SlideShare a Scribd company logo
presents
Back to Basics: Financial
Fundamentals For Startups
Get Funded: Financing your Startup
August 13, 2013
Smith Anderson
Silicon Valley Bank
(617) 796-6958
Smanderson@svb.com
Twitter: @SmithTown561
Dan Allred
Silicon Valley Bank
(617) 796-6904
dallred@svb.com
Twitter: @dgallred
http://danallred.tumblr.com
Chuck Goldman
Apperian
CEO and Co-Founder
cgoldman@apperian.com
Arye Barnehama
Melon
Co-Founder
arye@usemelon.com
Why We’re Here
Sources of Financing Overview
Crowdfunding: A Kickstarter case
study.
Equity: What you need to know.
Debt: When is it right for you.

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500 Startups is a global seed fund and startup accelerator that has invested in over 1500 companies across 50 countries since 2010. It provides capital, community, education, and resources to founders and investors through its accelerator program, seed fund investments, distribution platform, marketing support, events, and educational content. The presentation discusses changes in how startups are built and funded more efficiently using lean startup methodologies and online distribution platforms, as well as changes in venture capital investing towards a portfolio approach of making many small bets across different stages. It outlines 500 Startups' strategy of investing small amounts in many early stage companies and selectively doubling down on the top performers over time to achieve outsized returns from successful exits.

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The document provides advice on how to pitch startups to venture capitalists (VCs) in 10 slides or less. It recommends including an elevator pitch, describing the problem being solved, the proposed solution, market size and potential, revenue models, proprietary technology, competition, marketing plans, the founding team, and funding requests and milestones. It emphasizes clearly explaining the problem and how the solution benefits customers, demonstrating the product, and having an experienced founding team.

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Building Startup Ecosystems (Istanbul, Sept 2014)
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Dave McClure discusses changes in venture capital and building startup ecosystems. He outlines how startups now require less capital and have access to large online customer platforms. This enables the "lean startup" approach of making many small bets through incubators and accelerators. McClure also discusses factors needed for strong startup ecosystems like education, mentors, capital sources and exits. He believes this model can work globally as barriers lower with technologies like smartphones and payments systems.

500 startupsangel investorsdave mcclure
Financing partners take risk
Bootstrapping	
  
• Vendor	
  financing
	
  	
  Trade	
  credit
	
  	
  Stretching	
  payables
• Customer	
  financing
	
  	
  Prepayments,	
  deferred	
  revenue
• Self	
  financing
	
  	
  Working	
  without	
  pay
	
  	
  Ge>ng	
  others	
  to	
  do	
  the	
  same
	
  	
  Personal	
  credit,	
  credit	
  cards,	
  etc.
Bootstrapping	
  
• Amount	
  of	
  capital
	
  	
  RelaAvely	
  small	
  amounts
• Use	
  of	
  capital
	
  	
  Working	
  capital	
  (brings	
  future	
  cash	
  inflow
	
  	
  forward	
  OR	
  delays	
  current	
  cash	
  ouElow)	
  
• Stage	
  of	
  company
	
  	
  Useful	
  at	
  all	
  stages,	
  especially	
  startup.
• Who	
  bears	
  the	
  risk	
  &	
  what	
  type
	
  	
  Personal	
  risk	
  early,	
  bankruptcy	
  risk	
  later
	
  	
  Working	
  capital	
  risk	
  (risk	
  of	
  insolvency)
Crowdfunding deep dive

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Crowdfunding	
  Then..
Crowdfunding	
  Then..
• 1884	
  this	
  project	
  ran	
  out	
  of	
  
money.	
  
Crowdfunding	
  Then..
• 1884	
  this	
  project	
  ran	
  out	
  of	
  
money.	
  
• Joseph	
  Pulitzer	
  wrote	
  an	
  
arAcle	
  asking	
  for	
  donaAons	
  
to	
  fund	
  project.	
  
Crowdfunding	
  Then..
• 1884	
  this	
  project	
  ran	
  out	
  of	
  
money.	
  
• Joseph	
  Pulitzer	
  wrote	
  an	
  
arAcle	
  asking	
  for	
  donaAons	
  
to	
  fund	
  project.	
  
• $100K	
  raised	
  to	
  finish	
  this	
  
project	
  in	
  just	
  under	
  6	
  
months

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slides for my talk on changes in the VC & Startup industry, at Tie-HK Entrepreneurs Day (Hong Kong, May 2013)

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Crowdfunding	
  Then..
• 1884	
  this	
  project	
  ran	
  out	
  of	
  
money.	
  
• Joseph	
  Pulitzer	
  wrote	
  an	
  
arAcle	
  asking	
  for	
  donaAons	
  
to	
  fund	
  project.	
  
• $100K	
  raised	
  to	
  finish	
  this	
  
project	
  in	
  just	
  under	
  6	
  
months
• 125K	
  people	
  donated	
  to	
  this	
  
fund.	
  
Crowdfunding	
  Then..
• 1884	
  this	
  project	
  ran	
  out	
  of	
  
money.	
  
• Joseph	
  Pulitzer	
  wrote	
  an	
  
arAcle	
  asking	
  for	
  donaAons	
  
to	
  fund	
  project.	
  
• $100K	
  raised	
  to	
  finish	
  this	
  
project	
  in	
  just	
  under	
  6	
  
months
• 125K	
  people	
  donated	
  to	
  this	
  
fund.	
  
• GiU	
  from	
  France
Crowdfunding	
  Then..
• 1884	
  this	
  project	
  ran	
  out	
  of	
  
money.	
  
• Joseph	
  Pulitzer	
  wrote	
  an	
  
arAcle	
  asking	
  for	
  donaAons	
  
to	
  fund	
  project.	
  
• $100K	
  raised	
  to	
  finish	
  this	
  
project	
  in	
  just	
  under	
  6	
  
months
• 125K	
  people	
  donated	
  to	
  this	
  
fund.	
  
• GiU	
  from	
  France
Crowdfunding:	
  Today	
  and	
  Beyond
Product/Project
• Currently	
  thriving
– Pledgie	
  (2006)
– Sellaband	
  (2006)
– IndieGoGo	
  (2008)
– GiveForward	
  (2008)
– Kickstarter	
  (2009)
– RocketHub	
  (2009)
– Fundly	
  (2009)
– GoFundMe	
  (2010)
– Appsplit	
  (2010)	
  
– Microventures	
  (2010)
– Fundageek	
  (2011)
• Incredibly	
  powerful	
  momentum	
  in	
  the	
  
last	
  few	
  years.	
  	
  
Equity	
  
• Not	
  legal…yet
• JOBS	
  Act	
  passed	
  July	
  10th
• Accredited	
  vs.	
  non-­‐accredited.	
  	
  
	
  

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Crowdfunding:	
  A	
  Kickstarter	
  story	
  
To	
  Kickstart?	
   Not	
  to	
  Kickstart?
• Kickstarter	
  	
  -­‐	
  Launched	
  in	
  2009
• $750MM	
  funding	
  46,000	
  projects.
• 4K	
  currently	
  in	
  progress,	
  110,000	
  total
• Melon	
  Kickstarter
Crowdfunding:	
  A	
  Kickstarter	
  story	
  
To	
  Kickstart?	
  
• Demand/market	
  validaAon	
  
done	
  before	
  you	
  go	
  to	
  
market.	
  	
  
Not	
  to	
  Kickstart?
• Kickstarter	
  	
  -­‐	
  Launched	
  in	
  2009
• $750MM	
  funding	
  46,000	
  projects.
• 4K	
  currently	
  in	
  progress,	
  110,000	
  total
• Melon	
  Kickstarter
Crowdfunding:	
  A	
  Kickstarter	
  story	
  
To	
  Kickstart?	
  
• Demand/market	
  validaAon	
  
done	
  before	
  you	
  go	
  to	
  
market.	
  	
  
• Almost	
  zero	
  risk	
  if	
  market	
  
Not	
  to	
  Kickstart?
• Kickstarter	
  	
  -­‐	
  Launched	
  in	
  2009
• $750MM	
  funding	
  46,000	
  projects.
• 4K	
  currently	
  in	
  progress,	
  110,000	
  total
• Melon	
  Kickstarter
Crowdfunding:	
  A	
  Kickstarter	
  story	
  
To	
  Kickstart?	
  
• Demand/market	
  validaAon	
  
done	
  before	
  you	
  go	
  to	
  
market.	
  	
  
• Almost	
  zero	
  risk	
  if	
  market	
  
• MarkeAng	
  story	
  done	
  for	
  
you.
Not	
  to	
  Kickstart?
• Kickstarter	
  	
  -­‐	
  Launched	
  in	
  2009
• $750MM	
  funding	
  46,000	
  projects.
• 4K	
  currently	
  in	
  progress,	
  110,000	
  total
• Melon	
  Kickstarter

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Dave McClure is the founding partner and chief troublemaker of 500 Startups, a global seed fund and startup platform. The document provides biographical details about McClure's background and career, which spans from being an entrepreneur and developer in the 1980s and 1990s to becoming an investor and venture capitalist through funds like Founders Fund and 500 Startups. It also summarizes 500 Startups' strategy of making many small, early-stage investments in startups across different countries and industries in hopes that some will achieve significant growth and success.

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Crowdfunding:	
  A	
  Kickstarter	
  story	
  
To	
  Kickstart?	
  
• Demand/market	
  validaAon	
  
done	
  before	
  you	
  go	
  to	
  
market.	
  	
  
• Almost	
  zero	
  risk	
  if	
  market	
  
• MarkeAng	
  story	
  done	
  for	
  
you.
• Almost	
  immediate	
  access	
  to	
  
cash
Not	
  to	
  Kickstart?
• Kickstarter	
  	
  -­‐	
  Launched	
  in	
  2009
• $750MM	
  funding	
  46,000	
  projects.
• 4K	
  currently	
  in	
  progress,	
  110,000	
  total
• Melon	
  Kickstarter
Crowdfunding:	
  A	
  Kickstarter	
  story	
  
To	
  Kickstart?	
  
• Demand/market	
  validaAon	
  
done	
  before	
  you	
  go	
  to	
  
market.	
  	
  
• Almost	
  zero	
  risk	
  if	
  market	
  
• MarkeAng	
  story	
  done	
  for	
  
you.
• Almost	
  immediate	
  access	
  to	
  
cash
Not	
  to	
  Kickstart?
Ø No	
  secrets	
  to	
  hide	
  from	
  
compeAAon.	
  
• Kickstarter	
  	
  -­‐	
  Launched	
  in	
  2009
• $750MM	
  funding	
  46,000	
  projects.
• 4K	
  currently	
  in	
  progress,	
  110,000	
  total
• Melon	
  Kickstarter
Crowdfunding:	
  A	
  Kickstarter	
  story	
  
To	
  Kickstart?	
  
• Demand/market	
  validaAon	
  
done	
  before	
  you	
  go	
  to	
  
market.	
  	
  
• Almost	
  zero	
  risk	
  if	
  market	
  
• MarkeAng	
  story	
  done	
  for	
  
you.
• Almost	
  immediate	
  access	
  to	
  
cash
Not	
  to	
  Kickstart?
Ø No	
  secrets	
  to	
  hide	
  from	
  
compeAAon.	
  
Ø Price	
  point
• Kickstarter	
  	
  -­‐	
  Launched	
  in	
  2009
• $750MM	
  funding	
  46,000	
  projects.
• 4K	
  currently	
  in	
  progress,	
  110,000	
  total
• Melon	
  Kickstarter
Crowdfunding:	
  A	
  Kickstarter	
  story	
  
To	
  Kickstart?	
  
• Demand/market	
  validaAon	
  
done	
  before	
  you	
  go	
  to	
  
market.	
  	
  
• Almost	
  zero	
  risk	
  if	
  market	
  
• MarkeAng	
  story	
  done	
  for	
  
you.
• Almost	
  immediate	
  access	
  to	
  
cash
Not	
  to	
  Kickstart?
Ø No	
  secrets	
  to	
  hide	
  from	
  
compeAAon.	
  
Ø Price	
  point
Ø Go	
  to	
  Market	
  Strategy	
  
• Kickstarter	
  	
  -­‐	
  Launched	
  in	
  2009
• $750MM	
  funding	
  46,000	
  projects.
• 4K	
  currently	
  in	
  progress,	
  110,000	
  total
• Melon	
  Kickstarter

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Crowdfunding:	
  A	
  Kickstarter	
  story	
  
To	
  Kickstart?	
  
• Demand/market	
  validaAon	
  
done	
  before	
  you	
  go	
  to	
  
market.	
  	
  
• Almost	
  zero	
  risk	
  if	
  market	
  
• MarkeAng	
  story	
  done	
  for	
  
you.
• Almost	
  immediate	
  access	
  to	
  
cash
Not	
  to	
  Kickstart?
Ø No	
  secrets	
  to	
  hide	
  from	
  
compeAAon.	
  
Ø Price	
  point
Ø Go	
  to	
  Market	
  Strategy	
  
Ø Runway	
  
• Kickstarter	
  	
  -­‐	
  Launched	
  in	
  2009
• $750MM	
  funding	
  46,000	
  projects.
• 4K	
  currently	
  in	
  progress,	
  110,000	
  total
• Melon	
  Kickstarter
Crowdfunding:	
  A	
  Kickstarter	
  story	
  
To	
  Kickstart?	
  
• Demand/market	
  validaAon	
  
done	
  before	
  you	
  go	
  to	
  
market.	
  	
  
• Almost	
  zero	
  risk	
  if	
  market	
  
• MarkeAng	
  story	
  done	
  for	
  
you.
• Almost	
  immediate	
  access	
  to	
  
cash
Not	
  to	
  Kickstart?
Ø No	
  secrets	
  to	
  hide	
  from	
  
compeAAon.	
  
Ø Price	
  point
Ø Go	
  to	
  Market	
  Strategy	
  
Ø Runway	
  
Ø Timing
• Kickstarter	
  	
  -­‐	
  Launched	
  in	
  2009
• $750MM	
  funding	
  46,000	
  projects.
• 4K	
  currently	
  in	
  progress,	
  110,000	
  total
• Melon	
  Kickstarter
Crowdfunding:	
  A	
  Kickstarter	
  story	
  
To	
  Kickstart?	
  
• Demand/market	
  validaAon	
  
done	
  before	
  you	
  go	
  to	
  
market.	
  	
  
• Almost	
  zero	
  risk	
  if	
  market	
  
• MarkeAng	
  story	
  done	
  for	
  
you.
• Almost	
  immediate	
  access	
  to	
  
cash
Not	
  to	
  Kickstart?
Ø No	
  secrets	
  to	
  hide	
  from	
  
compeAAon.	
  
Ø Price	
  point
Ø Go	
  to	
  Market	
  Strategy	
  
Ø Runway	
  
Ø Timing
Ø Funding	
  Commitments	
  
• Kickstarter	
  	
  -­‐	
  Launched	
  in	
  2009
• $750MM	
  funding	
  46,000	
  projects.
• 4K	
  currently	
  in	
  progress,	
  110,000	
  total
• Melon	
  Kickstarter
Is	
  it	
  right	
  for	
  you?
Probably
• Hardware	
  with	
  a	
  specific	
  
cost	
  for	
  prototype.
• Consumer	
  facing	
  projects
• Micro-­‐market	
  products
• Market	
  unknown	
  products.	
  
• One-­‐off	
  garage	
  projects
• ArAsts
• Philanthropists
Probably	
  Not
• Large	
  companies
• Complex	
  products	
  with	
  
intricate	
  sales	
  cycles
• Infrastructure	
  or	
  enterprise	
  
products	
  that	
  are	
  unlikely	
  to	
  
touch	
  consumers.

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Angels
• Class	
  of	
  capital
	
  	
  Equity	
  (ownership	
  in	
  company)
• Structure/organizaAon
	
  	
  High	
  net	
  worth	
  (HNW)	
  individuals
	
  	
  Some	
  groups	
  and	
  clubs
	
  	
  Some	
  “super	
  angel”	
  funds
• MoAvaAon/incenAves
	
  	
  Upside	
  –	
  stock	
  appreciaAon
	
  	
  Most	
  look	
  for	
  an	
  “exit”	
  (i.e.	
  liquidity	
  event
Angels
• Amount	
  of	
  capital
	
  	
  $100k	
  to	
  $2mm
• Use	
  of	
  capital
	
  	
  Growth	
  capital	
  (i.e.	
  new	
  cash	
  for	
  growth)
• Stage	
  of	
  company
	
  	
  Early-­‐stage,	
  product/market	
  development
• Who	
  bears	
  the	
  risk	
  &	
  what	
  type
	
  	
  Angel	
  investor	
  bears	
  risk
	
  	
  Product/market	
  risk,	
  execuAon	
  risk
Angels
• Structure	
  of	
  investment
	
  	
  Purchase	
  of	
  common	
  or	
  preferred	
  stock
	
  	
  SomeAmes	
  converAble	
  debt	
  iniAally
• Price	
  of	
  investment
	
  	
  25-­‐50%	
  of	
  company’s	
  stock
	
  	
  ConverAble	
  debt	
  ~25%	
  min	
  ownership
• Monitoring	
  the	
  investment
	
  	
  ReporAng
	
  	
  Some	
  angels	
  (or	
  groups)	
  want	
  BOD	
  seat
• Value	
  add
	
  	
  $$$,	
  industry	
  experAse,	
  connecAons

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Venture Capital
Venture	
  Capital	
  
• Class	
  of	
  capital
	
  	
  Equity	
  (ownership	
  in	
  company)
• Structure/organizaAon
	
  	
  Limited	
  partnership
	
  	
  10	
  year	
  funds	
  (invest,	
  grow	
  &	
  harvest)
• MoAvaAon/incenAves
	
  	
  Upside	
  (30%	
  IRR	
  and	
  3x	
  overall	
  for	
  fund)
	
  	
  Looking	
  for	
  an	
  “exit”	
  (i.e.	
  liquidity	
  event)
Venture	
  Capital
• Amount	
  of	
  capital
	
  	
  $1mm-­‐20mm	
  
	
  	
  Some	
  seed	
  acAvity	
  as	
  well
• Use	
  of	
  capital
	
  	
  Extreme	
  growth	
  capital
• Stage	
  of	
  company
	
  	
  Early-­‐stage	
  and	
  growth	
  stage
• Who	
  bears	
  the	
  risk	
  &	
  what	
  type
	
  	
  Limited	
  partners	
  and	
  general	
  partners
	
  	
  Product,	
  market,	
  tech	
  &	
  execuAon	
  risk
Venture	
  Capital
• Structure	
  of	
  investment
	
  	
  Purchase	
  of	
  preferred	
  stock
	
  	
  SomeAmes	
  converAble	
  debt	
  iniAally
• Price	
  of	
  investment
	
  	
  20-­‐40%	
  of	
  company’s	
  stock
• Monitoring	
  the	
  investment
	
  	
  ReporAng
	
  	
  BOD	
  seats
	
  	
  RedempAon	
  rights,	
  registraAon	
  rights
• Value	
  add
	
  	
  $$$,	
  industry	
  experAse,	
  capital	
  markets

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Debt
Debt
• Class	
  of	
  capital
	
  	
  Debt	
  (senior	
  debt	
  as	
  discussed	
  here)
• Structure/organizaAon
	
  	
  Banks	
  (regulated	
  to	
  accept	
  deposits)
	
  	
  Finance	
  companies	
  (corporaAons)
	
  	
  Debt	
  funds	
  (limited	
  partnerships)
• MoAvaAon/incenAves
	
  	
  Banks	
  –	
  interest	
  &	
  fee	
  income
	
  	
  Finance	
  companies,	
  funds	
  –	
  interest
	
  	
  Venture	
  debt	
  –	
  warrant	
  income
Debt
• Amount	
  of	
  capital
	
  	
  $1mm-­‐100mm
• Use	
  of	
  capital
	
  	
  Working	
  capital
	
  	
  Growth	
  capital
	
  	
  AcquisiAon	
  capital
• Stage	
  of	
  company
	
  	
  All	
  stages
• Who	
  bears	
  the	
  risk	
  &	
  what	
  type
	
  	
  The	
  lender
Debt
• Structure	
  of	
  investment
	
  	
  Senior	
  secured	
  credit
• Price	
  of	
  investment
	
  	
  Interest	
  and	
  fees	
  for	
  established	
  co’s
	
  	
  Plus	
  warrants	
  for	
  pre-­‐profit	
  co’s
• Monitoring	
  the	
  investment
	
  	
  ReporAng
	
  	
  Financial	
  covenants
	
  	
  AffirmaAve	
  &	
  negaAve	
  covenants
• Value	
  add
	
  	
  $$$,	
  connecAons,	
  patern	
  recogniAon

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Case study
• The	
  early	
  days…
	
  -­‐Chuck	
  –	
  director	
  of	
  enterprise	
  at	
  Apple
	
  -­‐Launches	
  Apperian	
  in	
  January	
  2009
	
  -­‐App	
  development	
  for	
  enterprise	
  clients
	
  -­‐Fee	
  for	
  service	
  work	
  	
  
• How	
  did	
  I	
  finance	
  the	
  business?
• The	
  early	
  days…
	
  -­‐Bootstrapping
	
  -­‐Self-­‐financing	
  (and	
  sacrifice)
	
  -­‐Vendor	
  relaAonships
	
  -­‐Customer	
  financing	
  
• Six	
  months	
  later…
	
  -­‐The	
  dogs	
  are	
  eaAng	
  the	
  dog	
  food
	
  -­‐iPhone	
  is	
  exploding	
  in	
  the	
  enterprise
	
  -­‐Recurring	
  service	
  revenues
	
  -­‐Vision	
  for	
  EASE	
  (Enterprise	
  ApplicaAon	
  
Services	
  Environment)	
  plaEorm
How	
  did	
  I	
  finance	
  the	
  business?

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• Six	
  months	
  later…
	
  -­‐$1mm	
  seed	
  round
	
  -­‐Common	
  Angels	
  &	
  Launch	
  Capital
	
  -­‐AddiAonal	
  $500k	
  in	
  Q1-­‐10
• Q1-­‐10:	
  the	
  one	
  year	
  old	
  startup…
	
  -­‐Begin	
  developing	
  EASE	
  plaEorm
	
  -­‐Acquihire	
  a	
  small	
  development	
  shop
	
  -­‐Focus	
  solely	
  on	
  enterprise	
  app	
  clients
	
  -­‐Begin	
  transiAoning	
  from	
  services	
  to	
  products	
  
How	
  did	
  I	
  finance	
  the	
  business?
• Q1-­‐10:	
  the	
  one	
  year	
  old	
  startup…
	
  -­‐$500k	
  SVB	
  line	
  of	
  credit
	
  -­‐Leverage	
  A/R	
  with	
  enterprise	
  clients
	
  -­‐Smooth	
  out	
  cash-­‐flow	
  as	
  R&D	
  expense	
  ramps
	
  -­‐Bridge	
  between	
  payrolls	
  –	
  when	
  flush	
  with	
  A/
R	
  but	
  low	
  on	
  cash,	
  uAlize	
  line	
  of	
  credit	
  for	
  
payroll,	
  expenses,	
  etc.
• Q1-­‐11:	
  the	
  two	
  year	
  old	
  startup…
	
  -­‐Enterprise	
  mobility	
  is	
  hot!
	
  -­‐BYOD,	
  iPad	
  in	
  Xmas	
  2010
	
  -­‐Apperian	
  building	
  out	
  management	
  team
	
  -­‐Customers	
  converAng	
  from	
  service	
  contracts	
  to	
  
EASE	
  plaEorm
	
  	
  -­‐	
  Key	
  move:	
  move	
  to	
  recurring	
  SaaS	
  Product
How	
  did	
  I	
  finance	
  the	
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• Q1-­‐11:	
  the	
  two	
  year	
  old	
  startup…
	
  -­‐$9.5mm	
  series	
  A
	
  -­‐NorthBridge,	
  Bessemer,	
  Kleiner	
  Perkins
	
  -­‐1st	
  enterprise	
  investment	
  from	
  KP	
  iFund
	
  -­‐Over	
  2	
  years	
  of	
  cash	
  runway
• The	
  past	
  two	
  years…
	
  -­‐ConAnued	
  market	
  expansion
	
  -­‐MDM,	
  MAM,	
  BYOD,	
  etc.
	
  -­‐Enterprise	
  security,	
  compliance,	
  etc.
	
  -­‐DistribuAon	
  partnerships
• Personnel	
  growth
– 5-­‐20	
  year	
  one,	
  40	
  by	
  year	
  three	
  and	
  70	
  year	
  four	
  
How	
  did	
  I	
  finance	
  the	
  business?
• The	
  past	
  two	
  years…
	
  -­‐$12.4mm	
  preempAve	
  series	
  B	
  in	
  Mar	
  ‘12
	
  -­‐$4.6mm	
  series	
  B	
  extension	
  in	
  Jan	
  ’13	
  with	
  
Intel	
  Capital
	
  -­‐ConAnued	
  expansion	
  of	
  SVB	
  credit	
  
relaAonship	
  each	
  year
• Exit	
  Scenario	
  at	
  10x	
  revenue	
  –	
  Looking	
  at	
  
market	
  trends…
Questions?

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Mindtree offers consulting, implementation, transformation, and operations support services focused on data center infrastructure management, end-user computing, and application support through an unified support model. Their infrastructure services ensure investments lead to cost-effective, reliable, secure, user-friendly, and long-term solutions to IT challenges through proactive IT support and management that enables reduced operations costs and exceptional consistency in service experience.

mobilityunified communicationsinfrastructure
How can equity crowdfunding help my business?
How can equity crowdfunding help my business?How can equity crowdfunding help my business?
How can equity crowdfunding help my business?

A brief introduction to Crowdfunding This webinar will give a brief history of this new internet phenomenon and its place in the funding of new ideas and companies. Equity crowdfunding, in particular, will be discussed and illustrated with a particular (successful) example

crowdfundingbusiness ownerpower of small change
Adam Vollmer of Faraday Bikes
Adam Vollmer of Faraday BikesAdam Vollmer of Faraday Bikes
Adam Vollmer of Faraday Bikes

Adam Vollmer launched a successful Kickstarter campaign for his electric bicycle company Faraday that raised $177k. He provides tips for running a successful crowdfunding campaign, including having a clear strategy, offering rewards, creating a compelling video, using great photography, generating press, building a website, and allowing sufficient time for the campaign. Key factors in Kickstarter success include appealing to popular product categories like technology accessories, having an engaging story, and generating early buzz through press and social media. Planning, execution, and fulfilling rewards are essential.

kickstarterbicyclehattery
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Startup Roadkill??....these financing tools will help you avoid the 18 wheelers

  • 1. presents Back to Basics: Financial Fundamentals For Startups
  • 2. Get Funded: Financing your Startup August 13, 2013 Smith Anderson Silicon Valley Bank (617) 796-6958 Smanderson@svb.com Twitter: @SmithTown561 Dan Allred Silicon Valley Bank (617) 796-6904 dallred@svb.com Twitter: @dgallred http://danallred.tumblr.com
  • 3. Chuck Goldman Apperian CEO and Co-Founder cgoldman@apperian.com Arye Barnehama Melon Co-Founder arye@usemelon.com
  • 4. Why We’re Here Sources of Financing Overview Crowdfunding: A Kickstarter case study. Equity: What you need to know. Debt: When is it right for you.
  • 6. Bootstrapping   • Vendor  financing    Trade  credit    Stretching  payables • Customer  financing    Prepayments,  deferred  revenue • Self  financing    Working  without  pay    Ge>ng  others  to  do  the  same    Personal  credit,  credit  cards,  etc.
  • 7. Bootstrapping   • Amount  of  capital    RelaAvely  small  amounts • Use  of  capital    Working  capital  (brings  future  cash  inflow    forward  OR  delays  current  cash  ouElow)   • Stage  of  company    Useful  at  all  stages,  especially  startup. • Who  bears  the  risk  &  what  type    Personal  risk  early,  bankruptcy  risk  later    Working  capital  risk  (risk  of  insolvency)
  • 10. Crowdfunding  Then.. • 1884  this  project  ran  out  of   money.  
  • 11. Crowdfunding  Then.. • 1884  this  project  ran  out  of   money.   • Joseph  Pulitzer  wrote  an   arAcle  asking  for  donaAons   to  fund  project.  
  • 12. Crowdfunding  Then.. • 1884  this  project  ran  out  of   money.   • Joseph  Pulitzer  wrote  an   arAcle  asking  for  donaAons   to  fund  project.   • $100K  raised  to  finish  this   project  in  just  under  6   months
  • 13. Crowdfunding  Then.. • 1884  this  project  ran  out  of   money.   • Joseph  Pulitzer  wrote  an   arAcle  asking  for  donaAons   to  fund  project.   • $100K  raised  to  finish  this   project  in  just  under  6   months • 125K  people  donated  to  this   fund.  
  • 14. Crowdfunding  Then.. • 1884  this  project  ran  out  of   money.   • Joseph  Pulitzer  wrote  an   arAcle  asking  for  donaAons   to  fund  project.   • $100K  raised  to  finish  this   project  in  just  under  6   months • 125K  people  donated  to  this   fund.   • GiU  from  France
  • 15. Crowdfunding  Then.. • 1884  this  project  ran  out  of   money.   • Joseph  Pulitzer  wrote  an   arAcle  asking  for  donaAons   to  fund  project.   • $100K  raised  to  finish  this   project  in  just  under  6   months • 125K  people  donated  to  this   fund.   • GiU  from  France
  • 16. Crowdfunding:  Today  and  Beyond Product/Project • Currently  thriving – Pledgie  (2006) – Sellaband  (2006) – IndieGoGo  (2008) – GiveForward  (2008) – Kickstarter  (2009) – RocketHub  (2009) – Fundly  (2009) – GoFundMe  (2010) – Appsplit  (2010)   – Microventures  (2010) – Fundageek  (2011) • Incredibly  powerful  momentum  in  the   last  few  years.     Equity   • Not  legal…yet • JOBS  Act  passed  July  10th • Accredited  vs.  non-­‐accredited.      
  • 17. Crowdfunding:  A  Kickstarter  story   To  Kickstart?   Not  to  Kickstart? • Kickstarter    -­‐  Launched  in  2009 • $750MM  funding  46,000  projects. • 4K  currently  in  progress,  110,000  total • Melon  Kickstarter
  • 18. Crowdfunding:  A  Kickstarter  story   To  Kickstart?   • Demand/market  validaAon   done  before  you  go  to   market.     Not  to  Kickstart? • Kickstarter    -­‐  Launched  in  2009 • $750MM  funding  46,000  projects. • 4K  currently  in  progress,  110,000  total • Melon  Kickstarter
  • 19. Crowdfunding:  A  Kickstarter  story   To  Kickstart?   • Demand/market  validaAon   done  before  you  go  to   market.     • Almost  zero  risk  if  market   Not  to  Kickstart? • Kickstarter    -­‐  Launched  in  2009 • $750MM  funding  46,000  projects. • 4K  currently  in  progress,  110,000  total • Melon  Kickstarter
  • 20. Crowdfunding:  A  Kickstarter  story   To  Kickstart?   • Demand/market  validaAon   done  before  you  go  to   market.     • Almost  zero  risk  if  market   • MarkeAng  story  done  for   you. Not  to  Kickstart? • Kickstarter    -­‐  Launched  in  2009 • $750MM  funding  46,000  projects. • 4K  currently  in  progress,  110,000  total • Melon  Kickstarter
  • 21. Crowdfunding:  A  Kickstarter  story   To  Kickstart?   • Demand/market  validaAon   done  before  you  go  to   market.     • Almost  zero  risk  if  market   • MarkeAng  story  done  for   you. • Almost  immediate  access  to   cash Not  to  Kickstart? • Kickstarter    -­‐  Launched  in  2009 • $750MM  funding  46,000  projects. • 4K  currently  in  progress,  110,000  total • Melon  Kickstarter
  • 22. Crowdfunding:  A  Kickstarter  story   To  Kickstart?   • Demand/market  validaAon   done  before  you  go  to   market.     • Almost  zero  risk  if  market   • MarkeAng  story  done  for   you. • Almost  immediate  access  to   cash Not  to  Kickstart? Ø No  secrets  to  hide  from   compeAAon.   • Kickstarter    -­‐  Launched  in  2009 • $750MM  funding  46,000  projects. • 4K  currently  in  progress,  110,000  total • Melon  Kickstarter
  • 23. Crowdfunding:  A  Kickstarter  story   To  Kickstart?   • Demand/market  validaAon   done  before  you  go  to   market.     • Almost  zero  risk  if  market   • MarkeAng  story  done  for   you. • Almost  immediate  access  to   cash Not  to  Kickstart? Ø No  secrets  to  hide  from   compeAAon.   Ø Price  point • Kickstarter    -­‐  Launched  in  2009 • $750MM  funding  46,000  projects. • 4K  currently  in  progress,  110,000  total • Melon  Kickstarter
  • 24. Crowdfunding:  A  Kickstarter  story   To  Kickstart?   • Demand/market  validaAon   done  before  you  go  to   market.     • Almost  zero  risk  if  market   • MarkeAng  story  done  for   you. • Almost  immediate  access  to   cash Not  to  Kickstart? Ø No  secrets  to  hide  from   compeAAon.   Ø Price  point Ø Go  to  Market  Strategy   • Kickstarter    -­‐  Launched  in  2009 • $750MM  funding  46,000  projects. • 4K  currently  in  progress,  110,000  total • Melon  Kickstarter
  • 25. Crowdfunding:  A  Kickstarter  story   To  Kickstart?   • Demand/market  validaAon   done  before  you  go  to   market.     • Almost  zero  risk  if  market   • MarkeAng  story  done  for   you. • Almost  immediate  access  to   cash Not  to  Kickstart? Ø No  secrets  to  hide  from   compeAAon.   Ø Price  point Ø Go  to  Market  Strategy   Ø Runway   • Kickstarter    -­‐  Launched  in  2009 • $750MM  funding  46,000  projects. • 4K  currently  in  progress,  110,000  total • Melon  Kickstarter
  • 26. Crowdfunding:  A  Kickstarter  story   To  Kickstart?   • Demand/market  validaAon   done  before  you  go  to   market.     • Almost  zero  risk  if  market   • MarkeAng  story  done  for   you. • Almost  immediate  access  to   cash Not  to  Kickstart? Ø No  secrets  to  hide  from   compeAAon.   Ø Price  point Ø Go  to  Market  Strategy   Ø Runway   Ø Timing • Kickstarter    -­‐  Launched  in  2009 • $750MM  funding  46,000  projects. • 4K  currently  in  progress,  110,000  total • Melon  Kickstarter
  • 27. Crowdfunding:  A  Kickstarter  story   To  Kickstart?   • Demand/market  validaAon   done  before  you  go  to   market.     • Almost  zero  risk  if  market   • MarkeAng  story  done  for   you. • Almost  immediate  access  to   cash Not  to  Kickstart? Ø No  secrets  to  hide  from   compeAAon.   Ø Price  point Ø Go  to  Market  Strategy   Ø Runway   Ø Timing Ø Funding  Commitments   • Kickstarter    -­‐  Launched  in  2009 • $750MM  funding  46,000  projects. • 4K  currently  in  progress,  110,000  total • Melon  Kickstarter
  • 28. Is  it  right  for  you? Probably • Hardware  with  a  specific   cost  for  prototype. • Consumer  facing  projects • Micro-­‐market  products • Market  unknown  products.   • One-­‐off  garage  projects • ArAsts • Philanthropists Probably  Not • Large  companies • Complex  products  with   intricate  sales  cycles • Infrastructure  or  enterprise   products  that  are  unlikely  to   touch  consumers.
  • 30. Angels • Class  of  capital    Equity  (ownership  in  company) • Structure/organizaAon    High  net  worth  (HNW)  individuals    Some  groups  and  clubs    Some  “super  angel”  funds • MoAvaAon/incenAves    Upside  –  stock  appreciaAon    Most  look  for  an  “exit”  (i.e.  liquidity  event
  • 31. Angels • Amount  of  capital    $100k  to  $2mm • Use  of  capital    Growth  capital  (i.e.  new  cash  for  growth) • Stage  of  company    Early-­‐stage,  product/market  development • Who  bears  the  risk  &  what  type    Angel  investor  bears  risk    Product/market  risk,  execuAon  risk
  • 32. Angels • Structure  of  investment    Purchase  of  common  or  preferred  stock    SomeAmes  converAble  debt  iniAally • Price  of  investment    25-­‐50%  of  company’s  stock    ConverAble  debt  ~25%  min  ownership • Monitoring  the  investment    ReporAng    Some  angels  (or  groups)  want  BOD  seat • Value  add    $$$,  industry  experAse,  connecAons
  • 34. Venture  Capital   • Class  of  capital    Equity  (ownership  in  company) • Structure/organizaAon    Limited  partnership    10  year  funds  (invest,  grow  &  harvest) • MoAvaAon/incenAves    Upside  (30%  IRR  and  3x  overall  for  fund)    Looking  for  an  “exit”  (i.e.  liquidity  event)
  • 35. Venture  Capital • Amount  of  capital    $1mm-­‐20mm      Some  seed  acAvity  as  well • Use  of  capital    Extreme  growth  capital • Stage  of  company    Early-­‐stage  and  growth  stage • Who  bears  the  risk  &  what  type    Limited  partners  and  general  partners    Product,  market,  tech  &  execuAon  risk
  • 36. Venture  Capital • Structure  of  investment    Purchase  of  preferred  stock    SomeAmes  converAble  debt  iniAally • Price  of  investment    20-­‐40%  of  company’s  stock • Monitoring  the  investment    ReporAng    BOD  seats    RedempAon  rights,  registraAon  rights • Value  add    $$$,  industry  experAse,  capital  markets
  • 37. Debt
  • 38. Debt • Class  of  capital    Debt  (senior  debt  as  discussed  here) • Structure/organizaAon    Banks  (regulated  to  accept  deposits)    Finance  companies  (corporaAons)    Debt  funds  (limited  partnerships) • MoAvaAon/incenAves    Banks  –  interest  &  fee  income    Finance  companies,  funds  –  interest    Venture  debt  –  warrant  income
  • 39. Debt • Amount  of  capital    $1mm-­‐100mm • Use  of  capital    Working  capital    Growth  capital    AcquisiAon  capital • Stage  of  company    All  stages • Who  bears  the  risk  &  what  type    The  lender
  • 40. Debt • Structure  of  investment    Senior  secured  credit • Price  of  investment    Interest  and  fees  for  established  co’s    Plus  warrants  for  pre-­‐profit  co’s • Monitoring  the  investment    ReporAng    Financial  covenants    AffirmaAve  &  negaAve  covenants • Value  add    $$$,  connecAons,  patern  recogniAon
  • 42. • The  early  days…  -­‐Chuck  –  director  of  enterprise  at  Apple  -­‐Launches  Apperian  in  January  2009  -­‐App  development  for  enterprise  clients  -­‐Fee  for  service  work     • How  did  I  finance  the  business?
  • 43. • The  early  days…  -­‐Bootstrapping  -­‐Self-­‐financing  (and  sacrifice)  -­‐Vendor  relaAonships  -­‐Customer  financing  
  • 44. • Six  months  later…  -­‐The  dogs  are  eaAng  the  dog  food  -­‐iPhone  is  exploding  in  the  enterprise  -­‐Recurring  service  revenues  -­‐Vision  for  EASE  (Enterprise  ApplicaAon   Services  Environment)  plaEorm How  did  I  finance  the  business?
  • 45. • Six  months  later…  -­‐$1mm  seed  round  -­‐Common  Angels  &  Launch  Capital  -­‐AddiAonal  $500k  in  Q1-­‐10
  • 46. • Q1-­‐10:  the  one  year  old  startup…  -­‐Begin  developing  EASE  plaEorm  -­‐Acquihire  a  small  development  shop  -­‐Focus  solely  on  enterprise  app  clients  -­‐Begin  transiAoning  from  services  to  products   How  did  I  finance  the  business?
  • 47. • Q1-­‐10:  the  one  year  old  startup…  -­‐$500k  SVB  line  of  credit  -­‐Leverage  A/R  with  enterprise  clients  -­‐Smooth  out  cash-­‐flow  as  R&D  expense  ramps  -­‐Bridge  between  payrolls  –  when  flush  with  A/ R  but  low  on  cash,  uAlize  line  of  credit  for   payroll,  expenses,  etc.
  • 48. • Q1-­‐11:  the  two  year  old  startup…  -­‐Enterprise  mobility  is  hot!  -­‐BYOD,  iPad  in  Xmas  2010  -­‐Apperian  building  out  management  team  -­‐Customers  converAng  from  service  contracts  to   EASE  plaEorm    -­‐  Key  move:  move  to  recurring  SaaS  Product How  did  I  finance  the  business?
  • 49. • Q1-­‐11:  the  two  year  old  startup…  -­‐$9.5mm  series  A  -­‐NorthBridge,  Bessemer,  Kleiner  Perkins  -­‐1st  enterprise  investment  from  KP  iFund  -­‐Over  2  years  of  cash  runway
  • 50. • The  past  two  years…  -­‐ConAnued  market  expansion  -­‐MDM,  MAM,  BYOD,  etc.  -­‐Enterprise  security,  compliance,  etc.  -­‐DistribuAon  partnerships • Personnel  growth – 5-­‐20  year  one,  40  by  year  three  and  70  year  four   How  did  I  finance  the  business?
  • 51. • The  past  two  years…  -­‐$12.4mm  preempAve  series  B  in  Mar  ‘12  -­‐$4.6mm  series  B  extension  in  Jan  ’13  with   Intel  Capital  -­‐ConAnued  expansion  of  SVB  credit   relaAonship  each  year • Exit  Scenario  at  10x  revenue  –  Looking  at   market  trends…
  • 53. presents INSTRUCTOR Course Name Learn the skills you need to win, from people who’ve done it before visit