Rice Launch Entrepreneur Workshop 2 7-2015
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The Rice Launch event is for Rice University undergrads who are interested in startups and entrepreneurship. This talk was for students to discuss options for very early stage funding.
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Rice Launch Entrepreneur Workshop 2 7-2015
- 1. Marc Nathan Rice Entrepreneur Workshop February 7, 2015 ABC’s of Startup Capital
- 2. 1998 - 2007 2007 - 2010 2010 - 2012 2012 - 2013 2014 - Present 2014 - Present
- 3. W A R N I N G
- 4. DON’T RAISE CAPITAL IF YOU DON’T NEED IT
- 5. Start with
- 7. There are only two GOOD Reasons to raise Startup Capital
- 10. OK, BUT WE DO NEED IT
- 15. $0 - $5000 $25K - $100K $250K- $500K $500K - $1m $3m - $5m PERSONAL C – C – C F – F – F ANGELS & CROWDFUNDING VENTURE CAPITAL PROTOTYPE MVP TRACTION SCALE GROWTH
- 16. Angels Venture
- 23. Houston Angel Network Houston Central Texas Angel Network Austin West Texas Angel Network Amarillo North Texas Angel Network Dallas Baylor Angel Network Waco Cowtown Angels Fort Worth Concho Valley Angel Network San Angelo Texoma Angels Wichita Falls Aggie Angel Network College Station South Coast Angel Network (Provisional) Corpus Christi
- 25. INVESTORS WANT 10% - 25% OF YOUR COMPANY EACH FUNDING ROUND
- 27. Why would they invest? Market Idea YOU
Editor's Notes
- My work history – Bulldog Interests is a private investment bank that I ran with my dad. We syndicated angels and high net worth individuals into mostly high tech deals in Houston. After he retired, I wound it down and joined the Houston Technology Center as their Director of IT Entrepreneurship. HTC is the largest non-profit incubator in Texas and we helped startups with everything from business strategy to capital raising. From there, I joined ChaiONE as their fifth employee doing sales and business development. They are an enterprise mobile development shop. At the same time, I was the Texas-based partner in the technical and sales recruiting firm, Kain Management Group. In 2012, I joined Forthea, a Houston-based online marketing firm that focused on industrial-strength SEO, SEM, and PPC campaigns. I formed T-Squared Agency to be a hybrid Digital Strategy and recruiting consultancy when we moved to Baltimore in the summer of 2013. When we moved back to Texas, I joined the equity crowdfunding platform, SeedInvest as their Managing Director of Texas, based in Austin.
- Why did you start your company? Why do your customers need you? Why do you need to raise money?
- Watch this TED talk by Simon Sinek to get a strong sense of ‘Why’
- Runway = time to let your business figure out how to serve your customers.
- Fuel = growth and expansion
- So you’re not going to listen and want to raise money.
- If you decide to take the path of raising outside capital, you’re mantra must be ABC – Always Be Closing since there is never a time where you won’t need more money to fuel growth.
- This is a general breakdown of your capital needs: the bulk will be for salaries for both the founders and your employees/contractors. The next chunk is for tools & services like laptops and software subscriptions / web hosting. The last chunk is much more elastic – it’s for marketing, that includes everything from business cards to travel expenses to get to relevant tradeshows.
- Your company journey and your funding journey are similar and parallel, but they’re often not the same, even though they overlap.
- In fact, both your funding and your company will not follow a straight line – when you’re company dips, your funding might be strong and vice versa. There’s really no way to tell how things are going to end when you start a company.
- So let’s break down the general categories of funding, the size of the rounds and what you and your investors should expect at the stage of funding.
- These are the four main classes of early stage startup funding: CCC – Customers, Credit Cards, Contests | Friends, Family and Fools | Angels | Venture Capital
- Let’s break down CCC
- Customers are the single best way to fund your startup. If you can bootstrap your company with paying customers, you won’t need outside money. If you do have customer traction, your valuations at each round of funding will be vastly less expensive for you.
- Credit Cards, Loans, Second Mortgages etc. are a cheap way to get startup money for your initial idea. They have a high personal risk, but they allow you to control your own destiny at the beginning stages.
- Contests, including Business Plan contests like the Rice Business Plan Competition – which is the largest in the world and prize money for hackthon wins is a legitimate way to collect significant startup dollars. The prizes are large enough to really kickstart early stage cmpanies.
- The three classic categories of people that would be willing to give YOU money for your startup. Friends and Family are pretty obvious. Fools are investors are people who like you or your idea for some reason. They can be family friends, mentors, teachers and professors and they are starting to include the entire category of Incubators and Accelerators.
- Incubators – typically government or corporate entities are designed to help you build your company without any specific time frame. Accelerators are typified by organizations like yCombinator and TechStars that give startups money – somewhere between $10,000 to $25,000 and put startups through an intense, usually 90 day program that culminate in a Demo Day where the companies pitch their business to a crowd full of potential investors.
- There are lots of organized angel groups across the country. Texas enjoys two of the most active in terms of dollars invested, The Houston Angel Network and the Central Texas Angel Network based in Austin. The Alliance of Texas Angel Networks is exactly what it sounds like – a trade association of sorts for Texas angel groups that allow their members to share deals and best practices.
- Organized crowdfunding online is a fairly recent phenomenon, though the idea of crowdfunding has been around for a very long time – it’s how the Statue of Liberty was originally chartered. Online crowdfunding for equity which has been authorized by the JOBS Act lets investors find deals and invest in them through modern internet methodologies. I am proud to say that I’m the Managing Director of Texas for SeedInvest, a leading equity based crowdfund platform that focuses on seed stage technology deals.
- For each round of funding, Seed, Angel, VC, most investors are looking to buy 10 to 25 percent of the company. After three or four rounds, a founder can get diluted down to single digit percentage ownership. The flip side of this, if there is enough value in the company, that small percentage can be worth a substantial amount of money.
- Remember, any time you take money from someone else, you have a responsibility to take care of their investment, even before your own needs. Basically taking money in this fashion essentially means you’re hiring your own boss.
- Investors of any stripe will ultimately invest in You, your idea and then the market itself. Make sure you present your deal in these terms to maximize your chances of receiving an investment.