Post on 15-Jul-2015
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INNOVATION B E C A U S E T H E F U T U R E M A T T E R S
A P R I L 2 0 1 5
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Our Future MaBers
Bootstrapping C R E A T I N G S M A R T L E V E R A G E T O F U N D Y O U R B U S I N E S S J O N E W O R R E N
October 2014
Ok, so you’re working on an idea for a business, but startup capital is hard to come by. What now?
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The VC Perspective
Numbers from MaRS IAF: • In 2013: Met with/talked to
1,000 companies
• Received 250 applicaZons • Serious Due Diligence for 50 • Made 13-‐14 investments
– 6 IAF alone – 3 with one or more angels
– 2 with other VC – 2 with other VC and angels
• Per 10 investments
– 1-‐2 that are very successful – 6-‐7 that do OK – 2 fail outright
• Successes must cover losses and fund cost + yield returns
• Early stage: Looking for 10-‐12x return in 5-‐7 years
• Later stage: 5-‐7x in 4-‐5 years
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"pull oneself over a fence by one's bootstraps” Adynaton: a figure of speech using hyperbole to suggest a complete impossibility. Examples: • Not before Hell freezes over • When chicken grow teeth
Bootstrapping
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Bootstrapping: A way to finance your business
without giving up equity
Crea:ng Smart Leverage Using gravity to your advantage
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Time
ExperZse Money
Leverage
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OperaZng principle:
Cash flow is more important than profit
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Cash flow Cash in hand
Burn rate
Runway
Liquidity
Key terms:
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How to bootstrap? B O O T S T R A P P I N G
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1. Cash efficient set up
• Use home office as long as possible
• Shared work space may offer hot desks, meeZng rooms, office space
• Get an off-‐the shelf website
• DIY: Use tools like Freshbooks to help generate and track invoices and taxes for you
• In the beginning; hire contractors on hourly basis
• Use services like elance.com to find freelance markeZng, graphic designers etc.
• Find free/low cost networking events – to build your network and do iniZal market research
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Cash efficient does not mean cheap…..
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• You can buy really cheap Computers, but should you?
• If PCs are mission criZcal equipment – think about the cost of being without for 30 days…
• Example bought two PCs, not the cheapest, but sZll affordable: both broke down within 3 weeks…….could not be serviced locally so waited 6-‐8 weeks before my persistence had the shop give me two new PCs… a lot of unnecessary frustraZon.
For example
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Other examples
• Lawyers • Accountant • PR agency
• Using the right service providers can help build credibility
• They can also be sources of referrals
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M O N E Y , M O N E Y , M O N E Y
SOURCES OF FUNDING
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Co-‐Founders
Grants & Loans
Suppliers Partners
Customers
Community (“the Crowd”)
Funding can be provided by:
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L E V E R A G E P U B L I C L Y A V A I L A B L E F U N D S
GRANTS & LOANS
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• A search tool in MaRS’ Entrepreneur’s Toolkit with more than 4,500 government funding programs
• The $30B Federal/Provincial/Municipal incenZves market is made up of: • $26B in grants
• $4B in tax credits Note: Use of grants over tax instruments is a strong trend as it produces beBer ROI for government funders
Grants & Loans: The Funding Portal
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A rich source of funding
• Average grant size among the Top 500 recipients is about $1.8M
• About 1.5% of grants are over $10M
• 76% of grants are paid to companies and – 95% of these are paid to SMEs
• 28% of recipients are based in Ontario
• Top sectors are Manufacturing, Media, and Tech
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0 50 100 150 200 250
IT and DigitalAcademic
Arts
Manufacturing
Cleantech / Energy
AccomodationAgriculture
Mining
Healthcare
Telecommunications
Aerospace
The Funding Portal Search Tool Over 2,500 searches on The Funding Portal since September 2013.
2015-‐04-‐02
Industry sector
Annual revenue Startup maturity
3-‐5yrs
Startup
5-‐10 yrs +10 yrs
< 100K
100K-‐1M
1M-‐10M > 10M 1-‐3yrs
Presented data from 10/01/2014 to 02/28/2015 Visit marsdd.com/funding
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D O Y O U H A V E S U P P L I E R S T H A T A R E W I L L I N G T O S H A R E R I S K W I T H Y O U ?
SUPPLIER FUNDING
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How suppliers can help
Mostly about Zming and terms of payment:
• Long credit – Can they wait unZl you get
paid?
• Share the risk – Are they willing to ONLY get
paid when you make money
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F O C U S O N T H E B U S I N E S S
CUSTOMERS
“The purpose of business is to create a customer”"
Peter Drucker, The Practice of Management!
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Pay in advance – partly or fully • Common pracZce in media, SaaS, consulZng
• Requires an offering – a product or service descripZon/specificaZon – that the customer desires
• Significant focus on sales and relaZonship development
How customers can help
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• Can you find a customer that is willing to pay all or most of the cost of developing the product you plan to develop in any case? – Common in soWware and informa:on businesses
– Agreement with customer allows you to retain control of the IP
– Customer is granted “non-‐exclusive” and “non-‐transferable” license to use product for a limited period
Paid “product development”
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C A N Y O U B U I L D A C O M M U N I T Y O F C U S T O M E R S
CROWDFUNDING
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• Crowdfunding is a form of customer funding
• Pre-‐sales vs dona:ons • Flexible vs fixed funding targets • PayPal restric:ons re pre-‐sales campaigns
Basics
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• Create video (normally 6-‐8 weeks) • Plan media & Social media outreach • Set targets, build team, determine rewards
Prep & set-‐up 2 weeks – 6 mths
• Manage media in :mely fashion • Respond to campaign comments • Maintain momentum
Launch & Mgmt 4-‐6 weeks
• For H/W: manage manufacturing and logis:cs
• Manage media & community
Close & Fulfil 4-‐6 months
Pre-‐sales Campaign Anatomy
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• Most crowdfunding campaigns fail – What is the opportunity value lost if that happens
– What impact will failure have on the team
• Financial: – Don’t expect to make money on a pre-‐sales campaign.
– For the most part it is simply markeZng.
– Know your cost so you don’t undercharge • Crowdfunding is not easy money!
Risks
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B O O T S T R A P P I N G A N D T H E B I G P I C T U R E
STRATEGIC PERSPECTIVE
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The $100,000 ques:on:
How can you get to $100,000 in monthly revenues by bootstrapping?
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B2B example • Deal size: $25k • New deals/month: 4 • Conversion rate: 5% • New leads required: 80/
month
Gefng to $100k
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B2SMB - “Pirate Metrics” - AARRR
Acquisition
Activation
Retention
Revenue
Referral
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SaaS – Using AARRR
Acquisition: 1000
Activation: 200
Retention: 196
Revenue: $19,600
Referral: N/A
98%
20%
$100
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Gefng to $100k
$100,000/($100*0.98*0.20) Having 5,102 ac:ve/paying customer per month
To get from “0” to $100,000 in 12 months means: -‐ Adding 100 new paying customers per week (reten:on) -‐ Adding 102 new users per week (Ac:va:on) -‐ Adding 510 new sign-‐ups per week (acquisi:on)
How much web traffic is needed to get to 510 new sign-‐ups per week?
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• Bootstrapping is about smart leverage • Cash is King (not profits) • Crowdfunding is a new tools that can help
bootstrappers
Summary
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THANK YOU!
B E C A U S E T H E F U T U R E M A T T E R S
I NNOVAT ION