Venture Capital When You Need It When You

Venture Capital When You Need It When You Don’t Union Square Ventures 915 Broadway New York, NY 212 -994 -7880

What Is Venture Capital? • High Risk Capital Seeking 50%+ Annual Rates of Return • Active Investors Who Will Step In and Make Changes to Protect Their Investment • Experienced Investors Who Know How to Build Large Companies

The Venture Capital Process • • • Find Deals Research Deals – A 3 -6 Month Process Structure and Close Deals Manage The Investment Exit The Investment

Some Statistics • 99%+ of All Startups Do Not Require Institutional Venture Capital • VCs average initial investment is $3 M+ • Average Dilution from Initial VC Investment is 40%+ • VCs look at over 100 business plans for every one they finance

When Is VC Good • Heavy R&D Component of the business – Seminconductors – Biotech – Datacomm Equipment • Very Large Opportunity Requiring A Lot of Working Capital – Federal Express – Amazon. com

The Cost of Venture Capital • Dilution – Average founder who uses VC owns less than 10% of the business upon exit • Liquidation Preference – The VCs will want to take their money out first • Control – It is a marriage and divorce is messy. You don’t always get to take the kids

When is VC Wrong For You • Too Early – You Don’t Have Enough to Show Yet (Revenues, Product, Team) • Too Small – You Only Need A Couple Million to Get Profitable • Not Proprietary – Your Business Has No Barriers to Entry. It is Just An Execution Game.

When Is VC Wrong For You [continued] • You Need to Move Fast – Raising VC takes 3 -6 months minimum • You Are Dilution Sensitive • You Need To Be In Control • You Don’t Need It

What Are The Alternatives? • • • Bootstrap Self-Finance Friends and Family Find Partners To Share The Risk Don’t Start A Business, Buy A Business

Why Bootstrap? • Get Going Fast – Don’t Wait For the VC • Stay Lean and Mean – Cash In The Bank Makes You Soft • Sell, Sell – The Customer is Your Best VC • Learn On The Job • Let Your Customers Write Your Business Plan

Bootstrapping What Comes Next? • Profitability – Happiness is Positive Cash Flow • Bankers – They’ve Got Cash and Are Willing To Lend • Venture Capital – On Terms You Can Accept

Self-Financing • Entrepreneurship Is Risk Taking – If You Won’t Take the Risk, Why Should Anyone • Go Without A Salary • Close Out Your Savings Account • Mortgage Your House • Sell Your Car

Friends And Family • By Far, The Most Common Form of Startup Finance • If Anyone Will Believe In You, They Will • Tell Them That There Is A Good Chance They’ll Lose Their Money • Try Your Hardest Not To

Partners • A Team Is Always Better Than A Lone Wolf • Misery Loves Company • Four Savings Accounts, Mortages, and Cars Add Up To A Lot More

Summary • VC money comes with a lot of strings attached. Make sure you can live with them • Raising VC money is not a guarantee of success • Seriously consider the alternatives to raising VC money