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Posts Tagged ‘Funding’

I was recently sent this video [Fireside Chat – Revenue Bootcamp Aug. 7th, 2009], posted by Building43, which features a Q&A session between:

–        Guy Kawasaki – Garage Technology Ventures

–        Mike Moritz – Sequoia Capital

–        Paul Graham – Y Combinator

It is a very worthwhile video to watch if you are an entrepreneur involved in an eVenture.  Guy hosts the forum and discusses early stage technology investing with Mike and Paul.  At my personal stage in this business I found the segment on revenue the most insightful and helpful.  I’ll leave the explanations up the experts.

Included below, is an outline of the questions asked and the time in the video at which they occur in case you don’t have 60+ minutes to watch the whole thing.

Q&A Outline:

  1. Paul Graham introduces Y Combinator. (1:00)
  2. Mike Moritz introduces Sequoia Capital. (2:10)
  3. What do investors look for in a startup? (4:45)
  4. How does Sequoia & YC perceive entrepreneur’s projected revenues? (8:05)
  5. How does an entrepreneur present a competitive landscape? (15:00)
  6. Why does it seem that all startups founders are in their twenties? (18:20)
  7. What should entrepreneurs expect investors to do for them? (22:12)
  8. Is there a point when a startup should give up? (28:25)
  9. What makes a good board meeting? (32:55)

10.  Audience Questions:

    • What is going to be the next big wave of innovation? (37:30)
    • How do you value a company and how much do you expect? (43:20)
    • Comments on Socially Responsible investing and Patient Capital. (45:18)
    • How do you feel about husband and wife teams? (49:18)
    • Thoughts on entering the Chinese market for investing? (51:20)
    • Guy – Do you have higher expectations for entrepreneurs to have a prototype? (56:15)
    • Prognosis for the current economy? (58:20)
    • What advice would you give an older CEO/Founder? (61:30)

      11.  Closing with Guy (63:50)

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      Shortly after the announcement that Mint.com was to be sold to Intuit in a $170m Cash Deal, CEO and Founder Aaron Patzer shared his step-by-step strategy for Mint’s growth at the Vator.tv Juice Pitcher event.  Aaron breaks down his 3-½ year journey with Mint into three phases of development, and each stage’s goal, expected expenses and runway until next round.

      Here’s the 22-minute video, and my notes below for those of you who don’t have the time…

      Awesome, insightful and very helpful to see behind-the-scene basics of a successful startup to exit in the Valley…

      PHASE I: Garage Stage (<$100k)

      –        Goal = Build a Prototype

      –        Pre-Revenue Valuation: How a company is valued prior to revenue.

      • “Rule of thumb around the Valley is to…”
        • Add + $500k / Engineer
        • Subtract – $250k / Business Guy
      • …Reason being, web startups need Engineers to build while there is little to do for the Business Guy at this stage.

      –        Mints Expenses: Calculating Phase One expenses, Burn Rate, and Runway before next round of funding (based on $100k).

      • Founders at $30k Salary for living expenses. (Aaron’s Salary = $30k)
      • Engineer First Hires at $30-50k, + 1-3% of company.  (Mint’s 1st Hires at $36k + 1 ½ to 2% Equity)
      • Legal Fees deferred payment for 0.5 to .075% of company.
      • Example: 2 Founders + 1 Engineer = $150k / Yr Burn
        • Resulting Runway = Must raise Seed Money in 9 months.

      PHASE II: Seed Money

      –        Goal = Release Alpha Launch and get it in front of users.

      • Alpha should be usable but not polished.

      –        Headcount should be around 5-6 ppl.

      • 3-4 Engineers
      • 1 Product/Front-End
      • 1 Biz Generalist

      –        Mint had raised around $750k at this point.

      –        Mint’s Expenses:  Calculating Phase Two expenses, Burn Rate, and Runway before next round of funding (based on $750k).

      • Salaries = at $50-90k
      • Overhead = + 20%
      • Legal = $25k General + $2k/mth
      • Total = $600k / Yr Burn
        • Resulting Runway = Must raise Series A within 12 months.
      • Note on Legal Fees: “One thing VC’s won’t tell you is how much the legal fees will be and that you’ll be paying theirs and yours…”
        • Paid around $60k in Legal Fees on $750k, leaving them with $690k.

      –        Revenue Projections:

      • “…they’re going to be total bullshit.” And everyone knows it.
      • What Matters Most is…
        • A Huge Market Opportunity
        • Per use/client revenue
      • How much will you make per user, per year?
      • Calculating Opportunity:
        • #User Base x Rev/User/Yr = Opportunity

      PHASE III: Funded

      –        Goal = Launch a real product and grow a profitable business.

      –        Be Aware of Hidden Expenses

      • Patents, Trademarks, Consultants, Legal, etc.

      –        Mint’s Expenses:

      • Salaries + Overhead = $200k / Yr / Person
      • Legal = $10-50k / Mth
      • Total = $6m / Yr Burn
        • Resulting Runway = Must be profitable within 2 years.

      SUCCESSFUL EXIT MORE THAN $$$

      –        Boost in Self-Confidence

      –        Gratification of creating something from nothing.

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      Brewers PitcherHaving been involved in a handful of ventures, I learned quickly to take advantage of every opportunity I had to practice “the pitch.” For any entrepreneur pitching their business can be a daily routine.  Most probably practice their pitch everyday, without even knowing it.  Talking to a friend, answering the “how are you” question at work, and making small talk at family gatherings are all opportunities to practice your pitch when the topic surfaces.

      I want you to understand the importance of recognizing that these are all opportunities, so learn to PAY ATTENTION and take advantage of them.

      WHAT’S IN IT FOR ME?

      As an entrepreneur and in business, we should all be aware of how much we use our pitch.  Not only in presenting to an investor, but in all sales.  You pitch your ideas to your suppliers, partners, coworkers, bosses, clients, customers, everyone.  In some form or another, you have to answer their question, “what’s in it for me” and “why should I care?”

      Not only do you need to “pitch” everyday, you better get good at it if you want it to be heard.  When pitching you will be challenged with a lack of time, distractions, questions, your own nervousness, or the headache you cannot kick.  Anything and everything will be clawing at your focus and can kill your effectiveness in appealing to your audience.  On the other hand, take every opportunity to practice your pitch, over and over again, until it is programmed deeply into your brain, and you will be able to pitch in your sleep.

      THE 15-SECOND PITCH

      I recently read an interesting article by the founder of Weebly, in which he describes his experience pitching to the Y Combinator out in Palo Alto, CA.  As founder David tells the story, he had about 15 seconds to pitch before being bombarded by questions.  The questions escalated to the point where he was actually carrying on two totally different conversations in the same room with different investors.

      Wow, it seems you are going to want have this pitch second nature and know your stuff right?  Well it sounds like after a 15-minute push and few back-end hours, David ended up with the financing he needed for Weebly (Yay for him). But are you ready to be thrown into the lion’s den?

      STEPPING UP TO THE PITCH

      Currently, I am preparing to woo investors this year for my startup RentUpdate.com.  My partner and I are revamping the business plan and are preparing to start pitching to investors by mid-year.  Today, I had stopped by the office quickly to drop off some paperwork and I found an opportunity to practice my pitch.

      While at the office, I ran into a co-worker who had asked me if I was still working on RentUpdate.  I was busy trying to get out of there and wanted to give him the 10-second spiel (thanks to Scott on the correct spelling for ‘spiel’).  Anyway I hesitated for a second, before deciding to take the opportunity to pitch him the business.  Pending my upcoming year I thought, “Hell, might as well start practicing.”  So I did, and about 10 minutes and a few questions later, he was interested and told me I should pitch the idea to my boss as a possible investor… Interesting.

      PITCH TIL IT HURTS

      Over the years what I’ve noticed about myself as a salesperson (the same that anyone should notice), is that I get better every time I make my presentation or pitch.  Different people, different responses, different environment, different questions, are all things that change with each new prospect.  Thus, with each new prospect and every pitch, I become more confident, refined and prepared to answer questions before they become questions.

      PITCH TO EVERYONE

      Take the opportunity to make your pitch to anyone that will listen.  Start with your significant other, your buddy, your parents, coworkers, whomever.  And you don’t have to give them the “FULL” presentation with slides, handouts, and special effects, but just give them the raw pitch.  Explain to them what you’re working on and why you think or “know”, it will work.  Practice changing it up and morphing your pitch to suit your audience.  Mom might not be so tech savvy, so dumb it down a bit (sorry Mom) so that she can visualize the concept and see its potential.  Your buddy on the other hand might be a techy geek, so get into the sweet Ajax features that you’ve got incorporated into the application.  Bump into the marketing guy at work, talk to him about your plan to spread the word and ask him if he’s got any ideas.

      ADDITIONAL POINTS

      • Ask: Ask for questions, feedback and ideas. It’s amazing how outsiders can often see more and tell you more about your business than you can, because there on the outside looking in.
      • Embrace Perspective: Perspective is your friend.  Someone in a hole can tell you with great detail every aspect of the hole, but it’s probably a good idea to ask other people who are not in the hole what they think the hole looks like.
      • Get feedback and Pay Attention: If something is extremely difficult to explain to someone, then perhaps you’ve over-complicated it or perhaps you’re over-complicating the business itself.

      Lesson Learned: Take advantage of every chance you get to discuss your business and practice your pitch with others.  See them as the small jewels of opportunity that they are.  These mini-pitches are helping you get ready for the big game.  So when the time comes and you have your 15 seconds to shine for that million-dollar investment, you can knock it out of the park.

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      Stack of Cash

      I love it… Opportunity abounds with evolution of the Internet.  It amazes me how today a company can manage to raise staggering amounts of funding ($57 Million) and have a valuation of an estimated $250 Million, without a stitch of revenue.  Furthermore, not even knowing how they will monetize and generate revenue moving forward.

      But, I suppose when you have 4.1 Million people coming to your site everyday, almost a 1,000% increase over the last year, and an estimated 4-6 Million users, you apparently don’t need to make money, because people just hand it over by the dump truck load.

      Three months ago Twitter rejected a $500 Million takeover offer from facebook.com, and now this week has closed on a reported $35 Million infusion of capital in its third round.Twitter Logo

      This news coincides perfectly with my post from yesterday on How to Make $1 Million with $50, although not as simple, it is incredible how the Internet continues to bulldoze the business landscape and continue to reveal new opportunities with every turn.  Opportunities to make gobs of money, sprout new with possibility every day. It makes me wonder if it will ever slow down or what awaits us online-business-folk around the next corner.

      But that’s for the entrepreneurs among us to find out, who with the right idea and a butt-load of ambition, will shed light on the next big thing.

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      Probably one of the most straightforward crash courses on startup funding I’ve read, Paul Graham has written a must-read article on How to Fund a Startup. It’s a good twenty-minute read, but if you are an entrepreneur looking to or thinking about funding this article will be well worth your time. And other than rambling on, I’m going to simply point you in the right direction and leave you with a couple of my favorite snippets from How to Fund A Startup:

      “Fear of failure is an extraordinarily powerful force. Usually it prevents people from starting things, but once you publish some definite ambition, it switches directions and starts working in your favor.”

      “Competitors punch you in the jaw, but investors have you by the balls.”

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