Pillsbury March 18 Fundraising Jeff Stewart

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The Funding Lifecycle

The Founder Institute – March 18, 2010

Presented By: Jeff Stewart



What We Hope To Address Today:

• How does startup funding work?

• When can my company raise capital?

• How does one begin the fundraising process?

• How much money should I raise, and how long should that

money last?

• What are the stages in a typical funding lifecycle?

• What are the milestones and expectations?

• What are some tips and tricks to succeed?



Jeff’s 6 Milestones of Valuation:

Fully VettedInitial Idea

Value

Time

Full-TimeTeam

First PayingCustomer

FunctionalProduct

Positive CashFlow

Multiple ExitOpportunities

Your Funding Strategy, and Execution Plan

should work “hand in glove”



The Right Investors Can Help:


Value

Full-TimeTeam


FunctionalProduct

Positive CashFlow


Time

Investors can Help in 3 ways:• Achieve milestones sooner (Compress X Axis)

• Superior step-up (Expanded Y Axis)

• Help prevent you from running out of money



What You Want:


Value

Full-TimeTeam


FunctionalProduct

Positive CashFlow


Time

Good Investors can:• Provide outside perspective• Give you a dry run for a sale• Introduce key hires

• Lend Credibility• Provide Cash• Introduce Customers• Introduce Exit Opportunities• Increase Exit Valuations



What You Will Get:


Value

Full-TimeTeam


FunctionalProduct

Positive CashFlow

Time

“Entrepreneurship is often 2 steps forward, 1 step back”



What You Don’t Want:


Value

Full-TimeTeam


FunctionalProduct

Time

Company runs out of money!



Budgeting and Cash Flow:

Rule 1: Don’t Run out of Money

Rule 2: The rule of 2x3 …It will take either twice as long and cost three times as much or it will take three times as long and cost twice asmuch

Rule 3: You can’t choose or predict which it will be!

Rule 4: Be very frugal, make every penny count

Rule 5: Don’t be too frugal, know where to invest

Rule 6: Don’t Run out of Money



“There are plenty of investors that want to invest. Good teams with

good business models will get funded”

Joseph Bartlett - 1994



Which Source Is Right For You:

1. Sweat equity, and the kindness of others

2. Customer Funding (Revenue)

3. Vendor/Supplier Funding (Payables and Special Agreements)

4. Friends and Family (the 3 Fs)

5. Angel wannabes (Accredited via inherited wealth or dental school)

6. Angels (Accredited via relevant business success)

7. Venture Capital – Seed Stage

8. Venture Capital – Later Stage

9. Strategic Inventors

“Where you are in milestones achievement should

drive who you approach”



Pipeline Rules of Thumb:

• Have a pipeline report

• Investors often lead to more investors

• Your pitch will get better• Manage urgency and timing

• Leads can be elusive, be your own lead

Example Funding Pipeline Report

Investor Type Chance Amount Expect NotesBob Smith Angel 5% 25,000$ 1,250$ in Aspen till June

Frank LLc Seed VC 30% 100,000$ 30,000$Donna Jones Angel 30% 100,000$ 30,000$ Passed

Jeff Duke Angel 80% 50,000$ 40,000$ ReviewingLarry Leftco Friend 100% 25,000$ 25,000$ Commited

Sam Socks Angel 30% 100,000$ 30,000$ Meet FridayKen Kim Super Angel 90% 75,000$ 67,500$W est Wheeler Angel 30% 25,000$ 7,500$

Don Obon Seen VC 20% 250,000$ 50,000$ Follow UpJames Jones Angel 2% 50,000$ 1,000$

282,250$



Know What To Expect:

Median Pre-Money Value (Millions):

*Data courtesy of Cooley Godward Kronish, based on their internal deal flow



Beware: Bad Investors Can Kill Your Business

• Investors can add enormous value up till just before they

invest (enjoy the process)

• They might add value after they invest, but you need to be

intelligent, strategic and proactive• The right investors should save you time, not cost you time

• The wrong investors can kill your business

• The wrong terms can kill your business

“Time is your most precious resource… having useful

investors is an investment of your time”



• Have big aspirations

• Seek the right amount of

capital• Beware Evil

• Have Fun



Stewart’s Approach To Fundraising:

• Assume revenue is the best form of funding

• Assume outside investors, or more importantly, the process of raising

outside money, will make your business more valuable and impactful

• Never “need” to raise money, ALWAYS have plan B

• ALWAYS have competing fundraising choices

• Plan ahead 2 to 5 years

• Be intelligent about your choices (Security types, terms, conditions,

preferences, governance)

• Check references and reputation, It’s not all about valuation • Consider long term equity value and liquidity events

• Drive the process.. don’t be a victim



Creating Choices and Competition:

• Control Burn, more then spend (discretionary vs.

non-discretionary)

• Good Angels will introduce you to good VCs

• Good VCs will attract more VCs• Multiple referrals are key

• Try to have an open instrument (the ability to close

anytime)• Use convertible bridge structures when appropriate



Beware of Piers:



Other Tips and Tricks:

• Protect and Inform your existing investors

• Understand Blue Sky Laws

• The right Attorney can help

• Think International• Tour NY, then Boston, then Silicon Valley

• Include both East and West coast Angels

• Go big, or go home!

Pillsbury March 18 Fundraising Jeff Stewart

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