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Startup

Guide
2013 Edition

The

SHARE FREELY

Building a Better World Through Entrepreneurship

RYAN ALLIS With Ellen Daly


CEO of Connect.com
More slides at www.startupguide.com

RAISing VENTURE CAPITAL


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ENTREPRENEURSHIP

ABOUT THIS PRESENTATION

THIS presentation IS PART OF A LARGER slide DECK on building a better world through entrepreneurship

For more slides & CONTENT visit:

Startupguide.com
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entrepreneurship Raise funding or bootstrap

YOU HAVE TO DO WHATEVER IT TAKES TO KEEP COSTS LOW UNTIL YOU HAVE REVENUE
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entrepreneurship Raise funding or bootstrap

THE #1 mistake I see First time entrepreneurs Make is raising too much MONEY TOO SOON
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entrepreneurship Raise funding or bootstrap

Dont raise outside CAPITAL UNTIL AFTER YOU KNOW YOU HAVE SOMETHING THAT CUSTOMERS ARE WILLING TO PAY FOR
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entrepreneurship Raise funding or bootstrap

TO TEST DEMAND BEFORE YOU RAISE MONEY BUILD AN INEXPENSIVE PROTOTYPE and improve it UNTIL YOU KNOW CUSTOMERS LOVE IT
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entrepreneurship Raise funding or bootstrap

Unless youre building a product Like a new drug that requires massive upfront investments dont raise Outside capital until after You have proven customer demand
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entrepreneurship Raise funding or bootstrap

IF YOU RAISE MONEY TOO SOON AND DonT YET HAVE SOMETHING CUSTOMERS WANT INVESTORS WILL EAT YOU FOR BREAKFAST
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entrepreneurship Raise funding or bootstrap

YOUR GOAL IS FOR EVERYONE TO DO WELL--CUSTOMERS, EMPLOYEES, INVESTORS & YOU SO DonT PLAY WITH INVESTOR MONEY UNTIL YOU KNOW YOU HAVE SOMETHING THAT THE MARKET REALLY WANTS
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entrepreneurship Raise funding or bootstrap

PRO TIP: GET AS FAR AS YOU CAN WITHOUT RAISING OUTSIDE CAPITAL
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entrepreneurship Raise funding or bootstrap

AT ICONTACT WE BOOTSTRAPPED

FOR THE FIRST 3 years (2003-2006)


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entrepreneurship Raise funding or bootstrap

WE GOT to $1.5 million in annual sales BEFORE WE RAISED ANY FUNDS BEYOND A $5,000 loan
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entrepreneurship Raise funding or bootstrap

HOW? BY KEEPING COSTS LOW UNTIL WE GOT REVENUES NOT TAKING SALARIES FOR 3 years AND DOING SERVICE WORK ON THE SIDE FOR FUNDS TO LIVE OFF OF
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entrepreneurship Raise funding or bootstrap

We LIVED IN THE OFFICE ATE RAMEN NOoDLES

AND Jumped IN DUMPSTERS TO RECOVER PROOF OF PURCHASE TAGS FOR REBATES


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entrepreneurship Raise funding or bootstrap

IN THE BEGINNING DO WHATEVER IT TAKES

TO KEEP COSTS LOW


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entrepreneurship Raise funding or bootstrap

RYANs 3 RULEs OF BUSINESS:


1. 2. 3. CREATE PRODUCTS CUSTOMERS LOVE RECRUIT TRULY EXCELLENT PEOPLE Dont raise venture capital until you have revenue & PROVEN CUSTOMER DEMAND
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entrepreneurship Raise funding or bootstrap

TOO MANY STARTUPS FAIL BECAUSE THEY RAISE VENTURE CAPITAL BEFORE THEY HAVE REVENUE AND BEFORE THE ENTREPRENEUR HAS BUILT SOMETHING CUSTOMERS LOVE
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entrepreneurship Raise funding or bootstrap

THE ABSOLUTE BEST SOURCE OF FUNDING IS FROM

PAYING CUSTOMERS
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entrepreneurship Raise funding or bootstrap

Venture capital is LIKE THE GOLDEN MUSHROOM IN MARIO KART IT MAKES YOU GO FASTER BUT If you accelerate TOO QUICKLY IN THE WRONG DIRECTIon

YOU FALL OFF A CLIFF

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JUST BECAUSE MONEY IS AVAILABLE DOESnt MEAN its good for you OR that your company is ready
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entrepreneurship Raise funding OR BOOTSTRAP

OUTSIDE CAPITAL SHOULD BE USED AS FUEL TO ACCELERATE WHEN YOURE ALREADY MOVING IN THE RIGHT DIRECTION
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entrepreneurship Raise funding or bootstrap

WHERE TO LOOK DEPENDS ON HOW MUCH YOU NEED AND HOW FAR ALONG YOU ARE
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entrepreneurship Raise funding or bootstrap

HEREs a chart of THE DIFFERENT TYPES OF MONEY BY STAGE


MONEY NEEDED SIDE JOBS CREDIT CARDS YOUR SAVINGS Friends & Family KICKSTARTER/Fundable BANKS Angel investors SUPER ANGELS SEED STAGE VC Growth StAGE VC Mezzanine debt LATE Stage VC PRIVATE EQUITY PUBLIC MARKETS PIPES CORPORATE BONDS
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<$50k Yes YES Yes Yes Yes

$50k-$500k Yes if PRUDENT Yes if available Yes if available YES Yes YES

$500k to $1M

$1m to $5m

$5M to $25M

$25M to $100M

>$100M

Yes YEs YES YES YES YES YES YES YES YES YES YES YES YES YES YES YES YES YES
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A great source to find early Stage angels is

AngelList.com
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ALSO CHECK OUT THE NEW Peer-to-peer investing sites That have launched FOLLOWING the PASSING OF THE U.S. JOBS ACT of 2012 THE BEST ONE IVE SEEN Is

FUNDABLE.com
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OTHER BUSINESSES LIKE DALTON CALDWELLs APP.NET HAVE BUILT KICKSTARTER-LIKE PLATFORMS OF THEIR OWN TO FUND THEIR EARLY EXPENSES
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entrepreneurship Raise funding or bootstrap

DO YOUR BEST TO AVOID RAISING MORE THAN 1x your current ANNUALIZED REVENUE
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entrepreneurship Raise funding or bootstrap

AS AN EXAMPLE, HERE iS Icontacts CAPITAL RAISED OVER 4 financing rounds


Date June 2003 May 2006 June 2007 August 2010 Capital raised to balance ANNUALIZED sheet REVENUE $5k $500k $5.3M $25M $5k $1.5M $5.5M $38M CAPITAL Source FRIEND IDEA FUND Updata JMI EQUITY Capital type LOAN SEED STAGE SERIES A SERIES B $16m $27M $100M $16.5M $32.3M $125M Approx. PreMoney VALUTION Approx Postmoney valuation Approx % of COMPANY SOLD 0% 3% 16% 20%

NOTE THAT OUR ANNUAL REVENUE WAS ALWAYS HIGHER THAN THE AMOUNT OF MONEY WE RAISED
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YOUR NEGOTIATING POWER is BASED ON


LEVEL OF NEED FOR THE MONEY YOUR EXPERIENCE YOUR TEAM PRODUCT & TECHnOLOGY COMPETITION OTHER TERM SHEETS QUALITY OF YOUR ADVISORS
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THE MOST IMPORTANT INVESTMENT TERMS VALUATION OPTION POOL SIZE LIQUIDATION PREFERENCES FOUNDER REVESTING PREFERRED VETO RIGHTS TYPE OF PREFERRED STOCK BOARD SEATS
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! THE HIGHEST VALUATION IsnT ALWAYS BEST

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FACTORS IN SELECTING YOUR INVESTORS CHEMISTRY WITH THE PARTNER OPERATIONAL EXPERIENCE CURRENT PORTFOLIO ALIGNMENT PARTNER/FIRM EXIT RESULTS EXECUTIVE RECRUITING ABILITY TERMS OF INVESTMENT
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TECH STARTUP PRE-REVENUE VALUATION GUIDELINES


VALUATION RANGES FROM $1M To $25M depending on Factors like CEO Past exits TEAM EXPERIENCE NUMBER OF USERS NUMBER OF ENGINEERS LOCATION OF COMPANY
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PRE-REVENUE VALUATION EXAMPLE


INCORPORATED b2c tech COMPANY RUN BY FIRST TIME ENTREPRENEUR with 1 engineer

Pre-Money Valuation: $1m-$3m


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PRE-REVENUE VALUATION EXAMPLE


INCORPORATED b2c tech COMPANY RUN BY FIRST TIME ENTREPRENEURS who have been through y combinator with a good idea AND 2 engineers

Pre-Money Valuation: $4m-8m


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PRE-REVENUE VALUATION EXAMPLE


tech COMPANY run By experienced CEO with 10 years c-level experience, $100m prior Exit, & 5 engineers

Pre-Money Valuation: $10m-20m


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TECH POST-REVENUE VALUATION GUIDELINES


1x to 12x revenue based on factors like


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AMOUNT OF REVENUE REVENUE GROWTH RATE NUMBER OF USERs/customers TYPE OF REVENUE CEO/TEAM EXPERIENCE COMPANY MARKET LOCATION OF COMPANY
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AS YOU GO ABOUT FUNDRAISING YOU USUALLY WANT TO CREATE A COMPETITIVE PROCESS


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BUILD YOUR FUNDING PROCESS TO ENSURE YOU RECEIVE

MULTIPLE TERM SHEETS


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entrepreneurship Raise funding or bootstrap

HAVE ACCESSIBLE IN YOUR HEAD VALUATION COMPARABLES


RECENT SIMILAR Venture Deals Recent SIMILAR M&A deals Public comparables
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entrepreneurship Raise funding or bootstrap

RAISE MONEY ONLY FROM SMART PEOPLE YOU REALLY LIKE YouLL BE MARRIED to Them FOR THE NEXT 3-10 years
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entrepreneurship Raise funding or bootstrap

WAIT TO RAISE Your series A UNTIL You HAVE PROVEN MATHEMATICALLY THAT X DOLLARS SPENT BRINGS Y DOLLARS BACK
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And make sure y is >4 times x!


505

Startup Guide
2013 Edition

The

SHARE FREELY

Building a Better World Through Entrepreneurship

RYAN ALLIS With Ellen Daly


CEO of Connect.com
More slides at www.startupguide.com