bootstrapping - an alternative to funding

Bootstrapping An alterna)ve to funding Author: Eva Hukshorn

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1.  EFactor is a Smart Network that matches entrepreneurs with the very people who can help them grow

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It’s not about connecPons -‐ it’s about the right ones…

Eva Hukshorn: An introduc)on

•  Work Experience -  Current: Partner EFactor

Board of Advisory: TreFoil Energy / CleanDrinks / Global Thinkers / ShowLinq

Coach Startup: Bootcamp Amsterdam / New Venture McKinsey -  2009 – 2010: Dutch Bou)que – Marktlink Mergers & Acquisi)ons, Amsterdam -  2007 – 2009: Royal Bank of Scotland – Corporate Finance, Amsterdam -  2004 – 2009: ABN AMRO – Corporate Finance New York, Amsterdam -  2003 – 2004: Accenture – Consul)ng London, Amsterdam

•  EducaPon -  1997 – 2002: MSc Economics, Finance – University of Groningen, the Netherlands -  2003: Interna)onal & Asian Studies – Na)onal Sun Yat-‐Sen University, Taiwan -  2009 – 2011: Cer)fied Management Accoun)ng (CMA) – Ins)tute of Management Accountants

(IMA), United States -  2009 – 2011: Colloquium General & Modern Art – Academy for History of Art, the Netherlands -  2012: Interna)onal Financial Report Standards (DipIFR) – Associa)on of Chartered Cer)fied

Accountants (ACCA), United Kingdom

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FUNDING TUESDAY, EVERY TUESDAY

So what can you expect from us each Funding Tuesday?

1.   Webinars on EFactor on Finance & Funding related topics in the EVENT Sec)on

2.  Blogs & interviews with informal investors and funded entrepreneurs with )ps & tricks in the BLOGS sec)on under NOW

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3.  Finance & Funding related ar)cles on NOW feed

4.  In the Finance & Funding GROUP on our website you will find Q&As of the webinars under NETWORK

5.  In the KNOWLEDGE base you will find more and more presenta)ons on Finance & Funding related topics, including the webinar presenta)ons

6.  And if you become a VIP MEMBER you will personally be supported on your Finance & Funding related ques)ons

Webinar Program Overview 2012

June 19: Business Plan Wri)ng -‐ A Roadmap to Success July 3: Pitching & Presenta)on -‐ 3 Minutes, 1 Impression July 17: Strategy -‐ A Vision for the Future, A Strategy for Gehng There July 31: Budge)ng & Forecas)ng -‐ Predic)ng the Outcome Aug 14: Working Capital -‐ An Unknown Key to Success Aug. 28: Capital Management -‐ Playing with Risk Sept 11.: Funding & Investments -‐ Some Sources are More Equal then Others Sept. 25: Valua)on -‐ Art or Science Oct 9: Exit Strategy -‐ Nice to Have or Need to Have? Oct. 23: Bootstrapping -‐ An AlternaPve Answer to Funding Nov 6: Crowdfunding -‐ The Power of Friends, Family and Fools Nov. 20: Networking -‐ Nice You have 3000 Friends, I have 30 Relevant Connec)ons Dec. 4: Marke)ng & (Social) Media -‐ Noise or Value? Dec. 11: No Sales, No Glory Dec. 18: Most Common Mistakes of Entrepreneurs

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Some basic ingredients to start a successful company

An average idea takes 9-‐12month from creaPon to business plan

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Most successful startups consist of 3 partners

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You start with money. You end with money. And then there is money in between.

Typical life cycle of a High Content Growth Startup

IDEA PROTO TYPE LAUNCH GROWTH

PRE-‐SEED

SEED

EARLY & LATER-‐STAGE / GROWTH

IPO/EXIT

HIGH RISK

LOW RISK

CAPITAL DEFINITIONS 9

An overview of Funding Providers ac)ve in each of the stages

PRE-‐SEED & SEED CAPITAL

•  Friend Family & Fools •  Grant Funding, •  University Funds, •  Angel Investors,

Crowdfunding, •  Bootstrapping •  Compe))ons •  Incubators

•  (Syndicate of) Angel Investors

•  Venture Capital •  Private Equity •  Commercial Bank

•  Venture Capital •  Private Equity •  Commercial Banks •  Hedge Funds •  Public Market / Stock

Exchange

EARLY & LATER STAGE /GROWTH CAPITAL

IPO/EXIT

USD 0 – 1,5mio USD 1 – 20mio USD 25mio +

HIGH RISK LOW RISK 10

What kind of funding do these Funding Providers give?

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3. Bootstrapping 1. Debt/Loan 2. Equity

Funding through own resources: -  Income -  Savings -  Revenue

Funding external parPes without ownership + fee: -  Personal Loan -  Bank loan -  Conver)ble debt -  Mortgages -  Et cetera

Funding external parPes with ownership: -  Common -  Preferred -  Mezzanine

What kind of funding do these Funding Providers give?

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3. Bootstrapping 1. Debt/Loan 2. Equity

Funding through own resources

Funding external par)es without ownership + fee

Funding external par)es with ownership •  Income & savings

•  Revenue •  Friends, Family &

Fools •  Pre-‐Sale/DonaPon

Crowdfunding, •  Grant Funding •  University Funds •  CompePPons

•  Friends, Family & Fools

•  Angel Investors •  Peer-‐2-‐Peer

Crowdfunding •  Commercial Banks

•  Friends, Family & Fools

•  Incubators •  Equity-‐Based

Crowdfunding •  Angel Investors •  Venture Capital •  Private Equity

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•  85% of ideas do not startup •  50% of the startups are not alive aner 5 years •  On average it takes 3.8x companies to be successful •  Less then 10% of the startups get funded with equity:

-  0.03% venture capital / 2% by informal investors -  It takes 1.5 years, 32 versions of your business plan and speaking to 20 investors at least 3 )mes

•  65% of entrepreneurs have personal loans •  55% of startups with Angel Funding will get Venture Capital Funding compared to 10% with no Angel Funding will get Venture Capital Funding

•  1 to 100 companies having a mee)ng with Venture Capital gets funded

So why bootstrap?

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1.   Funding from own funds & FFF

2.   Organic growth through revenue 3.   Business type: services / consulPng

4.   Lean & mean

5.   Delays in development

Achieving as much as possible with

as ligle money as possible

Bootstrapping: What is it?

Bootstrapping: Why do it?

1 Crea)ng value

2 Knowledge and asset ownership remains internal

3 Reducing risk

4 Remain in the drivers’ seat

4 How many op)ons do you think you have?

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•  TOTAL VALUE PLATFORM: EUR 2.046.000

USD 2.7mio

•  CASH OUT SYMBID: EUR 176.000

USD 230k

•  TOTAL BOOTSTRAPPING PROFIT: EUR 1.864.00

USD 2.4mio

BOOTSTRAPPING – CASE STUDY

SYMBID: DUTCH EQUITY BASED CROWDFUNDING PLATFORM

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BOOTSTRAPPING – CASE STUDY SYMBID

PARTNER WHAT VALUE: SYMBID PAID:

Accountant 500 hours of advice (280 EUR/hour) EUR 140.000 EUR 0

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Lawyer 175 hours of advice (280 EUR/hour) EUR 50.000 EUR 20.000

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Technology Shareholder India mockup on western standards

EUR 250.000 EUR 150.000

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EUR 250.000 EUR 150.000

MarkePng Affiliate Model, Social Media, Free Publicity

EUR 500.000 EUR 5.000

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EUR 250.000 EUR 150.000


EUR 500.000 EUR 5.000

Team No Salary EUR 600.000 EUR 0

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EUR 250.000 EUR 150.000


EUR 500.000 EUR 5.000

Team No Salary EUR 600.000 EUR 0

Advisors Investors

Celebri)es + Specialists @ discount if next investor at higher price

EUR 500.000 EUR 1.000 (2 dinners)

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•  TOTAL VALUE PLATFORM: EUR 2.046.000

USD 2.7mio

•  CASH OUT SYMBID: EUR 176.000

USD 230k

•  TOTAL BOOTSTRAPPING PROFIT: EUR 1.864.00

USD 2.4mio

BOOTSTRAPPING – CASE STUDY

SYMBID: DUTCH EQUITY BASED CROWDFUNDING PLATFORM

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1 Prepara)on is key 2 Solid business model

3 Account smart

4 No cash out flow unless necessary

5 Low hanging fruits first

6 Leverage yourself

7 Leverage everyone & everything

you know

8 Everyone & everything is marke)ng

What to conclude from the case study?

DON’T FOR GET ABOUT YOUR OPPORTUNITY COSTS ARE KEY!

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Sugges)on 1: Know your numbers!

1.   Cost per sale

2.   Profit per sale

3.   Pipeline

4.   Repeat orders

5.   Conversion rates

6.   Gross profit

7.   Fixed costs per month

8.   VAT return

9.   Budgets & Forecasts

10.   Results compared to last year

Sugges)on 2: No cash ourlows unless necessary

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1.   Variable costs are key

2.   Diminish overhead costs

3.   Avoid capital expenses

4.   No long term contracts

5.   What your payroll

6.   Outsource all except your Unique Selling

Point

7.   Barter

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Sugges)on 3: Funding sources

1.   UniversiPes & Grants funding

2.   CompePPons

3.   Vendor Funding

4.   Invoice discounPng & Factoring

5.   Asset funding

6.   Overdrals

7.   Barter

8.   Credit cards

9.   Revenue, savings

10.   Friends, Family & Fools (FFF)

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Sugges)on 4: Crowdfunding

1.   Pre-‐Sale crowdfunding

2.   Reward based crowdfunding

3.   Peer-‐2-‐Peer lending

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Sugges)on 5: The trick with patents & IP

Source: Paul Grant, The Funding Game

1.   Think before you spend

2.   Visuals of prototype

3.   No Kinder-‐Überraschung effect

4.   Talk to tech advisors

5.   Research yourself

6.   Get 1 hour free meePng with IP lawyer

7.   Fixed Fee

8.   Patent pending

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Sugges)on 6: Leverage yourself and others

1.   Get a well known coach

2.   Experienced board of advisory

3.   Equity stake up to 5% incl. vesPng Pme

4.   Brand associaPon

5.   Discount for high profile customers

6.   TesPmonials

7.   Use resources in your network:

•  Share housing, technology, contacts,

databases, distribu)on &

communica)on channels

Sugges)on 7: Power of Free Marke)ng

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1.   Measurable MarkePng

2.   Concrete & Clear Unique Selling Point

3.   Joint Ventures

4.   Sales, Sales, Sales = Numbers’ Game

5.   Trial balloons

6.   Find opPmal market, message & price

7.   Find angles for free publicity

8.   Social Media / Blogs

9.   Trigger with (basic) test products

10.   Repeat customers

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Sugges)on 8: Use everything that is for FREE, cheap or @ discount

•  Interns: www.interns.com / www.stageplaza.nl / www.enternships.com •  Employees: www.elance.com / www.linkedin.com / •  Barter & Trade: www.fiverr.com / www.tradekey.com / www.alibaba.com •  CRM for SME: www.highrisehq.com / www.marke)nvoice.com •  Intranet: www.dropbox.com / www.wetransfer.com •  Events: Local entrepreneurial communi)es / www.meetup.com /

www.opencoffee.ning.com •  MarkePng: Local & regional tradi)onal media (TV, Radio, papers,

magazines) / FB, LI, Twiter, Pinterest, Youtube, Google+/ blogs •  Newslegers: www.mailchimp.com •  Research: Local Bank / Accountant / Lawyer / Chamber of Commerce /

Government Trade Ins)tu)ons / www.cia.gov / economist.com •  Funding: www.RocketHub.com / efactor.symbid.com /

www.crowdcube.com /www.fundingcircle.com / www.prosper.com / www.firsrunding.org

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Sugges)on 9: Don’t forget to leverage EFACTOR

•  Match with Partners, Investors, Coaches, Customers

•  Market yourself, your company, your brand, your blogs

•  Network events, business development

•  Find employees & interns

•  325 knowledge documents for entrepreneurs

•  Business Resources against discount

•  FREE Funding Requests & Business Plan support

One rule: WE provide the plasorm, YOU make it happen!

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1 Intense & increased compe))on

2 Strategic support

3 Partnerships, Network

4 Credibility

5 Increase product development

6 Marke)ng & sales ac)vi)es

7 Proven concept making money

8 Increase personnel

9 Governance

10 Organiza)onal infrastructure

From bootstrapping to investors: Timing

Conclusion: Your role models

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Webinar Program Overview 2012

June 19: Business Plan Wri)ng -‐ A Roadmap to Success July 3: Pitching & Presenta)on -‐ 3 Minutes, 1 Impression July 17: Strategy -‐ A Vision for the Future, A Strategy for Gehng There July 31: Budge)ng & Forecas)ng -‐ Predic)ng the Outcome Aug 14: Working Capital -‐ An Unknown Key to Success Aug. 28: Capital Management -‐ Playing with Risk Sept 11.: Funding & Investments -‐ Some Sources are More Equal then Others Sept. 25: Valua)on -‐ Art or Science Oct 9: Exit Strategy -‐ Nice to Have or Need to Have? Oct. 23: Bootstrapping -‐ An Alterna)ve Answer to Funding Nov 6: Crowdfunding -‐ The Power of Friends, Family and Fools Nov. 20: Networking -‐ Nice You have 3000 Friends, I have 30 Relevant Connec)ons Dec. 4: Marke)ng & (Social) Media -‐ Noise or Value? Dec. 11: No Sales, No Glory Dec. 18: Most Common Mistakes of Entrepreneurs 36

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HTTP://WWW.EFACTOR.COM/VIP

Thank you!

This document was prepared by Eva Hukshorn. Several people and organizaPons have inspired

her to write this presentaPon, amongst which are, but not limited to the Founders of EFactor,

ABN AMRO/RBS, University of Groningen, InsPtute for Management Accountants, Paul Grant

Founder of the Funding Game