Startup Financing 101

Strategies for Pitching, Financing & Growing Your Web

2.0 Startup

5/7/2007 Startup Financing 101 2

Who

• Jeff Clavier– SoftTech VC

• Business Angel

• Startup Advisor

– Hacked in C/C++, CTO/VP Engineering, General Partner at Reuters Venture Capital

– Started investing in Web 2.0 3 years ago

– More: softtechvc.com, blog.softtechvc.comand twitter.com/jeffclavier

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SoftTech VC

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Agenda

• Ten Points– The Idea

– The Team

– The Company

– The First Money

– The Pitch

– The VC Process

– The Funding Process

– The End of the Beginning

– The Growth

– The Exit

• You Q, We all A

• Resources

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The Idea

• Our questions:– Value ?

– Market

– Adoption: scale, speed

– Different ? Better ?

– Company ?• No want no feature

– Cost of failure ?

– Can you pull it off ?

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The Team

• Our questions:– Relevance

– Experience

– Smarts

– Hunger

– Vision

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The Company

• Your questions:– When to incorporate

– Structure: • C Corp

• Lawyered

– Founder equity split

– Initial funding ?

– Main/side job ?

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The First Money

• Your questions– Sources ?

– “Right” Amount ?

– Valuation/dilution ?

– How do I find … ?

– How do I choose … ?

– Can I reference … ?

– Help ?

– Overall strategy ?• Build to last ?

Source: Redleaf Ventures Note: amounts and stages are only indicative since they vary according to investment sectors

Funding Model: “Farm Raised”

Capital

Risk (ß)

Valuation

Idea isFeasible

Beta or FCS Model is defined and proven

Seed R&D Ship Expansion

Courtesy of First Round Capital – firstround.com

Funding Model: “Free Range”

Capital

Risk (ß)

Valuation (Adoption Curve)

FCSAccelerating

AdoptionModel defined

and proven

Seed(angels?) Series A Expansion

(or founder liquidity)

< ? >Time

Low-burnexperimentationphase

Courtesy of First Round Capital – firstround.com

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The Pitch

• Your questions– Objective ?

– Length

– Focus

– Content

– How do I practice ?

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The Process

FinancialDue

Diligence

CommercialDue

Diligence

IndustryConnections

PortfolioCompanies

StructuringTransaction

Closing Process &InvestmentCommittee

SourcingDeals

InitialAssessment

The Pitch(Initial Review)

DueDiligence

InvestmentManagement

Exit

CapitalRequirements

InitialDue

Diligence

LegalDue

Diligence

Term SheetNegotiation

UnanimousInvestmentCommitteeApproval

QuarterlyPortfolioReview

PersonalContacts

Audit Due

Diligence

TechnologyDue

Diligence

BoardSeats

InitialScreen

StrategicFocus

ManagementEvaluation

ProactiveSourcing ofBankers and

Acquirers

VCs and Investment

Banks

ExitNegotiation

ManagementReview

Advisory Board Technology

Strategy

BusinessDevelopment

ProductDevelopment

Sales

Financing

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The VC Process

FinancialDue

Diligence

CommercialDue

Diligence

IndustryConnections

PortfolioCompanies

StructuringTransaction

Closing Process &InvestmentCommittee

SourcingDeals

InitialAssessment

The Pitch(Initial Review)

DueDiligence

InvestmentManagement

Exit

CapitalRequirements

InitialDue

Diligence

LegalDue

Diligence

Term SheetNegotiation

UnanimousInvestmentCommitteeApproval

QuarterlyPortfolioReview

PersonalContacts

Audit Due

Diligence

TechnologyDue

Diligence

BoardSeats

InitialScreen

StrategicFocus

ManagementEvaluation

ProactiveSourcing ofBankers and

Acquirers

VCs and Investment

Banks

ExitNegotiation

ManagementReview

Advisory Board Technology

Strategy

BusinessDevelopment

ProductDevelopment

Sales

Financing

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The Funding Process

1. Pitch

2. More pitches

3. Due diligence

4. More pitches

5. Partner’s meeting

6. Termsheet Issued

7. Terms negotiation

8. More due diligence

9. Legal docs negotiation

10.The funding

11.Money in the bank

12.Get to work

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The End of the Beginning

• Your questions– The Board

– Investor relations• Existing

• Future

– When to raise more money ?

– How fast to grow ?

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The Exit

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The Growth

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You Q, We A

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Resources

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Top Seed/Early Stage VCs (Internet)

• Accel Partners • August Capital• Benchmark Capital• Bessemer Venture Partners • Draper Fisher Jurvetson• First Round Capital (Seed)• Founder’s Fund (Seed)• General Catalyst (East Coast)• Greylock• Kleiner Perkins Caufield &

Beyers• Matrix Partners

• Mayfield • NEA• Norwest Venture Partners • Polaris (East Coast) • Redpoint• Sequoia Capital• Trinity• True Ventures (Seed)• Union Square Ventures

(Seed/East Coast)• USVP

Note: this list is not meant to be completely exhaustive

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Tools

• Professional databases:– Dow Jones VentureSource and VentureWire

– Thomson VentureXPert

– PWC MoneyTree

• Reports:– Analysts, Investment Bankers, Companies

• Publications:– VC and Industry Blogs, PE Week

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Resources

• Networking, Networking, Networking– STIRR, SDForum, Svase, Meetups, TiE, etc.

• Blogs to read– “Ask the Wizard”, Dick Costolo

– “Termsheet Series”, Brad Feld

– “10 Commandments”, Allen Morgan

– Jeremy Liew, Josh Kopelman, Fred Wilson, Found+Read, etc.