5. Funding

Funding alternatives

Angel vs VC

Pitching investors

How much?

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http://en.wikipedia.org/wiki/Seed_money

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A small investment can take a small fresh team farE.g. early stage Web product <$10k/year for computing and tools

Bootstrapping:Consulting work on the side (that hopefully also builds your product)

Hire young, cheap, and hungry

Minimum viable product (don’t build more than an absolute minimum)

FFF (friends, family & fools)

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Sanity check!

Do you really need to raise external funding?can you bootstrap of own investment, consultancy work, part time...

What is the money for?after “how much?”, this is the next question investors will ask

External funding alternatives

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Grants & Research Funding

Soft loansRegional & National grantsEU research funding (FP7 etc)

Beware of business plan competitions!

“No one wins in business plan competitions“ -Steve Blank

Flickr:denniswong

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Angels

What is a business angel?someone with experience, energy and cashinvests own money

typical range 25-50k

Angel networksgroups of angels that co-investneeded since each angel has limited funds/investment

makes passive investments possible

Flickr: onkel_wart

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Venture Capital

Flickr: markcoggins

Fixed life funds (~8-10 years)Money comes from institutional investorspensions, universities, foundations, individuals

Typesregional vs. (inter)national, early vs. late, branch specific

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How VCs work

Flickr: courtneybolton

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Organization partners & associates

End-goal is an EXIT Trade sale

IPO

Expectationssome form of control

most investments fail

the few that succeed should give high multiples

>>> High risk is a part if the game but risk level depends on timing, spread of portfolio and financial climate.

The VC business model (2/20)management fees - partners get ~2% of invested capital

carried interest - partners’ management company get ~20% of profits

Flickr: sophistechate

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Pitching investors

Storytelling

Problem & solution(technology is secondary)

Show a market

Flickr: akrobat77

Checklist:+ elevator pitch+ slide deck (doubles as presentation and business plan)+ exec summary (optional, very short!)

- forget about NDAs- detailed plan comes later

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Pitching tips

Be careful with revenue projections! (skip unless really good data exists)

If you send material or a deck, make it .pdf with recipients name and date.

If multiple investors, work the “lead” investor into agreement, then offer others same terms.

Pitching VCsprepare: look at their portfolio & profiles

find a “champion” on the inside

partners decide together - convince them all!

pitch at partner meeting will be short, be flexible

Pitching angelschemistry: it’s about relationship and trust

often a group is needed (don’t worry, they bring in “friends”)

if decisions don’t come quickly, it is a “no”, - move on.

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David S. Rose on pitching to VCshttp://www.ted.com/talks/david_s_rose_on_pitching_to_vcs.html

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Angels or VC?

if possible: look for integrity, “you can’t fire your investors”

quick exit vs. big exit

beware that VC irreversibly sets company on path to EXIT

seek investors who agree with your definition of success

Angels VC

less money more money

for fun professionally

quick slow

no control lots of control

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* Best Alternative To a Negotiated Agreement

Know your BATNA*“to get good terms you need multiple offers, to get multiple offers you need to tell a good story to several investors at the same time”

There is no formula for valuation, it is decided on comfort levels. Actual terms are more important than valuation and dilution.

Negotiation

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How much to raise?

“It depends”, 3 different views:1) As little as possible

2) As much as you can (against reasonable equity, of course)

3) Whatever you can get and get on with building stuff

1) Sound in principle but risks spending time in “constant fundraising mode” which takes lots of energy from building stuff

2) “you are always going to need more than you think”

3) Fundraising is a distraction, time spent is distraction and reduces velocity

Tip: If possible raise all at once, avoid tranche investments

What is special about Vision?In terms of raising capital

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What’s special about Vision?

Research grants can be a serious optionVisual demos can help pitching

Currently lots of traction in consumer markets (people and businesses asking for vision) but few strong success (exit) cases.

Vision is technology heavy - you will encounter the “here’s the solution where’s the problem” comments

How we did it

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Polar Rose: How we did it

Grants, Friends & Seed$300k over 2004-2006

Series A$5.4M in July 2006 from Nordic Venture Partners

-> smaller follow up in 2009-2010 from Nordic Venture Partners

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Kooaba: How we did it

Grants, work besides PhD~ CHF 100k over 2006-2007

Loans seed round (bank + FFF) & Grants ~ CHF 700k seed (convertible loans), CHF 300k Grants (2008)

Pre series A round & Grants~ CHF 1.5 Million total (2009)

Series A now

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Resources

Twitter:@venturehacks (Startup advice on VC and entrepreneurship)

@msuster (Mark Suster, entrepreneur gone VC, also at http://bothsid.es)

@fdestin (Fred Destin, VC at Atlas Ventures)

Seed funding:Ycombinator (North America) http://ycombinator.com/

Seedcamp (Europe) http://www.seedcamp.com/

Angels:http://venturehacks.com/angellist (list of angels on Twitter)

Bootstrapping:http://blog.guykawasaki.com/2006/01/the_art_of_boot.html (Guy Kawasaki on bootstrapping)