Matt Holleran

General Partner, Cloud Apps Capital

mholleran@cacptrs.com

@cloudappsvc

Bootstrap, Angel or Venture:Determining the Right Financing Strategy for Your Startup

Judy Loehr

Venture Partner, Cloud Apps Capital

jloehr@cacptrs.com

@cloudappsvc

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Speakers

3

Melissa Burnell

Senior Regional Manager,

ISV & Channel Alliances

Matt Holleran

General Partner

Judy Loehr

Venture Partner

Blakely Graham

Product Design and

co-founder

Rupert Mayer

CEO and founder

Ray Hein

CEO and co-founder

Agenda

Modern cloud business application startups

The new market landscape

3 financing myths

2 financing realities

3 cloud business application financing options

The new venture financing model for cloud business app startups

Framing your market size

Venture math

Panel discussion

Q&A

1

2

3

4

5

6

7

8

9

10

5

IF multi-billion $ market,

THEN venture to MOVE FAST

IF < multi-billion $ market,

THEN bootstrap and accelerate

The short answer

- someone who’s never built a cloud

business application company

Sounds like a

lifestyle business“

”

Modern cloud business application startups look different than ten years ago

6

BUILD ON CLOUD

PLATFORMS

ENTERPRISE-READY

Enterprise customization, security,

reliability & performance

LEVERAGE APP

MARKETPLACES

AWARENESS & CREDIBILITY

Get in front of Salesforce Admins and users

Trust from being AppExchange certified

AND SOME THINGS STAY THE SAME

MUST BE GREAT PRODUCT

Solve a real problem

Good user experience

MUST SELL YOUR PRODUCT

Clear messaging & GTM strategy

Your own sales team

MAKE CUSTOMERS SUCCESSFUL

Provide great customer support

5-star ratings matter

There are a growing # of business software markets

7

CRM

HCM/HRM

ERP

Finance & Accounting

Marketing

PLM

Billing

PSA

GRC

IT Management

Analytics

Collaboration & Productivity

Customer Success

Project Management

IP Management

Risk Management

Tax Management

MORE CATEGORIES

Client server

1990’s

SaaS 1.0

2000’s

Modern cloud

business

applications

2010+

Sold to IT

Sold to VPs

Available to all business

users

Four ways investors view the different types of cloud business app companies within SaaS

The new cloud business app market landscape

Complex and

mission-critical

enterprise apps

Apps for a broad

range of departments

and specific business

users

Apps and tools that

solve a repetitive

use case and save

business users time

Business solutions

built for a specific

ecosystem of SaaS

users

Enterprise CloudNew cloud business

application marketsSaaS Tools Ecosystem Apps

8

Startup financing myth #1: “IPO or Bust”

9

Series CSeries ASeed$50M$6 – 8M$500k - $1M

Not the right financing strategy for every

cloud business software startup

Series B$25M

Series D$75M

IPO

Modern cloud application companies no

longer need $150M+ capital to get to IPO

TRADITIONAL VENTURE FINANCING PATH

Startup financing myth #2:

Angel funding means my company is a

good fit for venture financing

10

“Look Ma – I got

angel funding so

Series A will be a breeze.”

Startup financing myth #3:

you can bootstrap your way to a

global category leading company

11

“I’ll just take a little Seed

funding and go win in my

big competitive market.”

Reality #1: venture funding isn’t right for every startup

ECOSYSTEM APPS < $ BILLION MARKETS

“Killer Features”

Requires ecosystem expertise

Important functionality

Single ecosystem solutions

Specialized Markets

Real value for specific business

users

Not a big enough market to

support a future public company

12

> $ BILLION MARKETS

Multi-Billion Category

Large global serviceable market

Robust product & roadmap

Path to be a $100M ARR

company

VENTURE-BACKABLENOT VENTURE-BACKABLE

Reality #2: Angel or Seed isn’t enough if you’re going after a big market; big markets require venture to go faster

Can’t go after the global

market quickly enough

Gives competitors a chance to gain

momentum and solidify a leadership

position in the market

13

Frame & deliver on GTM

strategy

Hire key executives

Expand your product

$3-6M

IT TAKES

To hire the right executives and lay the

right foundation for future category leadership

17

VENTUREBOOTSTRAP “ACCELERATE”

There are different paths to financing modern cloud business app startups today

3 cloud business application financing options

• <$1B serviceable market, or

• Single ecosystem products

• $2B+ serviceable market

• Potential to be a global category leading company

• Path to $100M ARR

Grow more slowly, but keep 100% ownership

Seek ~$1M financing to accelerate customer

acquisition & revenue growth

IMPLICATIONS

Need $3 - $6M to hire key executives, build full product and demonstrate customer

success – the foundation for a future global category leading

company. 13

Founders elbow grease until revenue can fund hires & GTM investment

The new venture financing model for modern cloud business application companies

Series CClassic Series A Series B Series D

Classic Series A is the

right amount to hire

key executives,

demonstrate customer

success and refine

your CAC model.

Series B goes toward

hiring more executives

and team members

and scaling your

customer acquisition

and success model.

Series C enables you

to invest in large

enterprise customer

acquisition and

success – globally.

Series D is where you

prepare your company

for the public markets.

$8-10m $20m$3-6m $50m

Primary capital Primary capitalPrimary capital Primary and secondary capital

19

BOTTOMS UP

Best for clarity & conviction

MARKET RESEARCH

“What do others say?”% of TOTAL MARKET

How big is your slice?

It’s important to size your market the same way investors will

So how big is your market?

• Analyst firms

• Published research

• Press releases

• Analyst firms

• Published research

• Press releases

• Conventional wisdom

• Government statistics

• Detailed NAICS codes

• LinkedIn research

• Industry-specific research

10%category spend on analytics

Example:

14

Venture math: bottoms up # users example

# users# sweet spot

users

Avg

PriceTAM

%

ServiceableSAM

In U.S. 2,078,420 415,684 $1,200 $498,820,800

90% $448,938,720

Global 6,235,260 1,247,052 $1,200 $1,496,462,400 80% $1,197,169,920

User-based approach, apply

reasonable “sweet spot” % for your

product, ex: 20%

Use 3x for global estimates

Use average annual user price

TAM = # users or companies x

ACV $

% Serviceable = those who are able

to buy (aren’t under a rock and don’t

already have something)

SAM = TAM & % serviceable

Bottoms-up approach is the most compelling and actionable

GUIDELINES

15

Venture math: bottoms up # companies example

#

employees

# U.S.

companies

$ACV per

company$ TAM (U.S.)

%

Serviceable$ SAM (U.S.)

1 to 9 150,000 $3,000 $450,000,000 40% $180,000,000

10 to 49 50,000 $12,000 $600,000,000 50% $300,000,000

50 to 100 35,000 $50,000 $1,750,000,000 80% $1,400,000,000

101 to 499 10,000 $100,000 $1,000,000,000 80% $800,000,000

500+ 5,000 $200,000 $1,000,000,000 80% $800,000,000

TOTAL 250,000 $ 4,800,000,000 $ 3,480,000,000

This approach allows you to be realistic about how much different size companies will pay for

your product and how realistic it is to reach prospects in different segments

16

VENTURE$2B+ SAM

BOOTSTRAP<$500M SAM

“ACCELERATE”$500M - $1B SAM

Pursuing the right financing strategy will save you time and result in the best outcome for your startup

Recommended cloud business application financing strategies

• Get initial customers to fund your development

• Typically no stock plans

• Founders own 100% of company

• Assume minimal income for first 1 – 2 years

• Self-fund until you can demonstrate customer success & revenue

• Take ~$1-2M to grow faster

• Ownership depends on source of financing

• $2B+ serviceable market

• Path to $100M ARR

• Potential to be a global category leading company

Revenue-based loans

($15k+ MRR)High-value angels

17

$3-6m

Classic Series A

Panel

20

Matt Holleran

General Partner

Judy Loehr

Venture Partner

Blakely Graham

Product Design and

co-founder

Rupert Mayer

CEO and founder

Ray Hein

CEO and co-founder

Bracket Labs: modern productivity apps built on Lightning

21

• TaskRay solves post-sales project and process management for Salesforce customers

• Top 10 paid app on the AppExchange

• 1200+ customers; 140+ 5-star reviews

Bootstrap

• $40k personal investment

• Privately held S Corp

• Employees have options

• First revenue within 6 months,

now profitable

OUR TEAM CLOUD PLATFORM FINANCING STRATEGY

Sales,co-founder

Product Design,

co-founder

Lead Developer,co-founder

Ipfolio: modern cloud IP management software

22

• Going after $500M IP portfolio software market

• Compete against incumbent on-premise systems

Rupert Mayer

CEO & founder

15 years experience in IP management industry

“Accelerated” financing

• Personal investment

• Value-add angels

• Revenue-based financing

OUR TEAM CLOUD PLATFORM FINANCING STRATEGY

Propel PLM: enterprise cloud product lifecycle management

23

• Going after $17B global PLM software market

• Compete against Oracle and a handful of SaaS PLM providers

CEO co-founder

VP PM co-founder

CTO co-founder

OUR TEAM CLOUD PLATFORM FINANCING STRATEGY

$4.2MClassic Series A venture financing

Panel

24

Matt Holleran

General Partner

Judy Loehr

Venture Partner

Blakely Graham

Product Design and

co-founder

Rupert Mayer

CEO and founder

Ray Hein

CEO and co-founder

Thank Y u