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Transcript of Vcfundraisingprocess 124000675624 Phpapp02
An Insiders View: An Insiders View: How to Raise Money How to Raise Money
from VCsfrom VCsBob DahlbergBob DahlbergVenture PartnerVenture Partner
Horizon VenturesHorizon VenturesLos Altos, CALos Altos, CABob at horizonvc comBob at horizonvc com
Key Message:Key Message:
VC Fundraising is a VC Fundraising is a Sales Sales ProcessProcess, ,
Not a PitchNot a Pitch
Feb. 4, 2008 3Copyright 2007, 2008 Robert W. Dahlberg
AgendaAgenda
nn Venture Capital financing CaveatsVenture Capital financing Caveats
nn Raising money is a sales processRaising money is a sales process
nn Four steps to falling in loveFour steps to falling in love
Feb. 4, 2008 4Copyright 2007, 2008 Robert W. Dahlberg
Full Disclosure: VC Costs…Full Disclosure: VC Costs…††
nn False sense of security: masks viabilityFalse sense of security: masks viabilitynn Fund raising takes time away from serving Fund raising takes time away from serving
customerscustomersnn Adds an additional set of mastersAdds an additional set of mastersnn Money enables costly mistakesMoney enables costly mistakesnn Money removes spending disciplineMoney removes spending disciplinenn Sets the exit strategy and timingSets the exit strategy and timingnn You give up a lot of ownershipYou give up a lot of ownership
†† Source: Greg Gianforte, CEO RightNow, http://cet.berkeley.edu/Resources/CETLectures.html
Feb. 4, 2008 5Copyright 2007, 2008 Robert W. Dahlberg
Venture Capital Isn’t RequiredVenture Capital Isn’t RequiredTo Build a Great Business …To Build a Great Business …
nn BroadcomBroadcomnn No VC moneyNo VC money
nn CiscoCisconn $5M in revenue, profitable before Sequoia invested$5M in revenue, profitable before Sequoia invested
nn DellDellnn Raised money at $60M in revenueRaised money at $60M in revenue
nn eBayeBaynn $4.5M in revenue and profitable before Benchmark $4.5M in revenue and profitable before Benchmark
investedinvestednn MicrosoftMicrosoft
nn VC funded after being profitableVC funded after being profitablenn The MathWorksThe MathWorks
nn >$300M in revenue, no VC money>$300M in revenue, no VC moneynn OracleOracle
nn Government contract funded first productGovernment contract funded first productnn SAS InstituteSAS Institute
nn > $1.9B in revenue, the largest private software > $1.9B in revenue, the largest private software company, no VC moneycompany, no VC money
nn SiebelSiebelnn Customers funded first productCustomers funded first product
Feb. 4, 2008 6Copyright 2007, 2008 Robert W. Dahlberg
…… But it Can Sure HelpBut it Can Sure Help
1.1. Cash to fuel growthCash to fuel growth2.2. Cash to fuel growthCash to fuel growth3.3. Strategy / business adviceStrategy / business advice4.4. Introductions: VCs, customers partnersIntroductions: VCs, customers partners5.5. RecruitingRecruiting
Feb. 4, 2008 7Copyright 2007, 2008 Robert W. Dahlberg
AgendaAgenda
nn Venture Capital financing CaveatsVenture Capital financing Caveats
nnRaising money is a sales processRaising money is a sales process
nn Four steps to falling in loveFour steps to falling in love
Feb. 4, 2008 8Copyright 2007, 2008 Robert W. Dahlberg
Fundraising = Selling an InvestmentFundraising = Selling an Investment
nn It’s likely to be the biggest sale of your lifeIt’s likely to be the biggest sale of your life
nn Success demands careful planning and Success demands careful planning and executionexecution
Feb. 4, 2008 9Copyright 2007, 2008 Robert W. Dahlberg
Fundraising is a Grueling ProcessFundraising is a Grueling Process
1.1. Requires mental toughnessRequires mental toughness2.2. You may have to talk to 10 You may have to talk to 10 –– 40 firms to find 40 firms to find
the matchthe match3.3. It’s the best business advice you will get!It’s the best business advice you will get!§§ ListenListen§§ LearnLearn§§ Accept itAccept it§§ Bake learnings into your business planBake learnings into your business plan
Feb. 4, 2008 10Copyright 2007, 2008 Robert W. Dahlberg
The Classic Enterprise Sales ProcessThe Classic Enterprise Sales Process
InitiateInitiateDiscoveryDiscovery
Educate/Educate/EvaluateEvaluate
JustifyJustifyValidateValidate
Feb. 4, 2008 11Copyright 2007, 2008 Robert W. Dahlberg
Fundraising is a 4 Step Sales ProcessFundraising is a 4 Step Sales Process
InitiateInitiateDiscoveryDiscovery
Educate /Educate /EvaluateEvaluate
JustifyJustifyValidateValidate
11PreparePrepare
22ApproachApproach
33“The Pitch”“The Pitch”
4 4 Due Due
DiligenceDiligence
Feb. 4, 2008 12Copyright 2007, 2008 Robert W. Dahlberg
Time ScalesTime Scales
11PreparePrepare
22ApproachApproach
33“The Pitch”“The Pitch”
44Due Due
DiligenceDiligence
1 to 6 weeks
2 to 12 weeks
Per VC
Per VC
Per Funding2 to 26 weeks
Feb. 4, 2008 13Copyright 2007, 2008 Robert W. Dahlberg
AgendaAgenda
nn Venture Capital financing CaveatsVenture Capital financing Caveats
nn Raising money is a sales processRaising money is a sales process
nn Four steps to falling in loveFour steps to falling in love
Feb. 4, 2008 14Copyright 2007, 2008 Robert W. Dahlberg
Step 1: PrepareStep 1: Prepare
nn GoalGoal: Build an investable company: Build an investable company
nn StrategyStrategy: Understand the VC’s Mind: Understand the VC’s Mind
Feb. 4, 2008 15Copyright 2007, 2008 Robert W. Dahlberg
VC Problem #1VC Problem #1nn Deliver BIG returns to their Limited Partners in an Deliver BIG returns to their Limited Partners in an
out of favor investment sectorout of favor investment sector
nn HUNGRY to do HUNGRY to do GOODGOOD dealsdeals
-20.0-10.0
0.010.020.030.040.0
2000 2001 2002 2003 2004 2005 2006
VC Return PE ReturnSource: Cambridge Associates
Feb. 4, 2008 16Copyright 2007, 2008 Robert W. Dahlberg
VC Problem #2VC Problem #2
““We kiss a lot of frogs to We kiss a lot of frogs to find the prince”find the prince”
-- Venture capital industry cliché
Feb. 4, 2008 17Copyright 2007, 2008 Robert W. Dahlberg
Venture Grade Deals are RareVenture Grade Deals are Rare % 2003 Corporate Tax Returns by
Revenue
2.2% 1.9%
81.8%
0.5%
13.6%
0%
20%
40%
60%
80%
100%
< $1M < $5M < $10M < $50M >$50M
Revenue
Per
cen
t of
5.4M
Ret
urn
s
Source: IRS.gov
VCGrade
Life Style CompaniesAKA “Walking Dead”
Feb. 4, 2008 18Copyright 2007, 2008 Robert W. Dahlberg
VC Problems #3, 4, 5VC Problems #3, 4, 5
nn No one can pick which start up will make itNo one can pick which start up will make itnn Every deal has “hair on it” Every deal has “hair on it” –– it’s easy to find problemsit’s easy to find problemsnn Portfolio returns: 1 @ 10X; 4 @ 2X; 5@1X; 10 @0XPortfolio returns: 1 @ 10X; 4 @ 2X; 5@1X; 10 @0Xnn => VC will rely on their gut in the end=> VC will rely on their gut in the end
nn Will be working together for 6+ yearsWill be working together for 6+ yearsnn It has to be an interesting project It has to be an interesting project nn There has to be compatibility with the teamThere has to be compatibility with the team
nn The unexpected is going to happenThe unexpected is going to happennn Got to get through the hard timesGot to get through the hard times
Feb. 4, 2008 19Copyright 2007, 2008 Robert W. Dahlberg
So How do Most VCs Decide?So How do Most VCs Decide?
VCs “fall in love” with the dealVCs “fall in love” with the deal
Feb. 4, 2008 20Copyright 2007, 2008 Robert W. Dahlberg
So the StartSo the Start--Up Must Be AttractiveUp Must Be Attractive
Feb. 4, 2008 21Copyright 2007, 2008 Robert W. Dahlberg
Attractive in 2008 IsAttractive in 2008 Is
nn Big MarketBig Marketnn Open to disruptionOpen to disruption
nn Customers in pain and who buyCustomers in pain and who buynn Growing order trendGrowing order trend
nn Strong product offering / technologyStrong product offering / technologynn Differentiated, protectedDifferentiated, protected
nn Successful TeamSuccessful Teamnn “A Players” “A Players” nn Successful Investors / Advisors / Board MembersSuccessful Investors / Advisors / Board Members
Feb. 4, 2008 22Copyright 2007, 2008 Robert W. Dahlberg
#1 Start#1 Start--Up Failure is the Up Failure is the Lack of (high) Paying Customers Lack of (high) Paying Customers
nn Know your customer!Know your customer!nn Walk in your customer’s shoesWalk in your customer’s shoesnn Know why they will buyKnow why they will buy
Feb. 4, 2008 23Copyright 2007, 2008 Robert W. Dahlberg
Dot Bomb SchoolDot Bomb School
Concept/Concept/Bus. PlanBus. Plan
ProductProductDev.Dev.
Alpha/betaAlpha/betaTestTest FCSFCS
nn ““Build it and they will come!”Build it and they will come!”nn Product Development ModelProduct Development Model
nn “Get big fast”“Get big fast”
Feb. 4, 2008 24Copyright 2007, 2008 Robert W. Dahlberg
New SchoolNew School
Customer Development Model†
CustomerCustomerDiscoveryDiscovery
CustomerCustomerValidationValidation
Customer Customer CreationCreation
CompanyCompanyScaleScale
† Steve Blank, The Four Steps to the Epiphany.
Feb. 4, 2008 25Copyright 2007, 2008 Robert W. Dahlberg
CustomersCustomers that are that are BuyingBuying isisThe Essential Investment CriteriaThe Essential Investment Criteria
www.cafepress.com/kandsranch
Feb. 4, 2008 26Copyright 2007, 2008 Robert W. Dahlberg
Step 2: Approach Step 2: Approach
nnGoalGoal: Get the first meeting: Get the first meeting
nn StrategyStrategy: Approach the right VC, right: Approach the right VC, right
PreparePrepare ApproachApproach ““The Pitch”The Pitch” Due Due DiligenceDiligence
Feb. 4, 2008 27Copyright 2007, 2008 Robert W. Dahlberg
The Right VC, RightThe Right VC, Right
1.1. Right VCs,Right VCs,
2.2. Right Time,Right Time,
3.3. The Right Way The Right Way
Feb. 4, 2008 28Copyright 2007, 2008 Robert W. Dahlberg
1. The Right VC 1. The Right VC has Greener Moneyhas Greener Money
nn VC money is not a bank loanVC money is not a bank loannn Do your homeworkDo your homework!!nn Talk to startTalk to start--up CEOsup CEOsnn Actively investing Actively investing
nn Fund has moneyFund has moneynn VC has capacity (not too many board seats)VC has capacity (not too many board seats)
nn Right sector (life sciences vs. semiconductor)Right sector (life sciences vs. semiconductor)nn Relevant portfolio, expertise, and synergiesRelevant portfolio, expertise, and synergiesnn Early vs. late stageEarly vs. late stage
Feb. 4, 2008 29Copyright 2007, 2008 Robert W. Dahlberg
Approach the Right VC, RightApproach the Right VC, Right
1.1. Right VCs,Right VCs,
2.2. Right Time,Right Time,
3.3. The Right WayThe Right Way
Feb. 4, 2008 30Copyright 2007, 2008 Robert W. Dahlberg
2. The Right Time 2. The Right Time -- 11
““Seek financing Seek financing on the backside on the backside of a milestone”of a milestone”
–– John Hall, John Hall, Horizon VenturesHorizon Ventures
Feb. 4, 2008 31Copyright 2007, 2008 Robert W. Dahlberg
2. The Right Time 2. The Right Time -- 22
““VC money is very expensive fuel to be VC money is very expensive fuel to be used for taxiing around an airport.”used for taxiing around an airport.”
–– Peter Rip, Crosslink CapitalPeter Rip, Crosslink Capital
Feb. 4, 2008 32Copyright 2007, 2008 Robert W. Dahlberg
2. The Right Time 2. The Right Time -- 33
nn Seek VC financing after Customer ValidationSeek VC financing after Customer Validation
CustomerCustomerDiscoveryDiscovery
CustomerCustomerValidationValidation
Customer Customer CreationCreation
CompanyCompanyScaleScale
† Steve Blank, The Four Steps to the Epiphany.
Funding
““Taxiing Phase”Taxiing Phase”
Feb. 4, 2008 33Copyright 2007, 2008 Robert W. Dahlberg
Software Seed Rounds Fell 27% YoYSoftware Seed Rounds Fell 27% YoY
0
50
100
150
200
250
300
350
400
2004 2005 2006 2007(75%)
SeedEarly StageExpansionLater
• Early Stage company investments increased 28% YoY.• Expansion company investments decreased 15% YoY and 20% from 2004.
Source: PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree™Survey
Software VC Investments by Company Stage
Feb. 4, 2008 34Copyright 2007, 2008 Robert W. Dahlberg
Funding to Customer ValidationFunding to Customer Validationnn CustomersCustomers
nn Consulting engagementsConsulting engagementsnn NonNon--Recurring Engineering (NRE) engagementsRecurring Engineering (NRE) engagementsnn Retainer fees from customersRetainer fees from customers
nn GovernmentGovernmentnn Small Business Innovation Research Grants (SBIR)Small Business Innovation Research Grants (SBIR)
nn Big CompaniesBig Companiesnn ValueValue--Added Reseller (VAR) agreementsAdded Reseller (VAR) agreementsnn Divestitures Divestitures –– protected supplier contract with parent for a protected supplier contract with parent for a
defined perioddefined periodnn MoonlightingMoonlighting
nn Founders waive compensationFounders waive compensationnn Family, Friends and FoolsFamily, Friends and Fools
Feb. 4, 2008 35Copyright 2007, 2008 Robert W. Dahlberg
Approach the Right VC, RightApproach the Right VC, Right
nnRight VCs,Right VCs,
nnRight Time,Right Time,
nnThe Right WayThe Right Way
Feb. 4, 2008 36Copyright 2007, 2008 Robert W. Dahlberg
The Right WayThe Right Way
““We only look at deals that are We only look at deals that are introduced to us by people we know”introduced to us by people we know”
–– Mike Schuh, Foundation CapitalMike Schuh, Foundation Capital
Feb. 4, 2008 37Copyright 2007, 2008 Robert W. Dahlberg
The Right Way: The Right Way: Introduction by ReferralIntroduction by Referral
1.1. Successful entrepreneursSuccessful entrepreneurs2.2. Lawyers that work with VCs and startLawyers that work with VCs and start--upsups3.3. Angel investorsAngel investors4.4. Other service providers: Other service providers: nn bankers, head hunters, …bankers, head hunters, …
Avoid BrokersAvoid Brokers (= Mothers(= Mothers--inin--Law)Law)Create a buffer layer in between you and VCs.Create a buffer layer in between you and VCs.
Feb. 4, 2008 38Copyright 2007, 2008 Robert W. Dahlberg
Sales Tool:Sales Tool:The Executive SummaryThe Executive Summary
nn Tool ObjectiveTool Objective: To get a meeting: To get a meetingnn One pager that covers:One pager that covers:
nn Contact informationContact informationnn Customer problemCustomer problemnn Your solution (product/technology)Your solution (product/technology)nn Market sizeMarket sizenn CompetitorsCompetitorsnn TeamTeamnn Customer proof pointsCustomer proof pointsnn Funding statusFunding status
Feb. 4, 2008 39Copyright 2007, 2008 Robert W. Dahlberg
Executive Summary TemplateExecutive Summary Template
Funding History:
Total Amount Raised to Date: Participants Amount Individuals: VCs: Others: Total Seeking: Committed Funds (If Any): Use of funds:
Milestones
Competition
Technology
Defensibility
Company Overview:
Company Information:
Newco, Inc. Address : Phone: Fax: Website: Email Basic Details:
Founded In: # Of Employees: 15 (X US / Y off shore)
Pain:
Solution :
Team:
• Company founded ____ • ___ Patents filed on ___ • Product Introduction ____ • $ in sales in x • $ in sales in x+1 • $ in sales in x + 2
Business Model
Financials: Cumulative Revenue: Burn Rate: $ Cash Flow Positive in: Year ? 3-Year Revenue Forecast:
Year 1: $ Year 2: $ Year 3: $
Funding History:
Total Amount Raised to Date: Total Seeking: $ Committed Funds (If Any): Use of funds: E
Valuation Expectations:
Tagline
Logo
www.bandangels.com
Feb. 4, 2008 40Copyright 2007, 2008 Robert W. Dahlberg
How VCs Vet How VCs Vet Your Exec SummaryYour Exec Summary
nn Is the referral source credible?Is the referral source credible?nn Is this company in my geography?Is this company in my geography?
nn < 1 < 1 --2 hours travel time2 hours travel timenn Is this a scalable business?Is this a scalable business?nn Is the team credible? Is the team credible? nn Are the existing investors credible?Are the existing investors credible?nn Can I possibly love the:Can I possibly love the:
nn CEOCEOnn Target marketTarget marketnn Problem being solvedProblem being solvednn The technology being developedThe technology being developed
Feb. 4, 2008 41Copyright 2007, 2008 Robert W. Dahlberg
VC’s Tool: VentureSourceVC’s Tool: VentureSource
Feb. 4, 2008 42Copyright 2007, 2008 Robert W. Dahlberg
RejectionRejection
“We can’t kiss all the pretty girls”-Bob Kagle, Benchmark
Feb. 4, 2008 43Copyright 2007, 2008 Robert W. Dahlberg
Step 3: The PitchStep 3: The Pitch
nn GoalGoal: Get follow: Get follow--on meetings on meetings
nn StrategyStrategy: : SketchSketch out a compelling, out a compelling, exciting pictureexciting picture
11PreparePrepare
22ApproachApproach
33“The Pitch”“The Pitch”
44Due Due
DiligenceDiligence
Feb. 4, 2008 44Copyright 2007, 2008 Robert W. Dahlberg
PowerPoint “Pitch” Advice PowerPoint “Pitch” Advice is Abundantis Abundant
nn SVASESVASEwww.svase.org/components/uploads/SVASE%2010%20Sliwww.svase.org/components/uploads/SVASE%2010%20Slide%20Template.pptde%20Template.ppt
nn David Cowan, Bessemer Venture PartnersDavid Cowan, Bessemer Venture Partnerswhohastimeforthis.blogspot.com/2005/11/howwhohastimeforthis.blogspot.com/2005/11/how--toto--notnot--writewrite--
businessbusiness--plan.htmlplan.html
nn Brad Feld, Mobius Venture CapitalBrad Feld, Mobius Venture Capitalwww.feld.com/blog/archives/2004/06/the_torturous_w.htmlwww.feld.com/blog/archives/2004/06/the_torturous_w.html
nn Guy Kawasaki, Garage Technology VenturesGuy Kawasaki, Garage Technology Venturesblog.guykawasaki.com/2005/12/the_102030_rule.htmlblog.guykawasaki.com/2005/12/the_102030_rule.html
Feb. 4, 2008 45Copyright 2007, 2008 Robert W. Dahlberg
Your Goal:Your Goal:Get the Next Date Get the Next Date
nn Tell a simple yet compelling storyTell a simple yet compelling storynn VCs easily drown in detailsVCs easily drown in detailsnn Your key points get forgottenYour key points get forgottennn Boredom sets inBoredom sets in
nn Listen and learnListen and learn
Feb. 4, 2008 46Copyright 2007, 2008 Robert W. Dahlberg
K.I.S.S. Principle:K.I.S.S. Principle:Tell a Simple StoryTell a Simple Story
nn Avoid 3 Blind VCs and (You’re) the Avoid 3 Blind VCs and (You’re) the ElephantElephantnn Too common at first VC meetings:Too common at first VC meetings:
nn You know your business bestYou know your business bestnnAssume nothing!Assume nothing!
VC Start-Up
K.I.S.S. = Keep it Simple Stupid
Feb. 4, 2008 47Copyright 2007, 2008 Robert W. Dahlberg
Peter Lynch’s Investment AdvicePeter Lynch’s Investment Advice
““Never invest in Never invest in any idea you any idea you can't illustrate can't illustrate with a crayon.”with a crayon.”
Feb. 4, 2008 48Copyright 2007, 2008 Robert W. Dahlberg
Jerry Weissman Coach to Jerry Weissman Coach to IPO Road Show CEOsIPO Road Show CEOs
Feb. 4, 2008 49Copyright 2007, 2008 Robert W. Dahlberg
Expect to Go off the RailsExpect to Go off the Rails
1.1. VCs are curious, smart and impatientVCs are curious, smart and impatientnn They will ask a lot of questions when confusedThey will ask a lot of questions when confused
2.2. VCs are testing you:VCs are testing you:nn Are you an effective leader?Are you an effective leader?nn Able to listen to “board room” feedback?Able to listen to “board room” feedback?nn Able to listen to customer feedback?Able to listen to customer feedback?
nn ReRe--arrange the slide order to address arrange the slide order to address issues that come up earlyissues that come up early
Feb. 4, 2008 50Copyright 2007, 2008 Robert W. Dahlberg
Listen Carefully!Listen Carefully!
nn It’s the best business advice you will get!It’s the best business advice you will get!§§ ListenListen§§ LearnLearn§§ Accept itAccept it§§ Bake learnings into your business planBake learnings into your business plan
Feb. 4, 2008 51Copyright 2007, 2008 Robert W. Dahlberg
Four Reasons for LoveFour Reasons for Love
++
Team Team TechnologyTechnology FinancialsFinancials
MarketMarket
Feb. 4, 2008 52Copyright 2007, 2008 Robert W. Dahlberg
1. Market Size is Every VC’s Concern1. Market Size is Every VC’s Concern
nn Is the market big enough to build a big Is the market big enough to build a big company?company?
nn Is there any potential to grow fast?Is there any potential to grow fast?nn Is there room for this startIs there room for this start--up?up?nn Is the market big enough to maneuver Is the market big enough to maneuver
if the first niche doesn’t work out?if the first niche doesn’t work out?
Feb. 4, 2008 53Copyright 2007, 2008 Robert W. Dahlberg
1. Lack of Customers 1. Lack of Customers is the #1 Cause of Failureis the #1 Cause of Failure
nn Does the team really know the customer?Does the team really know the customer?nn Is there a logical reason behind the Is there a logical reason behind the
customer list?customer list?nn Strategic or opportunistic?Strategic or opportunistic?nn Any notion of customer segmentation?Any notion of customer segmentation?
nn Are the customers tier 1?Are the customers tier 1?nn How much are the customers helping?How much are the customers helping?
Feb. 4, 2008 54Copyright 2007, 2008 Robert W. Dahlberg
2. Team2. Team
nn Every team claims to be “world class”Every team claims to be “world class”nn Demonstrate SuccessDemonstrate Successnn Company pedigree Company pedigree –– worked at market leadersworked at market leadersnn Personal resultsPersonal resultsnn Personal successPersonal successnn StartStart--up mentality vs. Big company mentalityup mentality vs. Big company mentality
nn Expect your backgrounds to be rigorously Expect your backgrounds to be rigorously checked.checked.
Feb. 4, 2008 55Copyright 2007, 2008 Robert W. Dahlberg
3.3. Product Test: Product Test: Aspirin or Vitamin??Aspirin or Vitamin??
nn Inertia is hugeInertia is hugenn Customers change only when they have toCustomers change only when they have tonn “Don’t fix what isn’t broke.”“Don’t fix what isn’t broke.”
Feb. 4, 2008 56Copyright 2007, 2008 Robert W. Dahlberg
3. Product3. ProductFeature or a Company?Feature or a Company?
nn A Feature?A Feature?nn Can the incumbent add this feature to an Can the incumbent add this feature to an
existing product easily?existing product easily?
nn A Product?A Product?nn Part of a fullPart of a full--product portfolio?product portfolio?
nn A Company?A Company?nn Can the value prop create a substantial Can the value prop create a substantial
business?business?
Feb. 4, 2008 57Copyright 2007, 2008 Robert W. Dahlberg
4. Financial Forecasts4. Financial Forecasts
““I don’t have Excel on my computer!”I don’t have Excel on my computer!”---- Mark Stevens, Sequoia CapitalMark Stevens, Sequoia Capital
Feb. 4, 2008 58Copyright 2007, 2008 Robert W. Dahlberg
Cash flow is kingCash flow is king
nn Revenue forecast will likely not materialize, SoRevenue forecast will likely not materialize, Sonn Is this plan realistic?Is this plan realistic?nn Revenue must not be too big, but not too smallRevenue must not be too big, but not too small
nn Spending plan will be scrutinized.Spending plan will be scrutinized.nn Cash is KingCash is Kingnn Successful CEOs are frugalSuccessful CEOs are frugal
Feb. 4, 2008 59Copyright 2007, 2008 Robert W. Dahlberg
The Morning After …The Morning After …
Feb. 4, 2008 60Copyright 2007, 2008 Robert W. Dahlberg
What Can You Do?What Can You Do?
nn React to the business advice you receivedReact to the business advice you receivednn Adjust your business strategy Adjust your business strategy as is necessaryas is necessary
nn Polish your pitch for the next VCPolish your pitch for the next VCnn Incorporate learning from each interactionIncorporate learning from each interactionnn Simplify, SimplifySimplify, Simplify
nn Clarify confusing pointsClarify confusing pointsnn Address objection itemsAddress objection itemsnn Rearrange the slide orderRearrange the slide order
Feb. 4, 2008 61Copyright 2007, 2008 Robert W. Dahlberg
What Will Most VCs Do?What Will Most VCs Do?
nn Go silent or an innocuous turn downGo silent or an innocuous turn downnn They don’t want to burn any bridgesThey don’t want to burn any bridges
nn Go at their own pace, no urgencyGo at their own pace, no urgencynn Risk reduces as time passesRisk reduces as time passesnn Wait for a milestoneWait for a milestone
nn quarter sales results quarter sales results nn prototype worksprototype works
Feb. 4, 2008 62Copyright 2007, 2008 Robert W. Dahlberg
RejectionRejection
nn Accept rejection gracefullyAccept rejection gracefullynn There is no rationale argument to bring the There is no rationale argument to bring the
VC backVC back
Feb. 4, 2008 63Copyright 2007, 2008 Robert W. Dahlberg
What Might Happen?What Might Happen?
nn When a VC senses love, you’ll hear backWhen a VC senses love, you’ll hear backnn Be responsive!Be responsive!nn VC’s like working with responsive peopleVC’s like working with responsive peoplenn You’re building a relationshipYou’re building a relationshipnn Respond to requests Respond to requests < 24 hours< 24 hours
Feb. 4, 2008 64Copyright 2007, 2008 Robert W. Dahlberg
Step 4: Due DiligenceStep 4: Due Diligence
nnGoalGoal: Get a term sheet: Get a term sheetnn StrategyStrategy: Two way test drive: Two way test drive
PreparePrepare ApproachApproach ““The Pitch”The Pitch” Due Due DiligenceDiligence
Feb. 4, 2008 65Copyright 2007, 2008 Robert W. Dahlberg
Due Diligence = Due Diligence = Two Way Test DriveTwo Way Test Drive
nn Can I work with this team / VC for the next Can I work with this team / VC for the next 6 years?6 years?
nn Is this a quality team / VC?Is this a quality team / VC?nn Do team / VC listen?Do team / VC listen?nn Is the team/VC honest, ethical, reliable? Is the team/VC honest, ethical, reliable?
dependable?dependable?nn How do they react being under fire?How do they react being under fire?
Feb. 4, 2008 66Copyright 2007, 2008 Robert W. Dahlberg
Prepare in AdvancePrepare in Advance
nn Customer / technology referencesCustomer / technology referencesnn Keep references updated on your progressKeep references updated on your progressnn Use them judiciouslyUse them judiciously
nn Executive resumes & referencesExecutive resumes & referencesnn Line up references in advance, Line up references in advance, nn Contact people VCs will findContact people VCs will find
nn Financial QuarterliesFinancial Quarterliesnn Capitalization tableCapitalization table
Feb. 4, 2008 67Copyright 2007, 2008 Robert W. Dahlberg
Typical Due Diligence ProcessTypical Due Diligence Processnn More information More information (Exec. resumes, financials, cap table, (Exec. resumes, financials, cap table,
personal references, etc.)personal references, etc.)
nn Meet with VC’s “expert(s)”: Portfolio Meet with VC’s “expert(s)”: Portfolio companies, friends, paid expertscompanies, friends, paid experts
nn Follow up meeting(s) at your office / their Follow up meeting(s) at your office / their officeoffice
nn Calls to customers and personal referencesCalls to customers and personal referencesnn Calls to backCalls to back--channel referenceschannel references
Feb. 4, 2008 68Copyright 2007, 2008 Robert W. Dahlberg
Getting “Married”Getting “Married”
nn Locate a Syndicate PartnerLocate a Syndicate Partnernn Term SheetTerm Sheetnn Legal due diligenceLegal due diligencenn Cash in the bankCash in the bank
Feb. 4, 2008 69Copyright 2007, 2008 Robert W. Dahlberg
Syndication:Syndication:Two Parents are Better than OneTwo Parents are Better than Onenn For the entrepreneurFor the entrepreneurnn More strategic minds around the tableMore strategic minds around the tablenn Hedge against one VC walking outHedge against one VC walking out
nn For the VCFor the VCnn Validates that the start up has legsValidates that the start up has legsnn More powder availableMore powder available
Feb. 4, 2008 70Copyright 2007, 2008 Robert W. Dahlberg
And Remember…And Remember…Venture Capital Isn’t RequiredVenture Capital Isn’t Required
nn BroadcomBroadcomnn No VC moneyNo VC money
nn CiscoCisconn $5M in revenue, profitable before Sequoia $5M in revenue, profitable before Sequoia
investedinvestednn DellDell
nn Raised money at $60M in revenueRaised money at $60M in revenuenn eBayeBay
nn $4.5M in revenue and profitable before $4.5M in revenue and profitable before Benchmark investedBenchmark invested
nn MicrosoftMicrosoftnn VC funded after being profitableVC funded after being profitable
nn The MathWorksThe MathWorksnn >$300M in revenue, no VC money>$300M in revenue, no VC money
nn OracleOraclenn Government contract funded first productGovernment contract funded first product
nn SAS InstituteSAS Institutenn > $1.9B in revenue, the largest private software > $1.9B in revenue, the largest private software
company, no VC moneycompany, no VC moneynn SiebelSiebel
nn Customers funded first productCustomers funded first product
Feb. 4, 2008 71Copyright 2007, 2008 Robert W. Dahlberg
Entrepreneur ResourcesEntrepreneur Resourcesnn Law firm outreachLaw firm outreach
nn DLA Piper Venture PipelineDLA Piper Venture Pipelinewww.venturepipeline.comwww.venturepipeline.com
nn Fenwick & West LLPFenwick & West LLP“Darrell Kong” <“Darrell Kong” <dkongdkong _ _ fenwick.comfenwick.com>>
nn Orrick, Herrington & Sutcliffe LLP’s “Total Access”Orrick, Herrington & Sutcliffe LLP’s “Total Access”"Chad Lynch" <"Chad Lynch" <clynchclynch _ _ orrick.comorrick.com>>
nn Pillsbury Winthrop Shaw Pittman LLP’s “Back Stage Pass”Pillsbury Winthrop Shaw Pittman LLP’s “Back Stage Pass”kiran.kambojkiran.kamboj _ _ pillsburylaw.compillsburylaw.com
nn Wilson, Sonsini, Goodrich, and RosatiWilson, Sonsini, Goodrich, and Rosatiwsgr.com/WSGR/Display.aspx?SectionName=practice/venturecapital.hwsgr.com/WSGR/Display.aspx?SectionName=practice/venturecapital.htmtm
nn SDForumSDForumnn www.sdforum.orgwww.sdforum.org
nn Silicon Valley Bank’s Venture ExchangeSilicon Valley Bank’s Venture Exchangenn Shai Goldman, Director, Shai Goldman, Director, sgoldmansgoldman _ _ svb.comsvb.com
nn SVASE, SVASE, Silicon Valley Association of Startup EntrepreneursSilicon Valley Association of Startup Entrepreneurs..
www.svase.orgwww.svase.orgnn The Enterprise Network of Silicon ValleyThe Enterprise Network of Silicon Valley
Tensv.orgTensv.orgnn Women’s Technology ClusterWomen’s Technology Cluster
www.wtcwww.wtc--sf.orgsf.org
Feb. 4, 2008 72Copyright 2007, 2008 Robert W. Dahlberg
To Your New Venture To Your New Venture Success!Success!