venture capital funding - otbc · series a jan-96 series b sep-96 series c may-97 series d sep-98...

1

Venture Capital Funding

Online Startup Camp #2, Video 4

2

Stages & Sources of Funds

Discovery Proof-ofConcept

Product Development & Beta test Revenue

Idea

Idea

Founders

Growth

Friends & Family

SBIR/STTR

Customers/Partners

Micro Loans

Seed Fund

CrowdFunding

Keep you Day Job

AngelsAngel Groups

VC Seed FundsAngelList

Angel Conferences

3




Idea

Venture FundsStrategic Investors

Idea

Founders

Growth

Friends & Family

SBIR/STTR

Customers/Partners

Micro Loans

Seed Fund

CrowdFunding

Keep you Day Job

AngelsAngel Groups


Angel Conferences

4




Idea

Venture Funds

Bank Loans

Revenue Based Funding

Venture BanksFactoring

Strategic Investors

Idea

Founders

Growth

SBA Loans

Equity Fund

Merger or IPO

Equipment financing

Friends & Family

SBIR/STTR

Customers/Partners

Micro Loans

Seed Fund

CrowdFunding

Keep you Day Job

AngelsAngel Groups


Angel Conferences

5




Idea

Venture FundsStrategic Investors

Idea

Founders

Growth

Friends & Family

SBIR/STTR

Customers/Partners

Micro Loans

Seed Fund

CrowdFunding

Keep you Day Job

AngelsAngel Groups


Angel Conferences

Milestones and Funding Needed

6

$2,500K

$2,000K

$1,500K

$1,000K

$500K

$0

-$500K

-$1,000K

-$1,500K

-$2,000K

-$2,500K

-$3,00K 2013 2014 2015 2016

PrototypeBeta Production

Release;Roll-out

Revenue Ramp

About Venture Capital Firms

• They invest other peoples’ money

• Limited partners

• Typically entities that have long-term view

• Typical life of a venture fund: 10 years

Angels compared to VCs

• Angels invest their own money

• Although they may invest as a group

• Typical size of an investment round:

• Angel: $200K to $2 million

• VC: $5 million and up

• Individual angels take work to find; VCs have websites

VCs - Are your Ready?

• High pay-off potential: 10x to 30x return• Market risk

• Early revenue; customer testimonials• Technology risk

• Beta or first-production release completed• Financing risk

• Funding strategy makes sense and looks feasible• Team risk

• Core team in place; ability to fill future roles

Why 10x to 30x?

• Goal: portfolio return > stock market return

• No return for 3 to 7 years

• Most investments will return zero

• Most of the rest have low return

• So each investment must be potential home run

10

Series AJan-96

Series BSep-96

Series CMay-97

Series DSep-98

Pre-money $4.6

Investment $2.0

Post-money $6.6

Series A % 30%

Gadzoox Networks

11

Example

Source: Luis Villalobos, Managing Director Tech Coast Angels


Gadzoox Networks

Series AJan-96

Series BSep-96

Series CMay-97

Series DSep-98

Pre-money $4.6 $17.0

Investment $2.0 $8.0

Post-money $6.6 $25.0

Series A % 30% 19%

Example

12


Gadzoox Networks

Series AJan-96

Series BSep-96

Series CMay-97

Series DSep-98

Pre-money $4.6 $17 $69

Investment $2.0 $8 $10

Post-money $6.6 $25 $79

Series A % 30% 19% 16%

Example

13


Gadzoox Networks

Series AJan-96

Series BSep-96

Series CMay-97

Series DSep-98

Pre-money $4.6 $17 $69 $135

Investment $2.0 $8 $10 $21

Post-money $6.6 $25 $79 $156

Series A % 30% 19% 16% 13%

Example

14

The Odds

15

2,000 Plans received

20 Get significant due diligence

2 or 3 Investments

VCs who have Invested in Oregon• Anthem Ventures• Artis Capital• Best Buy Venture • Chrysalix Energy Venture Capital• Crosslink Capital• DFJ Frontier• Emergence Capital Partners• First Round Capital• Founders Coop• Foundry Group• Hudson Clean Energy Partners• IA Ventures• Ignition Partners• Keating Capital• Kleiner Perkins Caulfield & Byers

• Madrona Venture Group

• Northwest Venture Partners

• Reference Capital

• RPM Ventures

• Saffron HIll Ventures

• Shasta Ventures

• Steamboat Ventures

• Total Energy Ventures

• Trinity Ventures

• Village Ventures

Strategic Investors

• Corporations looking for strategic advantage

• ... or maybe acquisition

• Usually will not be the lead investor

17

Strategic Investors - Advantages

• Credibility

• Domain knowledge

• Contacts/introductions

18

Strategic Investors - Cautions

• May be difficult for you to work with their competitors

• May limit your funding options

• May put off potential acquirers

• Right of first refusal

19

Closing a Venture Round

• It takes time & a lot of hours

•Prep time

•Time to meet/pitch/develop investors

• You’ll likely pitch at least 40-50 before you’re done

20

(Once you’re ready)


• Prepare materials•Exec summary•Slide deck•Biz plan; back-up financials•Document your intellectual property•Resumes/references for founders• ...

21



• Qualify; get introductions; pitch

•Qualify: are they a fit?

•Get an intro - Cold calls rarely work

•A portfolio CEO is great

•Another VC

•Attorney, etc.22



• Feed the Due Diligence machine

• If they are serious - they will want data

•Lots of data

• ... and references

• ... and they’ll hire an expert

23



• Pursue multiple term sheets

•Competition = higher valuation

•But ultimately you’ll select one...

24



• Find a lead; build a syndicate

•Find the best-fit VC (or term sheet)

•Build a syndicate

•More checkbooks around table is good

25



• Close

•Lots of docs to sign

•Money to transfer to an escrow account

•Released only when you hit goal

• It’s not over until the cash is in your bank account!

•Sooner is better 26


27

Your Startup Camp Mission: Week 4

• Update your business model (lean canvas)

• Update your 2 year financial forecast (summer camp video 7)

• Outline a 2 year funding strategy:

• Idea->Discovery->Prototype->Beta -> Revenue

28

Resources

• otbc.org/tag_cloud:• funding, funding_strategy• venture_capital• term_sheets

• Questions? Discussion forum: OnlineStartupCamp.com

29

OTBCTagCloud

otbc.org/tag_cloud

30

Week 3 Meetup: Thursday, Oct. 25

• 3pm - 5pm (+ networking) at OTBC

• Discuss venture capital funding

• Get/give feedback

31

Venture Capital Funding

Online Startup Camp #2, Video 4

venture capital funding - otbc · series a jan-96 series b sep-96 series c may-97 series d sep-98...

Documents