From Bootstrapping to Crowdfunding, the financing of startup companies requires a range of considerations along with "funding creativity" and strong dose of persistence. Great value propositions have to find a way to get funded. Here's how.
2. Get Funded: Financing your Startup
August 13, 2013
Smith Anderson
Silicon Valley Bank
(617) 796-6958
Smanderson@svb.com
Twitter: @SmithTown561
Dan Allred
Silicon Valley Bank
(617) 796-6904
dallred@svb.com
Twitter: @dgallred
http://danallred.tumblr.com
6. Bootstrapping
• Vendor
financing
Trade
credit
Stretching
payables
• Customer
financing
Prepayments,
deferred
revenue
• Self
financing
Working
without
pay
Ge>ng
others
to
do
the
same
Personal
credit,
credit
cards,
etc.
7. Bootstrapping
• Amount
of
capital
RelaAvely
small
amounts
• Use
of
capital
Working
capital
(brings
future
cash
inflow
forward
OR
delays
current
cash
ouElow)
• Stage
of
company
Useful
at
all
stages,
especially
startup.
• Who
bears
the
risk
&
what
type
Personal
risk
early,
bankruptcy
risk
later
Working
capital
risk
(risk
of
insolvency)
11. Crowdfunding
Then..
• 1884
this
project
ran
out
of
money.
• Joseph
Pulitzer
wrote
an
arAcle
asking
for
donaAons
to
fund
project.
12. Crowdfunding
Then..
• 1884
this
project
ran
out
of
money.
• Joseph
Pulitzer
wrote
an
arAcle
asking
for
donaAons
to
fund
project.
• $100K
raised
to
finish
this
project
in
just
under
6
months
13. Crowdfunding
Then..
• 1884
this
project
ran
out
of
money.
• Joseph
Pulitzer
wrote
an
arAcle
asking
for
donaAons
to
fund
project.
• $100K
raised
to
finish
this
project
in
just
under
6
months
• 125K
people
donated
to
this
fund.
14. Crowdfunding
Then..
• 1884
this
project
ran
out
of
money.
• Joseph
Pulitzer
wrote
an
arAcle
asking
for
donaAons
to
fund
project.
• $100K
raised
to
finish
this
project
in
just
under
6
months
• 125K
people
donated
to
this
fund.
• GiU
from
France
15. Crowdfunding
Then..
• 1884
this
project
ran
out
of
money.
• Joseph
Pulitzer
wrote
an
arAcle
asking
for
donaAons
to
fund
project.
• $100K
raised
to
finish
this
project
in
just
under
6
months
• 125K
people
donated
to
this
fund.
• GiU
from
France
16. Crowdfunding:
Today
and
Beyond
Product/Project
• Currently
thriving
– Pledgie
(2006)
– Sellaband
(2006)
– IndieGoGo
(2008)
– GiveForward
(2008)
– Kickstarter
(2009)
– RocketHub
(2009)
– Fundly
(2009)
– GoFundMe
(2010)
– Appsplit
(2010)
– Microventures
(2010)
– Fundageek
(2011)
• Incredibly
powerful
momentum
in
the
last
few
years.
Equity
• Not
legal…yet
• JOBS
Act
passed
July
10th
• Accredited
vs.
non-‐accredited.
17. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
Not
to
Kickstart?
• Kickstarter
-‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter
18. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
Not
to
Kickstart?
• Kickstarter
-‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter
19. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
• Almost
zero
risk
if
market
Not
to
Kickstart?
• Kickstarter
-‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter
20. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
• Almost
zero
risk
if
market
• MarkeAng
story
done
for
you.
Not
to
Kickstart?
• Kickstarter
-‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter
21. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
• Almost
zero
risk
if
market
• MarkeAng
story
done
for
you.
• Almost
immediate
access
to
cash
Not
to
Kickstart?
• Kickstarter
-‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter
22. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
• Almost
zero
risk
if
market
• MarkeAng
story
done
for
you.
• Almost
immediate
access
to
cash
Not
to
Kickstart?
Ø No
secrets
to
hide
from
compeAAon.
• Kickstarter
-‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter
23. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
• Almost
zero
risk
if
market
• MarkeAng
story
done
for
you.
• Almost
immediate
access
to
cash
Not
to
Kickstart?
Ø No
secrets
to
hide
from
compeAAon.
Ø Price
point
• Kickstarter
-‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter
24. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
• Almost
zero
risk
if
market
• MarkeAng
story
done
for
you.
• Almost
immediate
access
to
cash
Not
to
Kickstart?
Ø No
secrets
to
hide
from
compeAAon.
Ø Price
point
Ø Go
to
Market
Strategy
• Kickstarter
-‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter
25. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
• Almost
zero
risk
if
market
• MarkeAng
story
done
for
you.
• Almost
immediate
access
to
cash
Not
to
Kickstart?
Ø No
secrets
to
hide
from
compeAAon.
Ø Price
point
Ø Go
to
Market
Strategy
Ø Runway
• Kickstarter
-‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter
26. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
• Almost
zero
risk
if
market
• MarkeAng
story
done
for
you.
• Almost
immediate
access
to
cash
Not
to
Kickstart?
Ø No
secrets
to
hide
from
compeAAon.
Ø Price
point
Ø Go
to
Market
Strategy
Ø Runway
Ø Timing
• Kickstarter
-‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter
27. Crowdfunding:
A
Kickstarter
story
To
Kickstart?
• Demand/market
validaAon
done
before
you
go
to
market.
• Almost
zero
risk
if
market
• MarkeAng
story
done
for
you.
• Almost
immediate
access
to
cash
Not
to
Kickstart?
Ø No
secrets
to
hide
from
compeAAon.
Ø Price
point
Ø Go
to
Market
Strategy
Ø Runway
Ø Timing
Ø Funding
Commitments
• Kickstarter
-‐
Launched
in
2009
• $750MM
funding
46,000
projects.
• 4K
currently
in
progress,
110,000
total
• Melon
Kickstarter
28. Is
it
right
for
you?
Probably
• Hardware
with
a
specific
cost
for
prototype.
• Consumer
facing
projects
• Micro-‐market
products
• Market
unknown
products.
• One-‐off
garage
projects
• ArAsts
• Philanthropists
Probably
Not
• Large
companies
• Complex
products
with
intricate
sales
cycles
• Infrastructure
or
enterprise
products
that
are
unlikely
to
touch
consumers.
30. Angels
• Class
of
capital
Equity
(ownership
in
company)
• Structure/organizaAon
High
net
worth
(HNW)
individuals
Some
groups
and
clubs
Some
“super
angel”
funds
• MoAvaAon/incenAves
Upside
–
stock
appreciaAon
Most
look
for
an
“exit”
(i.e.
liquidity
event
31. Angels
• Amount
of
capital
$100k
to
$2mm
• Use
of
capital
Growth
capital
(i.e.
new
cash
for
growth)
• Stage
of
company
Early-‐stage,
product/market
development
• Who
bears
the
risk
&
what
type
Angel
investor
bears
risk
Product/market
risk,
execuAon
risk
32. Angels
• Structure
of
investment
Purchase
of
common
or
preferred
stock
SomeAmes
converAble
debt
iniAally
• Price
of
investment
25-‐50%
of
company’s
stock
ConverAble
debt
~25%
min
ownership
• Monitoring
the
investment
ReporAng
Some
angels
(or
groups)
want
BOD
seat
• Value
add
$$$,
industry
experAse,
connecAons
34. Venture
Capital
• Class
of
capital
Equity
(ownership
in
company)
• Structure/organizaAon
Limited
partnership
10
year
funds
(invest,
grow
&
harvest)
• MoAvaAon/incenAves
Upside
(30%
IRR
and
3x
overall
for
fund)
Looking
for
an
“exit”
(i.e.
liquidity
event)
35. Venture
Capital
• Amount
of
capital
$1mm-‐20mm
Some
seed
acAvity
as
well
• Use
of
capital
Extreme
growth
capital
• Stage
of
company
Early-‐stage
and
growth
stage
• Who
bears
the
risk
&
what
type
Limited
partners
and
general
partners
Product,
market,
tech
&
execuAon
risk
36. Venture
Capital
• Structure
of
investment
Purchase
of
preferred
stock
SomeAmes
converAble
debt
iniAally
• Price
of
investment
20-‐40%
of
company’s
stock
• Monitoring
the
investment
ReporAng
BOD
seats
RedempAon
rights,
registraAon
rights
• Value
add
$$$,
industry
experAse,
capital
markets
38. Debt
• Class
of
capital
Debt
(senior
debt
as
discussed
here)
• Structure/organizaAon
Banks
(regulated
to
accept
deposits)
Finance
companies
(corporaAons)
Debt
funds
(limited
partnerships)
• MoAvaAon/incenAves
Banks
–
interest
&
fee
income
Finance
companies,
funds
–
interest
Venture
debt
–
warrant
income
39. Debt
• Amount
of
capital
$1mm-‐100mm
• Use
of
capital
Working
capital
Growth
capital
AcquisiAon
capital
• Stage
of
company
All
stages
• Who
bears
the
risk
&
what
type
The
lender
40. Debt
• Structure
of
investment
Senior
secured
credit
• Price
of
investment
Interest
and
fees
for
established
co’s
Plus
warrants
for
pre-‐profit
co’s
• Monitoring
the
investment
ReporAng
Financial
covenants
AffirmaAve
&
negaAve
covenants
• Value
add
$$$,
connecAons,
patern
recogniAon
42. • The
early
days…
-‐Chuck
–
director
of
enterprise
at
Apple
-‐Launches
Apperian
in
January
2009
-‐App
development
for
enterprise
clients
-‐Fee
for
service
work
• How
did
I
finance
the
business?
43. • The
early
days…
-‐Bootstrapping
-‐Self-‐financing
(and
sacrifice)
-‐Vendor
relaAonships
-‐Customer
financing
44. • Six
months
later…
-‐The
dogs
are
eaAng
the
dog
food
-‐iPhone
is
exploding
in
the
enterprise
-‐Recurring
service
revenues
-‐Vision
for
EASE
(Enterprise
ApplicaAon
Services
Environment)
plaEorm
How
did
I
finance
the
business?
45. • Six
months
later…
-‐$1mm
seed
round
-‐Common
Angels
&
Launch
Capital
-‐AddiAonal
$500k
in
Q1-‐10
46. • Q1-‐10:
the
one
year
old
startup…
-‐Begin
developing
EASE
plaEorm
-‐Acquihire
a
small
development
shop
-‐Focus
solely
on
enterprise
app
clients
-‐Begin
transiAoning
from
services
to
products
How
did
I
finance
the
business?
47. • Q1-‐10:
the
one
year
old
startup…
-‐$500k
SVB
line
of
credit
-‐Leverage
A/R
with
enterprise
clients
-‐Smooth
out
cash-‐flow
as
R&D
expense
ramps
-‐Bridge
between
payrolls
–
when
flush
with
A/
R
but
low
on
cash,
uAlize
line
of
credit
for
payroll,
expenses,
etc.
48. • Q1-‐11:
the
two
year
old
startup…
-‐Enterprise
mobility
is
hot!
-‐BYOD,
iPad
in
Xmas
2010
-‐Apperian
building
out
management
team
-‐Customers
converAng
from
service
contracts
to
EASE
plaEorm
-‐
Key
move:
move
to
recurring
SaaS
Product
How
did
I
finance
the
business?
49. • Q1-‐11:
the
two
year
old
startup…
-‐$9.5mm
series
A
-‐NorthBridge,
Bessemer,
Kleiner
Perkins
-‐1st
enterprise
investment
from
KP
iFund
-‐Over
2
years
of
cash
runway
50. • The
past
two
years…
-‐ConAnued
market
expansion
-‐MDM,
MAM,
BYOD,
etc.
-‐Enterprise
security,
compliance,
etc.
-‐DistribuAon
partnerships
• Personnel
growth
– 5-‐20
year
one,
40
by
year
three
and
70
year
four
How
did
I
finance
the
business?
51. • The
past
two
years…
-‐$12.4mm
preempAve
series
B
in
Mar
‘12
-‐$4.6mm
series
B
extension
in
Jan
’13
with
Intel
Capital
-‐ConAnued
expansion
of
SVB
credit
relaAonship
each
year
• Exit
Scenario
at
10x
revenue
–
Looking
at
market
trends…