insiders guide on how to raise venture capital
DESCRIPTION
This presentation is based on my six years as an entrepreneur during which I raised over $30M in venture capital, and six years as a VC writing checks to entrepreneurs. This guide describes a process on how to successfully raise money from any investor. It goes way beyond elevator and first pitch advice. Good luck!TRANSCRIPT
An Insiders View: An Insiders View: How to Raise How to Raise
Money from VCsMoney from VCsBob DahlbergBob Dahlberg
PartnerPartnerHorizon VenturesHorizon Ventures
Los Altos, CALos Altos, CABob at horizonvc comBob at horizonvc com
April, 2009 2Copyright 2007, 2008, 2009 Robert W. Dahlberg
AgendaAgenda
VC financing +’s and –’sVC financing +’s and –’s
How VCs decideHow VCs decide
The VC dating gameThe VC dating game
April, 2009 3Copyright 2007, 2008, 2009 Robert W. Dahlberg
Venture Capital Isn’t Venture Capital Isn’t RequiredRequired
To Build a Great Business To Build a Great Business ……
BroadcomBroadcom No VC moneyNo VC money
CiscoCisco $5M in revenue, profitable before Sequoia $5M in revenue, profitable before Sequoia
investedinvested DellDell
Raised money at $60M in revenueRaised money at $60M in revenue eBayeBay
$4.5M in revenue and profitable before $4.5M in revenue and profitable before Benchmark investedBenchmark invested
MicrosoftMicrosoft VC funded after being profitableVC funded after being profitable
The MathWorksThe MathWorks >$300M in revenue, no VC money>$300M in revenue, no VC money
OracleOracle Government contract funded first productGovernment contract funded first product
SAS InstituteSAS Institute > $1.9B in revenue, the largest private > $1.9B in revenue, the largest private
software company, no VC moneysoftware company, no VC money SiebelSiebel
Customers funded first productCustomers funded first product
April, 2009 4Copyright 2007, 2008, 2009 Robert W. Dahlberg
VC Financing Comes with VC Financing Comes with Costs…Costs…††
Fund raising takes time away from Fund raising takes time away from serving customersserving customers
False sense of security: it masks False sense of security: it masks viabilityviability Money enables costly mistakesMoney enables costly mistakes Money removes spending disciplineMoney removes spending discipline
Adds additional master(s)Adds additional master(s) You give up a lot of ownershipYou give up a lot of ownership Sets the exit strategy and timingSets the exit strategy and timing
†† Source: Greg Gianforte, CEO RightNow, http://cet.berkeley.edu/Resources/CETLectures.html
April, 2009 5Copyright 2007, 2008, 2009 Robert W. Dahlberg
… … But it Sure Can HelpBut it Sure Can Help
1.1. Cash to fuel growthCash to fuel growth2.2. Strategy / business adviceStrategy / business advice
3.3. Introductions: investors, customers Introductions: investors, customers and partnersand partners
4.4. RecruitingRecruiting
April, 2009 6Copyright 2007, 2008, 2009 Robert W. Dahlberg
AgendaAgenda
VC financing +’s and –’sVC financing +’s and –’s
How VCs DecideHow VCs Decide
The VC dating gameThe VC dating game
April, 2009 7Copyright 2007, 2008, 2009 Robert W. Dahlberg
We Live in We Live in Unprecedented TimesUnprecedented Times
Facing the worst economy since the Facing the worst economy since the ’30s’30s
No IPO marketNo IPO market Average time to M&A is 6 years, Average time to M&A is 6 years,
IPO is 8 years, IPO is 8 years, Deal StatusDeal Status
Most deals in the last 6 months were follow Most deals in the last 6 months were follow on with existing investors.on with existing investors.
New investors are asking for 30 – 40% down New investors are asking for 30 – 40% down rounds, or are waiting for prices to fall.rounds, or are waiting for prices to fall.
April, 2009 8Copyright 2007, 2008, 2009 Robert W. Dahlberg
Against that Against that backdrop .....backdrop .....
April, 2009 9Copyright 2007, 2008, 2009 Robert W. Dahlberg
How do Most VCs How do Most VCs Decide?Decide?
You’ll first have to You’ll first have to understand VC care understand VC care abouts ....abouts ....
April, 2009 10Copyright 2007, 2008, 2009 Robert W. Dahlberg
VCs Want to do DealsVCs Want to do Deals Deliver Big Returns to their LPsDeliver Big Returns to their LPs
SOURCE: TheFunded.com, NVCA / Thompson Reuters Exit Poll and VC Fundraising Q3
VC Exit Value vs. Money Raised
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
2003 2004 2005 2006 2007 1H2008
VC Exits
VC Fundraising
April, 2009 11Copyright 2007, 2008, 2009 Robert W. Dahlberg
Good Deals are Hard to Good Deals are Hard to FindFind
““We kiss a lot of We kiss a lot of frogs to find the frogs to find the
prince”prince”-- Venture capital industry
cliché
April, 2009 12Copyright 2007, 2008, 2009 Robert W. Dahlberg
Venture Grade Deals are Venture Grade Deals are 1/2001/200
% 2003 Corporate Tax Returns by Revenue
2.2% 1.9%
81.8%
0.5%
13.6%
0%
20%
40%
60%
80%
100%
< $1M < $5M < $10M < $50M >$50M
Revenue
Pe
rce
nt
of
5.4
M R
etu
rns
Source: IRS.gov
VCGrade
Life Style CompaniesAKA “Walking Dead”
April, 2009 13Copyright 2007, 2008, 2009 Robert W. Dahlberg
It’s Hard to Spot It’s Hard to Spot WinnersWinners
Every deal has “hair on it” Every deal has “hair on it” It’s easy to find many, many problemsIt’s easy to find many, many problems EBAY: “On-line flea market? Come on!”EBAY: “On-line flea market? Come on!” Google: 5 CEO candidates passed before Google: 5 CEO candidates passed before
Eric S. Eric S. “Search is “Search is done”done”
It is not easy to discern a winner:It is not easy to discern a winner: Portfolio returns: 1 @ 10X; 2 @ 1X; Portfolio returns: 1 @ 10X; 2 @ 1X;
7@0X7@0X
April, 2009 14Copyright 2007, 2008, 2009 Robert W. Dahlberg
VC’s Personal Bias is a VC’s Personal Bias is a FactorFactor
Will be working together for 6+ Will be working together for 6+ yearsyears
The project must be interesting The project must be interesting Team compatibility is criticalTeam compatibility is critical
The unexpected is going to The unexpected is going to happenhappen
Got to get through the hard timesGot to get through the hard times
April, 2009 15Copyright 2007, 2008, 2009 Robert W. Dahlberg
So How do Most VCs So How do Most VCs Decide?Decide?
VCs “VCs “fall in love with the dealfall in love with the deal””
April, 2009 16Copyright 2007, 2008, 2009 Robert W. Dahlberg
Your Start-Up Must Be Your Start-Up Must Be AttractiveAttractive
April, 2009 17Copyright 2007, 2008, 2009 Robert W. Dahlberg
Attractive is....Attractive is.... Big MarketBig Market
Open to disruptionOpen to disruption Customers in pain and who buyCustomers in pain and who buy
Growing order trendGrowing order trend Strong product offering / Strong product offering /
technologytechnology Differentiated, protectedDifferentiated, protected
Successful TeamSuccessful Team ““A Players” A Players” Successful Investors / Advisors / Board Successful Investors / Advisors / Board
MembersMembers
April, 2009 18Copyright 2007, 2008, 2009 Robert W. Dahlberg
AgendaAgenda
VC financing +’s and –’sVC financing +’s and –’s
How VCs DecideHow VCs Decide
The VC dating gameThe VC dating game
April, 2009 19Copyright 2007, 2008, 2009 Robert W. Dahlberg
April, 2009 20Copyright 2007, 2008, 2009 Robert W. Dahlberg
VC Dating is a Grueling VC Dating is a Grueling ProcessProcess
1.1. Requires mental toughnessRequires mental toughness2.2. You may have to talk to 10 – 40 You may have to talk to 10 – 40
firms to find the matchfirms to find the match3.3. Success demands careful Success demands careful
planning and executionplanning and execution
April, 2009 21Copyright 2007, 2008, 2009 Robert W. Dahlberg
Time ScalesTime Scales
11IntroductionIntroduction
22First DateFirst Date
33DatingDating
1 to 6 weeks
2 to 12 weeks
Per VC
Per VC
Per Funding2 to 26 weeks
April, 2009 22Copyright 2007, 2008, 2009 Robert W. Dahlberg
It Will Be the Best It Will Be the Best Business Advice You’ll Business Advice You’ll
ever Get ever Get
1.1. ListenListen
2.2. LearnLearn
3.3. Accept itAccept it
4.4. Bake learnings into your Bake learnings into your business planbusiness plan
April, 2009 23Copyright 2007, 2008, 2009 Robert W. Dahlberg
Step 1: Introduction Step 1: Introduction
GoalGoal: Get the first date: Get the first date
StrategyStrategy: Approach : Approach the right the right VC, rightVC, right
IntroductionIntroduction ““The Pitch”The Pitch” Due Due DiligenceDiligence
April, 2009 24Copyright 2007, 2008, 2009 Robert W. Dahlberg
The Right VC, RightThe Right VC, Right
1.1. Right VCs,Right VCs,
2.2. The Right Way The Right Way
April, 2009 25Copyright 2007, 2008, 2009 Robert W. Dahlberg
The Right VC The Right VC has Greener Moneyhas Greener Money
VC money is not a bank loanVC money is not a bank loan Do your homeworkDo your homework!!
Talk to start-up CEOsTalk to start-up CEOs Actively investing Actively investing Right sector (life sciences vs. Right sector (life sciences vs.
semiconductor)semiconductor) Relevant portfolio, expertise, and Relevant portfolio, expertise, and
synergiessynergies Early vs. late stageEarly vs. late stage
April, 2009 26Copyright 2007, 2008, 2009 Robert W. Dahlberg
Funding to Customer Funding to Customer ValidationValidation CustomersCustomers
Consulting engagementsConsulting engagements Non-Recurring Engineering (NRE) engagementsNon-Recurring Engineering (NRE) engagements Retainer fees from customersRetainer fees from customers
GovernmentGovernment Small Business Innovation Research Grants Small Business Innovation Research Grants
(SBIR)(SBIR) Big CompaniesBig Companies
Value-Added Reseller (VAR) agreementsValue-Added Reseller (VAR) agreements Divestitures – protected supplier contract with Divestitures – protected supplier contract with
parent for a defined periodparent for a defined period MoonlightingMoonlighting
Founders waive compensationFounders waive compensation Family, Friends and FoolsFamily, Friends and Fools
April, 2009 27Copyright 2007, 2008, 2009 Robert W. Dahlberg
Approach the Right VC, Approach the Right VC, RightRight
1.1. Right VCs,Right VCs,
2.2.The Right WayThe Right Way
April, 2009 28Copyright 2007, 2008, 2009 Robert W. Dahlberg
The Right WayThe Right Way
““We only look at deals that are We only look at deals that are introduced to us by people we introduced to us by people we
know”know”
– – Mike Schuh, Foundation CapitalMike Schuh, Foundation Capital
April, 2009 29Copyright 2007, 2008, 2009 Robert W. Dahlberg
Study Finds Business Plans a WasteStudy Finds Business Plans a Waste
See: http://www.rhsmith.umd.edu/news/releases/2009/040809.aspx
Social connections trump business plans by a long shot, says Goldfarb. Thus it is that people who already know VCs and angels have an easier time raising money. The irony, says Goldfarb, is that people who don’t have connections need to go out and make them, which may require that they have a business plan to discuss. But the plan is sort of like a business card, he says – just something that business protocol dictates you carry around.
Social connections trump business plans by a long shot, says Goldfarb. Thus it is that people who already know VCs and angels have an easier time raising money. The irony, says Goldfarb, is that people who don’t have connections need to go out and make them, which may require that they have a business plan to discuss. But the plan is sort of like a business card, he says – just something that business protocol dictates you carry around.
April, 2009 30Copyright 2007, 2008, 2009 Robert W. Dahlberg
The Right Way: The Right Way: Introduction by ReferralIntroduction by Referral
1.1. Successful entrepreneursSuccessful entrepreneurs
2.2. Lawyers that work with VCs and start-Lawyers that work with VCs and start-upsups
3.3. Angel investorsAngel investors
4.4. VCsVCs
5.5. Other service providers: Other service providers: bankers, head hunters, …bankers, head hunters, …
Avoid BrokersAvoid Brokers (= Mothers-in-Law)(= Mothers-in-Law)Create a buffer layer in between Create a buffer layer in between
you and VCs.you and VCs.
April, 2009 31Copyright 2007, 2008, 2009 Robert W. Dahlberg
Sales Tool:Sales Tool:The Executive SummaryThe Executive Summary
Tool ObjectiveTool Objective: To get a meeting: To get a meeting One pager that covers:One pager that covers:
Contact informationContact information Customer problemCustomer problem Your solution (product/technology)Your solution (product/technology) Market sizeMarket size CompetitorsCompetitors TeamTeam Customer proof pointsCustomer proof points Funding statusFunding status
April, 2009 33Copyright 2007, 2008, 2009 Robert W. Dahlberg
How VCs Vet How VCs Vet Your Exec SummaryYour Exec Summary
Is the referral source credible?Is the referral source credible? Is this company in my geography?Is this company in my geography?
< 1 -2 hours travel time< 1 -2 hours travel time Is this a scalable business?Is this a scalable business? Is the team credible? Is the team credible? Are the existing investors credible?Are the existing investors credible? Can I possibly fall in love with the:Can I possibly fall in love with the:
CEOCEO Target marketTarget market Problem being solvedProblem being solved The technology being developedThe technology being developed
April, 2009 34Copyright 2007, 2008, 2009 Robert W. Dahlberg
RejectionRejection
“We can’t kiss all the pretty girls”
-Bob Kagle, Benchmark
April, 2009 35Copyright 2007, 2008, 2009 Robert W. Dahlberg
Step 2: The PitchStep 2: The Pitch
GoalGoal: Get the second date : Get the second date
StrategyStrategy: : SketchSketch out a out a compelling, compelling, exciting vision exciting vision
11IntroductionIntroduction
22““The Pitch”The Pitch”
33Due Due
DiligenceDiligence
April, 2009 36Copyright 2007, 2008, 2009 Robert W. Dahlberg
““Pitch” Advice is Pitch” Advice is AbundantAbundant
-- and not duplicated here-- and not duplicated here Guy Kawasaki, Garage Technology Guy Kawasaki, Garage Technology
VenturesVentureswww.garage.com/resources/building.shtmlwww.garage.com/resources/building.shtml
Brad Feld, Mobius Venture CapitalBrad Feld, Mobius Venture Capitalwww.feld.com/blog/archives/2004/06/the_torturous_w.htmlwww.feld.com/blog/archives/2004/06/the_torturous_w.html
David Cowan, Bessemer Venture David Cowan, Bessemer Venture PartnersPartnerswhohastimeforthis.blogspot.com/2005/11/how-to-not-write-whohastimeforthis.blogspot.com/2005/11/how-to-not-write-business-plan.htmlbusiness-plan.html
Sequoia CapitalSequoia Capitalsequoiacap.comsequoiacap.com/ideas//ideas/
SVASESVASE www.svase.org/components/uploads/SVASEwww.svase.org/components/uploads/SVASE%2010%20Slide%20Template.ppt%2010%20Slide%20Template.ppt
April, 2009 37Copyright 2007, 2008, 2009 Robert W. Dahlberg
Tell a Simple, yet Tell a Simple, yet Compelling StoryCompelling Story
Your Start-Up is everything to Your Start-Up is everything to youyou But just another pretty face to the But just another pretty face to the
VCVC VCs easily drown in detailsVCs easily drown in details Boredom sets inBoredom sets in Your goal is simple: Your goal is simple:
Get the next dateGet the next dateVC Start-Up
April, 2009 38Copyright 2007, 2008, 2009 Robert W. Dahlberg
Story Telling is a SkillStory Telling is a Skill
Jerry Weissman Coach to CEOs on an IPO Road Show
April, 2009 39Copyright 2007, 2008, 2009 Robert W. Dahlberg
The Story VCs Want to The Story VCs Want to HearHear
Big MarketBig Market Open to disruptionOpen to disruption
Customers in pain and who buyCustomers in pain and who buy Growing order trendGrowing order trend
Strong product offering / Strong product offering / technologytechnology Differentiated, protectedDifferentiated, protected
Successful TeamSuccessful Team ““A Players” A Players” Successful Investors / Advisors / Board Successful Investors / Advisors / Board
MembersMembers
April, 2009 40Copyright 2007, 2008, 2009 Robert W. Dahlberg
Four Pillars to any VC Four Pillars to any VC PitchPitch
++
TeaTeam m
TechnolTechnologyogy
ProductProduct
FinanciFinancialsals
MarkMarketet
April, 2009 41Copyright 2007, 2008, 2009 Robert W. Dahlberg
Market Size is Market Size is Every VC’s ConcernEvery VC’s Concern
% 2003 Corporate Tax Returns by Revenue
2.2% 1.9%
81.8%
0.5%
13.6%
0%
20%
40%
60%
80%
100%
< $1M < $5M < $10M < $50M >$50M
Revenue
Pe
rce
nt
of
5.4
M R
etu
rns
Source: IRS.gov
VCGrade1:200
MarkMarketet
April, 2009 42Copyright 2007, 2008, 2009 Robert W. Dahlberg
1.1. Market VettingMarket Vetting
CompetitionCompetition VC cliché’: “No competition = No VC cliché’: “No competition = No
Market”Market” Is there room for this start-up?Is there room for this start-up? Is there any potential to grow Is there any potential to grow
fast?fast? Is the market big enough to Is the market big enough to
maneuver if the first niche doesn’t maneuver if the first niche doesn’t work out?work out?
MarkMarketet
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4343
Example: Competition / Ecosystem Example: Competition / Ecosystem
RTLS/RFID
YMS
TMS
WMS
Custom Asset Mgmt
ERPOver The Road Trailer/Tractor Tracking
Middleware/Fusion
Ekahau
Aeorscout
Laudis
Fluensee
SystemId
Retalix
Yardview
C3Red
Prairie Manhattan
Others…Oracle
SAP
OAT
QualComm TrimbleSkyBitz
Zebra
NewcoAsset Control
Asset Location Asset Management
OracleWMS
Players
I2
BEA
Microsoft
MotorolaIBM
HPThingMagic
Impinj
Alien
Size of oval does not represent size of company but rather functional coverage in segment
April, 2009 44Copyright 2007, 2008, 2009 Robert W. Dahlberg
#1 Cause of Failure is#1 Cause of Failure isthe Lack of the Lack of Customers Customers
Demonstrate you know your Demonstrate you know your customer coldcustomer cold
There’s a logical reason behind There’s a logical reason behind the customer listthe customer list Articulated customer segmentationArticulated customer segmentation Strategic approachStrategic approach
List your marquee customersList your marquee customers Show that customers are helpingShow that customers are helping
MarkMarketet
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454545
Example: CustomersExample: CustomersManufacturing Retail
Logistics
Transportation
April, 2009 46Copyright 2007, 2008, 2009 Robert W. Dahlberg
2. Team2. Team
Show off your leadership aptitudeShow off your leadership aptitude Personal results, personal successPersonal results, personal success Start-up mentality vs. Big company mentalityStart-up mentality vs. Big company mentality Company pedigree – worked at market Company pedigree – worked at market
leadersleaders Backed by blue ribbon advisorsBacked by blue ribbon advisors
Key: people investors trustKey: people investors trust Expect your backgrounds to be Expect your backgrounds to be
rigorously checked.rigorously checked.
TeaTeam m
April, 2009April, 2009 Copyright 2007, 2008, 2009 Robert W. Copyright 2007, 2008, 2009 Robert W. DahlbergDahlberg
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Example: Corporate OrganizationExample: Corporate Organization
Disclose: Disclose: Experience & Experience & HolesHoles
DavidEngineering
DougSales
MarkCFO
Bob CEO
TBHMarketing
11 Engineers
Cory2 Application
Engineers1 Marketing2 Salespeople
JoeCTO
Rob
April, 2009 48Copyright 2007, 2008, 2009 Robert W. Dahlberg
3.3. Product Test: Product Test: Aspirin or Vitamin??Aspirin or Vitamin??
The product has to be compelling The product has to be compelling Customer inertia is hugeCustomer inertia is huge Customers change only when they have toCustomers change only when they have to ““Don’t fix what isn’t broke.”Don’t fix what isn’t broke.”
TechnolTechnologyogy
ProductProduct
April, 2009 49Copyright 2007, 2008, 2009 Robert W. Dahlberg
Feature or Feature or a Company?a Company?
A Feature?A Feature? Can the incumbent add this feature Can the incumbent add this feature
to an existing product easily?to an existing product easily? A Product?A Product?
Part of a full-product portfolio?Part of a full-product portfolio? A Company?A Company?
Can the value prop create a Can the value prop create a substantial business?substantial business?
TechnolTechnologyogy
ProductProduct
April, 2009 50Copyright 2007, 2008, 2009 Robert W. Dahlberg
4. Financials4. FinancialsFinanciFinanci
alsals
April, 2009 51Copyright 2007, 2008, 2009 Robert W. Dahlberg
Cash is KingCash is King
Revenue forecast will likely not materialize, Revenue forecast will likely not materialize, SoSo Is this plan realistic?Is this plan realistic? Revenue must not be too big, but not too smallRevenue must not be too big, but not too small
Spending plan will be scrutinized.Spending plan will be scrutinized. Cash is KingCash is King Successful CEOs are frugalSuccessful CEOs are frugal
FinanciFinancialsals
April, 2009 52Copyright 2007, 2008, 2009 Robert W. Dahlberg
Sequoia Capital’s Directive to CEOs 10/2008
April, 2009April, 2009 Copyright 2007, 2008, 2009 Robert W. Copyright 2007, 2008, 2009 Robert W. DahlbergDahlberg
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Example: HOW WE MAKE MONEYExample: HOW WE MAKE MONEY
PRODUCT
ON-DEMAND
$
Newco 1.0 SAME PRODUCT
3 REVENUE STREAMS
ECU/hours
NewcoDELPLOYED IN A PUBLIC CLOUD
NewcoDELPLOYED IN A PUBLIC CLOUD
APPLICATIONDELPLOYED IN A PUBLIC CLOUD
APPLICATIONDELPLOYED IN A PUBLIC CLOUD
$ Additional ECU’s
Licensed ServerENTERPRISE
DELPLOYED AT
CUSTOMER SITE
DELPLOYED AT
CUSTOMER SITE
APPLICATIONDELPLOYED IN A
PRIVATE or PUBLIC CLOUD
APPLICATIONDELPLOYED IN A
PRIVATE or PUBLIC CLOUD
Newco 2.0 On-Premise Q4 2008$
Newco X
Newco X
Newco X
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Example: BUILD + SELLExample: BUILD + SELL
Q1
Q2
Q3
Q4
Q5 Q6
Q7
Q8
On-demandLAMP
VMWareBeta
MySQL
Postgres
EDB
Amazon Platform
EDB PrivateBranding
V2.0 Release
On-premiseGlassfish
Tomcat
OLAP/DWBundle
LicenseServer
3-6 New Component
s
3-6 New Component
s
3-6 New Component
s
3-6 New Component
s2-3 Core
Enhancements
Xen? MSFT?
2-3 Core Enhanceme
nts
2-3 Core Enhanceme
nts
2-3 Core Enhanceme
nts
VMWareProduction
1 2 3 5 5 6 63
$0.3 $0.6 $1.2 $1.2 $1.5 $1.5 $1.8 $1.8
1 2 3
$0.75 $0.75 $1.5 $2.25 $3.0$2.25$0.75
ENGINEERINGTEAMS
SALESTEAMS
PRODUCT
4
JBoss
0925 36 45
68 68 79 79TOTALTEAM
EMPLOYEES
COST($M):
REVENUE ($M):
PRODUCT
April, 2009 55Copyright 2007, 2008, 2009 Robert W. Dahlberg
The Morning After …The Morning After …
April, 2009 56Copyright 2007, 2008, 2009 Robert W. Dahlberg
What Can You Do?What Can You Do?
React to the business advice you React to the business advice you receivedreceived Adjust as necessary, your business Adjust as necessary, your business
strategystrategy Polish your pitch for the next VCPolish your pitch for the next VC
Incorporate learning from each interactionIncorporate learning from each interaction Simplify, SimplifySimplify, Simplify
Clarify confusing pointsClarify confusing points Address objection itemsAddress objection items Rearrange the slide orderRearrange the slide order
April, 2009 57Copyright 2007, 2008, 2009 Robert W. Dahlberg
What Will Most VCs Do?What Will Most VCs Do?
Best case: “Fast no, slow yes”Best case: “Fast no, slow yes” Typical: Innocuous turn down, if at Typical: Innocuous turn down, if at
allall They don’t want to burn any bridgesThey don’t want to burn any bridges
Typical: No urgencyTypical: No urgency Risk reduces as time passesRisk reduces as time passes Wait for a milestoneWait for a milestone
quarter results quarter results prototype worksprototype works
April, 2009 58Copyright 2007, 2008, 2009 Robert W. Dahlberg
RejectionRejection
Accept rejection gracefullyAccept rejection gracefully There is no rationale argument There is no rationale argument
to bring the VC backto bring the VC back
April, 2009 59Copyright 2007, 2008, 2009 Robert W. Dahlberg
What Might Happen?What Might Happen?
When a VC senses love, you’ll When a VC senses love, you’ll hear backhear back
Be responsive!Be responsive! VC’s like working with responsive VC’s like working with responsive
peoplepeople You’re building a relationshipYou’re building a relationship Respond to requests Respond to requests < 24 hours< 24 hours
April, 2009 60Copyright 2007, 2008, 2009 Robert W. Dahlberg
Step 3: Due DiligenceStep 3: Due Diligence
GoalGoal: Receive a term : Receive a term sheetsheet
StrategyStrategy: Two way test : Two way test drivedrive
ApproachApproach ““The Pitch”The Pitch” Due Due DiligenceDiligence
April, 2009 61Copyright 2007, 2008, 2009 Robert W. Dahlberg
Prepare in AdvancePrepare in Advance
Executive resumes & referencesExecutive resumes & references Line up references in advance, Line up references in advance, Contact people VCs will findContact people VCs will find
Financial QuarterliesFinancial Quarterlies Capitalization tableCapitalization table Customer / technology referencesCustomer / technology references
Keep them updated on your progress, Keep them updated on your progress, Use them judiciouslyUse them judiciously
April, 2009 62Copyright 2007, 2008, 2009 Robert W. Dahlberg
Typical Due Diligence Typical Due Diligence ProcessProcess
1.1. More information More information (Exec. resumes, (Exec. resumes, financials, cap table, personal references, etc.)financials, cap table, personal references, etc.)
2.2. Meet with VC’s “expert(s)”Meet with VC’s “expert(s)” Portfolio companies, friends, paid expertsPortfolio companies, friends, paid experts
3.3. Follow up meeting(s) at your office Follow up meeting(s) at your office
4.4. Calls to customers and personal Calls to customers and personal referencesreferences
5.5. Calls to back-channel referencesCalls to back-channel references
April, 2009 63Copyright 2007, 2008, 2009 Robert W. Dahlberg
Remember VCs come with Remember VCs come with Costs…Costs…††
Fund raising takes time away from serving Fund raising takes time away from serving customerscustomers
False sense of security: it masks viabilityFalse sense of security: it masks viability Money enables costly mistakesMoney enables costly mistakes Money removes spending disciplineMoney removes spending discipline
Adds additional master(s)Adds additional master(s) You give up a lot of ownershipYou give up a lot of ownership Sets the exit strategy and Sets the exit strategy and
timingtiming
†† Source: Greg Gianforte, CEO RightNow, http://cet.berkeley.edu/Resources/CETLectures.html
April, 2009 64Copyright 2007, 2008, 2009 Robert W. Dahlberg
So Use Due Diligence as a So Use Due Diligence as a Two Way Test DriveTwo Way Test Drive
Can I work with this team / VC Can I work with this team / VC for the next 6 years?for the next 6 years?
Is this a quality team / VC?Is this a quality team / VC? Do team / VC listen?Do team / VC listen? Is the team/VC honest, ethical, Is the team/VC honest, ethical,
reliable? dependable?reliable? dependable? How do they react being under How do they react being under
fire?fire?
April, 2009 65Copyright 2007, 2008, 2009 Robert W. Dahlberg
Syndication:Syndication:Two Parents are Better Two Parents are Better
than Onethan One For the entrepreneurFor the entrepreneur
More strategic minds around More strategic minds around the tablethe table
Hedge against one VC Hedge against one VC walking outwalking out
For the VCFor the VC Validates that the start up Validates that the start up
has legshas legs More powder availableMore powder available
April, 2009 66Copyright 2007, 2008, 2009 Robert W. Dahlberg
Getting “Married”Getting “Married”
Locate a Locate a Syndicate Syndicate PartnerPartner
Term SheetTerm Sheet Legal due Legal due
diligencediligence Cash in the bankCash in the bank
April, 2009 67Copyright 2007, 2008, 2009 Robert W. Dahlberg
And Remember…And Remember…Venture Capital Isn’t Venture Capital Isn’t
RequiredRequired BroadcomBroadcom
No VC moneyNo VC money CiscoCisco
$5M in revenue, profitable before $5M in revenue, profitable before Sequoia investedSequoia invested
DellDell Raised money at $60M in revenueRaised money at $60M in revenue
eBayeBay $4.5M in revenue and profitable $4.5M in revenue and profitable
before Benchmark investedbefore Benchmark invested MicrosoftMicrosoft
VC funded after being profitableVC funded after being profitable The MathWorksThe MathWorks
>$300M in revenue, no VC money>$300M in revenue, no VC money OracleOracle
Government contract funded first Government contract funded first productproduct
SAS InstituteSAS Institute > $1.9B in revenue, the largest > $1.9B in revenue, the largest
private software company, no VC private software company, no VC moneymoney
SiebelSiebel Customers funded first productCustomers funded first product
April, 2009 68Copyright 2007, 2008, 2009 Robert W. Dahlberg
Entrepreneur ResourcesEntrepreneur Resources Law firm outreachLaw firm outreach
DLA Piper Venture PipelineDLA Piper Venture Pipeline www.venturepipeline.comwww.venturepipeline.com Fenwick & West LLPFenwick & West LLP “ “Darrell Kong” <Darrell Kong” <[email protected]>[email protected]> Orrick, Herrington & Sutcliffe LLP’s “Total Access”Orrick, Herrington & Sutcliffe LLP’s “Total Access” "Chad Lynch" <[email protected]>"Chad Lynch" <[email protected]> Pillsbury Winthrop Shaw Pittman LLP’s “Back Stage Pass”Pillsbury Winthrop Shaw Pittman LLP’s “Back Stage Pass” [email protected]@pillsburylaw.com Wilson, Sonsini, Goodrich, and RosatiWilson, Sonsini, Goodrich, and Rosati
wsgr.com/WSGR/Display.aspx?SectionName=practice/venturecapital.htmwsgr.com/WSGR/Display.aspx?SectionName=practice/venturecapital.htm
SDForumSDForum www.sdforum.orgwww.sdforum.org
Silicon Valley Bank’s Venture ExchangeSilicon Valley Bank’s Venture Exchange Shai Goldman, Director, [email protected] Goldman, Director, [email protected]
SVASE, SVASE, Silicon Valley Association of Startup EntrepreneursSilicon Valley Association of Startup Entrepreneurs..
www.svase.orgwww.svase.org The Enterprise Network of Silicon ValleyThe Enterprise Network of Silicon Valley
Tensv.orgTensv.org Women’s Technology ClusterWomen’s Technology Cluster
www.wtc-sf.orgwww.wtc-sf.org
April, 2009 69Copyright 2007, 2008, 2009 Robert W. Dahlberg
To Your New To Your New Venture Success!Venture Success!