Starting A Business in Oakland

Northern California Network
Alameda SBDC
Starting a Business
Oakland
April 7, 2009
paula@acsbdc.org www.acsbdc.org 1
Welcome
• Holistic approach to Starting a Business

• Key modules which link to core seminars
offered throughout the year
• Panel discussion
• Q&A + Networking
Key Modules
• Business Planning
• Legal and Business Issues
• Accessing Capital
• Ecommerce and Web-marketing
• Successful Marketing & Advertising Plans
Your SBDC Ecosystem
• Peralta College System

• U.S. Small Business Administration
• NorCal SBDC Network - CSU Humboldt
• Cities across Alameda County
• Corporate and non-profit sponsors
4
How we can help
• We provide a combination of:

– Expertise
– Industry knowledge
– Experience
– Hundreds of client engagements
– Relationships with a diverse group of lenders
5
Peralta College
• Became center host in October 2008

• Take advantage of college resources
• Tap into Peralta’s Business Certificate
programs
• Leverage Peralta’s community based
network
6
Alameda SBDC Counseling
• Team of 15 professionals w/ real world

experience & MBAs from top schools
• Industry expertise include construction, food and
beverage, retail, ecommerce
• Functional expertise include sales, marketing,
manufacturing, venture capital, web design,
government contracting, SBA loan processing
• Services are free to you
7
SBDC Impact
• We’re working hard for you

– 10,898 clients
– 79,080 hours
– 3,360 trainings
– 42,999 attendees
8
Economic Results
2006 - 2008
• 7,147 Job created/retained

• $245,336,496 increase in sales
• Provided access to:
– $89 million loans
– $101 million in equity infusions
9
Counseling Services
• For consulting services go to

– www.acsbdc.org
– Click on “Counseling”
– Complete the online form
• Questions:
– Paula Groves-Hawthorne
– (510) 208-0411
10
We work as part of a team
• SCORE (www.eastbayscore.org)
• Credit Counseling (www.operationhope.org)
• Women’s Initiative (www.womensinitiative.org)
• International Business (www.eastbaycitd.org)
• NorCal (www.norcalsbdc.org)
• SBA (www.sba.gov)
11
We help get you to the right

resource
12
Getting Certified
Getting Certified Program

has become a Regional event
13
Getting Certified
• How to be an 8A Certified Small Business

• What the benefits are to you
• Panel with Small Business Advocates and
East Bay clients
• EPA, State of CA, Alameda County, Port
of Oakland, Caltrans, SF PUC, LL and
Berkeley Nat’l Labs and more
14
Getting Certified
April 21st - Hayward
15
Technology Advisory Program
• TAP is part of the SBA & SBDC structure

• Specialty technology classes
• Unique group of technology consultants
• Hands on and interactive help
16
TAP
www.sbdctap.com
17
Training Programs
• Accessing Capital
• Business Planning
• Ecommerce & Web marketing
• Contracting with the government
• Caltrans Construction Contracting Program
18
Alameda County Seminars
April 15 Fremont Successful Biz Plans
April 21 Hayward Getting Certified
April 28 Berkeley Ecommerce & Web

Mktg
May 7 San Ramon Legal & Business
Issues
May 19 Hayward Starting a Business
19
Oakland Seminar Schedule
April 9 Oakland Legal & Business

Issues
April 21 & 22 Oakland Caltrans Professional
Services
May 5 Oakland Human Resources
May 6 Oakland Smart Office/Smart

Worker
20
Stay in Touch
Go to www.acsbdc.org
for a full calendar &
sign-up for email notification
21
Paula Groves-Hawthorne
• 15 years experience as a Venture Capital

& Private Equity Investor
• Wall Street Experience doing Asset
Securitizations
• Invested more than $100 million in start-up
and expansion stage capital
• SBDC consultant since 2006
Panel Discussion
Nimia Ramos Wells Fargo Bank

Beauchamp
David Bokash ACSBDC Technology
Consultant
Roberto Costa OBDC
Rich Ohlrich Interim Director

ACSBDC
Scott Pesetsky Lawyer
23
Why is today important for you
Planning
Nothing happens without a

Business Plan
Planning
Starting point for equity capital,

bank loans, trade credit, leases
& channel partners
Planning
• Who is the most important audience for a

business plan?
• What are they looking to get from it?
The Law
What you don’t know can

and will hurt you
The Law
Organizing the right way

and protecting your assets
is key to long-term success
The Law
“Someone who represents himself

has a fool for a client”
Capital
Undercapitalization is the No. 1

reason new companies fail
Capital
Equity & Debt are

needed for success
Patience at the beginning will save

a lot of pain later on
Get the money squared away

before you start
The Real World
• Entrepreneurs don’t like to wait:

– Spend their “free cash” early
– Run up credit card balances
– Lower their FICO/credit scores
– Get stuck in the middle of the process
The Real World
Then go looking for capital
The Real World
Already invested cash doesn’t

count as Equity
Technology
Look, act and function much larger

than you are at the beginning
Technology
Leverage others fixed costs

when getting started
Technology
Focus on your customers –

not on “reinventing the wheel”
How do you know when you

are in business?
Customers are King

Many mistakes are made & too much cash is
spent when entrepreneurs
fall in love with their product.
Let me tell you about Doug . . .
Business Planning
Things to think about
• Clarity
• Communication
• Customers
• Costs
• Execution
Length
• A good business plan is:

– Short
– Concise
– Easy to read
– Easier to follow
– Builds to a logical conclusion
Length
People don’t read anymore

Make it easy for them to
read your plan
Proven Formula
S = MP5CM
Success
• Mission
• Product
• Pricing
• Promotion
• Physical distribution
• People
• Competition
• Money
Success
• 8 written pages
• Plus financials and supporting documents
• Formula works for all companies
• At any stage of development
• Easy to customize
Mission
Mission
• Defines the market and your role in it

• The more focused and targeted the
mission, the higher the market share
• The higher your market share, the higher
your profits
• ROI = Market Share
Mission
Clearly define your market

AND your role in it
What is your strategic positioning?
What is your competitive distinction?

Triggers
Company Mission/Positioning
Wendy’s Where is the beef?
Federal Express When it absolutely, positively, has to
be there overnight
M&M Melt in your mouth, not in your hand
New York Times All the news that’s fit to print
Morton’s Salt When it rains it pours
Taco Bell Think outside the bun
What comes to mind?

Mission Goal
High Growth & High Market Share

would do well regardless of tactics
Mission
Segment must be large enough

to allow for success
Mission
The greatest long-term

business leverage is getting
the Mission right
What is an
elevator pitch?
Focus
• Can you describe your business to a

stranger on an elevator
• 30 seconds is all you have
• How do you grab their interest
• Slam home the essence of your idea
• Get them to want to know more
Mission
• The core of your Elevator Sales Pitch

• Keep it short and sweet:
– 500 words or less
– Concepts
– Long-term goals & objectives
– Limited use of numbers
Mission
This may be all they read

so make it great
Mission
• What the company will do

• Whom the company will serve
• Market size, growth rate, expectations
• Stage of development
• Noteworthy achievements which are
germane to the plan
• Objectives
Cost Structure & Strategy
Cost Structure & Strategy
• All businesses can be defined by their cost

structure
• Only 2 basic types
• High Fixed Costs
• High Variable Costs
• Costs will drive strategy and objectives
High Fixed Costs
• Rent, people, fees, marketing & keywords

• Costs that remain even if there are no
revenues
• Restaurants & Saturday night
• Day care centers & child counts
• Consulting firms & billable hours
• Schools and enrollment
High Fixed Costs = High Volume
High Variable Costs
• Sole practitioners
• Consultants
• Artists
• Out-of-pocket costs are low
• Consulting for $50 vs. $500/hour
• Sell a piece of art for $500 vs. $5,000
• Teach 10 vs. 100 for $20 per person
High Variable Costs = High Price
Know your cost structure and adjust

your business plan accordingly
• Undercapitalization is the Number 1

reason businesses fail
• Do not to a good job of understanding the

cost structure
Simplicity Wins
To get a better handle on your

costs
View your company as part of a
“TOTAL MARKET SOLUTION”
Total Market Solution
What might be the costs of bringing

a new sports drink to market?
Simplicity
• Tendency to make plans complicated

• 3 business ideas vs. 1
• Multiple channels and/or markets vs. 1
• Different customers buying for different
reasons
Simplicity
Beware the multi-body problem
Let me tell you about Janet . . .
Simplicity
Getting 1 new business idea

to work is hard enough
Simplicity
Failure is inversely proportional to

the Square of the number
of moving parts
Simplicity
• A business with 3 moving parts is only

1/9th as likely to succeed
• Simplicity always wins
• Follow the KISS principal
Simplicity
Get to cash flow breakeven and

then add complexity
Simplicity is part of all Venture

Capital & Risk Equity investments
The rest of the plan will flow easily

if you get the Mission right
- Clarity –
- Execution -
Answer these Questions
• What is your product

• How is it different from the competition
• Who will buy your product
• How much will they pay
• How will you find your customers & how
much will it cost?
• How much will it cost to make the product?
www.acsbdc.org 83
Legal and Business Issues
(Next program - Thursday April 9 - Oakland )
Things to Think About
• Will there be more than 1 owner?

• Do you plan to raise capital from outside
investors?
• How will you deal with liability concerns?
• Have you considered taxes?
Business Structures
• Sole Proprietors
• Partnerships
• Limited Liability Companies
• Corporations
Sole Proprietorships
vs. Corporations
• What exactly is a Corporation

• When to form a Corp. vs. operating as a
Sole Proprietor
• Advantages and Disadvantages
• Costs
• Operating implications
When to Go Legal
• Forming a company separates risks:

– Business
– Personal
• Compartmentalize risks
• Known downside of failure
When to Go Legal
• As a Sole Proprietor:
– Business and personal liabilities
– Assets & Wealth
– Are one and the same
When to Go Legal
• Sole Proprietor is the “default” setting in

the system
• If you don’t incorporate you are a SP
• Get 1099s
• Complete the IRS Schedule C
• Operate as a “person” only
When to Go Legal
Business failure can also mean

personal failure, with all personal
assets at risk
When to go Legal
Corporate structure can protect

private assets
When to go Legal
Does your business contain

meaningful liability risks
When to go Legal
The greater the inherent business liability

the more one needs a form of organization
that ensures limited liability
When to go Legal
• Generally easier to insure for risks through

a corporate structure:
– Errors & Omissions
– Directors & Officers
– Liability of all kinds
Often easier to finance growth
Necessary if one is to raise equity or

any outside capital
“Corporate Veil” can be
Northern California Network Pierced
• Exceptions would be:

– Gross negligence
– Trust fund violations
– Fraud
– Felonies
Maintaining “The Corporate
Northern California Network Veil”
Must consistently use the corporate

structure for business purposes
• Observe important corporate forms:

– Annual meetings
– Minutes
– Minute books
– Board of Directors
– Corporate bank accounts

No co-mingling of corporate
and personal assets

You and your company are

separate legal people

• Loans, contracts, vendor relations are with

the company and not you
• Intellectual Property is owned by, or
leased to, the company
• If the company needs funds then you
make a formal loan to the company

Document all transactions between

you as an individual and
you the company

Need an EIN anyway if you have

even 1 full-time employee

Choices
• Match the type of legal structure to the

business
• Growth vs. stability
• External vs. internal cash
• Corporate vs. personal guarantees
• Outside funding vs. internal cash
• Build wealth vs. tax efficient cash flow
Choices
Shareholders are equally protected

in all corporate forms

Choices
All are better than SP for protecting

your personal assets

Intellectual Property

What is IP
• Intangible assets
• Often at the core of a business
• Patents
• Logo
• Trademarks
• Brand names
• Unique images and visual treatments
Logos and Trademarks

Logos
• Core of the business identity

• Face to the customer
• Very difficult to trademark
• Look and Feel
• Spelling and Treatment
• Worth the effort
Trademarks & Brand Names
• Separate legal process and specialists

• Trademark & copyright search
• The name itself
• The look & feel
• The packaging design
• Color schemes
Trademarks
• Tough to come up with a unique:

– Name
– Logo
– Design
– Total brand image
• Lots of work needed to make it a reality

Dilbert Knows All

Non Disclosure Agreements
• Protects you from others using your idea

• Secrets disclosed without an NDA aren’t
secrets
• Document must be enforceable in
construct
• Get it done by a professional
• Discipline in getting it signed
Protecting your Name
• Trademarks, Copyrights and “Look” are

easy to litigate but hard to win
• All subjective issues are tough to defend
• Names spelled differently
• Alternative color schemes
• Often market and use specific
Protecting your Name
Must consistently enforce all rights

or lose them

Value
Fully protected trademarks will

increase the value at time of sale

Value
Unprotected IP may make selling

the business impossible

Value
The higher the brand equity value

the greater the need to
protect that asset

The Name Game
Match the Company &

Domain names
(this can influence your name decision)

Who Owns Your Name


Big vs. Big

Accessing Capital
(Next program – June 2 - Oakland)

Things to think About
• Do you have your house in order?

• Do you meet the qualifications?
• How much capital do you need?
• What will you use the capital for?
• Do you need debt or equity?

Banks
128
Accessing Capital
How Do Banks Make Money?
129
How do Banks Make Money
• Interest income
• Transaction fees
• Loan servicing fees
• Loan origination fees
• Money management fees
130
How do Banks make Money
Interest income covers costs

How do Banks make Money
Fees generate profit

Where do banks get
Northern California Network money to lend?
Deposits yes,
But where else?

By selling loans through

a process called
“securitization”
These loans are the “goods” banks
sell in the marketplace

How securitization
13 works
Northern California Network 5
Securitization is the transformation

of a illiquid consumer mortgages,
credit cards and other loan assets
into more liquid i.e. tradable
securities
How securitization
13 works
Banks pool together individual consumer

and small business loans
into a large packages
that are sold to buyers or investors
How securitization
13 works
This “buyer’s market”

is often referred to as the
“secondary market”
for consumer debt.
How securitization
13 works
Selling loan packages gives banks

the cash to make more loans to
consumers
What does this mean for you?
What is one large (but not sole)

component of the economic crisis?

Banks have stopped lending
But Why?

The economic slowdown has lead

to an increase in consumers
falling behind on debt payments
and foreclosures

This basically means that there is

a decline in the “quality” of the
goods the banks are selling

If you were someone buying

“goods” or loans from the bank,
what would you do?

Stop buying
Or . . .

Decrease the amount you would

pay for the goods
. . . this causes an increase in the
spreads

The less buyers purchase &

the less they pay for goods,
the less cash the banks get
for the goods they are selling

The less cash the banks get for the

goods they are selling
The less cash they have to make
new loans

Thus . . .
Bank lending has significantly
decreased due to the decline in
loan quality and the lack of
secondary market buyers

149



What is the Government doing?
EESA:
Emergency Economic Stabilization Act
– approved September 28, 2008
allocated $700B with wide discretion
Establishes TARP .

Federal Government Actions
TARP –
Troubled Asset Relief Program:
Program under which Treasury was going to
acquire troubled assets.
Evolved into the Capital Purchase Program,
TALF & other programs to buy government
guaranteed issues.

Federal Government Actions
TALF:
Term-Asset Backed Securities Loan Facility
$200B facility to provide cash/loans to

buyers willing to purchase troubled
consumer loans from banks.
First funding projected to be February 2009.

What’s in it for you?
US Small Business Administration

has been empowered to increase
its lending to small businesses

SBA will reduce its fees on small

business loans

SBA will increase its guarantee

amount from 75% to 100%, thereby
increasing the quality of its loans
and more appealing to buyers

SBA will increase its micro-lending

program to provide help top
businesses in crises.

SBA Program must undergo

regulatory approval.
Therefore,
changes not expected to take
effect until later in 2009.

SBA PROGRAM
www.acsbdc.org 163
SBA Backed Loans
Banks will incorporate an SBA guarantee

when the loan doesn’t meet their stand
alone lending criteria
164
Process
 Applicant
 SBA Participating Lenders
 SBA
 Loan closing
www.acsbdc.org
When You Apply for A Loan
 Talk with your bank first

 Meet with the loan officer
 If your bank will not provide you
with an SBA loan check the
lenders on the SBA loan list
 http://www.sba.gov/localresources/district/ca/sf/fi
nancing/index.html
www.acsbdc.org
Be Prepared
 How Much Money ?  When will the loan be

 What is it used for? repaid?
 When is the money
 How will affect the needed?
financial position?
 Are the projections
 What will be pledged reasonable and well
as collateral? researched?
 How will the loan be  What if things don’t
repaid? go as planned?
www.acsbdc.org
What Documents to Bring
 A current Profit and  Business Plan

Loss Statement and  Schedule of Business
Projected Cash Flow
Debt
 Current Personal
Financial Statement  Personal and
 Itemized Use of Business Tax Returns
Proceeds last 3 years
 List of Collateral and  Copy of leases and all
estimated value. pertinent agreements
www.acsbdc.org
5 C’s of Credit
www.acsbdc.org
Character
 Lenders are very interested in the type of

person you are.
 They are lending you money and, of
course want to be repaid.
 Do you honor your agreements?
 Credit reports are the major source of
information on character.
www.acsbdc.org
Capacity
 Lenders will always look to see if the

business is in a position to succeed.
 The will look at the owner and the
management team.
 Experience
 Education
 Get the experience!
www.acsbdc.org
Coverage
 The basic question is: Will the business

earn enough revenue to pay all the bills
and still have money left over to service
the loan and leave profit for the owner.
 Prepare a cash flow statement showing
how the loan can be repaid from the
operations of the business.
www.acsbdc.org
Capital
 No lender will lend all of the money

needed to operate the business.
 The business owner is expected to
contribute some of the money- this is
called equity or owners capital.
 Expect to provide approximately one-third
of the funds needed to start a new
business.
www.acsbdc.org
Collateral
 While cash-flow is the primary source of

loan repayment, lenders also want a
“back-up” or secondary source of
repayment should anything go wrong.
 Collateral is anything of value used as
security for a loan.
 Examples: real estate, bonds, inventory,
equipment, accounts receivables.
www.acsbdc.org
SBA Loan Programs
 SBA Standard Guarantee Loan Program

(7A)
 SBA Certified Development Company
Loan Program (504)
 SBA Express and Community Express
 Micro-Loan Program
www.acsbdc.org
7a
• Guarantee for portion of the loan

• Not an interest rate subsidy
• Up to $2MM but soon going to $3MM
• General corporate purposes
• SBA will require & take second position in
other assets
176
7a
• Designed to help owner/operators grow

• The very best kind of capital
• Not designed for refinancing
• Variable rate tied to prime
• Longer term mean lower payments
• Best for equally long term assets
177
SBA Guarantee Loan
Northern California Network Program (7a)
 SBA guarantees up to 85% of the total
loan amount up to $150,000 and 75%
on loans exceeding $100,000
 NEWS FLASH…. SBA

Guarantee now 90%
 Loan range from $25,000 - $2,000,000
www.acsbdc.org
504
• Real estate & fixed asset specific

• Fixed rate lending
• Up to 90% fixed rate financing
• 20 year fully amortizing loans
• Lower down payment conserves working
capital
• Capital markets means low rates – 6.15%
179
504
• $2MM or $4MM for manufacturing

companies
• 40% of the financing means $5 to $10MM
• Also for owner occupied companies
• Reasonably quick decision process
180
Loan Limits
 SBA can guarantee up to a maximum of

$2,000,000
 SBA guarantees a percentage of the loan
amount to the lender
 Many lenders do not make loans under
$25,000
www.acsbdc.org
Use of Loan Proceeds
 Working capital
 Inventory
 Purchase of machinery and equipment
 Leasehold improvements
 Purchase of business
 Purchase of franchise
 Acquisition or construction of commercial
business property
www.acsbdc.org
Terms of Loan
 Term of loan depends on use of loan

proceeds
 Working capital--5 to 7 years
 Fixed assets -- 10 years
 Acquisition of commercial property--25 years
www.acsbdc.org
Collateral
 May be in the form of business or personal

assets
 Personal guarantees required of anyone
owning 20% of the business as well as
from the chief executive officer
www.acsbdc.org
Northern California Network Criteria for Eligibility
 For-profit business
 Qualified as a small business under SBA size
standard criteria
 Business must show profitability or potential.
 Capital injection of 33 of project cost
 Applicant must be a U.S. citizen or legal alien
 Applicant must have good credit history
www.acsbdc.org
New SBA Lending Rules
www.acsbdc.org 186
SBA Loan Fees
 SBA charges a loan guarantee fee that

ranges from 2% to 3.75% depending on
the size of the loan. Larger loans have a
larger guarantee fee.
 Banks will charge additional fees for loan
packaging, title search, credit reports etc.
SBA Loan Fees
 SBA is temporarily waiving the loan

guarantee fee from February 17, 2009
on…
 Banks will still charge additional fees for
loan packaging, title search, credit reports
etc.
SBA Micro Loan
 Loans made from $1,000 to $35,0000

 Interest Rate ranges from 10-13%
depending on risk
 Easier requirements.
 Apply through SBA Intermediary.
 NEWS FLASH…. Micro Loan
Expanded!!!!
www.acsbdc.org
ARC Loan Program
 Still under development

 Bridge loan to the business
 Assist them through a period of time to
make payments on terms loans.
 Should be available by end of May.
Major Advantages With SBA
 Start-ups
 Cash Flow Lender
 Favorable Interest Rates
 Favorable Repayment Terms
 More Liberal Than Conventional Bank
Financing
www.acsbdc.org
Things to Remember
• Some debt increases ROI

• Frees cash for other uses
• Provides a valuable cash flow cushion
• On or off balance sheet
• Debt is still debt

Start-ups
• Always a special case

• No operating history
• No profits or cash flow
• Start-ups always have short-term losses
• Higher than normal failure rates

Most banks in most situations

won’t lend to start-ups

Start-ups
Not all types of funds are available

or appropriate to start-ups

SBA Backed Loans
Banks will incorporate an SBA guarantee

when the loan doesn’t meet their stand
alone lending criteria

SBA Backed Loans
Process starts at an SBA

banking partner

Things to Remember
Don’t want the loan to “go bad” any

more than the borrower does

• Many uses for the 7a loans:

– Start-ups
– Expansion
– Acquisition
– Buy-out
– Refinancing

SBA Backed Loans
• Hard assets are easier to finance

• Services can be funded as well
• Often the only way to finance high failure
rate businesses such as restaurants
• Find the bank that knows your business
• They will be the lead in the deal
SBA Backed Loans
• Keep track of your start-up expenses

• Separate business credit card
• SBA loans can be used for recapping
start-up expenses but only if you can
itemize the costs
• Keep good records from the start
Some stuff you need for a
Northern California Network loan
• Business Plan
• 2 years monthly financial projections
including cash flow
• 3 Years historical tax returns
• Strong credit score
• Direct industry experience
Pro-forma Financials
• Important part of any plan

• Demonstrates financial acumen
• Show impact of the new cash
• How will the $$$ help the business
• How the debt can be serviced & repaid
• Work the pro-forma numbers into the plan
www.acsbdc.org
203
FICO
• The higher your score the lower your cost

of capital
• The more likely the loan will be approved
• The higher the credit line offered
• Understand your score before you start

FICO
• Fair Isaac Corporation (FICO)

• Defacto industry standard for financial
institutions
• Know your FICO score before you start
• www.myfico.com
• Free trial is all you need
FICO
• Virtually all lenders use FICO

• Above 680 is typically considered a
bankable score
• Between 640 and 680 it will be an SBA
loan if all else is “good”
• Below 640 means other sources of more
expensive capital or no capital at all

Direct Industry Experience
• Experience in the business

• The more operational the business the
more experience counts
• Start-up risks + lack of experience is
always deadly
• True for all sources of funds
A high credit score is an asset

Protect it at all costs

Work with a professional credit

counselor if your FICO score is
below 640

Equity Sources

Equity Sources
• Savings
• Existing successful business
• Other real estate assets
• Family
• Friends
• Channel partners
• Angels
Your Network
• Ask your Family, Friends and Business

Associates about investing
• At the very beginning
• Equity commitments the lender can verify
before starting the loan process
• The more equity the “safer” the venture
Channel Partners
• Companies you buy from and sell to

• Go over your business plan with them
• Probably won’t make a direct investment
• Negotiate for preferable trade credit terms
• Lower deposits, more days before bills are
due and/or higher credit lines
• Better terms translate into less cash
Other Equity
• Another business with 3 years of operating

history, profits and positive cash flow
• Commercial or rental real estate
• The equity in your home
• Loan guarantees from family and friends

Other Equity
Move savings to your new bank

as collateral rather than
depleting your account

Angel Networks
www.acsbdc.org
216
Angel Networks
• Groups of individual investors

• Common investment theme
• Often invest based on industry experience
• Individual decision making
• One term sheet and deal
• Tend to be early but generally flexible
• Before institutional capital
www.acsbdc.org
217
Angel Networks
• Investment size can be a $100K to $3M+

• Multiple rounds as needed
• All have their own application and due
diligence processes
• Hope that VC funds invest later
• Exit is a sale, recap or IPO
www.acsbdc.org
218
Venture Capital Partnerships
www.acsbdc.org
219
Where do VC’s get their
Northern California Network Money?
• Committed pool of funds
• Limited Partners:
– Endowments
– Pension funds
– Family trusts
– High net worth individuals
• 10 year term
• Strong Fiduciary obligation
www.acsbdc.org
220
Pension Fund Asset Allocation
www.acsbdc.org 221
Current VC Environment
• Toughest in 30 years
• Q2 2008 – no IPOs
• First time ever
• Q3 2008 – lightest IPO calendar in
memory
www.acsbdc.org
222
But Fund Raising is Tough
Investment in U.S. start-ups dropped

71 %
From January 2008 to 2009
Source: Thomson Reuters
www.acsbdc.org
Venture capital funding dropped to

$1.3 billion in January 2009 from
$4.5 billion in January 2008
www.acsbdc.org
Number of companies which

received funds
dropped by more than half
to 203 from 466
225 www.acsbdc.org
Funding per company dropped

on average
to $6.6 million from $9.8 million

www.acsbdc.org
• No IPO market means no liquidity

• More $$$ for existing portfolio companies
• Fewer $$$ for new deals
• Impact is negative across all facets of the
private equity market
www.acsbdc.org
228
• No IPOs + Lack of liquidity + Recession =

Fewer private deals at lower valuations
• Expect a slow process from all institutional
investors
• VC’s looking for more complete deals to
reduce risk
www.acsbdc.org
229
Investments
The Next Big Thing
www.acsbdc.org
230
Severe Winnowing Process
• Axxon Capital:
– 1000 deals in per year
– Review 200
– Some work on 50
– Serious work on 25
– Due Diligence on 10
– 6 offers
– 4 closed deals
www.acsbdc.org
231
Investments
• Significant IP
• Leverage the General Partners knowledge
and networks
• Management skills and experience
specific to the goals
• Co-investment potential
• Specific portfolio focus
www.acsbdc.org
232
Where The VC Money Goes
• 55% - Technology
• 21% - Medical & Bio-tech
• 6% - Industrial
• 6% - Media
• 4% - Technology Services
• 8% - Other
www.acsbdc.org
233
Investing
Strong preference for a product

vs. a service
Don’t want assets to drive home at
night
www.acsbdc.org
234
Management
• Team knows the market and will drive:

– The first product
– Alpha and Beta sites
– Money raising
– Done it before
– Knows what a large public company must be
www.acsbdc.org
235
Markets
• Rapidly growing markets

• Open to new products and services
• Customers eager to find new vendors
• Intact management team
• Or a 10X cost reduction
www.acsbdc.org
236
Why do some VC’s only invested in

people they have invested in
before?
237
Returns
• 10X+ cash on cash in 5 years

• 50%+ targeted IRR
• 22% - 35% IRR is excellent
• IRR always driven by top line growth
• Need to show valuation “progress” via
interim financings
www.acsbdc.org
238
Control
• No ambiguity at all
• The investors will be in control
• As fiduciaries they must protect their
investors’ interests
• Actively change management
www.acsbdc.org
239
How Should you Decide?
Banker’s payback Equity Investor payback

• Get $1MM loan • Get $1MM investment
• Assume 10% annual • Demands 10X return
interest for 10 years • Payment to Investor:
• 20 year balloon • $10MM
• $1.0% Fee
• Payment to banker:
• $2,001,000
www.acsbdc.org 240
Value Creation & Distribution
Banker Pie Investor Pie
www.acsbdc.org 241
Technology
(e-commerce and Web Marketing

April 22 in Oakland)

Things to Think About
• Everyone is doin’ it
• Quick efficient way to get information out
about your business
• Collaboration with Colleagues
• Ossifying customer relationships
• Freedom and responsiveness

Web Site
• Simple but professional web site from the

start
• Business email for business
communications
• Straight-forward and easy to read
• Part of your Business Identity
Ways to get started
• ISP with easy to use templates & website

development tools
• Borrow/buy as much technology as
possible
• Fit your design into their template
• Save money and time at the beginning
Web Based Applications
• The next big step in virtual operations

• Data stays on a server
• You’re mobile
• Work on files, reports, presentations from
anywhere
• Simplified collaboration and training
• Virtually unlimited memory

• Interactive process
• 99.99% uptime
• Steady flow of updates (no need to buy
the new shrink wrap)
• 1-800 help lines
Collaborative Work
Northern California Network Environment
• Microsoft hosted exchange server

• $10/month/email account
• 200MB of memory or more
• Shared files, contacts & calendars
• Work together even when you’re not

Some sites to look into
• Salesforce.com
• Gotomeeting.com
• Freeconferencecall.com
• J2 communications
• Dell Safe On-line backup
• Freefax.com
• MS Live One virus protection
• Client in SF has all files on web based

applications
• His customers can look up orders, check
shipping dates and invoices 24/7
• Clients often correct problems before they
happen
• Cheaper to have the client do the work

• Financial solutions moving to the web

• Most of the major small business
accounting packages now offer a web
based alternative
• More will follow
• Find an accounting partner who offers the
service

• Customer Relationship Management

• Now available via Office 2007 as Business
Contacts Manager
• CRM Live from Microsoft

Migration

Migration
• Most businesses will eventually migrate to

their own systems
• Even small companies can afford their
own server based applications
• Servers can be in a shared facility
• Usually a function of security and costs
Solutions
Mobile and wireless solutions

Solutions
• Future is in the PDA

• Japanese are using their PDAs exclusively
• PDA related accessories
• Flash memory like a camera for
presentations & data
• Functionality will only increase as costs
drop
The Web

Pay per Click Growth
• May 20th San Francisco Chronicle

Business section
• $8.3B in 2007 vs. $1.0B in 2002 on PPC
• 53% CAGR
• 1% for all media

New businesses twice as likely

to use Pay per Click

Web Marketing
A skill everyone needs to learn

Goal is to create a dialogue with

your potential customers

Dialogues lead to Relationships

Relationships to closed business

Things to Remember
• Stay connected
• Move data effectively and efficiently
• Network in customers, vendors, partners
and employees
• Website as your virtual marketing tool
• Collateral material for the physical world
• Upgrade and adapt
Investment in technology
isn’t Fixed Costs

Things to Remember

Things to Remember
• Without a plan you’re not managing the

business
• Get the Mission right
• S=MP5CM
• 8 page plan

Things to Remember
• Corporate structure can protect private

assets
• Don’t intermingle corporate and personal
assets
• Don’t sign anything until it has been
reviewed

Things to Remember
IP must be protected at all times

or you risk losing it

Things to Remember
• Raise the money first

• Equity covers losses and other start-up
costs

Things to Remember
• Website is a key part of your business

system
• Be professional from the beginning
• Leverage technology to be operational fast
• Focus on customers and marketing

Panel Discussion

Panel Discussion
Nimia Ramos Wells Fargo Bank

Beauchamp
David Bokash ACSBDC Technology
Consultant
Roberto Costa OBDC
Rich Ohlrich Interim Director

ACSBDC
Scott Pesetsky Lawyer
273
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Class Evaluation
forms

Thanks
• To our panelists
• Peralta College System
Thanks to all of you

Networking
Meet Great People
Time to Network

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Northern California Network

• Holistic approach to Starting a Business

• Peralta College System

• We provide a combination of:

• Became center host in October 2008

• Team of 15 professionals w/ real world

• We’re working hard for you

• 7,147 Job created/retained

• For consulting services go to

We help get you to the right

Getting Certified Program

• How to be an 8A Certified Small Business

April 21st - Hayward

• TAP is part of the SBA & SBDC structure

April 15 Fremont Successful Biz Plans

April 21 Hayward Getting Certified

April 28 Berkeley Ecommerce & Web

April 9 Oakland Legal & Business

May 6 Oakland Smart Office/Smart

• 15 years experience as a Venture Capital

Nimia Ramos Wells Fargo Bank

Rich Ohlrich Interim Director

Why is today important for you

Nothing happens without a

Starting point for equity capital,

• Who is the most important audience for a

What you don’t know can

Organizing the right way

“Someone who represents himself

Undercapitalization is the No. 1

Equity & Debt are

Patience at the beginning will save

Get the money squared away

• Entrepreneurs don’t like to wait:

Then go looking for capital

Already invested cash doesn’t

Look, act and function much larger

Leverage others fixed costs

Focus on your customers –

How do you know when you

Customers are King

Let me tell you about Doug . . .

• A good business plan is:

People don’t read anymore

• Defines the market and your role in it

Clearly define your market

What is your strategic positioning?

What is your competitive distinction?

What comes to mind?

High Growth & High Market Share

Segment must be large enough

The greatest long-term

• Can you describe your business to a

• The core of your Elevator Sales Pitch

This may be all they read

• What the company will do

Cost Structure & Strategy

• All businesses can be defined by their cost

• Rent, people, fees, marketing & keywords

High Fixed Costs = High Volume

High Variable Costs = High Price

Know your cost structure and adjust

• Undercapitalization is the Number 1