F 317 Venture Capital Entrepreneurial Finance STAGED FINANCING

F 317 – Venture Capital & Entrepreneurial Finance STAGED FINANCING (BOOTSTRAPPING, 3 Fs, ANGELS)

10, 000 FT View Venture Capitalists don’t fund ideas. Too Risky. So today we’re going to discuss how entrepreneurs get the requisite capital to launch a product or service before raising Venture Capital

Financing Lifecycle – High Potential Venture Cash Flow Seed Capital / Startup Capital Survival / Growth Capital Seasoned Capital IPO Early Stage Later Stage Secondary Offerings Mezzanine C B Valley of Death A Time Break even

Thought 1 - Staged Financing The process of raising enough capital to remove enough risk to make the opportunity attractive to the next group of investors High Risk Low High Low Cost of Capital

Thought 2 – Value Add is critical early in the start-up process Cash Contribution Sweat Equity Contribution Founders Angels Series A Series B

Financing Lifecycle – High Potential Venture Cash Flow Thinking / Collective Intelligence Bootstrapping 3 Fs Crowd Funding Accelerators Valley of Death Angels Time

Pre-Funding Strategy - Thinking - It’s really hard, and really cheap; - Return on investment is massive; - Diligence on competitors and market…free…and just a few clicks away; - Gain million dollar strategies/tactics on someone else’s nickel…. it’s called READING FOR THE WHYS…. not the WHATS.

Pre-Funding Strategy – Talk to others “Collective Intelligence” Networking is extremely hard, but the returns are significant. Share your thinking…it’s free…and the advice could be worth millions…. …but you have to be willing to hear the truth

When thinking/networking are exhausted…. you’re ready for: Bootstrapping

Bootstrapping 78% of all businesses are bootstrapped. So what does bootstrapping mean? - Relying on resources other than external financing. What are some bootstrapping strategies? - Don’t quit your day job (40 hours doing paid job / 40 hours working on start-up); - Sell something…. anything

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.

Bootstrapping What are the benefits of Bootstrapping (from an entrepreneur's point of view? 1) Forces the entrepreneur to be scrappy and cheap; 2) Allow the entrepreneur to keep more of his/her equity; 1) Creates an ethos within the company of relying on customers and revenue, not big buckets of money.

When Bootstrapping strategies have been exhausted…next option: Family & Friends $30 Billion Annually

Family & Friends (2 F Money) What makes 2 F Money attractive? What makes 2 F Money unattractive? (and…. there’s no right answer…. just share your thoughts)

Family & Friends (2 F Money) Friends and Family investors almost never have the knowledge and skills to objectively evaluate: - Valuations; Structures; Market Opportunities Technology Thus, this creates a precarious situation when raising money. So how should you approach?

Family & Friends (2 F Money) 4 Strategies when raising money from the 2 Fs: 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

When Bootstrapping strategies have been exhausted…next option: Angel Investors $20 Billion Annually

Angel Investors Wealthy individuals who invest money in fledgling ventures in exchange for the excitement of launching a business & acquiring and interest in any financial rewards.

Angel Investors According to Jay Adleson, Angel Investors are: - Accredited Investors (Definition? ) - Investment sizes range from: $10 K - $250 K - 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.

Angel Investors Entrepreneurs should first seek out active Angels (those looking to invest in startups)…. Why? - They Want to be a part of helping building something. What’s a key ingredient to getting an active Angel to invest? - A personal connection/affinity with the Founder(s)

Angel Investors But…. Active Angels don’t want to see 250 unsolicited emails (and business plans) from entrepreneurs each year……so what’ the best way of approaching them? - Network with individuals that have the ear and attention of the Active Angels in the community…if they like what you’re doing, they’ll make an intro. - Odds of success accelerate significantly as compared to a cold call.

Angel Investors / Angel List www. Angel. co / Premier Angel Investor Network. Post your opportunity on Angel List and begin marketing the opportunity to Angels throughout the Country.

Angel Investors / Angel List But Remember: Most Angels prefer to invest in their backyard and are very hesitant to invest in Start-ups outside their Geography. Why? ?

More Recent Strategies

Accelerators Structured Programs that recruit talented technical founders and encourages them to build a startup and launch it in three months 2 1 Apply to get into the program Build and Launch a Product or Service Progression through an Accelerator 3 Present results to multiple investors

Accelerators

Accelerators / Basic Structure Investment size: $25, 000 - $150, 000 Term: 90 Days Equity: 7 – 10% Class Size: 6 -12 / 3 Class Per Year

Accelerators / Win Examples

Accelerators

Emerging Strategies Crowd Funding

Crowd Funding “the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet. ” 2 1 Create a funding page Set the amount you need to raise and minimum investment Crowd Funding Progression 3 If you meet or exceed the amount needed, the funds are released

Crowd Funding

Crowd Funding / Story The story needs to be about not what you’re doing, but why you do it…. . the story really matters. Think about product commercials.

Crowd Funding Oculus Rift Goal - $250, 000 Raised - $2. 44 MM Pebble: Goal - $100, 000 Raised - $10. 3 MM

Crowd Funding / Structure 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 Questions?