BUSINESS

ENTREPRENEURSHIP

CLASS

LECTURE SLIDES

FUNDING THE

STARTUP

SPRING 2013

ERDEM OVACIK

Erdem Ovacik – Business Entrepreneurship Project – Spring 2013

WHAT KIND OF RETURN DO YOU SEEK & PROMISE?

2

High risk & high return

Low risk & low return

Blue Ocean, new product / service

Competitive, established market

Easier to get funding from Angel or VC

Easier to get funding from banks

Our focus

Erdem Ovacik – Business Entrepreneurship Project – Spring 2013

Erdem Ovacik – Business Entrepreneurship Project – Spring 2013

Erdem Ovacik – Business Entrepreneurship Project – Spring 2013 5

RECENT IPO VALUATIONS OF TECH STARTUPS

Erdem Ovacik – Business Entrepreneurship Project – Spring 2013 6

VENTURE CAPITAL PER REGION IN THE USA

Erdem Ovacik – Business Entrepreneurship Project – Spring 2013 7

CONSOLIDATION & STEADY MONEY FLOW SINCE 2002

Erdem Ovacik – Business Entrepreneurship Project – Spring 2013 8

WHAT TO EXPECT FROM INVESTORS?

Erdem Ovacik – Business Entrepreneurship Project – Spring 2013 9

FRIENDS AND FAMILY

Focus on you being happy and productive.

They don’t have financial expectation, but expectation that you do not quit very soon, and when you do, you have a good reason to do so. And that you don’t ask for more funding.

Asks:- Commitment from your side to this idea.

Erdem Ovacik – Business Entrepreneurship Project – Spring 2013 10

GOVERNMENT / FOUNDATION GRANTS

Focus on story telling value and making sure they are safe.

They don’t have financial expectation, but expectation that you do not close in next 2 years, and help them with story-telling

Asks:- Great story of why- Good presentation, - Ensure formal requirements are obviously met – no risk of

losing job for the bureaucrat.

Erdem Ovacik – Business Entrepreneurship Project – Spring 2013 11

ANGEL INVESTORS

Focus on personal interest and return

Angels pick startups in their areas of interest and knowledge. They are a bit like your team, they help expand by making new connections. Right set of angels can help you go far

Asks:- Great team, meaning personal click and trust- Idea is within their personal means and interests- 5-30% of shares for typically $50-500k

Erdem Ovacik – Business Entrepreneurship Project – Spring 2013 12

VENTURE CAPITALISTS

Focus on return

VCs think that 1 out of 10 investments will succeed. And that one will bring home enough cash to cover all the costs AND a 20% + annual return. Is not interested in getting too deeply involved with management/control.

Asks:- Great team, meaning performing, proven team- Idea is within organizational strategic focus area (ie, B2B,

social media, mobile, games, etc)- 15-30% of shares for typically $500-5m for Series A

Erdem Ovacik – Business Entrepreneurship Project – Spring 2013 13

BANKS, FINANCIAL INSTITUTIONS

Focus on potential loss.

They have fixed return expectation (5-10% per annum), thus they focus on minimizing risk of loss.

Asks:- Existing income / P&L- Company assets as collateral- Cofounder personal commitment- Others’ assets as collateral

Erdem Ovacik – Business Entrepreneurship Project – Spring 2013

TAKE A LOOK INTO THE FUNDING / PAYOUT CALCULATOR

https://www.smartasset.com/infographic/startup

Erdem Ovacik – Business Entrepreneurship Project – Spring 2013

ASSINGMENT #9

• Describe 2 persons you’d like to partner up / work with you

• Describe your ideal investor, and the amount of investment you want for a stake in the company

Erdem Ovacik – Business Entrepreneurship Project – Spring 2013

TEAM MEMBER DESCRIPTION

Responsibilities.

Describe role, ensure expectations are aligned.

People with corporate background, mngmt consulting, etc: BEWARE – THEY MAY BE EXPECTING STHING ELSE

Define:

• Salary• Benefits• Vacation• Hours• How to get in contact• Working mode• Notice period• Expenses (computer,

phone, lunches, travel, ..)

Candidate profile

Profile of the ideal candidate.

Make a scoring of the candidate against the ideal candidate.

Take hiring serious.

Take hiring seriously. Hire slow, fire fast. Make sure to put things on paper from the outset.

Erdem Ovacik – Business Entrepreneurship Project – Spring 2013

INVESTOR DESCRIPTION

Ideal Profile.

Connections and experience in industries, or roles. Tech startups, retail, music, supply chain, etc etc

Location, education, culture.

Define:

• Amount of investment• Stake in the company• Level of control (board

member?)

Other enquiries

Help with what? - New investors- Finding customers- Growing team- New branch- …

You’ll be married to the people who invest in the company – so, be careful, it’s not just getting some money in.

Erdem Ovacik – Business Entrepreneurship Project – Spring 2013

ASSIGNMENT #10: BUSINESS PLAN

• Problem (~1page)• Solution (1-2 pages)• Market (~1 page)• Unique Value Proposition / competitive edge (~1 page)• Go to market strategy (~1 page)• Existing customers, partnerships (if any)• Journey summary – what happened so far (~1 page)• Next steps (~1 page)• Team (members, investors) (1-2 pages)• Appendix – Financial expectations (1 page)

No less then 7, no more then 10 pages. Use shapes, graphs.