Let’s look at our destination
At that point you will have a complete business plan for your product/service. You will have designed it, validated it, priced it, test marketed it, etc.
NBYou are not actually building it (in case you were still unsure!
Grading Questions
- All your work has been and will continue to be scored on a Meets, Does Not Meet and Exceeds Expectations
- You don’t need to have 100% Exceeds to get an A
- Four categories of work will be weighted according to the Cosi102a 2024 Syllabus (printable)
- Overall meaning of the letter grades is according to Brandeis Registrar: Cosi102a 2024 Syllabus (printable)
Startup Funding
- You need money to pay salaries and other expenses
- You don’t have revenue, or you don’t have enough profit
Where might money come from?
- Friends and Family
- Consulting/Work on the side
- Angels - Individuals or in groups (e.g. Walnut or Common Angels)
- Venture Capital - Organized as funds - two sided (e.g. North Bridge or NEA)
- Incubators/Seed funding companies (e.g. Y-Combinator or TechStars)
- Crowdfunding (e.g. KickStarter)
- (Banks)
What stage is your business?
- These are not set in concrete, but they are typical
- Key parameters are: How much is being invested, and at what valuation
Stages
- Pre-seed:
- Idea, maybe a prototype, no revenue
- 1 to 5 founders
- Friends and Family, Angels, Incubators
- $10K to $100K investments
- Seed: Prototype, maybe some revenue, no profit
- 1 to 5 founders
- Angels, Incubators, Seed Funds
- $100K to $1M investments
- A-Round: Product, some revenue, no profit
- 5 to 20 employees
- Super-Angels, VCs
- $1M to $10M investments
Angels, Super Angels, Micro VCs
- Generally invest their own money
- (Contrast VC who invest other people’s money)
- Decision making process is less formal and more intuitive
- Investment amounts are smaller
What is a VC firm?
- A “firm” that stands between two constituencies
- Limited Partners (LPs) and Startups
“Limited Partners”
- Organizations like Universities or pension Plans
- Who need to “manage” a large sum of money
- They allocate portions of their funds to different investment types
- One of the investment types is “venture capital”
Venture capital as a “investment class”
- Considered high risk and very long term
- Startups and other businesses who need money
- New teams looking to raise capital
- Previously funded teams who need more capital
- Existing companies who are established and need more capital.
“Value add” of VC firm
- Locating the best investments into a portfolio of investments
- Managing the portfolio companies for best outcome
- Over 7 years goal is
1. 10% companies are 100+x successes
1. 40% companies do “ok”
1. 40% fail outright
- VC pools “Limited Partner” funds into numbered Funds
- Each VC will choose an appropriate size fund.
What is the process?
- Rounds of investment
- How valuation changes
- Term sheets
- Liquidation preferences will turn your hair grey.
- Founders have an idea - investors have money
- It’s a contract between founders and investors
Valuation
- What is the company worth - what would it cost for me to buy it from you?
- Like any asset, it’s a negotiation (like a house)
- It’s simple arithmetic but it is confusing
- Pre-money - what is your company worth before the investment?
- Post-money - Note that this is equal to pre-money + amount invested
- Let’s work an example in google
sheets
Rounds of financing
- What is a round
- How does it end? Liquidity Event
- Seed/Angel, A-Round, B-Round, … IPO or Acquisition
What you negotiate over
- Valuation and Investment amount are the key parameters
- How term sheets turn into “deals”
- What’s a seed deal?
- Should you or shouldn’t you?
- What are VC firms really?
- General and Limited Partners
- Why do people love/hate VCs?
Key Requirements
- Develop a plan that balances capital/time/milestones
- Decide what need to do now, and what can be deferred
- Define your financing milestones
- Determine how much capital to raise for your first milestone
- Ensure you position yourself for the next financing, ideally at a step-up
Thank you. Questions?
(random Image from picsum.photos)