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CEO of Connect.com

Startup Guide RYAN ALLIS

Building a Better World Through Entrepreneurship

With Ellen Daly

The

2013 Edition

More slides at www.s

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RAISing VENTURCAPITAL

ENTREPRENEURSHIP

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THIS presentation IS PART OF A LARGER slide DECK on

building a better world through entrepreneursh

Startupguide.com

ABOUT THIS PRESENTATION

For more slides & CONTENT visit:

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YOU HAVE TO DO WHATEVERIT TAKES TO

KEEP COSTS LOW

UNTIL YOU HAVE REVENUE

entrepreneurship Raise funding or bootstrap

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THE #1 mistake I seeFirst time entrepreneur

Make is raising too much

MONEY TOO SOON

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Dont raise outside CAPITAL

UNTIL AFTER

YOU KNOW YOU HAVE SOMETHTHAT CUSTOMERS

ARE WILLING TO PAY FOR

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TO TEST DEMAND

BEFORE YOU RAISE MONEYBUILD AN INEXPENSIVE

PROTOTYPE and improve itUNTIL YOU KNOW

CUSTOMERS LOVE IT

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Unless youre building a productLike a new drug that requires massiv

upfront investments dont raise

Outside capital until after

You have proven customer demand

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IF YOU RAISE MONEY TOO

SOON AND DonT YET HAVE

SOMETHING CUSTOMERS WANTINVESTORS WILL EAT YOU FOR

BREAKFAST

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YOUR GOAL IS FOR EVERYONE

TO DO WELL--CUSTOMERS, EMPLOYEINVESTORS & YOU

SO DonT PLAY WITH INVESTOR MONUNTIL YOU KNOW YOU HAVE SOMETH

THAT THE MARKET REALLY WANTS

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Raise funding or bootstrapentrepreneurship

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PRO TIP:GET AS FAR AS YOU CAN

WITHOUT RAISING

OUTSIDE CAPITAL

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entrepreneurship Raise funding or bootstrap

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AT ICONTACTWE BOOTSTRAPPED

FOR THE FIRST 3 years

(2003-2006)

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entrepreneurship Raise funding or bootstrap

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WE GOT to

$1.5 million in annual sales

BEFORE WE RAISED ANY FUNDSBEYOND A $5,000 loan

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entrepreneurship Raise funding or bootstrap

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HOW?

BY KEEPING COSTS LOWUNTIL WE GOT REVENUES

NOT TAKING SALARIES FOR 3 yearsAND DOING SERVICE WORK ON THE S

FOR FUNDS TO LIVE OFF OF

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We LIVED IN THE OFFICE

ATE RAMEN NOoDLES

AND Jumped IN DUMPSTERS TRECOVER PROOF OF PURCHASE

TAGS FOR REBATES

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entrepreneurship Raise funding or bootstrap

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IN THE BEGINNINGDO WHATEVER IT TAKES

TO KEEP COSTS LOW

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entrepreneurship Raise funding or bootstrap

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RYANs 3 RULEs OF BUSINESS:

1. CREATE PRODUCTS CUSTOMERS LOVE2. RECRUIT TRULY EXCELLENT PEOPLE3. Dont raise venture capital until youhave revenue & PROVEN CUSTOMER

DEMAND

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entrepreneurship Raise funding or bootstrap

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TOO MANY STARTUPS FAIL

BECAUSE THEY RAISE VENTURE CAPITA

BEFORE THEY HAVE REVENUEAND BEFORE THE ENTREPRENEUR HAS

BUILT SOMETHING CUSTOMERS LOVE

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THE ABSOLUTE BEST SOURCEOF FUNDING IS FROM

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PAYING CUSTOMER

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Venture capital is LIKE THE

GOLDEN MUSHROOM IN MARIO KARTIT MAKES YOU GO FASTER

BUT If you accelerate TOO QUICKLIN THE WRONG DIRECTIon

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YOU FALL OFF A CLIF

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JUST BECAUSE MONEY ISAVAILABLE DOESnt MEAN

its good for you ORthat your company is ready

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OUTSIDE CAPITAL SHOULD BEUSED AS FUEL TO ACCELERATE

WHEN YOURE ALREADY MOVINGIN THE RIGHT DIRECTION

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WHERE TO LOOKDEPENDS ON HOW MUCH

YOU NEED AND HOW FAR

ALONG YOU ARE

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MONEY NEEDED

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A great source to find earlyStage angels is

AngelList.com

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entrepreneurship Raise funding or bootstrap

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ALSO CHECK OUT THE NEW

Peer-to-peer investing sitesThat have launched FOLLOWING

the PASSING OF THE U.S. JOBS ACT of 201THE BEST ONE IVE SEEN Is

FUNDABLE.com

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entrepreneurship Raise funding or bootstrap

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OTHER BUSINESSES

LIKE DALTON CALDWELLs APP.NET

HAVE BUILT KICKSTARTER-LIKE

PLATFORMS OF THEIR OWN

TO FUND THEIR EARLY EXPENSES

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DO YOUR BEST TOAVOID RAISING MORE

THAN 1x your currentANNUALIZED REVENUE

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AS AN EXAMPLE, HERE iS Icontacts

CAPITAL RAISED OVER 4 financing rounds

u s s u g o oo s

DateCapital raisedto balancesheet

ANNUALIZEDREVENUE

CAPITALSource Capital type

Approx. Pre-MoneyVALUTION

Approx Post-moneyvaluation

Approx COMPAN

June 2003 $5k $5k FRIEND LOAN 0%

May 2006 $500k $1.5M IDEA FUND SEED STAGE $16m $16.5M 3%June 2007 $5.3M $5.5M Updata SERIES A $27M $32.3M 16%

August 2010 $25M $38M JMI EQUITY SERIES B $100M $125M 20%

NOTE THAT OUR ANNUAL REVENUE WAS ALWAYS HIGHER THAN

THE AMOUNT OF MONEY WE RAISED

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LEVEL OF NEED FOR THE MONEYYOUR EXPERIENCEYOUR TEAM

PRODUCT & TECHnOLOGYCOMPETITIONOTHER TERM SHEETS

QUALITY OF YOUR ADVISORS

YOUR NEGOTIATING POWER is BASED ON

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VALUATIONOPTION POOL SIZELIQUIDATION PREFERENCES

FOUNDER REVESTINGPREFERRED VETO RIGHTSTYPE OF PREFERRED STOCK

BOARD SEATS

! THE HIGHEST VALUATION IsnT ALWAYS BEST

THE MOST IMPORTANT INVESTMENT TERMS

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CHEMISTRY WITH THE PARTNEROPERATIONAL EXPERIENCECURRENT PORTFOLIO ALIGNMENT

PARTNER/FIRM EXIT RESULTSEXECUTIVE RECRUITING ABILITYTERMS OF INVESTMENT

FACTORS IN SELECTING YOUR INVESTORS

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VALUATION RANGES FROM $1M To $25M depending on Factors like

CEO Past exits TEAM EXPERIENCE NUMBER OF USERS NUMBER OF ENGINEERS LOCATION OF COMPANY

TECH STARTUP PRE-REVENUE VALUATION GUIDELIN

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INCORPORATED b2c tech COMPANY RUN BY FIRST TIME

ENTREPRENEUR with 1 engineer

PRE-REVENUE VALUATION EXAMPLE

Pre-Money Valuation: $1m-$3m

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INCORPORATED b2c tech COMPANY RUN BY FIRST TIME

ENTREPRENEURS who have been through y combinator w

good idea AND 2 engineers

PRE-REVENUE VALUATION EXAMPLE

Pre-Money Valuation: $4m-8m

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tech COMPANY run By experienced CEO with 10 years c-l

experience, $100m prior Exit, & 5 engineers

PRE-REVENUE VALUATION EXAMPLE

Pre-Money Valuation: $10m-20m

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1x to 12x revenue based on factors like

TECH POST-REVENUE VALUATION GUIDELINES

AMOUNT OF REVENUE REVENUE GROWTH RATE NUMBER OF USERs/customers TYPE OF REVENUE CEO/TEAM EXPERIENCE COMPANY MARKET LOCATION OF COMPANY

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AS YOU GO ABOUT FUNDRAISINGYOU USUALLY WANT TO CREATE

A COMPETITIVE PROCESS

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BUILD YOUR FUNDING

PROCESS TO ENSURE

YOU RECEIVE

MULTIPLE TERM SHEETS

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HAVE ACCESSIBLE

IN YOUR HEADVALUATION COMPARABLES

RECENT SIMILAR Venture DealsRecent SIMILAR M&A dealsPublic comparables

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RAISE MONEY

ONLY FROM SMARTPEOPLE YOU REALLY LIKE

YouLL BE MARRIED toThem FOR THE NEXT

3-10 years

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WAIT TO RAISE

Your series AUNTIL You HAVE

PROVEN MATHEMATICALLYTHAT X DOLLARS SPENTBRINGS Y DOLLARS BACK

And make sure y is >4 times x

The

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CEO of Connect.com

Startup Guide RYAN ALLIS

Building a Better World Through Entrepreneurship

With Ellen Daly

2013 Edition

More slides at www.s