Steve Cummins Transworld Group - Venture Financing

LAUNCHING YOUR STARTUP
Understanding Venture Financing
Steve Cummins, Transworld Group
Launching Your Startup
A Primer on Venture Capital
Financing Your Venture
Other Startup Considerations
Raising Venture Capital
The Transition from Idea to Execution
Business Planning

My Background
28 years in technology-related ventures in all

capacities
Founder / CEO, venture capital firm
Founder / CEO, early Internet company
Corporate finance / M&A, global investment bank
Technology marketing
Programmer / engineer
Owner / inventor of 14 issued and pending patents

worldwide
Education
Bachelor of Industrial and Systems Engineering,

Georgia Institute of Technology
Master of Business Administration,

Amos Tuck School at Dartmouth College

Impact of U.S. Small

Businesses
25.8 million U.S. businesses
Small businesses represent:
99.9% of total businesses
50% of the private work force
41% of high tech jobs
75% of net new jobs
41% of private sales
52% of private sector output
97% of all U.S. exporters with 29% of export value
Produce 13-14x patents per employee (and 2x

likely to be among the 1% most cited)

Impact of Venture-Backed
Companies
In the U.S.:
$1.8 trillion in revenue in 2003 (9.6% of all sales)
10.1 million jobs in 2003 (9.4% of employment)
600,000 new net jobs from 2000-2003
In Europe:
1.0 million jobs in 2004
630,000 new net jobs created from 2000-2004
Highest growth rates in biotech, health care and medical

devices
Largest absolute growth in university spin-offs

Impact of U.S. Universities
Established > 4,100 new companies since

1980, 2/3 of which were still operating
Executed > 30,000 active technology
transfer licenses (including > 4,500 in
2003), generating > $1.3 billion in license
income
Launched > 2,200 new commercial
products between 1998-2003
Performed > $30 billion of R&D in 2001
Filed 8,000 U.S. patent applications in
2003

What is Venture Capital?
A cash investment made by professional, institutionally

backed investors to emerging growth businesses
Generally made as cash in exchange for equity

(ownership) in the investee company
Usually high risk, but with the potential for above-average

returns

U.S. Venture Capital Market
European Venture Capital Market
Types of Venture Capital
Private
Academic
Professionally managed
Intellectual property
Return on investment
focused
Spin-outs
May bring network,

business advice, credibility,
etc.
Government
Create new jobs and grow

economy
Offer cash, tax incentives,

in-kind
Stem brain-drain
Corporate
Manage risk
Distribution networks
Product R&D
Operational skills
Spin-outs
Angels
Network, business advice,

credibility, etc.
Live vicariously
The 3Fs
Venture Capital Investment

Criteria
Management Team
Track record
Relevancy
Bet on the jockey, not the horse!
Concept
Solves real problem
Favorable market dynamics
Disruptive
Unfair advantages & sustainable competitive advantages
Proper capitalization

The Venture Capital Numbers

Game
Receive 1000s of business plans each year
Read 100s of plans
Meet with dozens of companies
Fund a handful
Portfolio expectations:
60% die or go nowhere (living dead)
30% yield 2-4x in 4-7 years
10% (hopefully 20%) are tremendous successes (e.g., 10x,

100x, 1000x!)

How Venture Capital Funds

Work
General partners (GPs) manage the
fund
Capital comes from institutional limited
partners (LPs)
Singularly focused: ROI
GPs get an annual fee
Once LPs get investment back, GPs
get a portion of the profits
LPs get the remaining profits

Venture
Capital
Economics
LP 3
LP 1
LP 4
LP 2
2%
$100
GP
Management
VC Fund IX, L.P.

$10
Portfolio
Company 1
Portfolio
Company 2
Portfolio
Company 3
$10
$10
$10
$10
Portfolio
Company 4
$10
$10
$10
$10
Portfolio
Steve Cummins, Transworld Group Company 5

$10
Portfolio
Company 6
Portfolio
Company 10
Portfolio
Company 9
Portfolio
Company 8
Portfolio
Company 7
Venture
Capital
Economics
LP 3
LP 1
LP 4
LP 2
$180
GP
$20
VC Fund IX, L.P.

Portfolio
Company 1
Portfolio
Company 10
Portfolio
Company 2
$100
$35
Portfolio
Company 3
Portfolio
Company 4
$40
$25
Portfolio
Steve Cummins, Transworld Group Company 5

Portfolio
Company 6
Portfolio
Company 9
Portfolio
Company 8
Portfolio
Company 7
Not all startups require external funding
Cash flow comes ultimately and most importantly from

customers, NOT from investors
Benefits of external funding
Cash
Faster growth
Staying power
Competitive positioning
Credibility
Value-add investors
Credibility
Customer/partner introductions (Keiretsu effect)
Management expertise

Financing
Options
Non-Equity
Equity
Personal funds
Venture capital
Personal debt
Angels
Grants and awards
Customer pre-sales
The 3Fs Friends, Family

and Fools
Venture leasing
Corporate direct investment
Receivables financing
Business loans
In-kind contributions
Joint ventures
Equity is the most

expensive form of capital!
Major Financing Questions
How much?
When?
From where / whom?
What terms?
Security
Valuation
Control
Timing

Raise Money from a Position

of Strength
Have cash in the bank
Prepare to build your company without any outside

investment (bootstrap)
Seek to secure multiple competing offers
Raise money when you can, not when you have to (Sun
Tzu In times of war, prepare for peace)
Have a call to action

Seek True Value-Added

Investors
Understand your business
Operating experience
Domain and/or geographic experience
Rolodex / network
Relevant portfolio
Relevant limited partners (in your space)
Deep pockets / courage to stay the course

Fundraising Process
Investor
Presentations
0
Business Plan
Submissions
Final
Documentation
10
11
12
13
14
15
16
17
18
Funding
Term Sheet
Negotiations
Budget 4-5 months, or more

Jim Butterworth
Idea to Market Workshop
Ukraine, September 2008

Jim Butterworth
Idea to Market Workshop
Ukraine, September 2008
Launching Your Startup
A Primer on Venture Capital
Other Startup Considerations
The Transition from Idea to Execution
Business Planning

Lifecycle of a Startup
Conception / Invention
Launch
Seed Stage
Growth Stage
Expansion Phase
Exit
Post-Exit
Formation /
incorporation
Market research
Product research
Early Stage
Product
development
Team formation
Infrastructure buildout
Lifecycle
of a Startup
Conception / Invention
Seed Stage
Formation /
incorporation
Launch
Market research
Growth Stage
Product research
Expansion Phase
Exit
Early Stage
Product development Post-Exit
Team formation
Infrastructure build-out
Startup Fundamentals
Solid foundation =
best chance of
funding your venture

Pour a Solid Foundation
Market-driven concept
Talk to prospective customers
Assess market and competition
Resolve legal issues upfront
Satisfy prior employment obligations
Incorporate properly
Check intellectual property rights
Spin-out cleanly
Form a solid team
Management, board, advisors, professionals
Teamwork begets success
If possible, kick-start the business
Spin-out / acquisition
Key customer

Be Market-Driven!
Purchase decisions are based on
relationships understand your
customers
Understand and model your customers
economic benefit:
How are they currently solving the problem?

How will their work processes change by using your
product?
What is their economic benefit / ROI?
Your product / service must be better,

faster and cheaper

Protect Your Assets!

Cash Flow is Your Life Blood!
CFIMITYM
Cash flow comes ultimately and most importantly from

customers, not from investors
Profit is not cash flow
Capitalize properly

Business Planning
The plan is useless; its the planning thats important.
General Dwight D. Eisenhower,

on the success of his D-Day invasion plan
The process of uncovering and identifying what creates

and drives value in your business, and the risks involved
A business plan is an output of the business planning

process

Output of the Business

Planning Process
Business plan (narrative)
Pro forma financial statements
PowerPoint pitch (12-13 pages)
Elevator pitch (1-2 minutes)

A Business Plan
Describes all the critical internal and external elements

and strategies for guiding the direction of your company
Communicates how you will create sustainable value
Identifies risks and uncertainties and communicates how

you will manage them
Describes the companys structure, objectives and future

plans

Uses of a Business Plan

(Internal)
Refining your product /

service strategy
Identifying key
customers
Identifying milestones
and timelines
Helping set objectives
& performance metrics
Managing risk and
uncertainty
Motivating and
focusing employees
Analyzing capital
budgeting decisions
Facilitating new
product development
Integrating new
acquisitions
Facilitating restarts,
restructuring and
turnarounds
Uses of a Business Plan

(External)
Attracting key employees
Educating potential investors
Arranging strategic alliances
Obtaining large contracts with strategic customers
Facilitating mergers and acquisitions

The 12-13 Page PowerPoint

Pitch
1.
Summary (1)
Mission
statement
What is the
idea?
How will it create
value?
Timeline /
milestones
Expected results
Specific request
(e.g., $)
The Mission Statement

To create [value/EVA]
by [product/service] for/to [customer(s)] by
Strategic
Objective 1

Strategic
Objective 2
Strategic
Objective 3
The Mission Statement

Mission Statement Example

To be Ukraines leading producer of A-class widgets to the
_______ sector by:
Securing exclusive purchase contracts with 3 of the top 10

customers of A-class widgets in Ukraine;
Creating proprietary manufacturing methods for the highest

yield of A-class widgets; and
Building a world-class team of research & development

scientists and engineers.


Pitch
1.
2.
Summary (1)
Mission statement
What is the idea?
How will it create value?
Timeline / milestones
Expected results
Specific request (e.g., $)
Market Overview (2)
Substantiation of need
The opportunity (size,

trends, etc.)
Markey validation
Identification of
prospective customers
Major Pain Points
What is the major pain your customers face currently

and/or in the future?
Cost
Convenience
Growth
Focus
Time-to-market
Regulatory compliance
Why are alternative products/services not addressing the

pain (fully)?
Why wont this change?

Favorable Market Dynamics
The market is large for our product/service:
Size stat 1
Size stat 2
Size stat 3
The market is growing for our product / service:
Growth stat 1
Growth stat 2
Growth stat 3
Market trends favor us:
Trend 1
Trend 2
Trend 3


Pitch
1.
2.
Summary (1)
Mission statement
What is the idea?
How will it create value?
Timeline / milestones
Expected results
Specific request (e.g., $)
Market Overview (2)
Substantiation of need
The opportunity (size,

trends, etc.)
Markey validation
Identification of
prospective customers
3.
Description of Product / Service

(2)
Overview of product /
service, including highlevel technology
description
Specific value
proposition (including
qualitative & quantitative
customer benefits)
Correlate product /
service features &
benefits with market
needs
Value chain dynamics

Pitch
4.
5.
Operating Plan (2)
Production /
manufacturing
Marketing /
distribution
Sales & marketing

plan
Competitive Environment (2)
Sustainable
competitive
advantages
Alternatives
Competition (existing
and potential
Whats Proprietary About Your

Idea?
Competitive Advantages
Proprietary IPR
Exclusive distribution
Exclusive content / sources
Proprietary manufacturing
Proprietary integration
Installed base / customer contracts
Unparalleled capital structure
Unparalleled scale, scope and/or focus
Team with unique expertise and/or access
First mover advantage
Distinguish between momentary and sustainable

Must correlate to strategic objectives


Management expertise &
relevance
Pitch
Board, advisors,
6.
The Team (1)
4.
5.
Operating Plan (2)
Production /
manufacturing
Marketing /
distribution
Sales & marketing
plan
7.
professionals & others

Identify key hiring needs
Financials (1-2)
Pro forma snapshot

Key metrics / drivers
Funding requirements
(optional)
Sustainable
competitive
advantages
Alternatives
and potential
Financial Projections
(in thousands)
Revenue driver 1 (1)

Revenue driver 2 (2)
Cost driver 1 (3)
Net Revenue
2007
2008
2009
2010
Key is to
understand
drivers and
assumptions
since
Cost of Sales (4)

= Gross Profit
SG&A (5)
Numbers will
prove wrong!
= Pre-tax Income (Loss)

Notes
(1) Assumption 1
(2) Assumption 2
(3) Assumption 3
(4) Assumption 4
(5) Assumption 5
Funding Requirements
Does your venture need external financing?
Capital structure considerations
How much & when?

Venture capital, debt, etc.
Options plans, etc.
Position vis--vis in-kind contributions
Use of proceeds; e.g.:

Staff
$200,000
Technology & IPR development
150,000
Equipment & facilities
200,000
Other legal, operations, SG&A and misc.
100,000
Reserve (net of cash on hand)
100,000
Total
$750,000

Management expertise &
relevance
Pitch
Board, advisors,
6.
The Team (1)
4.
5.
Operating Plan (2)
Production /
manufacturing
7.
Sales & marketing

plan
Financials (1-2)
Marketing /
distribution
8.
Sustainable
competitive
advantages
Alternatives
and potential
Pro forma snapshot

Key metrics / drivers
Funding requirements
(optional)
Road Map (1)
professionals & others

Identify key hiring needs
Major accomplishments
90-day plan
Horizon

Pitch
9.
Appendix (as long as you want)
Market details (e.g., surveys)
Product details
Operating & financial details
Rsums (CVs)
Articles / research reports
Patents & IPRs
Key contracts
Brochures

The Elevator Pitch
One of the most important outputs of

business planning
Convinces the target person to schedule
a longer meeting with you
Empowers and enables the target person
to convince other appropriate people to
become interested in your idea
Resonates, demonstrates sincerity
Communicates a sense of value, empathy
and urgency
No more than 1-2 minutes!

Part I Summary
Pour a solid foundation
Protect your strategic assets (like IPRs)
Value is in the business planning, not the business plan
Be concise and to the point with pitch materials
Be top-down customer-driven, not bottom-up productdriven

Fundraising Lessons
Network to gains access to VCs
Dont get hung-up on confidentiality
Be persistent
Be humble yet confident, and always courteous and

professional
Embrace and learn from rejection
Be greedy in the long-run (any % of something > 100% of

nothing!)

Believe In Your Idea!

We don't like their sound, and guitar music is on the way out.
Decca Recording Co., rejecting the Beatles in 1962
The wireless music box has no imaginable commercial value.

David Sarnoff Associates, in rejecting a proposal for investment in the radio in the 1920s
Who the hell wants to copy a document on plain paper?

National Inventors Council, as told in 1940 to Chester Carlson, founder of XEROX
Theres never going to be a market for the telephone, and

therefore we have declined the offer to take a license.
Chairman of Western Union, in its annual report from the late 1800s

Attributes of a Successful
Entrepreneur
Problem solver
High integrity
Decisive
Critical path doer
Leader & motivator
Humble
Impatient / bias toward

action (with analysis)
Passionate
Persistent
Rejoices in others
victories
Optimistic
Focused on the longterm goal
Professional
and Just Do It!
Closing thoughts
Focus on the long-run
What goes around comes around
Friendships last longer than jobs
Dont let greed blind the objective
Make the most of the experience
Listen & learn
Failure or rejection is what you make of it
Entrepreneurship is a lifestyle choice
Balance your risk & return
Seize opportunities
Lifes short, have fun!


Steve Cummins Transworld Group - Venture Financing

Enviado por

Dados do documento

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

Steve Cummins Transworld Group - Venture Financing

Enviado por

Direitos autorais:

Formatos disponíveis

LAUNCHING YOUR STARTUP

Understanding Venture Financing

Steve Cummins, Transworld Group

Launching Your Startup

Understanding Venture Financing

A Primer on Venture Capital

Financing Your Venture

Other Startup Considerations

Raising Venture Capital

The Transition from Idea to Execution

Steve Cummins, Transworld Group

28 years in technology-related ventures in all

Founder / CEO, venture capital firm

Founder / CEO, early Internet company

Corporate finance / M&A, global investment bank

Owner / inventor of 14 issued and pending patents

Bachelor of Industrial and Systems Engineering,

Master of Business Administration,

Steve Cummins, Transworld Group

Impact of U.S. Small

99.9% of total businesses

50% of the private work force

41% of high tech jobs

75% of net new jobs

41% of private sales

52% of private sector output

97% of all U.S. exporters with 29% of export value

Produce 13-14x patents per employee (and 2x

Steve Cummins, Transworld Group

$1.8 trillion in revenue in 2003 (9.6% of all sales)

10.1 million jobs in 2003 (9.4% of employment)

600,000 new net jobs from 2000-2003

1.0 million jobs in 2004

630,000 new net jobs created from 2000-2004

Highest growth rates in biotech, health care and medical

Largest absolute growth in university spin-offs

Steve Cummins, Transworld Group

Impact of U.S. Universities

Established > 4,100 new companies since

Steve Cummins, Transworld Group

What is Venture Capital?

A cash investment made by professional, institutionally

Generally made as cash in exchange for equity

Usually high risk, but with the potential for above-average

Steve Cummins, Transworld Group

U.S. Venture Capital Market

Steve Cummins, Transworld Group

Steve Cummins, Transworld Group

European Venture Capital Market

Steve Cummins, Transworld Group

Steve Cummins, Transworld Group

Types of Venture Capital

May bring network,

Create new jobs and grow

Offer cash, tax incentives,

Steve Cummins, Transworld Group

Network, business advice,

Steve Cummins, Transworld Group

Venture Capital Investment

Bet on the jockey, not the horse!

Solves real problem

Favorable market dynamics

Unfair advantages & sustainable competitive advantages

Steve Cummins, Transworld Group