Step by step checklist of what VC, angel/seed investors look for in Silicon Valley investments

2. INTRODUCTION
Raising Funds in Silicon Valley
● Why Me? Quick Intro / Background & What I am doing in Santiago
● Silicon Valley Funding: Nine Factors Silicon Valley VC Investors Look For,
from Morgan Stanley (MS) Growth Company and IPO reports
● Global Trends: Why Now is a Better Time Than Ever to Have a Startup
Outside of Silicon Valley
● How to Pick a VC or Angel Investor
● Follow up Discussion: What are the differences / surprises for Chilean
Startups & Entrepreneurs?

3. INTRODUCTION
Santiago – An Excellent Startup Vibe

4. INTRODUCTION

5. SILICON VALLEY
FOCUS
“In a great market — a market with lots of real potential customers — the market
pulls product out of the startup.”
“Conversely, in a terrible market, you can have the best product in the world and
an absolutely killer team, and it doesn't matter — you're going to fail.”
1. The Market – Existing, quantifiable, and proven ability to execute in it

6. SILICON VALLEY
FOCUS
“Retention is the single most important thing for growth.”
“Every single user on their 31st day after registration, what percentage of them are
monthly active? Thirty-second day, thirty-third day, thirty-fourth day. And that allows
you, with only 10,000 customers, to get a real idea of what this curve is going to look
like for your product. .”
2. Rapid Growth – 30% forward revenue/user growth per period (per
year for M&A or IPO) or per month/quarter (early stage)

7. SILICON VALLEY
FOCUS
3. Scale – $1Bn+ market cap potential (a “unicorn”), with line of
sight to $1Bn+ in revenues

8. SILICON VALLEY
FOCUS
“One of the most common types of advice we give at Y Combinator is to do things that don't scale.”
“The most common unscalable thing founders have to do at the start is to recruit users manually…
founders ignore this path because the absolute numbers seem so small at first. ”
“The mistake they make is to underestimate the power of
compound growth. We encourage every startup to measure
their progress by weekly growth rate. If you have 100 users,
you need to get 10 more next week to grow 10% a
week.” (that’s 14,000 users in Y1 and 2 million users in Y2)
4. Predictability – Recurring and visible revenue streams / user growth
(lifetime return customers)

9. SILICON VALLEY
FOCUS
“Pricing before product – plan distribution first; is your pricing scalable?”
“Uncontrolled distribution leads to all manner of head-ache and profit-
bleeding.”
“It’s possible to niche market and mass sell… Whether
Apple or Estee Lauder, sustainable high-profit brands
usually begin with controlled distribution. Remember
that more customers isn’t the goal; more sustained
profit is.”
5. Product and Customer Diversity – Multiple proven products,
features, customers, industry distribution channels, find customers

10. SILICON VALLEY
FOCUS
“Startup probabilities of success where cofounders don't have a long history are bad;
when things go wrong, there is no history to bind… A bad early hire can kill a company;
in the early days the goal is to not hire and stay small as long as possible… Be proud of
how much can be done with fewer employees; more equals high burn rate, complexity &
slower decisions… Founders underestimate how hard it is to recruit; the best
employees have options; mission belief is the differentiator.”
“The most important thing and the prime directive for
founders managing a startup is always keep
momentum…. What happens when growth slows
down is people start getting unhappy and quitting and
everything falls apart.”
6. Proven Management Team – Track record managing growth
increases investor confidence in execution

11. SILICON VALLEY
FOCUS
“Globalization means copying things that work… There is no innovation; you go from
building 1 to n typewriters.”
“Technologization / technology, by contrast, involves doing new things… True technology
companies—Palantir, SpaceX—involve going from 0 to 1. This means going from typewriters
to word processors.”
7. Weak Competitive Landscape – Emerging leader taking share
from legacy vendors unable to respond (new and disruptive)

12. SILICON VALLEY
FOCUS
“When you are starting a startup you need revenue. You need validation. You need users.
You need commitment. Free trials get you none of those things… You think you've made
progress but at the end of the free trial you’re going to have to sell them all over again.”
8. Strong Economic Model – Quantifiable and proven inputs for unit cost of
customer acquisition, revenues, margins and contributions over time
“Two things you should be doing when you're starting
your company: talking to your users (selling) or
building your product. As a founder, you have some
unique advantages that make it possible for you to be
really, really good at sales: passion for the product
and your knowledge of the industry and the problem
that you're solving.”

13. SILICON VALLEY
FOCUS
“If you’re going to spend the best years of your life working on something, you better make it
something you care about. The mission is not the exact problem you’re going to solve, but
it’s the North Star. It’s telling you the direction in which you should go.”
9. The Elevator Pitch – One Sentence that Describes it All
“Frequency, Density, and Pain have become three variables
that I now look at to analyze almost any problem.
Frequency: Does the problem you’re solving occur often?
Density: Do a lot of people face this problem?
Pain: Is the problem just an annoyance, or something you
absolutely must resolve?
Frequency, Density and Pain question can help you to identify
how often people have this problem? How many people have
this problem? Do they care?”

14. Never been easier to start a technology company…
in the US or anywhere else…
Why?... Market Factors…
But… Silicon Valley is Very Expensive…
GLOBAL TRENDS

15. START-UPs
It’s Become 2x More Expensive to Scale a Startup in Silicon Valley
in 2015 versus 2009
The combined inflation of real estate and wage
costs in Silicon Valley have a dramatic impact of
the operating expenses of startups. This chart
compares the op-ex (excluding marketing spend)
of a hypothetical 20 person Series A startup and a
hypothetical 80 person Series B startup over the
past five years in Silicon Valley. In both cases, the
op-ex figures double from $2.5M to $5.0M and
from $7.9M to $15.6M respectively.

16. Mobile Internet has Potential to be 10X Bigger than Desktop Internet…
Each new Computing Cycle Typically Generates 10X the Installed Base of
Previous Cycle…
GLOBAL TRENDS

17. Mobile Usage Continues to Rise Rapidly…
25% of Total Web Usage vs. 14% Year over Year
GLOBAL TRENDS

18. Internet Use is Huge but Growth Slowing...
+9% in 2013, +11% in 2012, +16% in 2011...
GLOBAL TRENDS

19. Smartphone Costs Declining…
5% Annually from 2008-2013…
More Powerful Phones = More Potential for Powerful Apps
GLOBAL TRENDS

20. Bandwidth Costs Declining…
27% Annually from 1999-2013…
Declining Cost / Performance of Bandwidth enables
Faster Collection & Transfer of Data to Facilitate Richer
Connections / Interactions
GLOBAL TRENDS

21. Compute Costs Declining 33% Annually (1990-2013)
Decreasing Cost / Performance Curve Enables
Computational Power at Core of Digital Infrastructure….
GLOBAL TRENDS

22. START-UPs
How does a Chilean Company raise money in the USA?
• Set up a US affiliate which accepts US funding (for legal reasons). The US company is
the economic and voting entity. The Polish affiliate is the R&D and operations entity.
• When there is a liquidation (sale, IPO), the flow of funds need to be established to pass
to the interntational owners (either directly via shares in US entity or flow of funds).
• Because of some commoditization of basic entity set-up services in US, this can be
done for small amounts of money ($1,000 to set up entity $25,000 to $50,000 to close
financing deal).
• VC Funding not only route… Angel Funding, Syndicate Funding, Crowdfunding viable
More options than ever to get a new company funded: "One of the really cool things
that's happening right now is this massive proliferation of ways to start a company and
ways to get your company funded” — Aaron Harris, a partner at Y Combinator

23. START-UPs
How to Pick a VC or Angel Investor?
Reference Check is Best Way to Choose a VC:
• Look at their portfolio list
• Subtract out the extremely successful companies.
a) they have no time for you & b) everybody who
has a super successful out-of-the-gate company
loves their VC because there was no conflict.
• Call the companies that are doing well but not yet
household names. Ask about the criteria above.
• More importantly, call the companies that
struggled. You’ll learn most about VCs when you
find out how they handled themselves in tough
situations. Make sure to call 3-4 members of the
management team to avoid one person’s bias
Team Leadership skills, operating
knowhow and industry knowledge
are all tremendously important.
However, most entrepreneurs
seem to make their decisions more
on perceived brand, past
successes and ability to intro.
Helpfulness, contacts are important…
Team Leadership? Most Important. In
almost every company there is execute
management fighting… Politics are a
part of human nature and thus a part of
all startups… Knowing whom to back
within an organization that is feuding
and when to back them is one of the
hardest things about a VCs job. And in
the end must trust their own judgment.
Past successes aren’t always relevant to future
ones (web vs. mobile. Traditional software vs.
SaaS. SEO marketing vs. social marketing.

24. SUMMARY
Follow up Discussion: What are the differences / surprises for
Chilean Startups & Entrepreneurs?
● Silicon Valley Focus: Nine Factors Silicon Valley VC Investors Look For
● Global Trends: Why Now is a Better Time Than Ever to Have a Startup
Outside of Silicon Valley
● How to Pick a VC
● Is there a technology bubble (extra discussion)
● Please fee free to contact me:
(1) Connect on Linkedin (Peter Szymanski) – I will accept your request
(2) Email me: Peter@SiliconValleyCounsel.com -- will get back to you

25. EXTRA
What About the Global Economy and Technology
Startups?
2014 Technology IPOs US Dollar
Volume 73% Below 1999 Peak
Levels (2014)
Nasdaq is 18% Below March
2000 Peak (2014)