2012, Georgia Institute of Technology Raising Capital: Practical Tips for Entrepreneurs Stephen Fleming Vice President <fleming@gatech.edu>
Stephen Fleming 17+ years venture capital investment experience. General Partner, Alliance Technology Ventures (affiliated with Georgia Research Alliance). 18 investments as lead investor, 11 profitable exits incl. 4 IPOs, $650M acquisition BS, Physics, Georgia Tech (Highest Honors). 15 years operational experience at AT&T Bell Labs, Nortel, LICOM (venture-backed startup). Supervised startups developing first ADSL modem and one of the first cablemodems in early 1990s. Multiple advisory boards at Georgia Tech; endowed chair in telecomm; occasional instructor in undergrad & MBA entrepreneurship programs. Joined Georgia Tech staff in 2005; now Vice President, EI2 Atlanta native; regional technology leader. 12/6/2012 Raising Capital 2
What We Now Know! Since 1995, the U.S. has conducted a trillion-dollar experiment in how to launch and scale successful companies. NASDAQ 12/6/2012 Raising Capital 3
What We Now Know! We know something now that we didn t know before... We know how to build startups. 12/6/2012 Raising Capital 4
What We Used to Believe... A startup is a smaller version of a large company. 9/12/2012 Building Startups at Georgia Tech 5
What We Used to Believe... A startup is a smaller version of a large company. 9/12/2012 Building Startups at Georgia Tech 6
What We Now Know! A startup is a temporary organization designed to search for a repeatable and scalable business model. Steve Blank Startup Company 12/6/2012 Raising Capital 7
What We Used to Believe... Plan the work, and work the plan. 9/12/2012 Building Startups at Georgia Tech 8
What We Used to Believe... All I need to do is meet the forecast. 9/12/2012 Building Startups at Georgia Tech 9
What We Now Know! No business plan survives first contact with the customer. Field Marshal Helmuth von Moltke (slightly modified!) 12/6/2012 Raising Capital 10
12/6/2012 Raising Capital 11 Planning Precedes The Plan
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12/6/2012 Raising Capital 13 Business Model Canvas Adapted from Business Model Generation by Alexander Osterwalder and Yves Pigneur
12/6/2012 Raising Capital 14 Innovation Innovation is our middle name... What do we mean by innovation?
12/6/2012 Raising Capital 15 What is Innovation? Research is the transformation of money into knowledge. Innovation is the transformation of knowledge into money. Dr. Geoffrey Nicholson, 3M (inventor of the Post-It note)
GT Innovation Ecosystem On Campus... In the Community......and Beyond! 16 12/6/2012 11/27/2012 Georgia Tech Innovation: Research Raising to Commercialization Capital
VentureLab Educat Curat Creat Turning Georgia Tech s most promising research into dynamic startup companies. 12/6/2012 11/27/2012 Georgia Tech Innovation: Research Raising to Commercialization Capital 17
12/6/2012 Raising Capital 18 NSF I-Corps
NSF I-Corps National Science Foundation Innovation Corps Developing entrepreneurial knowledge in university scientists and engineers Built on Stanford s Lean LaunchPad course Curriculum initially led by Silicon Valley investors and entrepreneurs Georgia Tech is one of two universities chosen by NSF to scale I-Corps nationwide 12/6/2012 11/27/2012 Georgia Tech Innovation: Research Raising to Commercialization Capital 19
12/6/2012 Raising Capital 20 Financing a Startup
12/6/2012 Raising Capital 21 Financing a Startup Options: The hard way. The other hard way. The very narrow way. The really hard way.
Financing a Startup Options: The hard way. The other hard way. The very narrow way. The really hard way. Debt Equity Grants Bootstrapping Venture capital consists of purchasing equity in startup businesses. 12/6/2012 Raising Capital 22
Equity from Dictionary.com: eq ui ty \ˈe-kwə-tē\ 1.The quality of being fair or impartial; fairness; impartiality... (similar for #2, #3) 4.The monetary value of a property or business beyond any amounts owed on it in mortgages, claims, liens, etc. 12/6/2012 Raising Capital 23
12/6/2012 Raising Capital 24 Who Buys Equity? Friends, Family, and Fools (FFF) Angel Investors Venture Capitalists Investing because they love you or your idea. They wouldn t mind making a little money, too. Investing their personal cash because they love the idea and think they can make some money (and maybe help out a bit). Investing someone else s money (for a fee) because they think they can make lots of money on your idea. (As in, 10 or more!)
12/6/2012 Raising Capital 25 Equity The Good News No monthly payments. Goals of investors are fully aligned with founders: Company success Capital gains Large dollar volume available. Long time horizon.
12/6/2012 Raising Capital 26 Equity The Good News No monthly payments. Goals of investors are fully aligned with founders: Company success Capital gains Large dollar volume available. Long time horizon. The Bad News Loss of ownership. Eventual loss of control. Founder now reports to Board of Directors. Emotional issue for many founders. Focus on exit strategy. Equity investors expect sale, merger, or IPO.
12/6/2012 Raising Capital 27 The Venture Equity Cycle Institutional Investor LP Interests Venture Capital Firm Equity Entrepreneur Capital Gains Carried Interest Liquidity Event (Sale or IPO)
12/6/2012 Raising Capital 28 Logarithmic Financing $1x $ Amount Mechanism Type 10 4 10,000 Visa card Debt 30,000 Second mortgage Debt 10 5 100,000 Angel investor; Crowdfunding Debt and Equity 300,000 Angels and seed funds Equity 10 6 1,000,000 Seed-stage venture capital Equity 3,000,000 Early-stage venture capital Equity 10 7 10,000,000 Later-stage venture capital Equity 30,000,000 Public markets (IPO) Equity 10 8 100,000,000+ Corporate bonds Debt How much money you need determines who you ought to be talking to about money!
12/6/2012 Raising Capital 29 Pick Investors Carefully! Preferred stage(s) Geographical target(s) Industry target(s) Deal size Track record Potential synergies Chemistry Raising money takes longer than you expect. Don t waste time chasing the wrong investors.
12/6/2012 Raising Capital 30 Pick Investors Carefully! Preferred stage(s) Geographical target(s) Industry target(s) Deal size Track record Potential synergies Chemistry Most venture capital money is for later-stage (expansion) deals especially since the Bubble.
12/6/2012 Raising Capital 31 After the Bubble Quarterly VC Investment ($Billions) 30 25 20 15 10 5 Venture capital investments in the U.S., by quarter Total Venture Capital Investment Seed and Early-Stage Investment 1995 1997 1999 2001 2003 2005 2007 2009 2011 Source: PWC MoneyTree
12/6/2012 Raising Capital 32 After the Bubble Quarterly VC Investment ($Billions) 30 25 20 15 10 5 34% Ratio of Seed+Early Stage to All Investments 19% 33% 1995 1997 1999 2001 2003 2005 2007 2009 2011 Source: PWC MoneyTree
12/6/2012 Raising Capital 33 Approaching an Investor
Lessons from Silicon Valley What are the key value drivers of a successful venture-backed startup? Large, fast-growing market segment Unique technology advantage Experienced management team Reasonable financial terms Measurable milestones for success 12/6/2012 Raising Capital 34
Do This First! A startup is a temporary organization designed to search for a repeatable and scalable business model. Steve Blank Startup Company 12/6/2012 Raising Capital 35
12/6/2012 Raising Capital 36 Don t Raise $ Too Early... The Right Time to Raise Money Startup Company
12/6/2012 Raising Capital 37 Convince Them! What are the key value drivers of a successful venture-backed startup? Large, fast-growing market segment Unique technology advantage Experienced management team Reasonable financial terms Measurable milestones for success
12/6/2012 Raising Capital 38 Other Attractive Elements Multiple potential exit scenarios. Not every company needs an IPO! Ability to syndicate with other venture investors. Synergy with existing portfolio. Maturity and timing of existing portfolio. Ability of General Partner(s) to add substantial value. Industry experience, contacts, etc. If you re not comfortable with the concepts on this page, you re not ready to raise venture capital.
Contacting a VC Investor Most venture investors review hundreds of pitches per year. Make yours stand out: Clearly explain unique technology, target market, and planned management team. If you haven t done your homework, the VC will not do it for you! Ruthlessly cut excessive details. Time enough for those later. Spelling counts! 12/6/2012 Raising Capital 39
Spelling Counts If I see spelling errors (or syntax errors, or other obvious errors), then I assume... You are stupid, and don t know that you have made errors, or You are sloppy, and don t care that you have made errors, or You are lazy, and don t want to take the time to fix errors, or You know there are errors, but you do not have sufficient skills to fix them, and you have not gone out to get help from someone who can! 12/6/2012 Raising Capital 40
Contacting... (cont.) The goal of a written submission is to set up a face-to-face meeting. 1 out of 10 plans get to a meeting. 1 out of 10 meetings results in an investment. Use any available intermediary (banker, lawyer, accountant...) to give your plan added credibility. Almost no unsolicited business plans get funded. Many VC firms have a policy (formal or informal) against it. Getting a warm introduction is your first test! 12/6/2012 Raising Capital 41
12/6/2012 Raising Capital 42 Writing/Graphic Resources The Elements of Style, Strunk & White The Visual Display of Quantitative Information, Edward Tufte And everything else Tufte has written. If he comes to town, attend his seminar! The Art of the Start, Guy Kawasaki And <http://blog.guykawasaki.com/> Presentation Zen <http://presentationzen.com/>
12/6/2012 Raising Capital 43 Document Preparation Prepare three documents... Business Plan Executive Summary Company Presentation 20 pages 2 pages 10 slides
12/6/2012 Raising Capital 44 Document Preparation Prepare three documents... Business Plan Executive Summary Company Presentation 20 pages 2 pages 10 slides Put the business plan in your desk drawer!
Document Preparation Executive Summary Company Presentation 2 pages 10 slides Your presentation deck is not a standalone document! Don t send it to anyone! 12/6/2012 Raising Capital 45
12/6/2012 Raising Capital 46 The Presentation Re-read Kawasaki s book and blog. Take with salt. Visit <http://www.presentationzen.com> and follow the links. 10-20-30 rule: 10 slides maximum 20 minutes maximum (allow time for Q&A) 30 point typeface minimum This line is 28-point. I cheated. Anything smaller than this is a mistake Tighten up! Consider attending ATDC s Pitch Gauntlet class. Do not read your slides to the audience!
You Got a Meeting! Congratulations! Do more homework on the person. Understand how you fit his or her: Existing portfolio Stage of fund Internal industry model An investor pitch is not the same as a customer sales pitch! Sell your company not your product! 12/6/2012 Raising Capital 47
What We Now Know! Success consists of going from failure to failure without loss of enthusiasm. Winston Churchill 12/6/2012 Raising Capital 48
For Further Information Stephen Fleming Vice President, Enterprise Innovation Institute Georgia Institute of Technology http://innovate.gatech.edu Personal blog: http://www.academicvc.com Email: fleming@gatech.edu Twitter: @stephenfleming Download this file at http://www.academicvc.com/filesharing 12/6/2012 Raising Capital 49
For Further Information Stephen Fleming Vice President, Enterprise Innovation Institute Georgia Institute of Technology http://innovate.gatech.edu Personal blog: http://www.academicvc.com Email: fleming@gatech.edu Twitter: @stephenfleming Download this file at http://www.academicvc.com/filesharing 12/6/2012 Raising Capital 50