raising money for a tech startup
TRANSCRIPT
Kyle Redinger, Co-Founder VividCortex
RAISING MONEY FOR A TECH STARTUP
VividCortex • Database performance for MySQL • Save $$$ on hardware provisioning • Run your system faster • Reduce diagnosis and resolution time • Make your people happy • Free 30 day trial at vividcortex.com
www.vividcortex.com | [email protected]
Agenda • Background • Setting Expectations • Fundraising Protocol • Cap Tables, Options & Term Sheets • Post-Financing Obligations
www.vividcortex.com | [email protected]
BACKGROUND I’m one of many founders
About Me
• Founded 6 companies
• Exited one company
• Learned Learning from many mistakes
• Background in finance, M&A, and startups
• CrossFit
www.vividcortex.com | [email protected]
About You
• Smart, networked, capable
• Technically proficient
• Do you have the hunger?
• It’s your day to shine
www.vividcortex.com | [email protected]
SETTING EXPECTATIONS
Why Have a Company?
www.vividcortex.com | [email protected]
Why Have A Company? • Create Wealth?
• Solve a Problem? • Be Your Own Boss? • Create Jobs? • Save the World? • Advance Humanity? • Be Bold? • Organize the World’s
Information? • Hack on Some Amazing
Engineering?
www.vividcortex.com | [email protected]
There is only one reason for a company • Create Wealth?
• Solve a Problem? • Be Your Own Boss? • Create Jobs? • Save the World? • Advance Humanity? • Be Bold? • Organize the World’s
Information? • Hack on Some Amazing
Engineering?
www.vividcortex.com | [email protected]
There is only one reason for a company
A company exists to create value for internal and external stakeholders
• Create Wealth? • Solve a Problem? • Be Your Own Boss? • Create Jobs? • Save the World? • Advance Humanity? • Be Bold? • Organize the World’s
Information? • Hack on Some Amazing
Engineering?
It’s About the Money
www.vividcortex.com | [email protected]
So, you understand a company and have an idea, what’s next?
L www.vividcortex.com | [email protected]
www.vividcortex.com | [email protected]
J Don’t worry!
Companies create stakeholder value by organizing broad skill sets and scarce resources into goals.
www.vividcortex.com | [email protected]
www.vividcortex.com | [email protected]
Broad Skill Sets
• Vision • Build • Market • Sell • Motivate • Fundraise • Operate • Make Hard
Decisions • Etc.
You probably don’t realize the skills your team lacks
You need to de-risk.
Startups are a constant de-risking process
Expectations Summary
• Companies need to make money
• Create value by executing
• Build a diverse team from the start
www.vividcortex.com | [email protected]
FUNDRAISING PROTOCOL
How Do I Raise Money?
Fundraising Basics
• Ask for introductions from investors, peers, rich people
• Never cold call/cold email • Get on the phone • You are doing sales • Know your elevator pitch • Actually listen to people • Ask for explanations of “no’s”
www.vividcortex.com | [email protected]
Simplified Fundraising Path
Idea Stage
Early Stage
Product & Market Fit Scale
www.vividcortex.com | [email protected]
Fundraising Path Goals
Idea Stage
Early Stage
Product & Market Fit Scale
www.vividcortex.com | [email protected]
Founding Team & Vision
Proof of Concept Early Customers Repeatable
Model
Fundraising Path Investor Drivers
Idea Stage
Early Stage
Product & Market Fit Scale
www.vividcortex.com | [email protected]
Founding Team & Vision
Proof of Concept Early Customers Repeatable
Model
Story Telling Technical ExecuBon
Visibility to Future Revenue
Business Model and $$$
We Raise from Venture Capital Right?
www.vividcortex.com | [email protected]
www.vividcortex.com | [email protected]
NO We Raise from Venture Capital Right?
www.vividcortex.com | [email protected]
Venture Capital Is Not Your Friend
• 2% Management Fees; 1% Invested
• Fund-life problems • Terms not aligned
with founder interests
• Only 3 in 10 deals create returns
• Mostly risk-averse • Good old white
male network
VCs are Good for Scale
www.vividcortex.com | [email protected]
Large pools of capital, for post-technology risk expansion.
Fundraising Path Cash Sources
Idea Stage
Early Stage
Product & Market Fit Scale
www.vividcortex.com | [email protected]
Founding Team & Vision
Proof of Concept Early Customers Repeatable
Model
Story Telling Technical ExecuBon
Visibility to Future Revenue
Business Model and $$$
Founders Angels Angels, Business, VC
Angels, Business, VC, PE
Fundraising Protocol Summary • Understand the
goals for each stage
• Customer financing is the best capital
• VCs are overrated
www.vividcortex.com | [email protected]
FUNDRAISING MATH
Follow the Money and Terms
Defining Important Terms • Valuation • Common Shares • Preferred Shares • Option Pool • Liquidity Preferences • Control Rights • Dividends • Convertible Note
www.vividcortex.com | [email protected]
Defining Important Terms • Valuation • Common Shares • Preferred Shares • Option Pool • Liquidity Preferences • Control Rights • Dividends • Convertible Note
www.vividcortex.com | [email protected]
• Valuation is the price at which an investor can purchase ownership in your company.
Defining Important Terms • Valuation • Common Shares • Preferred Shares • Option Pool • Liquidity Preferences • Control Rights • Dividends • Convertible Note
www.vividcortex.com | [email protected]
• Common Shares represent the last group of investors to be paid in an exit event.
Defining Important Terms • Valuation • Common Shares • Preferred Shares • Option Pool • Liquidity Preferences • Control Rights • Dividends • Convertible Note
www.vividcortex.com | [email protected]
• Preferred Shares have rights that make them more valuable than common shares, e.g. getting paid first in an exit event.
Defining Important Terms • Valuation • Common Shares • Preferred Shares • Option Pool • Liquidity Preferences • Control Rights • Dividends • Convertible Note
www.vividcortex.com | [email protected]
• Option Pools are rights to purchase shares at a specific price and are typically issued prior to a funding round, diluting the prior round of investors.
Defining Important Terms • Valuation • Common Shares • Preferred Shares • Option Pool • Liquidity Preferences • Control Rights • Dividends • Convertible Note
www.vividcortex.com | [email protected]
• Liquidity Preferences define which class of shareholder gets paid and when.
Defining Important Terms • Valuation • Common Shares • Preferred Shares • Option Pool • Liquidity Preferences • Control Rights • Dividends • Convertible Note
www.vividcortex.com | [email protected]
• Control Rights represent things like board seats and protective provisions for certain events.
Defining Important Terms • Valuation • Common Shares • Preferred Shares • Option Pool • Liquidity Preferences • Control Rights • Dividends • Convertible Note
www.vividcortex.com | [email protected]
• Dividends are typically accrued amounts that increase the value of preferred shares.
Defining Important Terms • Valuation • Common Shares • Preferred Shares • Option Pool • Liquidity Preferences • Control Rights • Dividends • Convertible Note
www.vividcortex.com | [email protected]
• Convertible Notes represent a typical structure of financing that allows a company to raise capital in anticipation of a future round of funding.
Imagine the Following Capital Needs for a Startup
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Idea Stage
Early Stage
Product & Market Fit Scale
$20,000 $1,000,000 $2,000,000 $5,000,000
Terms Create Vastly Different Outcomes
Example Time
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• Example Link: http://goo.gl/LuFltg
• Examples 1 – 4: Terms
• Example 5: Valuation • Via Twitter on @kyleredinger
• Goal: Turn terms into math
Obligatory Cat Photo
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Summary of Term Impacts
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Type 1 -‐ Simple 2-‐ Double Dip 3 -‐ Dividends Suck 4 -‐ Home Run
Exit Value $15 Million $15 Million $15 Million $100 Million
Dividends 0% 0% 10% 10%
Liquidity Preference Simple ParBcipaBng
Preferred Simple
ParBcipaBng Preferred
Take Home $3.5 Million I’m screwed. I’m screwed. $10M
(everyone wins)
Valuation Doesn’t Really Matter; Ownership and Preferences Matter
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Beware the Option Pool Shuffle Options are for hiring, not screwing founders
www.vividcortex.com | [email protected]
POST-FINANCING OBLIGATIONS
Understand Future Goals
Monthly Investor Reports
• Executive Summary
• Sales, Marketing, Tech, Operations, Goals
• No Bullshit
www.vividcortex.com | [email protected]
Be Honest
Live Long and
Prosper
Thanks!
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www.vividcortex.com | [email protected]