Ways to Raise Capital For Your Startup

By Melissa Fisher, Managing Partner www.PeakRoadPartners.com

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@MelissaFisher7

www.linkedin.com/in/melissafisher7

MelissaFisher7@gmail.com

Entrepreneur Conference

• What investor options are there?

• Is my industry appealing to venture investors?

• Is my business appealing to venture investors; and

• if so, various ways for attracting capital for your business?

IN TODAY’S SESSION WE WILL TACKLE:

OPTIONS FOR FUNDING: Debt / Credit Cards Family & Friends

Crowdfunding Your Customers

Grants

Seed Accelerator Venture Capital

Angel Investors

Upside:

• Don’t have to give up equity

• Available to companies that can’t get equity funding

Downside:

• Must pay interest

• Limited networking or “business savvy” value

• May require personal collateral such as home

Debt / Credit Cards

Family & Friends

Grants

http://www.startupnation.com/articles/financing-options-small-businesses/

Upside:

• Convenient, no nonsense

• Fewest contractual strings attached

• Available quickly

Downside:

• Limited one-time source of funding

• Be ready for an ugly Thanksgiving dinner at your in-laws if you lose their money

Upside:

• Free money

• Investors love the “leverage” that grants provide

Downside:

• Highly competitive

• How you use the funds is strictly defined

Upside:

• Don’t have to give up equity

Downside:

• Very public

• Doesn’t fund until you raise set goal

Crowdfunding

Your CustomersUpside:

• Believe in your ability

• Continued sales commitment

Downside:

• May require collateral (Personal or built business value)

• Insight into margins

Angel InvestorsUpside:

• More than money, they invest business smarts and networking opportunities

• Relatively patient about their investments

Downside:

• Often difficult to find

• Can be hard to manage the divergent interests of a large group of angels

5 Phases: awareness, application, program, demo day, post demo day

Upside:

• Access to resources, mentoring, fundraise-readiness and collaboration

• If government funded they take no equity

Downside:

• Must be a “fast growth” startup business

• May have to give up equity %

• Must “graduate” within a short period of time.

Seed Accelerator

Upside:

• Invest smarts and networking in addition to money

• Typically have more money if you need more to grow

Downside:

• Must be a “fast growth” startup business

• Must be interested in selling the business or going public within 3-5 yrs

• Must be prepared to share control

Venture Capital

JOHN BORTHWICK

“Remember that funding is a means to an

end, not an end in of itself. The end is

building a product, building a community

and building a business. Raising money can

be a challenge – just remember it’s not the

end. It’s the beginning, it’s the starting point.

Now you have to build.”

How Venture Capital Works

VC Firm(General Partner)

VC Fund (Limited Partnership)

Paid 2% fee + 10-20% of Profits

Limited Partners (public pension funds, corporate pension funds, insurance companies,

high net-worth individuals, family offices, endowments, foundations,

fund-of-funds, sovereign wealth funds, etc.)

Investment 1(Ownership %)

Investment 2(Ownership %)

Investment 3(Ownership %)

Fund Management

Ownership of Fund

WHAT IS A SEED STAGE?

Series A, B, C+

$2.5M - $10M+

Out of ScopeIn Scope

Institutional Seed

$500K - $1.5M+Accelerator

$20K-$150K

Angel

$25K-$250K

The seed is the “setup” round(s) where a person or startup venture approaches an

angel or a VC firm for funding their product / idea.

VC will help you scale but it absolutely will not validate your product and market.

Raise to accelerate growth.

“The other time not to raise money is when you won’t be able to. If you try to raise money before you can convince investors, you’ll not only waste your time, but also burn your reputation with those investors.”

Paul Graham

VC’s Reasons To Raise FundsWith VC FundingWithout VC Funding

Market

Timing

Expand

Network

Grow

Faster

1. Use your network

2. Set your fundraising goal

3. Welcome feedback

4. Be penny-pinching

5. Be bold & bootstrap

Remember that an investor invests in your business to share your profits.

So make your idea attractable and sellable.

Getting your business funded starts with having a reasonable plan.

IT TAKES MORE THAN SIX YEARS TO EXIT

Source: http://www.cbinsights.com/blog/trends/venture-capital-exit-timeframe-tech

WHAT YOU CAN EXPECT

Fast – Scary – Thrilling

HUGE EXITS ARE RARE

HERE’S THE PROOF

The average successful US startup has raised $41M and exited at $242M

The average successfully acquired US startup has raised $29.4M and sold for $155.5M

The average IPO-bound startup raised $162M before going public

Source: http://info.crunchbase.com/2013/12/16

VCS ARE RAISING CASH

Source: Preqin Special Report: US Venture Capital Industry (October 2013)

SEED DEAL VOLUME REMAINS STEADY

Source: http://www.cbinsights.com/blog/trends/2013-seed-venture-capital

DOLLARS INVESTED ALSO REMAIN CONSISTENT

Source: http://www.cbinsights.com/blog/trends/2013-seed-venture-capital

SIZE OF SEED ROUNDS ARE GROWING!

Source: http://www.cbinsights.com/blog/trends/2013-seed-venture-capital

INVESTORS FOCUSING ON NEW FRONTIERS

Cloud Compute

Social Platforms Digital Currency

WearablesConnected HomeContext Compute

Connected Cars UAVs

Mobile ServicesPrivate Space Bioinformatics Industrial Internet

HURDLES TO CROSS WHEN

ASSESSING YOUR STARTUP BUSINESS Are you B2C focused or B2B focused?

Are you a sales driven or marketing driven company?

Do you need $1MM or $25MM to succeed?

Do you have one time revenues, or a recurring revenue model?

Are you the first mover in your market or entering a highly-competitive space?

Is your technology patentable or not?

Is your business easily and cheaply scalable, or does it have heavy overhead investment along the way?

Are you serving a $1BN market, or a $100MM market?

Is my forecasted ROI going to be a 10x return or 3x return?

Is it a first time CEO, or an established veteran?

How deep is the management team? Has there been proof of concept, with revenues or site traffic to date?

and more…

NOTABLE ANGELS

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Bill Warner

Gary Vanyerchuk

EstherDyson

Mike Lazerow

NavalRavikant

DharmeshShah

JasonCalacanis

JoanneWilson

MaxLevchin

EladGill

Mitch Kapor

KarlJacob

Scott Belsky

Paul English

DaveMorin

MichaelBirch

David Tisch

Mark Cuban

KalVepuri

JerryNeumann

Lee Linden

ACCELERATORSA three to six month “startup boot camp” that provides mentoring, office space and access to capital in exchange for 3-6% of common stock.

NOTABLE SEED FUNDSSeed funds tend to invest $50K - $750K in an institutional seed round which is usually up to $1.5M. These funds invest together as a syndicate.

VCs w/ SEED DEALSVCs typically lead $3M-$10M+ Series A rounds but some invest $50K - $1M in seeds to back great founders and / or learn about emerging tech.

CORPORATE VCsCorporations often have funds that invest in startups for strategic and / or financial reasons. These funds typically focus on Seed and Series A.

“Try not to fall in love with a firm – focus

more attention on the partner leading the

deal. Ultimately that partner will be the

person you have to deal with so raising from

a great firm but putting someone on your

board that you don’t love won’t end up

working out.”

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Ben Lerer

Raising any amount of capital is never easy. You’ll hear “no” more than you’ll hear “yes.”

For many of you it will be a long but rewarding process.

IN SUMMARY

VC is just one financing option to consider

Investors come in difference sizes and flavors

Raise to accelerate growth

Prepare, work your ass off and hustle

Take advantage of resources on the web

The real work begins after you raise