get funded: financing your startup
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Back to Basics: Financial Fundamentals For Startups
Get Funded: Financing your Startup August 13, 2013
Smith AndersonSilicon Valley Bank
(617) 796-6958Smanderson@svb.com
Twitter: @SmithTown561
Dan AllredSilicon Valley Bank
(617) 796-6904dallred@svb.comTwitter: @dgallred
http://danallred.tumblr.com
Chuck GoldmanApperian
CEO and Co-Foundercgoldman@apperian.com
Arye BarnehamaMelon
Co-Founder arye@usemelon.com
Why We’re Here
Sources of Financing OverviewCrowdfunding: A Kickstarter case study. Equity: What you need to know.Debt: When is it right for you.
Financing partners take risk
Bootstrapping • Vendor financing Trade credit Stretching payables
• Customer financing Prepayments, deferred revenue
• Self financing Working without pay Ge>ng others to do the same Personal credit, credit cards, etc.
Bootstrapping • Amount of capital RelaAvely small amounts
• Use of capital Working capital (brings future cash inflow forward OR delays current cash ouElow)
• Stage of company Useful at all stages, especially startup.
• Who bears the risk & what type Personal risk early, bankruptcy risk later Working capital risk (risk of insolvency)
Crowdfunding deep dive
Crowdfunding Then..
Crowdfunding Then..
• 1884 this project ran out of money.
Crowdfunding Then..
• 1884 this project ran out of money.
• Joseph Pulitzer wrote an arAcle asking for donaAons to fund project.
Crowdfunding Then..
• 1884 this project ran out of money.
• Joseph Pulitzer wrote an arAcle asking for donaAons to fund project.
• $100K raised to finish this project in just under 6 months
Crowdfunding Then..
• 1884 this project ran out of money.
• Joseph Pulitzer wrote an arAcle asking for donaAons to fund project.
• $100K raised to finish this project in just under 6 months
• 125K people donated to this fund.
Crowdfunding Then..
• 1884 this project ran out of money.
• Joseph Pulitzer wrote an arAcle asking for donaAons to fund project.
• $100K raised to finish this project in just under 6 months
• 125K people donated to this fund.
• GiU from France
Crowdfunding Then..
• 1884 this project ran out of money.
• Joseph Pulitzer wrote an arAcle asking for donaAons to fund project.
• $100K raised to finish this project in just under 6 months
• 125K people donated to this fund.
• GiU from France
Crowdfunding: Today and BeyondProduct/Project
• Currently thriving– Pledgie (2006)– Sellaband (2006)– IndieGoGo (2008)– GiveForward (2008)– Kickstarter (2009)– RocketHub (2009)– Fundly (2009)– GoFundMe (2010)– Appsplit (2010) – Microventures (2010)– Fundageek (2011)
• Incredibly powerful momentum in the last few years.
Equity • Not legal…yet• JOBS Act passed July 10th• Accredited vs. non-‐accredited.
Crowdfunding: A Kickstarter story
To Kickstart? Not to Kickstart?
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
Not to Kickstart?
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
• Almost zero risk if market
Not to Kickstart?
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
• Almost zero risk if market • MarkeAng story done for
you.
Not to Kickstart?
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
• Almost zero risk if market • MarkeAng story done for
you.• Almost immediate access to
cash
Not to Kickstart?
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
• Almost zero risk if market • MarkeAng story done for
you.• Almost immediate access to
cash
Not to Kickstart?
Ø No secrets to hide from compeAAon.
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
• Almost zero risk if market • MarkeAng story done for
you.• Almost immediate access to
cash
Not to Kickstart?
Ø No secrets to hide from compeAAon. Ø Price point
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
• Almost zero risk if market • MarkeAng story done for
you.• Almost immediate access to
cash
Not to Kickstart?
Ø No secrets to hide from compeAAon. Ø Price pointØ Go to Market Strategy
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
• Almost zero risk if market • MarkeAng story done for
you.• Almost immediate access to
cash
Not to Kickstart?
Ø No secrets to hide from compeAAon. Ø Price pointØ Go to Market Strategy Ø Runway
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
• Almost zero risk if market • MarkeAng story done for
you.• Almost immediate access to
cash
Not to Kickstart?
Ø No secrets to hide from compeAAon. Ø Price pointØ Go to Market Strategy Ø Runway Ø Timing
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
Crowdfunding: A Kickstarter story
To Kickstart?
• Demand/market validaAon done before you go to market.
• Almost zero risk if market • MarkeAng story done for
you.• Almost immediate access to
cash
Not to Kickstart?
Ø No secrets to hide from compeAAon. Ø Price pointØ Go to Market Strategy Ø Runway Ø TimingØ Funding Commitments
• Kickstarter -‐ Launched in 2009• $750MM funding 46,000 projects.• 4K currently in progress, 110,000 total• Melon Kickstarter
Is it right for you?
Probably• Hardware with a specific
cost for prototype.• Consumer facing projects• Micro-‐market products• Market unknown products. • One-‐off garage projects• ArAsts• Philanthropists
Probably Not• Large companies• Complex products with
intricate sales cycles• Infrastructure or enterprise
products that are unlikely to touch consumers.
Angel Investors
Angels• Class of capital Equity (ownership in company)
• Structure/organizaAon High net worth (HNW) individuals Some groups and clubs Some “super angel” funds
• MoAvaAon/incenAves Upside – stock appreciaAon Most look for an “exit” (i.e. liquidity event
Angels• Amount of capital $100k to $2mm
• Use of capital Growth capital (i.e. new cash for growth)
• Stage of company Early-‐stage, product/market development
• Who bears the risk & what type Angel investor bears risk Product/market risk, execuAon risk
Angels• Structure of investment Purchase of common or preferred stock SomeAmes converAble debt iniAally
• Price of investment 25-‐50% of company’s stock ConverAble debt ~25% min ownership
• Monitoring the investment ReporAng Some angels (or groups) want BOD seat
• Value add $$$, industry experAse, connecAons
Venture Capital
Venture Capital • Class of capital Equity (ownership in company)
• Structure/organizaAon Limited partnership 10 year funds (invest, grow & harvest)
• MoAvaAon/incenAves Upside (30% IRR and 3x overall for fund) Looking for an “exit” (i.e. liquidity event)
Venture Capital• Amount of capital $1mm-‐20mm Some seed acAvity as well
• Use of capital Extreme growth capital
• Stage of company Early-‐stage and growth stage
• Who bears the risk & what type Limited partners and general partners Product, market, tech & execuAon risk
Venture Capital• Structure of investment Purchase of preferred stock SomeAmes converAble debt iniAally
• Price of investment 20-‐40% of company’s stock
• Monitoring the investment ReporAng BOD seats RedempAon rights, registraAon rights
• Value add $$$, industry experAse, capital markets
Debt
Debt• Class of capital Debt (senior debt as discussed here)
• Structure/organizaAon Banks (regulated to accept deposits) Finance companies (corporaAons) Debt funds (limited partnerships)
• MoAvaAon/incenAves Banks – interest & fee income Finance companies, funds – interest Venture debt – warrant income
Debt• Amount of capital $1mm-‐100mm
• Use of capital Working capital Growth capital AcquisiAon capital
• Stage of company All stages
• Who bears the risk & what type The lender
Debt• Structure of investment Senior secured credit
• Price of investment Interest and fees for established co’s Plus warrants for pre-‐profit co’s
• Monitoring the investment ReporAng Financial covenants AffirmaAve & negaAve covenants
• Value add $$$, connecAons, patern recogniAon
Case study
• The early days… -‐Chuck – director of enterprise at Apple -‐Launches Apperian in January 2009 -‐App development for enterprise clients -‐Fee for service work
• How did I finance the business?
• The early days… -‐Bootstrapping -‐Self-‐financing (and sacrifice) -‐Vendor relaAonships -‐Customer financing
• Six months later… -‐The dogs are eaAng the dog food -‐iPhone is exploding in the enterprise -‐Recurring service revenues -‐Vision for EASE (Enterprise ApplicaAon Services Environment) plaEorm
How did I finance the business?
• Six months later… -‐$1mm seed round -‐Common Angels & Launch Capital -‐AddiAonal $500k in Q1-‐10
• Q1-‐10: the one year old startup… -‐Begin developing EASE plaEorm -‐Acquihire a small development shop -‐Focus solely on enterprise app clients -‐Begin transiAoning from services to products
How did I finance the business?
• Q1-‐10: the one year old startup… -‐$500k SVB line of credit -‐Leverage A/R with enterprise clients -‐Smooth out cash-‐flow as R&D expense ramps -‐Bridge between payrolls – when flush with A/R but low on cash, uAlize line of credit for payroll, expenses, etc.
• Q1-‐11: the two year old startup… -‐Enterprise mobility is hot! -‐BYOD, iPad in Xmas 2010 -‐Apperian building out management team -‐Customers converAng from service contracts to EASE plaEorm -‐ Key move: move to recurring SaaS Product
How did I finance the business?
• Q1-‐11: the two year old startup… -‐$9.5mm series A -‐NorthBridge, Bessemer, Kleiner Perkins -‐1st enterprise investment from KP iFund -‐Over 2 years of cash runway
• The past two years… -‐ConAnued market expansion -‐MDM, MAM, BYOD, etc. -‐Enterprise security, compliance, etc. -‐DistribuAon partnerships
• Personnel growth– 5-‐20 year one, 40 by year three and 70 year four
How did I finance the business?
• The past two years… -‐$12.4mm preempAve series B in Mar ‘12 -‐$4.6mm series B extension in Jan ’13 with Intel Capital -‐ConAnued expansion of SVB credit relaAonship each year
• Exit Scenario at 10x revenue – Looking at market trends…
Questions?
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