StartupCamp: Financing Roadmap
October 3rd, 2007
Duncan Hill, Entrepreneur-in-Residence at Ventures West, is talking about financing. He is explaining the role of venture capital, as filling the void between friends/family/angel investment and the public markets, with an endgame of exit of liquidity. It is important to decide if you are right for venture capital:
- Are you in the right market?
- Are you the right person?
- Do you have the right solution?
- Are your goals aligned?
- Are you sure you want to give up some control?
The stages of financing are essentially:
Angel $50K-$500K, founders retain 50%-75%, couple of founders in home office Seed $500k on $500K to $2M on $2M, founders retain 25%-40%, build initial mgmt team, build V0.9 of product for early adopters Series A $4M on $4M to $8M on $8M, founders retain 10%-20%, commercialize product, implement marketing plan, hire initial sales team, hire core mgmt team, get buzz Series B Round varies on route to profitability, founders retain 5%-15%, extend product to maintain category leadership,identify future new product/extensions,expand market and sales to new geographies Series C,D,etc. May not be needed, requires leading share of huge market, increased dilution Mezzanine/IPO Mezzanine dept prepares for IPO, generally NASDAQ/TSX only
You can find more information about venture capital here.
John Baker of Desire2Learn is going to talk about Bootstrapping, without the benefit of PowerPoint. Desire2Learn has bootstrapped itself through sales, and hasn’t taken any enternal funding.
Some key principles:
- Build strong relationships, especially with your banker, to build track record and credibility
- Treat your money carefully, be thrifty with your cash, share hotel rooms
- Know how you make money and where you spend it (i.e. make labour force more productive)
- Build a team to make success repeatable
- Be willing to give up control
- Be ready to reward people for meeting targets
You can find more information about bootstrapping here.
After a short stretch, Tim Jackson and Jacqui Murphy of Tech Capital Partners are leading the audience in a Term Sheet Negotiation exercise (who knew there was homework?). Oddly, the cost of the money was not the first concern.
Points to note:
- Tech Capital will not invest in a company with licensed Intellectual Property. IP must be transferred to the company.
- From a practical standpoint, you can never fire someone for cause even if they are incompetent. They basically have to steal from you.
- A Tranche deal means that the money comes in chunks based on the agreement. This is a problem in the assignment given the smaller amount of funding. It looks like a 50-50 deal, but that is only after both tranches.
- If you cap legal fees, fees will come close to the cap. Either way, you are going to pay for it.
- They want a deal that works for both parties.
You can find more information about term sheets here.
Albert Lai, a serial entrepreneur most recently of BubbleShare, is talking about Epic Start-Upping. He’s done a few, and he’s bootstrapped, financed, and sold. He says that you will never get financing when you need it, always get it when you don’t, and you should never raise too much money. Otherwise you will tend to solve problems with money rather than creativity.
There are two types of jobs:
- Type A: People have passion for them for any amount of money (or none).
- Type B: People wouldn’t have passion for these regardless of cash.
He expects staff to take a pay cut when they come to work with him, but they get shares in exchange, so they take a share of risk as well. He also explains how he uses convertible debt and common shares for funding.
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