get funded: financing your startup

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presents Back to Basics: Financial Fundamentals For Startups

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Financing your company is easier said than done. Fortunately, there are a number of options to raise money. Learn how from Dan Allred and Smith Anderson from SVB, and Chuck Goldman from Apperian. Learn more from the experts by visiting http://intelligent.ly/learn

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Page 1: Get Funded: Financing Your Startup

presents

Back to Basics: Financial Fundamentals For Startups

Page 2: Get Funded: Financing Your Startup

Get Funded: Financing your Startup August 13, 2013

Smith AndersonSilicon Valley Bank

(617) [email protected]

Twitter: @SmithTown561

Dan AllredSilicon Valley Bank

(617) [email protected]: @dgallred

http://danallred.tumblr.com

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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.

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Financing partners take risk

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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.

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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)

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Crowdfunding deep dive

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Crowdfunding  Then..

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Crowdfunding  Then..

• 1884  this  project  ran  out  of  money.  

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Crowdfunding  Then..

• 1884  this  project  ran  out  of  money.  

• Joseph  Pulitzer  wrote  an  arAcle  asking  for  donaAons  to  fund  project.  

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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

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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.  

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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.

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Angel Investors

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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

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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

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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

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Venture Capital

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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)

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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

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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

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Debt

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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

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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

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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

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Case study

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• 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?

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• The  early  days…  -­‐Bootstrapping  -­‐Self-­‐financing  (and  sacrifice)  -­‐Vendor  relaAonships  -­‐Customer  financing  

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• 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?

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• Six  months  later…  -­‐$1mm  seed  round  -­‐Common  Angels  &  Launch  Capital  -­‐AddiAonal  $500k  in  Q1-­‐10

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• 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?

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• 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.

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• 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?

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• 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

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• 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?

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• 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…

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Questions?

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