7. Start a business not a Startup
A business without a path to profit isn't a
business, it's a hobby.
Jason Fried, Rework
8. Startup Obstacle
Lack of Financial Resources
• Soften this obstacle by encircling it
with action-oriented questions.
9. Why don't we just call plans what they really are:
guesses. Start referring to your…financial plans as
financial guesses…Now you can stop worrying
about them as much.
Jason Fried, Rework
10. Real opportunity?
1. Your money for commercialization;
2. Your 1st dollar of sales from your 1st customer;
3. Before reaching Breakeven Sales;
4. Incoming sales = outflowing costs.
15. Use
of
Sources
Funds
of
Funds
Seeking
Funding
The
Funding
Funds
Strategy
Process
Types
of
Stages
Firms
of
Dev.
16. Lifestyle
Types
of
Personal
Goals
Family
Needs
Firms
1M
annual
sales
Limited
Upside
High
Growth
1
in
20
Businesses
Large
Returms
Larger
Fiancial
Responsibility
17. Operations
Use
of
Hiring Competent Management
Funds
Sales and Distribution
Support and Service
Administration
Working Capital
Accounts Receivable
Inventory
Capital Expansion
Technology
Equipment
Leasehold Improvements
18. Sources
of
Funds
Where can companies
get the money?
– Grants/Government
– Internal Cash-Flow
– Angels/Friends and
Family
– VCs
19. Sources
Risk
vs.
Investment
of
Funds
Timeline
Risk
Founders
Friends and
Family
Angels
Venture Capitalists
Acquisitions
Equity Markets
Banks
Time
Seed Startup Early Growth Expansion Maturity
20. Founders:
Sources
Highest risk
of
Funds
Typically invest up to $100K
Use their own savings
Ask friends to join them
Offer a piece of company as incentive –
Risk
outlined in Operating Agreement
Founders
Work without salary (may defer on books)
Provide space (garage/basement)
Ask for favors (legal advice, accounting)
Should all be highly active
Time
Seed Startup Early Growth Expansion Maturity
21. Sources
Friends and Family
of
Funds
High risk
Typically invest up to $200k
Can be quick money
Personal relationship risk
Risk Part of networking for your business
Have consistent agreements drawn and
Founders
approved by a lawyer
Friends and Keep records
Family Generally passive investors
Valuation
Time
Seed Startup Early Growth Expansion Maturity
22. Angels
Sources
Moderate to high risk
of
Funds
Typically invest $50K to $1M
Perform due diligence
Groups may work as a syndicate
Can help with next round of funding
Risk
1/3 of deals at the seed stage
Founders May take seat on board
Friends and In 2004: 225,000 Angels invested $22.5B
Family
in 48,000 ventures
Angels
Time
Seed Startup Early Growth Expansion Maturity
23. VCs
Sources
Moderate risk
of
Funds
Typically invest $2.5M to $10M
Perform due diligence
Can help with next round of funding
6% of deals at the seed or startup stage
Risk Generally lead a round
Will take seat on board
Founders
Friends and
In 2004: $21B in 2,876 ventures $7M average
Family
Angels
Venture Capitalists
Time
Seed Startup Early Growth Expansion Maturity
24. Sources
of
Funds
Banks
More likely to loan when cash flow
is good and assets on the books
Borrow on receivables and other
Risk assets
Acquisitions/Equity:
Founders
IPOs are rare
Friends and Acquisitions are much more
Family common
Angels
Venture Capitalists
Acquisitions
Equity Markets
Banks
Time
Seed Startup Early Growth Expansion Maturity
27. Funding
Strategy
Debt
• Banks
Loan
Officers
– Make
sure
to
bring
your
execu2ve
summary
and
financial
statements
with
you.
• Banks
lend
money
based
on
solid
collateral
and
on
your
ability
to
repay
the
loan.
– Collateral
is
an
asset
that
can
be
sold
to
cover
the
debt
in
case
you
default
on
the
loan
28. Funding
Equity
Strategy
Equity
-‐
term
used
to
describe
money
that
is
provided
to
a
business
in
exchange
for
ownership
in
the
company
Angel
and
Venture
Capital
Investors
Their
goal:
5-‐10x
in
5-‐7
years
29. Funding
Strategy
Guerrilla Financing
• A
state
of
mind
rather
than
a
discrete
funding
category.
• ImaginaZon,
creaZvity,
out-‐of-‐the-‐box
thinking,
invenZveness
30. Funding
Guerrilla Financing
Strategy
1. Rent
2. Equipment:
Lease
or
buy
at
aucZon
or
on
eBay.
3. Salaries:
Offer
stock
or
future
bonuses
for
lower
wages.
4. MarkeIng:
Several
companies
can
share
costs
in
a
cooperaZve
adverZsing
project.
5. Labor:
Use
contract
labor
and
interns.
6. Legal
services:
stock
for
services
7. Other
people’s
credit:
interest
for
loan
8. Advance
payments
from
customers:
Ask
for
prepayments
for
future
delivery.
9. Barter:
Trade
goods
or
services
31. Funding
Strategy
Investment Scenario
• Investor
wants
in
– Put
in
100k
;
ValuaZon
400k
-‐
Company
Value:
500k
– He
owns
20%
• Analysis
–
Hopes
company
will
be
sold
for
5M
– Return
on
Investment
(ROI)
%
=
• ((Future
Value
(FV)
−
Present
Value
(PV))
/
Present
Value)
x
100
– ROI
(%)
=
((400k
−
100k)/100k)
×
100
=
300%
33. The
Funding
Phase
0:
The
Format
Process
– Here
is
what
is
done
now,
here
is
how
much
it
costs...
– Here
is
what
we
are
offering,
here
is
how
much
it
saves...
– Here
is
our
market...
(Clients,
Partners,
etc.)
– Here
is
what
we
need
from
you...
34. The
Funding
Phase
1:
Before
the
Mee2ng
Process
– Develop
a
list
of
likely
funding
targets.
– Send
a
compelling
cover
leker
(without
hype)
along
with
your
execuZve
summary.
(Do
HW)
– 15-‐to
20-‐minute
PowerPoint
presentaZon,
and
make
invisible
slides
– Rehearse
Role-‐play
35. The
Funding
Phase
2:
During
the
Mee2ng
Process
• Leave
all
emoZons
at
the
door—except
for
passion.
• Approach:
1.)
PosiZoned
for
exciZng
growth,
2.)
You
are
stable
and
not
desperate
for
capital,
and
3.)
A
capital
infusion
at
this
Zme
would
enable
the
more
rapid
growth.
• Avoid
exaggeraZon,
defensiveness,
and
salesmanship.
• It
is
not
the
Zme
for
discussions
on
valuaZon
or
any
other
negoZaZon
points.
If
it
comes
up
during
the
meeZng,
indicate
that
your
mind
is
open.
36. The
Funding
Phase
3:
AGer
the
Mee2ng
Process
• It
is
important
that
your
expectaZons
be
reality
based.
• Aner
one
week,
it
is
appropriate
to
contact
the
investor
to
sense
his
or
her
level
of
interest.
If
there
is
no
interest,
ask
for
advice
to
improve
Evolve
• Your
odds
improve
as
you:
–
Become
obsessive-‐compulsive
about
cash
flow.
–
Become
an
expert
communicator
and
win-‐win
negoZator.
–
Adapt,
evolve,
never
give
up.
37. The
Funding
Interest
from
an
Investor
Process
• Begin
to
discuss
terms
and
condiZons
of
investment
(term
sheet).
– Don’t
begin
to
negoZate.
Seek
professional
legal
advice.
• Due
Diligence
– It
is
a
two-‐way
street.
40. - You have an idea
- Writing the business plan
- Investigating the market
Stages
- Looking for people to join you
of
Dev.
- Creating a prototype/demo of product
or service
- Investigating patents
Money
High Growth
Lifestyle
Time
Seed Startup Early Growth Expansion Maturity
41. - You have a new business
- Business plan is solid
Stages
- Patents, if any, may be in process
of
Dev.
- Product demo or prototype has traction –
interested clients/investors
- Maybe some initial sales
- Key management, in place or on sidelines
Money
High Growth
Lifestyle
Time
Seed Startup Early Growth Expansion Maturity
42. - Success in marketplace
Stages
- Hiring sales and marketing
- Hiring operations
of
Dev.
- Office space/warehouse/manufacturing
- Equipment purchases
Money
High Growth
Lifestyle
Time
Seed Startup Early Growth Expansion Maturity
43. - Growing quickly
- More hiring
Stages
- Transition from initial admin/operations to full scale
- Move offices to accommodate hires
of
Dev.
- New production facilities/hardware
- Invest in marketing
- Invest in product development
- Competition takes notice
Money - Fire-fighting, keeping the wheels on High Growth
Lifestyle
Time
Seed Startup Early Growth Expansion Maturity
44. - Continued growth
- Formalize organization
- Departments are created
Stages
- Who is that person?
of
Dev.
- National presence in market space
- Focus turning to margins and efficiency
Money
High Growth
Lifestyle
Time
Seed Startup Early Growth Expansion Maturity
47. • Stock Types
– Common Stock - % of equity
ownership expressed in shares normally
held by founders
– Preferred Stock –liquidation
preference, which means in a sale (or
liquidation) of the company, the
preferred stock holders will have the
option of taking their cost out or
sharing in the proceeds with the
founders as common stock holders
48. Stock Vesting –
Member purchases a block of Common
Stock and the company retains a
repurchase right to buy the stock back.
The repurchase right of the company
diminishes over time so that
the company eventually has no right to
repurchase the stock, i.e. the stock
becomes fully vested.
49. Stock vs. Options
– Stock: money is earned in proportion to
the value of the company
– Options: Not the stocks themselves but
time limited contracts to benefit from
the right to buy or sell that stock.
50. Employee Stock Option
• Opportunity for employees to
purchase stock in the company
they work for, often at a discount
from market value
51. Convertible Debt –
When a company borrows money
from an investor and the intention of
both the investors and the company
is to convert the debt to equity at
some later date.
52. P/E Debt: ratio market stock price to
after-tax earnings
– The higher the P/E ratio, the more the market is
willing to pay for each dollar of annual earnings.
– Higher P/E ratios - risky investments vs. low P/E
ratios,
• High P/E ratio signifies high expectations.
– Comparing P/E ratios is most valuable for
companies within the same industry.
Dividends vs. Reinvestment
53. Assets vs. Expenses
• Expenses are deductible against income, so
they reduce taxable income.
• Assets are not deductible against income.
• What a company spends to acquire assets is
not deductible against income.
– e.g., money spent on inventory is not deductible as
expense until the inventory is sold. At that point the money
spent becomes a cost of goods sold or cost of sales. And
then it reduces income.
57. Financial Statements
– Income Statement (Profitability)
– Balance Sheet (Investment targets
source)
– Statements of Cash Flow (meeting
obligations)
58. Key Elements of Financial
Statements
Revenues Cost of Sales
– Product – Infrastructure
– Services – Support
= Gross Revenue – Cost of Services
= Gross Income
Other costs
– RD After Taxes,
– Sales Marketing Depreciation,
– General Admin Amortization
= EBITDA = Net Income
60. Things Not to Do
• Wait until the last minute to raise money
– Digital River and ExactTarget layoffs
• Get more money than you need
– WebVan vs. Simon Delivers/PeaPod Models
• Spend money on “buzz”
– Beyond.Com “Naked Guy” SuperBowl Ad
– Cyberian Outpost “Wolves” SuperBowl Ad
• Spend money on party
– 1999 Pixelon.com throws $10M party after $23M
VC Raise
61. Things To Do
• Have skin in the game
• Fail fast, fail small, try again, find a model
• Focus on revenues, margins – this will
make raising money easier and valuations
better
• Don’t be a big business too soon
• Focus on the size of the pie and not the
size of your piece
• Get excited, be confident and think big
• Look for similar business models
63. Corfo Funds
• For startups
Más info: http://www.corfo.cl/lineas_de_apoyo/programas_por_necesidad/
emprender_un_negocio_innovador
64. Corfo para Startups
• Capital Semilla
– Para emprendedores innovadores en el desarrollo
de sus proyectos de negocios, mediante el
cofinanciamiento de actividades para la
creación, puesta en marcha y despegue de sus
emprendimientos.
– Cuánto subsidia? Hasta 75% del monto total del
proyecto con un tope máximo de $40 millones.
– Mayor info: http://www.corfo.cl/lineas_de_apoyo/
programas/capital_semilla
65. Corfo para Startups
• Subsidio Semilla de Asignación Flexible (SSAF)
– tiene por objetivo la creación de un Fondo de
Asignación Flexible (SSAF) que apoye a
emprendedores innovadores con proyectos de alto
riesgo en el desarrollo de sus empresas en etapas
tempranas para la creación, puesta en marcha y
ejecución de éstas.
– Cuánto subsidia? Hasta 75% del monto total del
proyecto con un tope máximo de $700 millones
anuales.
– Más info: http://www.corfo.cl/lineas_de_apoyo/
programas/
subsidio_semilla_de_asignacion_flexible_ssaf
66. Corfo para Startups
• Empaquetamiento Tecnológico para Nuevos
Negocios
– Apoya el proceso de empaquetamiento de negocios
sofisticados, desde el punto de vista tecnológico, y con
alto potencial de crecimiento. Se entiende por
empaquetamiento tecnológico, el proceso de
desarrollo de productos que presentan una
oportunidad comercial demostrable.
– Cuanto subsidia? Hasta el 80% del presupuesto total de
proyecto, con un tope máximo a solicitar a Innova Chile
de un subsidio no reembolsable de $20 millones para la
primera etapa y de $180 millones para las dos etapas.
– Más info: http://www.corfo.cl/lineas_de_apoyo/
programas/
empaquetamiento_tecnologico_para_nuevos_negocio
s
67. Corfo para Startups
• Capital de Riesgo para Empresas Innovadoras
– Financiamiento para la creación o expansión de
empresas con proyectos innovadores que tengan un alto
potencial de crecimiento. CORFO lo entrega en la forma
de un crédito de largo plazo a Fondos de Inversión, para
que éstos inviertan en dichas empresas mediante aportes
de capital o créditos.
– Cuánto subsidia? El monto depende de las características
y necesidades del proyecto, y según se haya definido en
el proceso de negociación entre la empresa y el Fondo.
Este aporte se realiza mediante un aumento de capital.
– -Más info: http://www.corfo.cl/lineas_de_apoyo/
programas/
capital_de_riesgo_corfo_para_empresas_innovadoras
68. Corfo para Startups
• Redes de Capitalistas Ángeles
– Es un subsidio que apoya la organización, formalización
y operación de Redes de Capitalistas Ángeles, que
aumenten las inversiones en empresas innovadoras de
alto potencial de crecimiento.
• Cuánto subsidia? Hasta 70% del total del proyecto, con un
tope máximo a solicitar para el primer año de ejecución
del proyecto de $80 millones y de $100 millones anuales
para los siguientes años. Los proyectos contemplarán un
plazo máximo de ejecución de 6 años.
• Más info: http://www.corfo.cl/lineas_de_apoyo/
programas/redes_de_inversionistas_angeles
