intro to startups and vc
TRANSCRIPT
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Intro to Startups and VCs
Jan 2017
Objectives2
What are the tradeoffs in working for a startup?
How do I find startups?
How do I know a startup is a good one?
What is venture capital?
A quick bit about HPVP and meHappy to chat more any time
3
• Twitter: @guyhturner• Co-founded HPVP with Ira Weiss• Mgmt Consultant
• Angel
• Engineer
• Cornell University (BS), Chicago Booth (MBA)
• 2.0 kids
• Twitter: @hydeparkvp
• Early-stage software startups at $0-3M ARR raising $1-6M rounds
• Midwest focus
• $25M Fund I, $65M Fund II
• Have invested in multiple university seeded startups (U of I, U of C, U of M, U of MN)
What Facebook, Google and other BigCos/BigTechs want you to believe
- Secure- High pay- Clear career milestones- Best senior leadership- Unbelievable benefits
- Risky- Low pay- Undefined career path- No mentorship
Startups BigTech
How I see it
Startups BigTech
“Don’t ask what seat, just get on the rocket ship”
Reality is in the middle and about fit
- Secure- High pay- Clear career milestones- More formal training
- Moderate risk- Moderate pay with upside- Accelerated learning curve- It is what you make it
Startups BigTech
?What’s the best fit for you?
Startup paths: Build or sell!
Developer Sales (and marketing)
Computer scienceCE, EE
…or whatever…
MarketingCommunicationsEconomics…or whatever…
… also analytics, data scientis, customer success
Here or there? …the real economics
Source: Angellist, http://money.cnn.com/calculator/pf/cost-of-living/
95
70 70
115
85 90
$0K
$20K
$40K
$60K
$80K
$100K
$120K
$140K
Developer Sales Marketing
Early Career Salaries - Nominal
Chicago SF
143
105 105115
85 90
$0K$20K$40K$60K$80K
$100K$120K$140K$160K
Developer Sales Marketing
Early Career Salaries - SF Dollars
Chicago Adjusted SF
Quality of life a major consideration
Where do you find startups?
Startup career fairs
VC Portfolios
Midwest Everywhere
Ann Arbor Minneapolis
CincinnatiNebraska
Madison St. Louis
hydeparkvp.recruiterbox.com
What should you look for?
• Do you like the people?
• Do you trust leadership?
• Do you like the culture?
• Can you learn from your direct supervisor/team?
• Do you love the product?
Fit with you The 5 Ms• Industry experience• Leadership/scaling/startup experience• Been there done that
• Size (>$500M?)• Growth rate (>10%?)• Level of competitiveness• Business model fit to market/customer
• Are they selling? More now than before?• Are they building barriers? Partnerships?• DO THEY GET STUFF DONE?
• Strength of business model• Uniqueness and resulting barriers• IP
• 18 to 24 months of runway
Market
Mgmt
Momentum
Magic
Money
Screening shortcut: the VC screenVCs invest in <1% of deals they see… but they also make lots of mistake!
Sourcing Screening DueDiligence The Deal Portco
Mgmt
3000
1000
3010 5
On the radar
300
Initial meeting
Second meetingDeep dive
Terms/TS Deal closed
Let the VCs do the work for you.
Look for funded startups!
Now it’s time to negotiate:Meet TransparentCareer.com
• Find what others exactly like you are getting paid• Find where your peers are going• Arm yourself with information
Startups or BigTech not interesting?
Then start your own and raise $$$!
…but how?
Why raise VC? Growth requires $...14
Startup$0-10M
Growth$10-50M
Developed$50M+
Amount
Type
Purpose
Friends &Family Angels Small
VCsVCs Venture
lendersPrivate equity
PublicBanks
Testidea
Testmarketing approach
SCALE!! Liquidity for founders, employees and investors
$250K <$1M $2-3M $5-10M Sky is the limit
What does “scale” mean?
• Build products before they’re sold• Hire people before they “produce”• Pursue customers before they pay
Rev
… from different types of investors15
Who they are Hold periodWhy they invest
Friends & family
Angels
VCs
VentureLenders
Privateequity
Obvious
Individuals and groups
$25M - $1B funds with institutional money
$100M - $1B funds with institutional money
$250M - $10B funds with institutional money
They love you!!
For fun and $$
Want 30%+ returns;Invest on growth
Want 18%+ returns;Invest in cash flows
Want 20%+ returns;Invest in cash flows with equity and debt
???
5-10 yrs
5-10 yrs
5-7 yrs
2-5 yrs
Tiered equity structure grows with $16
Founders
Founders
Angels
Com
mon
Com
mon
Options
F&F
Founders
Options
F&F
Com
mon
Angels
Founders
Options
F&F
Pre
ferr
ed
Pre
ferr
ed VCs
Com
mon
Debt?
TechS
TechS TechS
Mechanics: Pre/post money valuation
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Pre-moneyvaluation
Round size
+ =
Post-moneyvaluation
Ex: $5M $2M $7M
Entrepreneurs weigh money/terms and “value add” when choosing VC
- Strategic and opp advice- Customer, financing,
acquirer connections- Brand signal for talent,
other funders, etc
- Valuation- Size of round- Other financial terms- Control terms
Money Value add
In the end, relationship matters the most. It’s a marriage.
So what do VCs look for…
Scalable- Software - High fixed cost, low
marginal cost- Tech dev and customer
acquisition greatest cost- Invest capital now for
profit at scale later- >75% gross margin
Not scalable- Service- Low to high fixed
cost, high marginal cost
- Scales with bodies- <<50% gross margin- Profitable at small
scale
In between- Tech enabled service- Medium fixed and
medium marginal cost- Scales with bodies
and capital- 40-60% gross margin
… fit and 5Ms (same things you should look for)
• Stage (seed or A)
• Round size ( $0.75M – $2.5M)
• Industry (any that is “scalable”)
• Geography (Midwest)
Fit with fund strategy The 5 Ms• Industry experience• Leadership/scaling/startup experience• Degrees, etc (eg, signals)
• Size (>$500M?)• Growth rate (>10%?)• Level of competitiveness• Business model fit to market/customer
• Are they selling? More now than before?• Are they building barriers? Partnerships?• DO THEY GET STUFF DONE?
• Strength of business model• Uniqueness and resulting barriers• IP
• Price and other terms
Market
Mgmt
Momentum
Magic
Money
How do I get to VCs?
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Descending order of
value
1 Current / past portfolio company CEO
Example introduction sources
2 Trusted colleague, partner, friend of investor
3 Another investor in the current round
4 Advisor / mentor from founder’s network
5 An investor who’s not investing
Cold outreach6
