Startupfest 2019 - Structuring Your Company And Deciding How, And If, You Should Take Money
•
0 likes•92 views
This document provides tips for startups on structuring their company and deciding whether to take investment money. It discusses types of investors like angels, VCs, and the differences between them. It warns that VCs need high returns which can impact a company's goals. It also outlines potential issues like founders who don't share the same vision, exclusive partnerships, licensing of third-party IP, and an overfocus on short-term sales that could hurt a company if not managed carefully. The document recommends startups focus on awareness, team, structure, definition of success, and managing these potential issues and conflicts upfront.
Recommended
Recommended
More Related Content
What's hot
What's hot (20)
Similar to Startupfest 2019 - Structuring Your Company And Deciding How, And If, You Should Take Money
Similar to Startupfest 2019 - Structuring Your Company And Deciding How, And If, You Should Take Money (20)
More from Startupfest
More from Startupfest (20)
Recently uploaded
Recently uploaded (20)
Startupfest 2019 - Structuring Your Company And Deciding How, And If, You Should Take Money
- 1. Structuring Your Company And Deciding How, And If, You Should Take Money Tips, Tricks, and Techniques Randy Smerik Founder/CEO, Osunatech, Inc. randy@smerik.com @randysmerik July 9, 2019 1Randy Smerik
- 2. • This workshop is for startups who: – Have raised funding, but not closed a Series A – May be an accelerator graduate – Has a sustainable, repeatable business model hypothesis – Proven the product, but need to transition to mainstream market acceptance and growth 22Randy Smerik
- 3. Types of Money $$$ Company Maturity Friends/Family & Bootstrap Angels Seed & Incubator Super Angels Traditional VC’s 3Randy Smerik Social Graph and Viral Note: there is lots of overlap between these categories in the real world Series A aka Equity Financing Convertible Debt aka a Loan
- 4. Why I am Standing Here in front of you 444Randy Smerik To help ensure that everything you do and decide … you do with: You Eyes Wide Open
- 5. Series A: How do you Decide Do you believe in your idea, plan, current execution so much that you want to bring in adult leadership – Institutional Professional VCs – Board of Directors – Governance 5Randy Smerik
- 6. Series A: How do you Decide Do you believe in your idea, plan, current execuZon so much that you truly need a lot of money now – Funding for 18-36 months – Funding assuming big growth levels – Knowing this will be (hopefully) the most expensive money you ever buy 6Randy Smerik
- 7. Series A: How do you Decide Do you believe in your idea, plan, current execution so much that you are willing to give up primary control of the company – Protective Provisions – New CEO and C-Level Roles – Strategic Directions 7Randy Smerik
- 8. Series A: How do you Decide Self Awareness Time: Do you believe these things are needed to ensure your idea and business grows … correctly? If yes … then … 8Randy Smerik GAME ON!
- 10. 1010Randy Smerik
- 13. 13 It’s not Sexy, but “Be the Gauge - Know the Gauge”.
- 14. 14 Data Information Decision Action 1414Randy Smerik
- 15. 15 Data Information Decision Action Too much focus here Far to little here 1515Randy Smerik
- 16. Perspective • It is very easy for entrepreneurs to lose perspective on where their business is going • There is so much data and analytics … and passion … it is easy to get lost on the “forest” • And, people forget that there are typically no clear black & white win/lose scenarios • You can play a hugely valuable role as “guide post” and “time capsule” 161616Randy SmerikRandy Smerik
- 17. “Macro ReflecZve Mentoring” • Frequency: every 1 to 3 months • The Right Data: identify the top areas for the business at any point in time • Micro Data: avoid the temptation to take an active role in analyzing and tracking low level metrics • Reflective: let the team set the goals and time lines … not you 17171717Randy SmerikRandy Smerik
- 18. The Moral of the Story: 18 Gather the data – but be more consumed by the quality and not the quantity Identify a small set of metrics that you feel really reflect what you care about Budget resources & time so you truly can take action on the results of the metrics 1818Randy Smerik
- 19. Buy and Read this Book! 19 Buy on: Amazon.com http://leananalyticsbook.com @leananalytics
- 20. Still … Game On? 202020Randy Smerik
- 22. Teams & Culture 222222Randy Smerik
- 23. People are (literally) Everything • The only way you’ll get anything meaningful done • The only way you will scale • Business plan assumptions will be proven wrong constantly, your team brings everything back to a new course • This is how the “message” (the culture) is carried • People can destroy you too! 2323Randy Smerik
- 24. Teams are more than Employees Employees/Contractors Board of Directors Investors Suppliers Strategic/Major Customers 2424Randy Smerik
- 25. Teams are Universal • Software Architect/CTO – Executive Chef and Master Tequila Blender • Server – Distribution Manager and Account Manager • Distillery Manager – General Manager and COO • Programmer – Line Cook and Lead Distiller Software Company Southern Italian Restaurant Tequila Distillery 2525Randy Smerik
- 26. Teams: Everything is a Balance • Projects more important than money • Don’t (necessarily) kill the thing you initially liked • Not everything should be consistent • Transparency • Hiring and Firing • Let folks go 2626Randy Smerik
- 28. Structuring Your Company • Invest serious money ($15-20K) in a good corporate law firm that you like (interview them!) – They will “create/define” your corporate structure • Invest in a good accounting firm (interview them!) – They will “create/define” how you know what’s going on • Create an Employee Stock Option Program – Try to allocate the majority of shares after funding • Have a real Board of Directors with Officers – Budget for reasonable D&O Insurance (attract great talent) 28282828Randy SmerikRandy Smerik
- 30. 30 You are raising a bunch of money What does Success mean? 3030Randy Smerik
- 31. 31Randy Smerik
- 32. Context: 4 Business Outcomes 32Randy Smerik Failure Company shuts down or asset sale where there is a loss for all involved Lifestyle Business reaches critical mass and profitability and provides an income for its exec team and employees M&A Business is bought and incorporated into a larger entity at some profit to investors IPO Initial Public Offering Our focus is here
- 33. Context: IPO versus M&A Venture Exits VC backed liquidity events 33Randy Smerik Since 2000, median is 90% of exits are M&A
- 34. IPO versus M&A Exits VC backed liquidity events 34Randy Smerik November 2016 - CBinsights 3% 1H2016 IPOs: 27 M&A: 1564 98.3% = M&A
- 35. 35 IPO versus M&A Exits – Current VC backed liquidity events 35Randy Smerik
- 36. 36 IPO versus M&A Exits – 2019 VC backed liquidity events 3636Randy Smerik
- 37. Context: M&A Transactions - Deal Size Private Targets - Internet, Communications & IT Infrastructure Software & Services M&A – Q1’2011 37Randy Smerik source: SagePoint Advisors Median M&A transaction is $10M
- 38. M&A Transaction - Deal Size Private Targets - 2013 to 1Q2016 38Randy Smerik $16.8M $33.2M $24.8M Median M&A transaction is $23.7M March 2016
- 39. 39 M&A Transaction - Deal Size Private Targets - most current
- 40. Let’s see what Google Says • I care about Google because recently Google has been the most active M&A buyer – Next on the list would be Microsoft, Amazon, and Apple for 2015 • Charles Rim (former top Google M&A guy) stated: – “90% plus of our transactions are small transactions. Less than 20 people, less than $20M and that is truly the sweet spot” – “We do prefer companies that are pre-revenue” 40Randy Smerik
- 42. 42 Knowing this … There are things that can really hurt you Unless you are careful
- 43. 43Randy Smerik
- 44. 44Randy Smerik Raising “Serious” Money Let’s Look at VC Fund Raising …
- 45. Impacts of Raising Money $$$ Desire for Control/Information Friends/Family & Bootstrap Angels Seed & Incubator Convertible Debt Super Angels Traditional VC’s 45Randy Smerik Social Graph and Viral Note: there is lots of overlap between these categories in the real world You are Here
- 46. Issue: VC’s need 10x Returns • Why? – Limited Partners in a VC fund expect ~20% return per year – Typically, returns come from 20% of the investments, i.e. out of 10 companies funded 2 will provide returns – Due to the length of time the money is typically tied up in companies and how long the funds are for, the capital only gets to be invested once – When you do the math, the average return of those two winning companies needs to be around 20x 46Randy Smerik
- 47. Yikes. This is a Problem. • Simple scenario: – A VC invests $2M on an $8M pre-money valuation company – This gives the VC 20% of the $10M post-money company – To get 10x (forget about 30x) the VC will need a $20M return – At 20% ownership, that means that the company must sell for $100M – But … the average M&A deal is more like $20M! 47Randy Smerik
- 48. VC’s Entrepreneur10 Entrepreneur1 Entrepreneur2 Entrepreneur3 Entrepreneur4 Entrepreneur9 Entrepreneur8 Entrepreneur7 Entrepreneur6 Entrepreneur5 $$ $$ $$$$ VC Perspective Different Perspectives, but: VC’s will Protect their Model • VC’s may fight to keep a company going longer even if the entire management team and angels feel it’s better to sell • Techniques: create separate voting classes (preferred) where each class must approve exits; “protective provisions” with veto rights; control of the Board; and more 48Randy Smerik 20X 10X Entrepreneur Vision Hopes/Dreams Angels VC’s $$ Entrepreneur/Company Perspective
- 49. Pre $2,000,000 Investment $500,000 CEO 40% Staff 40% Angels 20% VC 0% Post $2,500,000 Angel Round Angel Round of $500K at $2.5M post Let’s See What Could Happen in a Real-world Scenario 49Randy Smerik VC Round $10,000,000 $3,000,000 31% 31% 15% 23% $13,000,000 VC adds $3M at $10M pre M&A Offer $40,000,000 $12,307,692 $12,307,692 $6,153,846 $9,230,769 M&A offer at $40M x Return 12.3 3.1 Multiples • Great exit for CEO/Founders/Staff - $24 million for them • Angels see a 12x return • VC sees a (mere) 3x return and will likely veto the transaction This example assumes all shares are Common; if 1X PP, then the VC return is 3.8x
- 51. Choosing Founders: “Nothing to Lose” • Pay special attention to a co-Founder who is someone who has “made it big” at a previous company/deal 51Randy Smerik • A high-likelihood danger is that they don’t share the same view of a successful outcome
- 53. Exclusive & “Strategic” Partners • To move quickly on an idea within a company, it is it is all too common to agree to exclusive terms with major players • It is also common to form strategic partnerships with other companies for sales, manufacturing, and more • This can have a big negative impact on a company if they are not managed carefully • Ensure there is a full management review and transparency of all Exclusive Agreements 53Randy Smerik
- 55. IP Licensing • Owning core IP can be essential for both funding and M&A • It is easy for 3rd party IP to “creep” into critical portions of the code to speed time-to-market • Know that once it’s there, it’s very challenging to remove • Ensure there is a full management review and transparency of all 3rd party IP 55Randy Smerik
- 57. Sales • It’s common to apply pressure to race to sales and drive revenue as quickly as possible – Brings (much needed) cash in, can prove/show real customer engagement, and more • But if done too early, it can create a focus on short term and specific customer requirements and not the core product/business • Engage in sales when you have the right support in place and the revenue is “significant” • Sales are the easiest thing to track … and that can be a blessing ………… or a curse 57Randy Smerik
- 58. Easy: Do These 9 Things • Awareness • Your Team • Company Structure • What does Success mean • VC Expectations 585858Randy SmerikRandy Smerik All 9 of these points … are actually very easy to do. They are. • Founders • Exclusivity • IP Licensing • Sales Management
- 59. 59Randy Smerik Good Luck! Bon Chance! Thank You! Merci Beaucoup!
- 60. Structuring Your Company And Deciding How, And If, You Should Take Money Tips, Tricks, and Techniques Randy Smerik Founder/CEO, Osunatech, Inc. randy@smerik.com @randysmerik July 9, 2019 60Randy Smerik