raising money for a tech startup

Kyle Redinger, Co-Founder VividCortex

RAISING MONEY FOR A TECH STARTUP

VividCortex •  Database performance for MySQL •  Save $$$ on hardware provisioning •  Run your system faster •  Reduce diagnosis and resolution time •  Make your people happy •  Free 30 day trial at vividcortex.com

www.vividcortex.com | [email protected]

Agenda •  Background •  Setting Expectations •  Fundraising Protocol •  Cap Tables, Options & Term Sheets •  Post-Financing Obligations


BACKGROUND I’m one of many founders

About Me

•  Founded 6 companies

•  Exited one company

•  Learned Learning from many mistakes

•  Background in finance, M&A, and startups

•  CrossFit


About You

•  Smart, networked, capable

•  Technically proficient

•  Do you have the hunger?

•  It’s your day to shine


SETTING EXPECTATIONS

Why Have a Company?


Why Have A Company? •  Create Wealth?

•  Solve a Problem? •  Be Your Own Boss? •  Create Jobs? •  Save the World? •  Advance Humanity? •  Be Bold? •  Organize the World’s

Information? •  Hack on Some Amazing

Engineering?


There is only one reason for a company •  Create Wealth?

•  Solve a Problem? •  Be Your Own Boss? •  Create Jobs? •  Save the World? •  Advance Humanity? •  Be Bold? •  Organize the World’s


Engineering?


There is only one reason for a company

A company exists to create value for internal and external stakeholders

•  Create Wealth? •  Solve a Problem? •  Be Your Own Boss? •  Create Jobs? •  Save the World? •  Advance Humanity? •  Be Bold? •  Organize the World’s


Engineering?

It’s About the Money


So, you understand a company and have an idea, what’s next?

Ideas aren’t worth anything.


Everyone has them.

L www.vividcortex.com | [email protected]


J Don’t worry!

Companies create stakeholder value by organizing broad skill sets and scarce resources into goals.



Broad Skill Sets

•  Vision •  Build •  Market •  Sell •  Motivate •  Fundraise •  Operate •  Make Hard

Decisions •  Etc.

You probably don’t realize the skills your team lacks

You need to de-risk.

Startups are a constant de-risking process

Expectations Summary

•  Companies need to make money

•  Create value by executing

•  Build a diverse team from the start


FUNDRAISING PROTOCOL

How Do I Raise Money?

Fundraising Basics

•  Ask for introductions from investors, peers, rich people

•  Never cold call/cold email •  Get on the phone •  You are doing sales •  Know your elevator pitch •  Actually listen to people •  Ask for explanations of “no’s”


Simplified Fundraising Path

Idea Stage

Early Stage

Product & Market Fit Scale


Fundraising Path Goals

Idea Stage

Early Stage



Founding Team & Vision

Proof of Concept Early Customers Repeatable

Model

Fundraising Path Investor Drivers

Idea Stage

Early Stage





Model

Story Telling Technical ExecuBon

Visibility to Future Revenue

Business Model and $$$

We Raise from Venture Capital Right?



NO We Raise from Venture Capital Right?


Venture Capital Is Not Your Friend

•  2% Management Fees; 1% Invested

•  Fund-life problems •  Terms not aligned

with founder interests

•  Only 3 in 10 deals create returns

•  Mostly risk-averse •  Good old white

male network

VCs are Good for Scale


Large pools of capital, for post-technology risk expansion.

Fundraising Path Cash Sources

Idea Stage

Early Stage





Model

Story Telling Technical ExecuBon

Visibility to Future Revenue

Business Model and $$$

Founders Angels Angels, Business, VC

Angels, Business, VC, PE

Fundraising Protocol Summary •  Understand the

goals for each stage

•  Customer financing is the best capital

•  VCs are overrated


FUNDRAISING MATH

Follow the Money and Terms

Defining Important Terms •  Valuation •  Common Shares •  Preferred Shares •  Option Pool •  Liquidity Preferences •  Control Rights •  Dividends •  Convertible Note




•  Valuation is the price at which an investor can purchase ownership in your company.



•  Common Shares represent the last group of investors to be paid in an exit event.



•  Preferred Shares have rights that make them more valuable than common shares, e.g. getting paid first in an exit event.



•  Option Pools are rights to purchase shares at a specific price and are typically issued prior to a funding round, diluting the prior round of investors.



•  Liquidity Preferences define which class of shareholder gets paid and when.



•  Control Rights represent things like board seats and protective provisions for certain events.



•  Dividends are typically accrued amounts that increase the value of preferred shares.



•  Convertible Notes represent a typical structure of financing that allows a company to raise capital in anticipation of a future round of funding.

Imagine the Following Capital Needs for a Startup


Idea Stage

Early Stage


$20,000 $1,000,000 $2,000,000 $5,000,000

Terms Create Vastly Different Outcomes

Example Time


•  Example Link: http://goo.gl/LuFltg

•  Examples 1 – 4: Terms

•  Example 5: Valuation •  Via Twitter on @kyleredinger

•  Goal: Turn terms into math

Obligatory Cat Photo


Summary of Term Impacts


Type 1 -‐ Simple 2-‐ Double Dip 3 -‐ Dividends Suck 4 -‐ Home Run

Exit Value $15 Million $15 Million $15 Million $100 Million

Dividends 0% 0% 10% 10%

Liquidity Preference Simple ParBcipaBng

Preferred Simple

ParBcipaBng Preferred

Take Home $3.5 Million I’m screwed. I’m screwed. $10M

(everyone wins)

Valuation Doesn’t Really Matter; Ownership and Preferences Matter


Beware the Option Pool Shuffle Options are for hiring, not screwing founders


POST-FINANCING OBLIGATIONS

Understand Future Goals

Monthly Investor Reports

• Executive Summary

• Sales, Marketing, Tech, Operations, Goals

• No Bullshit


Be Honest

Live Long and

Prosper

Thanks!

[email protected]

Picture Credits •  https://flic.kr/p/zBdU7 •  https://flic.kr/p/95NBqw •  https://flic.kr/p/6p5bdN •  https://flic.kr/p/vKxjC •  https://flic.kr/p/4dufn •  https://flic.kr/p/jBWiKw •  https://flic.kr/p/hKKCJo •  https://flic.kr/p/fG1LBu •  https://flic.kr/p/9MaLTw

•  https://flic.kr/p/Djx5w •  https://flic.kr/p/725MMR •  https://flic.kr/p/mcAd2 •  https://flic.kr/p/ddCVmu •  https://flic.kr/p/7jEKQ •  https://flic.kr/p/7n4MH9 •  https://flic.kr/p/g1eSFB •  https://flic.kr/p/4h4MV •  https://flic.kr/p/bc6MYii


raising money for a tech startup

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