survives First
Contact with Customers
• Preserve Cash While Searching for
a Repeatable Business Model. After
It’s Found, Spend
• Communicate and Share Learning
• Startups Demand Comfort with
Chaos and Uncertainty
Per Steve Blank, et al

3. But not all startups are the same!
There are six distinct organizational paths for
entrepreneurs:
1.
2.
3.
4.
5.
6.
Lifestyle business
Small business
Scalable startup
Buyable startup
Large company
Social entrepreneur
Per Steve Blank, et al

4. Types of startup ventures
1. Lifestyle Startups: Work to Live their Passion.
Examples: Professional Photographers, Healthclubs,
Surf Shops, Ski Instructors, Golf Pros
2. Small Business Startups: Work to Feed the
Family.
Examples: Restaurants, Clothing stores, coffee shops,
Cleaning Services, Contractors, Taxi Cabs, Consultants
3. Scalable Startups: Born to Be Big:
Examples: Google, Facebook, Skype, Apple, Ford,
Boeing, Мобильные Телесистемы, SoftServe, etc.

5. Types of startup ventures
4. Buyable Startups: Born to Flip:
Examples: Tumblr (acquired by Yahoo), Instagram
(acquired by Facebook), Groupon (should have taken the
offer from Google!)
5. Large Company Startups: Innovate or
Evaporate:
Examples: Boeing (satelites, rockets), Ford Motor
Company (Ford credit), Apple Computer (iPod, iPhone,
iPad), Hewlett Packard (printers), Research In Motion (?)
6. Social Startups: Driven to Make a Difference:
Examples: Tom’s (shoes), Ethos (water), Husk Power
Systems (electricity generation)

6. Which type are you planning
to build?
1. Lifestyle business
2. Small business
3. Scalable startup
4. Buyable startup
5. Large company
6. Social entrepreneur

7. You probably don’t need “Venture
Capital”…
Getting the money to build your business is the most
important challenge for most startups.
• It’s not enough to sketch your idea
on a napkin, and hope investors
will throw money at you.
• In the US, only 3 out of 100
companies will get funding from
an Angel investor
• The percentage of companies that
get
Venture
Capital
(VC)
investments is even lower.

8. There are many ways to
fund your company
Too many companies fail to explore all the
options
Every approach has advantages and disadvantages:
• Outside capital requires giving up some ownership
and control, but offers the resources needed to
grow.
• Doing it yourself allows you to retain control, but
takes much longer to grow and, potentially, misses
rapidly emerging opportunities.

9. The right kind of financing …
… depends on a number
of factors:
•
•
•
How quickly your target
market is emerging
How much tolerance you
have for giving up control
How large the company can
potentially get

10. Another metaphor ...
Do you want to own
100% of a grape?
Or 10% of a Watermelon?

11. What options are available?
“Bootstrapping”
Competitions
Friends and family
Crowdfunding
Small business grants
Strategic Partners
Loans & lines-of-credit
Angel Investors
Bartering
Venture Capital

12. Profitability
Start-up Venture Financing
Early Stage
(Angels & VCs)
Seed Capital
(Friends/Family
& Angels)
Later Stage
( VCs & Strategic
Partners)
Valley of Death
Time
Growth
Stage
(IPO,
Investment
Banks)

13. Stages of Company Maturity
Venture Performance
Embryonic
Growth
Mature
Launch the
venture,
establish
competitive
position
Grow the
venture,
improve
competitive
position
Sustain
competitive
position
Abandon?
VCs
Partners
Angels
Loans
Government
Friends/Family
Venture Maturity
Source: Third Generation R&D, Roussel, Saad, & Erickson
Aging

14. Let’s talk about each of these ...
“Bootstrapping”
 Friends and family
 Small business
grants
 Loans & lines-ofcredit
 Bartering

Competitions
 Crowdfunding
 Strategic
Partnerships
 Angel Investors
 Venture Capital


15. “Bootstrapping”
“Bootstrapping” refers to the
myth that a person can “lift
himself up by his bootstraps”
to achieve his goals
A old term that means “Doing
it yourself with little or no
help!”

16. If you do it
yourself ...
Advantages:
• There’s no one to convince but yourself
• You own the entire enterprise
• You maintain control of all aspects of the business
Disadvantages:
• Growth will be slow … too slow?
• You may miss opportunities for new business

17. Friends & Family
People who know and trust the
founders are usually the first to be
approached for funding.
A relatively small amount of money is
invested
The investors are usually not wealthy,
so even a small amount is very
important to them!

18. If you ask your friends and family...
Advantages:
• They trust you and won’t ask for too many details
• You can retain ownership and control
• They will stick with you when things go bad ...
Disadvantages:
• Growth will be slow,
and you may miss
opportunities for new
business
• You risk destroying
important personal
relationships.

19. Loans & Lines of Credit
Banks lend money to businesses
based on projected revenues
and/or collateral
Usually not available to startups with un-proven
technologies and/or uncertain
markets

20. Loans and Lines of
Credit
Advantages:
• Banks are everywhere
Disadvantages:
• They want you to pay it back … with interest!
• Usually not even an option for start-ups
• Can be inflexible and onerous when revenue projections
are not met
• Can be a severe restriction of cash flow

21. Bartering
Trading your company’s products
or services for something you
need.
Underutilized as a way to help fund
start-ups
Most appropriate for engineering
services, IT services, commonly
needed products.

22. Bartering
Advantages:



Everyone needs something …
Does not require out-of-pocket cash
Helps you prove and refine your product or service
Disadvantages:



Can be time consuming to find the right deal and deliver the
service
Often hard to agree on value
Doesn’t qualify as “revenue”

23. Small Business Grants
The US and Europe have
government programs that
fund research and
development at small
businesses
Grants can be sizable ($MM).
Example: US “Small Business
Innovation Research” (SBIR)
Program

24. Small Business Grants
Advantages:
•
•
•
Sizable sums of money to advance the research and support
product development efforts
The government often buys the product when its ready
You can retain ownership and control
Disadvantages:
•
•
•
Usually takes a long time and lots of paperwork to get the
money
The research (usually) has to be tied to a government
program, which may not be of interest
Few nations outside of US, Europe, UK have such programs

25. Competitions
Start-ups can obtain seed funding by
competing in local, regional, national, and
international contests.
Generally aimed at improving the
economy in the area and promoting
entrepreneurship, in general
Events are usually wellpublicized and held
annually.

26. Competitions
Advantages:
•
•
•
•
•
•
Doesn’t cost much to participate (travel expenses, time)
Competitions are usually connected to another event to promote
entrepreneurship education, mentoring, etc.
Usually no need to give up equity
No restrictions against competing at many, many events
Often get additional, “in-kind” services
Good way to get attention!
Disadvantages:
•
•
“Prize money” varies and is aimed mostly at
“pre-seed”
Some competitions require joining an
incubator or accelerator

27. Crowdfunding
Start-ups can obtain seed funding by
appealing to a wide range of people
who are willing to give small amounts
Many people providing small amounts
= a big fund!
Numerous new (!) web sites managing
a crowdfunding process:
• A place for companies to “apply” for
funding
• Hundreds of small contributors
• Usually focused on local start-ups

28. Crowdfunding
Advantages:
•
•
•
Can generally retain majority
ownership and control
Simpler due-diligence process (?)
No dominant investor to appease
Disadvantages:
•
•
•
Crowdfunding is still a VERY NEW as a way to fund a company
Still some confusion about how it operates, how investors get insight
into the performance of the company, how investors “cash out”, how
management communicates with potentially hundreds of individual
stakeholders
Mostly available in US and UK, but growing everywhere!

29. Strategic Partnerships
Alliances with large companies who see value in
your technology and are willing to fund further
development
Usually aimed at improving the large company’s
current products or meet future market demand
Large company offers money, expertise, testing
facilities, etc.
Large company usually demands some
ownership of the technology and may want to
acquire the small company sometime in the
future

30. Strategic Partnerships
Advantages:
•
•
•
•
Can generally retain majority ownership and control
Large company is often interested in acquiring the company
Simpler due-diligence process, more focused on technology than
financial performance
Take advantage of large company’s market access, customer
relationships, etc.
Disadvantages:
•
•
•
Large companies often find it difficult to work with start-ups
Large companies are slow …
Small company has no control over strategic direction of large company

31. Angel Investors
Wealthy individuals (often former
entrepreneurs or business executives) who
make personal investments.
A sizable amount of money is invested, but
the investors can afford to take the risk.
Primary interests are:
 Making money
 Opportunity to participate in “the next
big thing”
 A chance to help and support founders

32. Angel Investors
Advantages:
•
•
•
•
Interested in helping grow the company
Take advantage of the Angel’s network of partners,
customers, management, talent, etc.
Not as much “due-diligence” as a Venture Capitalist
Will usually not take majority ownership
Disadvantages:
•
•
Hard to find, not as much money available as a VC
Often not as sophisticated as they think they are …

33. Venture Capital
VCs want to help your
business to grow so they
and their stakeholders
can profit
Big investments (usually
$MM) aimed at highly
scalable ventures

34. Venture Capital
Advantages:
• Grow, grow, grow
• Take advantage of the VC’s network of partners,
customers, management, talent, etc.
Disadvantages:
• Hard to find, hard to convince
• High expectations, lots of
“Due Diligence”
• Generally have to give up
majority ownership

35. How will you fund your venture?
You will probably use many
of tools we talked about
today.
It depends on many factors:
•Growth plans
•Cash flow
•Risk tolerance
•Available forms of capital
•Control issues

36. Finding an Investor
• “Gatekeepers” (Accountants, Lawyers, Consultants,
Wealth Managers, Bankers)
• On-line services (Angelist, GUST)
• Local Events and
Organizations
• Incubators, Accelerators
• Published databases,
Google, Yandex, etc.
• Other Entrepreneurs!

37. Getting attention from Investors
•
•
•
•
•
Have a plan.
•
Set realistic milestones and
achieve some of them.
•
Attract a well-rounded
team.
Build qualified advisory
board.
Ship a minimum product
now.
•
•
•
Get a real customer & real
revenue.
Register some intellectual
property.
Get some “testimonials”.
Show personal investment.
Become a visible expert.

38. Focus on a few key things …
1. What do you need? Why are you here?
Before you can get into the details, let them know:
• how much you’re raising,
• how much you have committed, and
• what you’re going to do with the money.

39. Focus on a few key things …
2. Talk about your team
Tell me about your team
and what you’ve done
before.
• Is there are range of skills
on the team?
• What’s missing?

40. Focus on a few key things …
3. What SPECIFIC(!) problem are you solving
• Why is this an important problem that really needs
to be solved?
• How many people have the problem and are they
willing and able to pay to have it solved?

41. Focus on a few key things …
Investors want to know your answers to the
questions above …
But they really want to learn about how you
think and how much you know, and what
you believe.

42. The Entrepreneur that impresses investors …
• Highlights team strengths, more than his
own.
• Describes customer needs and benefits first,
then product features.
• Has a rational business model, with prices
and volumes.
• Talks about the implementation plan, not
the idea.
• Keeps a clear focus on achievable milestones.

43. But, what
really
impresses
investors is …

44. Let’s talk traction …
“Traction” is evidence that your
product or service has proven
that it provides real value in a
real market with real customers
•
Started the “hockey-stick”
adoption rate
•
Has a valid business model
•
Has a sustainable growth
based on a repeatable sales
process
•
Financial projections are
based on real evidence

45. How do we measure “Traction”?
Sales of a priced offering:
• One customer is not traction
• Beta tests with a thousand customers at no cost don’t
count.
Free and freemium products need a solid base:
• If your product is free (advertising!), you need ~ one
million page views per month.
• ~ 10,000 active users and doubling every 3 months.

46. How do we measure “Traction”?
Market penetration:
• Show direct progress in your target sector, demographic,
and sub-categories.
Average transaction size & revenue per customer:
• Is your average transaction size, number per customer,
or margins going up?
Customer acquisition cost:
• Your cost to acquire a new customer should be coming
down…

47. How do we measure “Traction”?
Acceptance by key industry participants:
• Signed contracts with big name customers
• Agreements with major distributors in your industry.
Public statements from industry experts & groups:
• Respected industry groups, like Gartner Research or
Forrester Research
• Industry bloggers, CNET, app reviewers, etc.
Don’t ask investors if you have traction – if you have
to ask, you probably won’t like the answer.

48. Questions?