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1. HIGH GROWTH
BUSINESS FORMATION:
THE ORIGINS OF A SUCCESSFUL COMPANY
Aaron Holiday

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3. HIGH GROWTH BUSINESS FORMATION
HIGH GROWTH BUSINESS DEVELOPMENT LIFE CYCLE:
6 STAGES

4. AGENDA
‣ Idea Generation
‣ Ownership
‣ Legal Entity
‣ Business Model
‣ Revenue Streams

5. HIGH GROWTH BUSINESS FORMATION
IDEAS ARE WORTHLESS, BUT STRONG TEAMS WILL BUILD BIG
BUSINESSES
IDEAS
‣ There are NO unique ideas
‣ Ideas are NOT defensible
‣ Ideas are binary and static
VS
TEAMS
‣ There is only ONE team
‣ Teams take action
‣ Teams learn and pivot
After identifying a promising business idea, SHARE that idea with others
and form a powerful team around the idea to prove the value hypothesis
IDEA GENERATION
OWNERSHIP
LEGAL ENTITY
BUSINESS MODEL
REVENUE
LANDSCAPE

6. HIGH GROWTH BUSINESS FORMATION
KEY QUESTIONS TO ASK WHEN ACCESSING HIGH GROWTH
BUSINESS OPPORTUNITY:
‣ Do I have the right team and access to the right people?
‣ Is there a market dislocation or a real paradigm shift in:
Regulatory environments
Complexity or access to needed technology
Business Models
Consumer Behavior
Natural Orders
Traditional Operations
‣ How big is the market? (Top Down, Bottom Up, number of people and number of entitites)
‣ What is required for short-run and long-run success?
IDEA GENERATION
OWNERSHIP
LEGAL ENTITY
BUSINESS MODEL
REVENUE
LANDSCAPE

7. HIGH GROWTH BUSINESS FORMATION
IT’S NOT YOURS, A BUSINESS IS OWNED BY MANY INDIVIDUALS
AND ENTITIES
COMPANY FORMATION
POST QUALIFIED EQUITY FINANCING
Business Owners
‣ Co-founders
‣ Early employees and management
‣ Family, friends, and angel investors
‣ Advisors
IDEA GENERATION
OWNERSHIP
Business Owners
‣ Co-founders
‣ Early employees and management
‣ Family, friends, and angel investors
‣ Advisors
‣ Venture Capitalists and Seed Investors
‣ Debt holders (non equity)
LEGAL ENTITY
BUSINESS MODEL
REVENUE
LANDSCAPE

8. HIGH GROWTH BUSINESS FORMATION
IT’S NOT YOURS, A BUSINESS IS OWNED BY MANY INDIVIDUALS
AND ENTITIES
COMPANY FORMATION
POST QUALIFIED EQUITY FINANCING
Hypothetical
Hypothetical
IDEA GENERATION
OWNERSHIP
LEGAL ENTITY
BUSINESS MODEL
REVENUE
LANDSCAPE

9. HIGH GROWTH BUSINESS FORMATION
DECIDING WHEN TO DIVIDE THE BUSINESS AND HOW TO
ALLOCATE OWNERSHIP
Allocate equity ownership sooner rather than later
1. Decide key business drivers and allocate a weight for each drivers
2. Assign founders and investors percentages based on performance and expectations
3. Use weighted average calculation to determine fair ownership
IDEA GENERATION
OWNERSHIP
LEGAL ENTITY
BUSINESS MODEL
REVENUE
LANDSCAPE

10. HIGH GROWTH BUSINESS FORMATION
DECIDING WHEN TO DIVIDE THE BUSINESS AND HOW TO
ALLOCATE OWNERSHIP
INITIAL EQUITY ALLOCATION BASED ON KEY BUSINESS DRIVERS
Total
Allocation
Seed
Investors
Option
Pool
20%
50%
50%
0%
0%
Pre-existing IP or Technical
Expertise
20%
30%
70%
0%
0%
Intellectual Capital & Business
Development
18%
45%
55%
0%
0%
Sacrifice & time commitment
15%
60%
40%
0%
0%
Startup funding
15%
16.67%
16.67%
66.67%
0%
Option Pool
12%
0%
0%
0%
100%
100%
OWNERSHIP
Co-founder
#2
Direction, Vision, and Leadership
IDEA GENERATION
Co-founder
#1
35.60%
42.40%
10%
12%
LEGAL ENTITY
BUSINESS MODEL
REVENUE
LANDSCAPE

11. HIGH GROWTH BUSINESS FORMATION
CAP TABLE
Co-Founders
Contribution
Share Allocation
Share Class
Ownership
Date: 1/1/2011
Co-founder 1
424,000
Common Stock
42.40%
Company Formation
Co-founder 2
356,000
Common Stock
35.60%
Team member 1
–
Common Stock
0%
Team member 2
–
Common Stock
0%
120,000
Options
12%
$100,000
100,000
Warrants
10%
$100,000
1,000,000
LEGAL ENTITY
BUSINESS MODEL
Investment: $100,000
Total Shares: 1,000,000
Management Team
Employee Ownership
Option Pool
Seed Investors
Angel 1
Angel 2
Angel 3
Early Stage Investors
VC #1 (Seed Investors)
VC #2
VC #3
VC #4
Total
IDEA GENERATION
OWNERSHIP
100%
REVENUE
LANDSCAPE

12. HIGH GROWTH BUSINESS FORMATION
HIGH GROWTH VENTURE BACKABLE STARTUPS SHOULD
CONSIDER C OR S CORPS
C Corporation
SHAREHOLDERS & LIABILITY
S Corporation
‣ No restrictions on ownership and supports multiple
classes of stock (creating voting rights)
‣ Owners are NOT personally responsible for business
debts and liabilities
‣ Restricted to 100 shareholders and single class of stock
‣ Shareholders must be US citizens
‣ Owners are NOT personally responsible for business
debts and liabilities
‣ Taxed at the entity level
‣ C Corporations pay taxes on corporate income
TAXATION
‣ Pass through taxation
‣ Profits/losses are reported on the owners’ personal tax
‣ Double Taxation: Corporate income is taxed first at the
business level and again at the individual level if
distributed to owners in the form of dividends
returns and any tax due is paid by the owners at the
individual tax level
C Corporations and S Corporations Share Many Similarities
‣ Limited liability protection
‣ Structure: shareholders and board of directors
‣ Separate legal entities created by state filing
SIMILARITIES
‣ Corporate formalities: bylaws, issuing stock, filing annual
‣ Filing documents – Articles of Incorporation
reports, shareholders and directors meetings, etc.
Form a C Corp if the business plans to raise capital and issue different classes of stock
IDEA GENERATION
OWNERSHIP
LEGAL ENTITY
BUSINESS MODEL
REVENUE
LANDSCAPE

13. HIGH GROWTH BUSINESS FORMATION
BUILD A HIGH GROWTH BUSINESS, NOT A FEATURE OR
A PRODUCT
People/
Team
Legal
Products/
Services
Finances
Intellectual
Property (IP)
Value
Hypothesis
Growth
Strategy
Activities
Costs
Revenue
Streams
Your Business
Barriers to Enter; Gate to Revenue; Access to Customers; Access to Capital
Customers
Distribution
Technology
(APIs, Cloud)
Suppliers
Marking
Channels
Partnerships
Investors
(Angels, VCs)
Debt Market
Complements
Share Business Economy & Ecosystem
Threats
Threats are not only competition, but anything that takes away resources from the shared business economy and ecosystem
IDEA GENERATION
OWNERSHIP
LEGAL ENTITY
BUSINESS MODEL
REVENUE
LANDSCAPE

14. HIGH GROWTH BUSINESS FORMATION
REVENUE IS A FUNCTION OF CUSTOMERS, PRODUCT/SERVICES,
AND YOUR BUSINESS’S VALUE PROPOSITION
People/
Team
Legal
Products/
Services
Finances
Intellectual
Property (IP)
Value
Hypothesis
Growth
Strategy
Activities
Costs
Revenue
Streams
Your Business
Customers
Distribution
Technology
(APIs, Cloud)
Suppliers
Marking
Channels
Partnerships
Investors
(Angels, VCs)
Debt Market
Complements
‣ Identify which customers are willing to pay for your products/services and understand your value proposition to determine pricing power
‣ Build detailed financial models to project your revenues based on data you’ve collected and realistic projections using trends and comparable
data
The detailed analysis’s are for your business; you will not prepare detailed analysis for investors, rather you will share the analysis that is
being used to govern your business
IDEA GENERATION
OWNERSHIP
LEGAL ENTITY
BUSINESS MODEL
REVENUE
LANDSCAPE

15. HIGH GROWTH BUSINESS FORMATION
UNDERSTANDING THE INTRICACIES AND METRICS OF YOUR
SELECTED REVENUE STREAMS
Important questions to ask:
‣ Who’s paying
‣ # of paying customers?
‣ Where are the customers?
IDEA GENERATION
OWNERSHIP
‣ Why are they paying?
‣ Where’s the evidence?
‣ What’s the churn?
‣ What’s the LTV?
‣ How do you acquire them?
‣ What’s the alternatives?
LEGAL ENTITY
BUSINESS MODEL
REVENUE
LANDSCAPE

16. HIGH GROWTH BUSINESS FORMATION
THERE ARE SEVERAL CONSIDERATIONS FOR REVENUE STREAMS,
CHOOSE THE OPTIONS THAT MEET YOUR CUSTOMER’S BUYING
POWER AND BUSINESS GOALS
‣ Subscription Revenue
‣ Affiliate Models
‣ Virtual Goods
‣ Transaction Revenue
‣ Service Sales
‣ Licensing
‣ Commerce Sales
‣ Advertising Revenue
‣ Payments Processing
‣ Premium Revenue
‣ Share Revenue
‣ Big Data/Analysis
IDEA GENERATION
OWNERSHIP
LEGAL ENTITY
BUSINESS MODEL
REVENUE
LANDSCAPE

17. HIGH GROWTH BUSINESS FORMATION
UNDERSTANDING THE INTRICACIES AND METRICS OF YOUR
SELECTED REVENUE STREAMS
‣ Subscription Revenue
Subscription fees
Periods
Per user fees
‣ Transaction Revenue
Transaction fee
Pricing
Volume
Inventory
‣ Affiliate Models
CPA
CPC
‣ Premium Revenue
Conversion
‣ Advertising Revenue
Impressions
CPM, CTR, etc.
‣ Service Sales
‣ Share Revenue
Fee types
‣ Virtual Goods
Frequency
% Split
‣ Payment Processing
‣ Licensing
Transaction fee
Fees
IDEA GENERATION
‣ Product Sales
Currency type
Exchange rate
‣ Big Data Analysis
Analysis fee
OWNERSHIP
LEGAL ENTITY
BUSINESS MODEL
REVENUE
LANDSCAPE

18. HIGH GROWTH BUSINESS FORMATION
AARON HOLIDAY
‣ Blog: www.aholidayiii.com
‣ Twitter: @aholidayiii
‣ Email: aaron.holidayiii@gmail.com