10,000 FT View Today we’re going to discuss how entrepreneurs get the requisite capital to launch a product or service before raising Venture Capital
Copyright 2009-17 Professor Gerome A. Hays
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Financing Lifecycle of a Startup Cash Flow Seed Capital / Startup Capital
Survival / Growth Capital
Seasoned Capital IPO
Early Stage
Secondary Offerings
Later Stage Mezzanine
C B A
Valley of Death
Time Break even
Copyright 2009-17 Professor Gerome A. Hays
Early Funding is Staged Staged financing is the process of raising just enough capital to get to the next group of investors and to acquire cheaper capital High
Risk Low High
Low
Cost of Capital Copyright 2009-17 Professor Gerome A. Hays
Early companies need more than $$
Cash Contribution Sweat Equity Contribution
Founders
Angels
Series A
Series B
Copyright 2009-17 Professor Gerome A. Hays
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Financing Lifecycle of a Startup Cash Flow Thinking / CollecNve Intelligence Bootstrapping 3Fs
Crowd Funding Accelerators
Angels
Valley of Death
Time
Copyright 2009-17 Professor Gerome A. Hays
Pre-Funding Strategy: Research -
It’s really hard, and really cheap;
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Return on investment is massive;
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Diligence on competitors and market…free…and just a few clicks away;
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Gain million dollar strategies/ tactics on someone else’s nickel….it’s called READING FOR THE WHYS….not the WHATS. Copyright 2009-17 Professor Gerome A. Hays
Pre-Funding Strategy: Networking “Collective Intelligence” Networking is extremely hard, but the returns are significant. Share your thinking with seasoned entrepreneurs…it’s free…and the advice could be worth millions…. How does Patrick Betdavid suggest asking for advice?
Copyright 2009-17 Professor Gerome A. Hays
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Early Funding Strategies When thinking/networking are exhausted….you’re ready for:
Bootstrapping
Copyright 2009-17 Professor Gerome A. Hays
Bootstrapping Bootstrapping means relying on resources other than external financing. Name three advantages of Bootstrapping?
Copyright 2009-17 Professor Gerome A. Hays
Bootstrapping 5 Bootstrapping Strategies: 1) Personal Savings; 2) Keep a job; 3) Convinces others to take a risk on themselves; 4) Find something to sell right now; 5) Lower your lifestyle
Copyright 2009-17 Professor Gerome A. Hays
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Bootstrapping Excellent Bootstrappers will utilize the “Low Expectations” Strategy: - Take the “big idea” and divide it into the several smaller ideas; - Focus on the “best” smaller idea to get into revenue; - Then activate the other ideas as the company grows.
Copyright 2009-17 Professor Gerome A. Hays
Early Funding Strategies When Bootstrapping strategies have been exhausted…next option: Family & Friends $30 Billion Annually
Copyright 2009-17 Professor Gerome A. Hays
Family & Friends Capital (3Fs) What makes 2F Money attractive?
What makes 2F Money unattractive?
Copyright 2009-17 Professor Gerome A. Hays
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Family & Friends Capital (3Fs) Friends, Family, and Fool investors almost never have the knowledge and skills to objectively evaluate: - - - -
Valuations; Structures; Market Opportunities; and Technology
This creates a precarious situation when raising money. Copyright 2009-17 Professor Gerome A. Hays
Family & Friends Capital (3Fs) 4 Strategies when raising money from the 2Fs: 1) Treat them as strangers (What does this mean?); 2) Structure the investment as debt; 3) Tie repayment to cash flows; 4) If equity, make it non-voting Copyright 2009-17 Professor Gerome A. Hays
Early Funding Strategies When Bootstrapping strategies have been exhausted…next option: Angel Investors $20 Billion Annually
Copyright 2009-17 Professor Gerome A. Hays
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Angel Investors What does Jay Adleson say about Angel investors? -‐ Accredited Investors (DefiniNon?) -‐ Investment sizes range from: $10K -‐ $250K -‐ Typically don’t join Board of Directors (unless a super Angel….and then you want him/her on the Board of Directors); and -‐ Can be excellent connectors. Copyright 2009-17 Professor Gerome A. Hays
Angel Investors Entrepreneurs should first seek out active Angels (those looking to invest in startups) ….Why?
What’s a key ingredient to getting an active Angel to invest?
What’s the best way of approaching Angel investors?
Copyright 2009-17 Professor Gerome A. Hays
Angel Investors
Copyright 2009-17 Professor Gerome A. Hays
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Angel Investors What does Paul Graham say is the singular most important trait you should have as an Angel Investor?
Copyright 2009-17 Professor Gerome A. Hays
Early Funding Strategies Start-up Accelerators
Copyright 2009-17 Professor Gerome A. Hays
Early Funding Strategies Start-up Accelerators
Copyright 2009-17 Professor Gerome A. Hays
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Accelerators Structured Programs that recruit talented founders and encourages them to build a startup and launch it in three months 1
Apply to get into the program
2
Build and Launch a Product or Service
3
Present results to multiple investors
Progression through an Accelerator Copyright 2009-17 Professor Gerome A. Hays
Crowd Funding Crowd Funding is the practice of funding a project or venture by raising many small amounts of money from a large number of people” 2
1 Create a funding page
3
Set the amount you need to raise and minimum investment
If you meet or exceed the amount needed, the funds are released
Crowd Funding Progression Copyright 2009-17 Professor Gerome A. Hays
Crowd Funding
Oculus Rie Goal -‐ $250,000 Raised -‐ $2.44MM
Pebble: Goal -‐ $100,000 Raised -‐ $10.3MM Copyright 2009-17 Professor Gerome A. Hays
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Crowd Funding Most crowd funding has been about receiving a product reward for a contribution. The next round of sites will be about receiving equity (investment focused) End of Lecture