Startup Financing 101
Strategies for Pitching, Financing & Growing Your Web
2.0 Startup
5/7/2007 Startup Financing 101 2
Who
• Jeff Clavier– SoftTech VC
• Business Angel
• Startup Advisor
– Hacked in C/C++, CTO/VP Engineering, General Partner at Reuters Venture Capital
– Started investing in Web 2.0 3 years ago
– More: softtechvc.com, blog.softtechvc.comand twitter.com/jeffclavier
5/7/2007 Startup Financing 101 3
SoftTech VC
5/7/2007 Startup Financing 101 4
Agenda
• Ten Points– The Idea
– The Team
– The Company
– The First Money
– The Pitch
– The VC Process
– The Funding Process
– The End of the Beginning
– The Growth
– The Exit
• You Q, We all A
• Resources
5/7/2007 Startup Financing 101 5
The Idea
• Our questions:– Value ?
– Market
– Adoption: scale, speed
– Different ? Better ?
– Company ?• No want no feature
– Cost of failure ?
– Can you pull it off ?
5/7/2007 Startup Financing 101 6
The Team
• Our questions:– Relevance
– Experience
– Smarts
– Hunger
– Vision
5/7/2007 Startup Financing 101 7
The Company
• Your questions:– When to incorporate
– Structure: • C Corp
• Lawyered
– Founder equity split
– Initial funding ?
– Main/side job ?
5/7/2007 Startup Financing 101 8
The First Money
• Your questions– Sources ?
– “Right” Amount ?
– Valuation/dilution ?
– How do I find … ?
– How do I choose … ?
– Can I reference … ?
– Help ?
– Overall strategy ?• Build to last ?
Source: Redleaf Ventures Note: amounts and stages are only indicative since they vary according to investment sectors
Funding Model: “Farm Raised”
Capital
Risk (ß)
Valuation
Idea isFeasible
Beta or FCS Model is defined and proven
Seed R&D Ship Expansion
Courtesy of First Round Capital – firstround.com
Funding Model: “Free Range”
Capital
Risk (ß)
Valuation (Adoption Curve)
FCSAccelerating
AdoptionModel defined
and proven
Seed(angels?) Series A Expansion
(or founder liquidity)
< ? >Time
Low-burnexperimentationphase
Courtesy of First Round Capital – firstround.com
5/7/2007 Startup Financing 101 12
The Pitch
• Your questions– Objective ?
– Length
– Focus
– Content
– How do I practice ?
5/7/2007 Startup Financing 101 13
The Process
FinancialDue
Diligence
CommercialDue
Diligence
IndustryConnections
PortfolioCompanies
StructuringTransaction
Closing Process &InvestmentCommittee
SourcingDeals
InitialAssessment
The Pitch(Initial Review)
DueDiligence
InvestmentManagement
Exit
CapitalRequirements
InitialDue
Diligence
LegalDue
Diligence
Term SheetNegotiation
UnanimousInvestmentCommitteeApproval
QuarterlyPortfolioReview
PersonalContacts
Audit Due
Diligence
TechnologyDue
Diligence
BoardSeats
InitialScreen
StrategicFocus
ManagementEvaluation
ProactiveSourcing ofBankers and
Acquirers
VCs and Investment
Banks
ExitNegotiation
ManagementReview
Advisory Board Technology
Strategy
BusinessDevelopment
ProductDevelopment
Sales
Financing
5/7/2007 Startup Financing 101 14
The VC Process
FinancialDue
Diligence
CommercialDue
Diligence
IndustryConnections
PortfolioCompanies
StructuringTransaction
Closing Process &InvestmentCommittee
SourcingDeals
InitialAssessment
The Pitch(Initial Review)
DueDiligence
InvestmentManagement
Exit
CapitalRequirements
InitialDue
Diligence
LegalDue
Diligence
Term SheetNegotiation
UnanimousInvestmentCommitteeApproval
QuarterlyPortfolioReview
PersonalContacts
Audit Due
Diligence
TechnologyDue
Diligence
BoardSeats
InitialScreen
StrategicFocus
ManagementEvaluation
ProactiveSourcing ofBankers and
Acquirers
VCs and Investment
Banks
ExitNegotiation
ManagementReview
Advisory Board Technology
Strategy
BusinessDevelopment
ProductDevelopment
Sales
Financing
5/7/2007 Startup Financing 101 15
The Funding Process
1. Pitch
2. More pitches
3. Due diligence
4. More pitches
5. Partner’s meeting
6. Termsheet Issued
7. Terms negotiation
8. More due diligence
9. Legal docs negotiation
10.The funding
11.Money in the bank
12.Get to work
5/7/2007 Startup Financing 101 16
The End of the Beginning
• Your questions– The Board
– Investor relations• Existing
• Future
– When to raise more money ?
– How fast to grow ?
5/7/2007 Startup Financing 101 17
The Exit
5/7/2007 Startup Financing 101 18
The Growth
5/7/2007 Startup Financing 101 19
You Q, We A
5/7/2007 Startup Financing 101 20
Resources
5/7/2007 Startup Financing 101 21
Top Seed/Early Stage VCs (Internet)
• Accel Partners • August Capital• Benchmark Capital• Bessemer Venture Partners • Draper Fisher Jurvetson• First Round Capital (Seed)• Founder’s Fund (Seed)• General Catalyst (East Coast)• Greylock• Kleiner Perkins Caufield &
Beyers• Matrix Partners
• Mayfield • NEA• Norwest Venture Partners • Polaris (East Coast) • Redpoint• Sequoia Capital• Trinity• True Ventures (Seed)• Union Square Ventures
(Seed/East Coast)• USVP
Note: this list is not meant to be completely exhaustive
5/7/2007 Startup Financing 101 22
Tools
• Professional databases:– Dow Jones VentureSource and VentureWire
– Thomson VentureXPert
– PWC MoneyTree
• Reports:– Analysts, Investment Bankers, Companies
• Publications:– VC and Industry Blogs, PE Week
5/7/2007 Startup Financing 101 23
Resources
• Networking, Networking, Networking– STIRR, SDForum, Svase, Meetups, TiE, etc.
• Blogs to read– “Ask the Wizard”, Dick Costolo
– “Termsheet Series”, Brad Feld
– “10 Commandments”, Allen Morgan
– Jeremy Liew, Josh Kopelman, Fred Wilson, Found+Read, etc.