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FUNDING YOUR STARTUP 2015 got startup?

Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

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Page 1: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

FUNDING YOUR STARTUP ‐ 2015

got startup?

Page 2: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

Where’s the Money?

• Tapping your resources• Friends & family• Crowdfunding • Angel Investors• Venture Capital• Institutional Investors• Government Resources• Self Directed IRAs

Page 3: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

Tapping Your Resources• Savings• Liquidate Assets

• Steve Jobs sold his Volkswagen van and Steve Wozniak sold his programmable calculator to start Apple Computers

• Credit cards• Try to get zero percent transfer credit cards• Transfer again before rate hike (3‐4% fee)• Kevin Plank, CEO of Under Armor, started his company with $20K in cash and $40K in credit card debt

• Commercial Banks• Loans• Lines of Credit

Page 4: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

Friends & Family• Probably the most common funding method for young entrepreneurs• Walmart was started with $5K saved from Sam Walton’s military service and $20K from his father‐in‐law

• Risk – can complicate personal relationships

• Is limited by people you know

Page 5: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

Crowdfunding

• Different Types• Rewards based• Debt based• Donation based• Equity offering platforms

Page 6: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

Reward Based Crowdfunding• Currently the most popular• Venture will offer reward tiers for different amounts of money pledged

• Some Ventures will utilize capped reward tiers, pushing funders to donate early in order to get their reward of choice

Page 7: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

Reward Based Crowdfunding

Coolest Cooler Raised over $13M

Kickstarter

Page 8: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

Reward Based CrowdfundingIndiegogo

SolarRoadways has raised over $2M

Page 9: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

Debt Based Crowdfunding

• P2P Loans• Lending Club

• Over $5B in loans issued• Sliding scales based upon risk (about 8‐25%)

• Micro financing

Page 10: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

Donation Based Crowdfunding

• For charitable/non‐profit organizations

• Sometimes used by individuals• GoFundMe

• Raised over $120M• Platform takes 5%

Page 11: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

Equity Offering Platforms

Regulation D• Investors must be accredited• Tends to be much faster than Angel financing

Page 12: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

Venture Capitalists• Venture Capitalists are usually large firms that invest in early Startups (Ventures) with their considerable resources (Capital) 

• VC’s do not make money until the Venture has an IPO or is sold to another company

• The Pentagon is planning on opening a Silicon Valley based VC later this year

• Venture Capitalists trade capital for ownership equity, in the hopes of creating a lucrative return

Page 13: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

What do Venture Capitalists Do?

• Own a percentage of the Venture• Are typically more involved in day to day 

activities than other funding options, with the possible exception of Angel Investors

• VC’s are influenced by risk factors, so it is generally better to approach them later in your funding cycles, particularly if you have an influential Angel Investor backing you. 

Page 14: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

So you want to find a Venture Capitalist

• Sand Hill Road in Menlo Park is home to many of the largest Venture Capitalists

• Research Venture Capitalists who have invested in your market area. (i.e. Apps, Biomedical, Consumer Goods, Services)

• VCs tend to have market focuses, be sure to find the correct one for you

• Research the people who work at that VC• Perfect your pitch 

Page 15: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

Angel Investors• Angel Investors are private investors • Essentially a one person Venture Capitalist • Individuals – often entrepreneurs, although some band together (e.g. Keiretsu Forum)

• Reality TV shows ‘Shark Tank’ and ‘Dragon’s Den’ are about Angel Investors

• Provide Capital for a Startup in exchange for convertible debt or ownership equity

• Some have organized themselves into Angel Groups or Angel Networks to share research and pool capital

Page 16: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

Institutional Investors• A more ‘classical’ option in funding• Banks• Insurance Companies• Pension Funds/Hedge Funds/Mutual Funds• These groups invest their pooled funds into 

securities, property, and other assets. • Companies also have investment funds

Page 17: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

Government Resources

• SBA, see www.sba.gov

• Federal Grants, see www.federalgrants.com

Page 18: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

Self Directed IRAs• 401(k) – Some plans allow for loans against your retirement savings

• IRAs – but probably not your own• Self Directed IRAs• Should get professional assistance in setting this up

• Conventional IRAs• Roth IRAs

• This was used by Max Levchin of Yelp! And Paypal to create a ROTH IRA that may be worth >$100M

• Put investments with the highest growth potential into a Roth IRA

Page 19: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

So When do you Ask?When should you look for funding?

Image from https://en.wikipedia.org/wiki/Startup_company#/media/File:Startup_financing_cycle.svg 

Page 20: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

5 stages of FundingWhen should you look for funding?

Image from https://en.wikipedia.org/wiki/Startup_company#/media/File:Startup_financing_cycle.svg 

Page 21: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

5 stages of Funding• The market has defined 5 stages of 

funding.• These stages are reached as the startup 

grows and begins to succeed• Earlier stage investors expect a larger 

percentage of the startup’s equity. • Some investors (such as VCs) are very 

involved in the evolution and success of the Venture. 

Page 22: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

5 stages of FundingThe Seed Stage 

• The “Idea” stage – Prototype stage• Many Investors will conduct a 

Feasibility Study to investigate ideas.• HIGHEST RISK STAGE

Best sources for Seed Funding: • Angel Investors• Friends and Family• Government Funding• CrowdFunding

Risk of Loss

66.2%

Page 23: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

5 stages of FundingThe Startup Stage 

• Venture has passed the feasibility test• Company starts putting together the 

management/founding team• Market Research is conducted

Best sources for Startup Funding: • Angel Investors• Venture Capitalists• Government Funding• CrowdFunding

Risk of Loss

53.0%

Page 24: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

5 stages of FundingThe Second Stage 

• Encounters of the Marketing Kind• Product is now being introduced to market• Sales are beginning to happen.• Venture has not yet broken even

Best sources for Second Stage Funding: • Venture Capitalists• Government Funding• CrowdFunding Risk of Loss

33.7%

Page 25: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

5 stages of FundingThe Third Stage 

• Expansion phase• Venture expands market share • Marketing becomes very important • Attempt to cut down costs or restructure• Look into follow up products

Best sources for Third Stage Funding: • Venture Capitalists• Government Funding• CrowdFunding

Risk of Loss

20.1%

Page 26: Funding your startup 2015 Got Startup Meetup Slide April 23, 2015

5 stages of FundingThe Bridge/Pre IPO Stage

• Last stage of funding process• Venture has achieved a certain amount of 

market share• Venture may be bought out in a merger

Best sources for Third Stage Funding: • Venture Capitalists

Risk of Loss

20.9%