The Startup Guide Raising Venture Capital PDF

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The
Startup
Guide 2013 Edition
Building a Better World

Through Entrepreneurship
RYAN ALLIS With Ellen Daly

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

ENTREPRENEURSHIP
RAISing VENTURE
CAPITAL
STARTUPGUIDE.COM 465
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
entrepreneurship Raise funding or bootstrap
YOU HAVE TO DO WHATEVER

IT TAKES TO
KEEP COSTS LOW
UNTIL YOU HAVE REVENUE
THE #1 mistake I see

First time entrepreneurs
Make is raising too much
MONEY TOO SOON
Don’t raise outside CAPITAL

UNTIL AFTER
YOU KNOW YOU HAVE SOMETHING
THAT CUSTOMERS
ARE WILLING TO PAY FOR
TO TEST DEMAND
BEFORE YOU RAISE MONEY
BUILD AN INEXPENSIVE
PROTOTYPE and improve it
UNTIL YOU KNOW
CUSTOMERS LOVE IT
Unless you’re building a product

Like a new drug that requires massive
upfront investments don’t raise
Outside capital until after
You have proven customer demand
IF YOU RAISE MONEY TOO

SOON AND Don’T YET HAVE
SOMETHING CUSTOMERS WANT
INVESTORS WILL EAT YOU FOR
BREAKFAST
YOUR GOAL IS FOR EVERYONE

TO DO WELL--CUSTOMERS, EMPLOYEES,
INVESTORS & YOU
SO Don’T PLAY WITH INVESTOR MONEY
UNTIL YOU KNOW YOU HAVE SOMETHING
THAT THE MARKET REALLY WANTS
PRO TIP:
GET AS FAR AS YOU CAN
WITHOUT RAISING
OUTSIDE CAPITAL
AT ICONTACT
WE BOOTSTRAPPED
FOR THE FIRST 3 years
(2003-2006)
WE GOT to
$1.5 million in annual sales
BEFORE WE RAISED ANY FUNDS
BEYOND A $5,000 loan
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
We LIVED IN THE OFFICE

ATE RAMEN NOoDLES
AND Jumped IN DUMPSTERS TO
RECOVER PROOF OF PURCHASE
TAGS FOR REBATES
IN THE BEGINNING
DO WHATEVER IT TAKES
TO KEEP COSTS LOW
RYAN’s 3 RULEs OF BUSINESS:

1.  CREATE PRODUCTS CUSTOMERS LOVE
2.  RECRUIT TRULY EXCELLENT PEOPLE
3.  Don’t raise venture capital until you
have revenue & PROVEN CUSTOMER
DEMAND
TOO MANY STARTUPS FAIL

BECAUSE THEY RAISE VENTURE CAPITAL
BEFORE THEY HAVE REVENUE
AND BEFORE THE ENTREPRENEUR HAS
BUILT SOMETHING CUSTOMERS LOVE
THE ABSOLUTE BEST SOURCE

OF FUNDING IS FROM
PAYING CUSTOMERS
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
STARTUPGUIDE.COM
YOU FALL OFF A CLIFF 483
entrepreneurship Raise funding
JUST BECAUSE MONEY IS

AVAILABLE DOESn’t MEAN
it’s good for you OR
that your company is ready
entrepreneurship Raise funding OR BOOTSTRAP
OUTSIDE CAPITAL SHOULD BE

USED AS FUEL TO ACCELERATE
WHEN YOU’RE ALREADY MOVING
IN THE RIGHT DIRECTION
WHERE TO LOOK
DEPENDS ON HOW MUCH
YOU NEED AND HOW FAR
ALONG YOU ARE
HERE’s a chart of THE DIFFERENT TYPES OF MONEY BY STAGE
MONEY NEEDED <$50k $50k-$500k $500k to $1M $1m to $5m $5M to $25M $25M to $100M >$100M
SIDE JOBS Yes
CREDIT CARDS YES Yes if PRUDENT
YOUR SAVINGS Yes Yes if available
Friends & Family Yes Yes if available Yes
KICKSTARTER/Fundable Yes YES YEs
BANKS Yes YES
Angel investors YES YES
SUPER ANGELS YES YES
SEED STAGE VC YES YES
Growth StAGE VC YES YES
Mezzanine debt YES YES
LATE Stage VC YES YES
PRIVATE EQUITY YES YES
PUBLIC MARKETS YES
PIPES YES
CORPORATE BONDS YES
A great source to find early

Stage angels is
AngelList.com
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 I’VE SEEN Is
STARTUPGUIDE.COM
FUNDABLE.com 489
OTHER BUSINESSES
LIKE DALTON CALDWELL’s APP.NET
HAVE BUILT KICKSTARTER-LIKE
PLATFORMS OF THEIR OWN
TO FUND THEIR EARLY EXPENSES
DO YOUR BEST TO
AVOID RAISING MORE
THAN 1x your current
ANNUALIZED REVENUE
AS AN EXAMPLE, HERE iS Icontact’s

CAPITAL RAISED OVER 4 financing rounds
Capital raised Approx. Pre- Approx Post-
to balance ANNUALIZED CAPITAL Money money Approx % of
Date sheet REVENUE Source Capital type VALUTION valuation COMPANY SOLD
June 2003 $5k $5k FRIEND LOAN 0%
May 2006 $500k $1.5M IDEA FUND SEED STAGE $16m $16.5M 3%
June 2007 $5.3M $5.5M Updata SERIES A $27M $32.3M 16%
August 2010 $25M $38M JMI EQUITY SERIES B $100M $125M 20%
NOTE THAT OUR ANNUAL REVENUE WAS ALWAYS HIGHER THAN

THE AMOUNT OF MONEY WE RAISED
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
THE MOST IMPORTANT INVESTMENT TERMS

VALUATION ! THE HIGHEST VALUATION Isn’T ALWAYS BEST
OPTION POOL SIZE

LIQUIDATION PREFERENCES
FOUNDER REVESTING
PREFERRED VETO RIGHTS
TYPE OF PREFERRED STOCK
BOARD SEATS
FACTORS IN SELECTING YOUR INVESTORS

CHEMISTRY WITH THE PARTNER
OPERATIONAL EXPERIENCE
CURRENT PORTFOLIO ALIGNMENT
PARTNER/FIRM EXIT RESULTS
EXECUTIVE RECRUITING ABILITY
TERMS OF INVESTMENT
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
PRE-REVENUE VALUATION EXAMPLE

INCORPORATED b2c tech COMPANY RUN BY FIRST TIME
ENTREPRENEUR with 1 engineer
Pre-Money Valuation: $1m-$3m

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


tech COMPANY run By experienced CEO with 10 years c-level
experience, $100m prior Exit, & 5 engineers
Pre-Money Valuation: $10m-20m

TECH POST-REVENUE VALUATION GUIDELINES

1x to 12x revenue based on factors like
•  AMOUNT OF REVENUE
•  REVENUE GROWTH RATE
•  NUMBER OF USERs/customers
•  TYPE OF REVENUE
•  CEO/TEAM EXPERIENCE
•  COMPANY MARKET
•  LOCATION OF COMPANY
AS YOU GO ABOUT FUNDRAISING

YOU USUALLY WANT TO CREATE
A COMPETITIVE PROCESS
BUILD YOUR FUNDING

PROCESS TO ENSURE
YOU RECEIVE
MULTIPLE TERM SHEETS
HAVE ACCESSIBLE
IN YOUR HEAD
VALUATION COMPARABLES
• RECENT SIMILAR Venture Deals
• Recent SIMILAR M&A deals
• Public comparables
RAISE MONEY
ONLY FROM SMART
PEOPLE YOU REALLY LIKE
You’LL BE MARRIED to
Them FOR THE NEXT
3-10 years
WAIT TO RAISE
Your series A
UNTIL You HAVE
PROVEN MATHEMATICALLY
THAT X DOLLARS SPENT
BRINGS Y DOLLARS BACK
And make sure y is >4 times x!
SHARE
FREELY
The
Startup
Guide 2013 Edition
Building a Better World

Through Entrepreneurship
RYAN ALLIS With Ellen Daly

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

The Startup Guide Raising Venture Capital PDF

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SHARE

Building a Better World

RYAN ALLIS With Ellen Daly

THIS presentation IS PART OF A LARGER slide DECK on

For more slides & CONTENT visit:

YOU HAVE TO DO WHATEVER

THE #1 mistake I see

Don’t raise outside CAPITAL

Unless you’re building a product

IF YOU RAISE MONEY TOO

YOUR GOAL IS FOR EVERYONE

We LIVED IN THE OFFICE

RYAN’s 3 RULEs OF BUSINESS:

TOO MANY STARTUPS FAIL

THE ABSOLUTE BEST SOURCE

Venture capital is LIKE THE

JUST BECAUSE MONEY IS

OUTSIDE CAPITAL SHOULD BE

A great source to find early

ALSO CHECK OUT THE NEW

AS AN EXAMPLE, HERE iS Icontact’s

NOTE THAT OUR ANNUAL REVENUE WAS ALWAYS HIGHER THAN

YOUR NEGOTIATING POWER is BASED ON

THE MOST IMPORTANT INVESTMENT TERMS

OPTION POOL SIZE

FACTORS IN SELECTING YOUR INVESTORS

TECH STARTUP PRE-REVENUE VALUATION GUIDELINES

PRE-REVENUE VALUATION EXAMPLE

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

PRE-REVENUE VALUATION EXAMPLE

Pre-Money Valuation: $4m-8m

PRE-REVENUE VALUATION EXAMPLE

Pre-Money Valuation: $10m-20m

TECH POST-REVENUE VALUATION GUIDELINES

AS YOU GO ABOUT FUNDRAISING

BUILD YOUR FUNDING

Building a Better World

RYAN ALLIS With Ellen Daly

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