Learn what investors really want to know about your company. During the Fundraising Series, you will have the opportunity to:
Review an operating plan; Analyze and build your target market size; Study market strategy; Understand your competitive landscape; Build your financial model; Construct an investor value proposition
Speakers:David Ehrenberg, Founder, Early Growth Financials; Sean Jacobsohn, Partner, Emergence Capital; Arif Janmohamed, Partner, Lightspeed Venture Partners; Steph Palmeri, Principal, SoftTech VC See archived livestream video https://new.livestream.com/orrick/yourstory
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Fundraising Series (Part One) - "Building Your Story"
1. day and
The Fundraising Series (Part One) –
“Building Your Story”
April 10, 2013
Featuring:
• David Ehrenberg, Early Growth Financial Services
• Arif Janmohamed, Lightspeed Venture Partners
• Stephanie Palmeri, SoftTech VC
• Sean Jacobsohn, Emergence Capital Partners
2.
3. Agenda
8:00 am – 8:05 am
Chad Lynch - Introduction
8:05 am – 8:45 am
David Ehrenberg – Creating Your 3-Year Financial Plan with Q&A
8:45 am – 9:30 am
Arif Janmohamed – Constructing Your Value Proposition with Q&A
9:30 am – 10:10 am
Stephanie Palmeri – Understanding Your Competitive Landscape / Market Sizing / Q&A
10:10 am – 11:00 am
Sean Jacobsohn – Go-To-Market Strategy / Q&A
4.
5. CREATING YOUR 3-YEAR
FINANCIAL PLAN
David Ehrenberg
CEO
Early Growth Financial Services
6. 2
About Early Growth Financial Services
• Extensive experience working with
companies at all stages of development
• Help startups keep internal resources
focused on their business
• Specialize in venture funding, debt financing,
mergers & acquisitions, strategic planning,
corporate strategy, business and financial
plans, corporate governance, and creating
company infrastructure
• Operational expertise includes: accounting,
HR, legal, facilities, IT, and administrative
functions
Early Growth Financial Services: Providing the seeds to help your company grow.
7. 3
David Ehrenberg Bio
• CEO Early Growth Financial Services
• CFO for Abound Logic
• Controller for Microsoft
• Key member of finance team at Extreme Networks and
Voice Stream Wireless
• CFO for Radiant Research
• Mergers and acquisition work for Deloitte & Touche
• CPA
• MBA from University of Washington
• BS Accounting and Finance from Georgetown University
Early Growth Financial Services: Providing the seeds to help your company grow.
8. 4
Presentation Overview
• What is a financial model?
• Process for creating a financial model
• Goals, objectives, and milestones
• Bottom-up financial projections
• Spend
• Budgeting
• Top-down projections
• Cost assumptions
• Reforecasting
Early Growth Financial Services: Providing the seeds to help your company grow.
9. 5
Why a 3-Year Financial Model?
• Provides a comprehensive financial
picture
• Forces you to evaluate key
performance drivers
• Validates your assumptions
• Puts challenges into perspective
• Creates iterative process which
continuously improves your
assumptions
• Gives you insight into your business
model
• Clarifies your decision-making
process (short-term and long-term)
• Gives you the leverage of an
accurate baseline valuation
Early Growth Financial Services: Providing the seeds to help your company grow.
10. What Goes into a 3-Year Financial Model?
Major
objectives
Timeline Milestones
Key Key
variables assumptions
Trending
analysis
Early Growth Financial Services: Providing the seeds to help your company grow.
11. Identify major objectives for your company
Assess where you are and what you want to achieve:
Venture funding and Positive cash burn and
negative cash burn no venture funding
What do you want to What are the goals you want to
accomplish with next raise? achieve during this time period?
Early Growth Financial Services: Providing the seeds to help your company grow.
12. Process for Creating Financial Model
1. Go to stakeholders and members of
executive team – what do they need to
achieve objectives (revenue, product,
market, strategic, etc.)?
2. What is needed from a
programmatic perspective?
3. Compile this information and go
back to CEO (maybe executive team)
to discuss total amount requested
relative to milestones
4. Dialogue about what is wanted and
tradeoffs
5. Use dialogue to create a bottom-up
forecasting budget
Early Growth Financial Services: Providing the seeds to help your company grow.
13. 9
Bottom-Up Financial Projection
3. Headcount
projections /
milestone funding
2. Calculate spending necessary
to achieve revenue/development
1. Project revenue growth over the
next one to three years
Early Growth Financial Services: Providing the seeds to help your company grow.
14. Spend for Bottom-Up Projections
• Customer/Cost details
• Human resource costs
• Consultant and professional
services
• Research and development
• Office and admin
• Capital spending
Early Growth Financial Services: Providing the seeds to help your company grow.
15. Budgeting
• Budgeting created on accrual basis: budgeting versus actual
results
• Difference between cash and accrual is around capital
expenditures
• Report budget by department and major cost drivers (expense
categories and revenue categories)
• Plan actions: how quickly will this impact revenue and what will
you be able to achieve based on spending
• Identify key variables
• Identify key revenue assumptions
• Run different scenarios (need to be able to easily adjust key
assumptions to do this)
Early Growth Financial Services: Providing the seeds to help your company grow.
16. Budgeting Exercise
• If company has been around for a
while, look at historical costs
• Start from a milestone perspective:
what do you need to accomplish
before you run out of money or in a
specific time period
• Ask budget owners what they need to
accomplish goals
• Tradeoffs
• Trending analysis
• Trending initiative
Early Growth Financial Services: Providing the seeds to help your company grow.
17. Why Top-Down Projection?
• Bogus projection as compared to bottom-up projections
• Requested as part of investment pitch deck to prove
venture opportunity
• VCs want to make sure there is a major opportunity – big
potential market
• Exercise to sit down with CEO and head strategy folks
• Use data to see how quickly you can get penetration
Early Growth Financial Services: Providing the seeds to help your company grow.
18. 14
Top-Down Financial Projections
1. Start with market size
2. Identify your particular segment
3. Extrapolate to
calculate total potential
revenue
Early Growth Financial Services: Providing the seeds to help your company grow.
19. Check Cost Assumptions
• Finance team has obligation to check cost assumptions:
• Salary
• Recruiting costs
• Cost per square feet for real estate
• Etc.
Early Growth Financial Services: Providing the seeds to help your company grow.
20. Reforecasting
• Don’t do a 5-year plan, at most 3-year plan
• Every year is an annual budgeting exercise
• Update your budget on a quarterly basis (at least)
• For investors do it on a quarterly basis for first year and
then annually after that
• What’s realistic in terms of timeline and reforecasting on
monthly or quarterly basis?
Early Growth Financial Services: Providing the seeds to help your company grow.
21. 17
Final Thoughts
“The point of financial projections is to tell a story with
numbers—a story about opportunity, resource
requirements, market forces, growth, milestone
achievements, and profits.
Your job is to create a numerical framework that
complements and reinforces the vision you’ve painted with
words.” – Guy Kawasaki
Early Growth Financial Services: Providing the seeds to help your company grow.
22. 18
Contact Info
Early Growth Financial Services
David Ehrenberg
dehrenberg@earlygrowthfinancialservices.com
http://earlygrowthfinancialservices.com/
(415) 234-EGFS (3437)
Follow us @EarlyGrowthFS
Early Growth Financial Services: Providing the seeds to help your company grow
23. 19
Providing the Seeds to
Help Your Company Grow
Early Growth Financial Services: Providing the seeds to help your company grow.
24.
25. Constructing your
value proposition
Fundraising Series
Part One
Arif Janmohamed
@arifj
April 10, 2013
26. What is a value proposition?
The purpose of a value proposition is
To ultimately inform a choice/decision
A customer value proposition should
Articulate the purpose of the product
Identify the relevant target audience
Capture the significance to the prospective user
Specify the category as a reference point
Explain the uniqueness of the offering
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 2
27. Say again?
Attribute Points to consider
Purpose What does the product or service do?
Audience Who will use, buy, etc. the product or service?
How large is the addressable market?
Significance What are the key benefits from using the product now?
Why will the user care? Is it a painkiller or vitamin?
Category In what category does the product compete?
Is this a favorable or unfavorable category definition?
Uniqueness How does this offering differ from substitutes?
What are the key dimensions for differentiation?
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 3
28. 3 key investor considerations
Is the team equipped to build and sell this product?
Is the market worth going after?
Does the plan have sustainable leverage?
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 4
29. The opening act
You have 3 minutes…
What have you accomplished
Why is your product important
How can you do this better than others
… before a decision is made (if you’re so lucky)
The rest of the hour you’re either
Changing his/her mind
Supporting the decision
(Remember, good investors should stay engaged and ask questions, but it’s your
job to make sure they do – through bold statements, informative facts, etc.)
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 5
30. Why is a value prop important?
The value proposition is key for investors to understand your business
It is your elevator pitch – the simpler, the better
It forms the storyline for the investor presentation
It eventually becomes a part of the investment thesis
The investor is not an expert in your business… YOU are!
Teach them as much as you can without reinventing the wheel
And the investor uses it to do his/her job
Is the purpose worth taking on startup risk?
Is the audience large enough, but targeted?
Is the significance valuable enough to customers?
Is this an attractive category for investment?
Is there something particularly unique about this startup?
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 6
31. Takeaway
The value proposition is ALL an investor needs
to know about your business.
So, make sure you concisely emphasize the points that
make your business a compelling investment
opportunity
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 7
32. Back to the 3 considerations
People, market, product
Exceptional entrepreneurs passionate about customers
Large, rapidly growing market demanding a solution
Innovative and differentiated product with sustainable
advantage
What do you need?
A plan to get to market and reach profitability
The team to execute on this plan
Technology / product that will win
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 8
33. Remember their checklist
Exceptional team
Compelling product value
Passionate entrepreneurs Technical/market advantage
Driven to succeed Clear value proposition
Unique insights Focus, focus, focus
Desire world-class mgmt Leverages trends/standards
Founderitis-free Roadmap for expansion
Operate ethically Defensible barriers
Large, rapidly growing market
Realistic go-to-market plan
Total addressable market Marketing, sales,
Acute pain demands solution distribution, pricing
Devotion to customer Operating plan consistent
Business model profitability Financing and milestones
Competitive landscape clear Liquidity options
Low/efficient burn
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 9
34. Manage the process
Step 1: Step 3: Step 5:
Contact VC Firm Due Diligence Close Financing
Day 21 Day 60
Day 1 Day 90
Step 0: Step 2: Step 4:
Decision to raise Initial Presentation Sign Term Sheet
Ask yourself if you need venture financing
Sell the story about your vision
The goal is to convince others of your business
Raising financing is about managing a process
Listen to feedback along the way, iterate
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 10
35. To cap it off…
Articulate your business value
Think like an investor
Create the story and tell it
Begin with the customer value proposition
Construct an investor value proposition:
team, market, and product
Manage fundraising as a process
Reminders
Focus on the business fundamentals
Emphasize the points of validation
Be transparent about challenges
Iterate, iterate, iterate!
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 11
37. MARKET SIZING
& COMPETITIVE LANDSCAPE
Steph Palmeri, SoftTech VC / @stephpalmeri
TOTAL ACCESS Fundraising Series, Part I
April 10, 2013
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38. Our Three Asses Rule
This
Presentation’s
Focus
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40. Big-Ass Market
* “Big enough” stress test
– Greater than $1B market opportunity
– Company, not feature
– How does your startup get to $100M in revenue?
• 10% of $1B market v. 50% of $200M (unrealistic!)
* By raising capital, you commit to match return
expectations
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41. Market Types
Existing Resegmented New
Market Market Market
better, faster, fundamental brave new
cheaper shifts, niche world
which one is you?
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42. Market Analysis 101
* Problem definition:
– What are the underlying needs you solve?
* Identify your customers
– What do they look like?
– How are you helping them?
– Are your users also your buyers? (who pays?!)
* Addressable Market = # Customers * LTV
– What is the relevant market?
– Your expected share? (be reasonable, its not 100%!!)
– Growth / overall market potential?
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43. Top Down Market Sizing
Addressable Market
1. Industry, analysts estimates, ≠ Total Market Size
market data, etc.
Total Apparel
2. Broken down to appropriate Market (US)
sub-segment by:
1. Product Category
2. Geography Total Kid’s Apparel
Market (US)
3. Vertical
4. Sales Channel
5. Customer Total Online Kid’s
6. Etc….. Apparel Market (US)
Total Address Market (topdown)
Your revenue if you
captured 100% of your
addressable market.
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44. Bottom Up Approach
Identify & multiply the following:
# of potential customers x est. revenue per user per year
Total Addressable Market(bottom up)
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45. Now Compare
Top Down Bottom Up
V.
Addressable Addressable
Market Market
…. are they reasonably close?
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46. Market Sizing Tips
* Existing: Known customer + understood need
– Know entities make it ‘easier’, for you and investors
– Understand market nuances, don’t be careless
* New markets: New customer + new use case
– Emerging macro trends
– Adoption rate assumptions
– Timing matters
creativity + basic algebra + educated guesses
= bullshit but shows us how you think about your space
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48. Market Attractiveness
Size matters…
(but don’t overlook)
* Competition
* Monetization potential
* Market Growth
* Market Share
* Timing
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49. Competitive landscape
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50. You’ll probably have a slide that
looks something like this…
Feature list YOU! Giant Fledging Not even in
Incumbent Competition your market
Feature
everyone has ✓ ✓ ✓ ✓
Feature that
some of the ✓ ✓
competition has
Unnecessary
feature your ✓
competition cut
Feature you
think you have ✓ ✓
Feature you
wish you had ✓ ✓
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51. … or this...
Fast
Your Logo
Here!
Others
Others
Others
Traditional Others Modern
Others
Others
Others
Others
Slow
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53. but regardless…
explain your startup in the context
of the environment in which you
operate including those who you
partner with and those who you
compete against and those
who keep you awake at night
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54. overview
* Competitive Landscape
– Examine the macro business environment
– Review your competition (past, present, future)
– Benchmark yourself
* Competitive analysis
– The classic SWOT analysis
* Competitive advantage
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55. Classic completive analysis
* Examine the macro business environment
– Economic + political trends
– Cultural + social shifts
– Technological innovation
– Regulations + legislation
* Know the industry ecosystem surrounding your startup
– Competitors (direct, indirect, potential entrants)
– Suppliers/Partners
– Substitutes
– Customers
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56. Pop Quiz
Q: Is your industry one or more of the following:
a. Considered crowded?
b. Fairly complex?
c. Scary to investors?
Show investors
A: Consider making an how much you
know (and they
ecosystem slide don’t) about your
space… OWN IT!
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57. Competitive analysis
* Comparisons you might put in a competitive grid:
– Products / feature set
You Them
– Customers
Feature #1
– Market share
Feature #2
– Distribution strategy Feature #3
– Technology
– Pricing
Wow, your startup
– Resources are they well funded? takes all the boxes
on your arbitrary
grid!
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58. SWOT Analysis –
Your Competitive Position
Strengths: why you kick ass Weaknesses: why you don’t kick ass
- Team - Team
- Technology - Lack of Technology
- Scalability - Scalability issues
- Execution - Inability to execute
- Customer acquisition & retention - Unreliable product/service
- Distribution - Poor distribution
Opportunities: why you might kick ass Threats: why you might not kick ass
- Early mover - Competitors w/ more $
- Emerging segments - Emerging segments
- New technology - New technology
- New distribution channel - New distribution channel
- Changing tastes - Changing tastes
- Etc. - Etc.
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59. Competitive advantage
* Barriers to entry
* Create a long-term sustainable advantage
– Continuous learning & innovation
– Excellence and speed in execution
* Don’t obsess about others
– A little competition is healthy
– Keep an eye on competition but don’t loose focus on
what’s really important … the customer
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60. VC’s perspective
What VC’s Say What VC’s Mean
Who do you compete with How are you different from the 15
today? other dating services I this week?
Who will you compete with When does Facebook plan to do
tomorrow? this?
I’d like to better understand how Sorry, I was busy admiring my new
you are different, what’s your iPhone 5 when you told me about it
competitive advantage? just now.
[Insert name here] just raised Your competition has deep
$50M from these 10 firms, how pockets…will anyone be willing to fund
are you differentiated? your next round?
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61. How to reach Steph Palmeri:
w: www.softtechvc.com
b: www.stephpalmeri.com
t: @stephpalmeri
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69. Challenges with Reseller
Partnerships
Value proposition for the partner
Channel conflict
Negotiation of terms
Enablement of the partner post-signing
71. Tips for Launching Business
Development
Organizational alignment and expectations
Dedicate sufficient resources
Leverage partners who’ve had success with a 3rd party product
Focus on meaningful partnerships with fewer companies