alternative sources of funding - entrepreneurship 101

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Visit us at marsdd.com

INNOVATION B E C A U S E T H E F U T U R E M A T T E R S

A P R I L 2 0 1 5

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Our Future MaBers

Bootstrapping C R E A T I N G S M A R T L E V E R A G E T O F U N D Y O U R B U S I N E S S J O N E W O R R E N

October 2014

Ok, so you’re working on an idea for a business, but startup capital is hard to come by. What now?

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The VC Perspective

Numbers from MaRS IAF: •  In 2013: Met with/talked to

1,000 companies

•  Received 250 applicaZons •  Serious Due Diligence for 50 •  Made 13-‐14 investments

–  6 IAF alone –  3 with one or more angels

–  2 with other VC –  2 with other VC and angels

•  Per 10 investments

–  1-‐2 that are very successful –  6-‐7 that do OK –  2 fail outright

•  Successes must cover losses and fund cost + yield returns

•  Early stage: Looking for 10-‐12x return in 5-‐7 years

•  Later stage: 5-‐7x in 4-‐5 years

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"pull oneself over a fence by one's bootstraps” Adynaton: a figure of speech using hyperbole to suggest a complete impossibility. Examples: •  Not before Hell freezes over •  When chicken grow teeth

Bootstrapping

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Bootstrapping: A way to finance your business

without giving up equity

Crea:ng Smart Leverage Using gravity to your advantage

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Our Future MaBers

Time

ExperZse Money

Leverage

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OperaZng principle:

Cash flow is more important than profit

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Cash flow Cash in hand

Burn rate

Runway

Liquidity

Key terms:

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How to bootstrap? B O O T S T R A P P I N G

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1. Cash efficient set up

•  Use home office as long as possible

•  Shared work space may offer hot desks, meeZng rooms, office space

•  Get an off-‐the shelf website

•  DIY: Use tools like Freshbooks to help generate and track invoices and taxes for you

•  In the beginning; hire contractors on hourly basis

•  Use services like elance.com to find freelance markeZng, graphic designers etc.

•  Find free/low cost networking events – to build your network and do iniZal market research

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Cash efficient does not mean cheap…..

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•  You can buy really cheap Computers, but should you?

•  If PCs are mission criZcal equipment – think about the cost of being without for 30 days…

•  Example bought two PCs, not the cheapest, but sZll affordable: both broke down within 3 weeks…….could not be serviced locally so waited 6-‐8 weeks before my persistence had the shop give me two new PCs… a lot of unnecessary frustraZon.

For example

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Other examples

•  Lawyers •  Accountant •  PR agency

•  Using the right service providers can help build credibility

•  They can also be sources of referrals

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M O N E Y , M O N E Y , M O N E Y

SOURCES OF FUNDING

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Co-‐Founders

Grants & Loans

Suppliers Partners

Customers

Community (“the Crowd”)

Funding can be provided by:

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L E V E R A G E P U B L I C L Y A V A I L A B L E F U N D S

GRANTS & LOANS

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•  A search tool in MaRS’ Entrepreneur’s Toolkit with more than 4,500 government funding programs

•  The $30B Federal/Provincial/Municipal incenZves market is made up of: •  $26B in grants

•  $4B in tax credits Note: Use of grants over tax instruments is a strong trend as it produces beBer ROI for government funders

Grants & Loans: The Funding Portal

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A rich source of funding

•  Average grant size among the Top 500 recipients is about $1.8M

•  About 1.5% of grants are over $10M

•  76% of grants are paid to companies and –  95% of these are paid to SMEs

•  28% of recipients are based in Ontario

•  Top sectors are Manufacturing, Media, and Tech

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0 50 100 150 200 250

IT and DigitalAcademic

Arts

Manufacturing

Cleantech / Energy

AccomodationAgriculture

Mining

Healthcare

Telecommunications

Aerospace

The Funding Portal Search Tool Over 2,500 searches on The Funding Portal since September 2013.

2015-‐04-‐02

Industry sector

Annual revenue Startup maturity

3-‐5yrs

Startup

5-‐10 yrs +10 yrs

< 100K

100K-‐1M

1M-‐10M > 10M 1-‐3yrs

Presented data from 10/01/2014 to 02/28/2015 Visit marsdd.com/funding

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D O Y O U H A V E S U P P L I E R S T H A T A R E W I L L I N G T O S H A R E R I S K W I T H Y O U ?

SUPPLIER FUNDING

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How suppliers can help

Mostly about Zming and terms of payment:

•  Long credit –  Can they wait unZl you get

paid?

•  Share the risk –  Are they willing to ONLY get

paid when you make money

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F O C U S O N T H E B U S I N E S S

CUSTOMERS

“The purpose of business is to create a customer”"

Peter Drucker, The Practice of Management!

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Pay in advance – partly or fully •  Common pracZce in media, SaaS, consulZng

•  Requires an offering – a product or service descripZon/specificaZon – that the customer desires

•  Significant focus on sales and relaZonship development

How customers can help

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•  Can you find a customer that is willing to pay all or most of the cost of developing the product you plan to develop in any case? –  Common in soWware and informa:on businesses

–  Agreement with customer allows you to retain control of the IP

–  Customer is granted “non-‐exclusive” and “non-‐transferable” license to use product for a limited period

Paid “product development”

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Our Future MaBers

C A N Y O U B U I L D A C O M M U N I T Y O F C U S T O M E R S

CROWDFUNDING

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Our Future MaBers

•  Crowdfunding is a form of customer funding

•  Pre-‐sales vs dona:ons •  Flexible vs fixed funding targets •  PayPal restric:ons re pre-‐sales campaigns

Basics

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•  Create video (normally 6-‐8 weeks) •  Plan media & Social media outreach •  Set targets, build team, determine rewards

Prep & set-‐up 2 weeks – 6 mths

• Manage media in :mely fashion •  Respond to campaign comments • Maintain momentum

Launch & Mgmt 4-‐6 weeks

•  For H/W: manage manufacturing and logis:cs

• Manage media & community

Close & Fulfil 4-‐6 months

Pre-‐sales Campaign Anatomy

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•  Most crowdfunding campaigns fail –  What is the opportunity value lost if that happens

–  What impact will failure have on the team

•  Financial: –  Don’t expect to make money on a pre-‐sales campaign.

–  For the most part it is simply markeZng.

–  Know your cost so you don’t undercharge •  Crowdfunding is not easy money!

Risks

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B O O T S T R A P P I N G A N D T H E B I G P I C T U R E

STRATEGIC PERSPECTIVE

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The $100,000 ques:on:

How can you get to $100,000 in monthly revenues by bootstrapping?

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B2B example •  Deal size: $25k •  New deals/month: 4 •  Conversion rate: 5% •  New leads required: 80/

month

Gefng to $100k

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B2SMB - “Pirate Metrics” - AARRR

Acquisition

Activation

Retention

Revenue

Referral

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SaaS – Using AARRR

Acquisition: 1000

Activation: 200

Retention: 196

Revenue: $19,600

Referral: N/A

98%

20%

$100

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Gefng to $100k

$100,000/($100*0.98*0.20) Having 5,102 ac:ve/paying customer per month

To get from “0” to $100,000 in 12 months means: -‐ Adding 100 new paying customers per week (reten:on) -‐ Adding 102 new users per week (Ac:va:on) -‐ Adding 510 new sign-‐ups per week (acquisi:on)

How much web traffic is needed to get to 510 new sign-‐ups per week?

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•  Bootstrapping is about smart leverage •  Cash is King (not profits) •  Crowdfunding is a new tools that can help

bootstrappers

Summary

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THANK YOU!

B E C A U S E T H E F U T U R E M A T T E R S

I NNOVAT ION

alternative sources of funding - entrepreneurship 101

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