9 Factors Silicon Valley investors consider for European startups, how to choose an angel or venture capital investor, and market trends that support growing a startup outside the USA.

1. Raising Funds
from Silicon Valley
M a y 2 0 1 5
What Silicon Valley investors look
for in EU startups…

2. What are the differences/surprises
for Polish Startups & Entrepreneurs?
WHY ME?
HOW TO PICK AN INVESTOR?
FOLLOW UP DISCUSSION:
Quick Introduction
What I am doing in Europe
Nine Factors Silicon Valley VC
Investors Look For
SILICON VALLEY FUNDING
Introduction
- Silicon Valley entrepreneurship is spreading globally
Structuring Polish-US investor companies

3. Why Me?
14+ Years of Top-Notch Experience

4. In a great market — a market with lots of
real potential customers — the market
pulls product out of the startup
The Market – Existing, Quantifiable, And Proven Ability To Execute In It
Conversely, in a terrible market, you
can have the best product in the world
and an absolutely killer team, and it
doesn't matter — you're going to fail.
9 Factors
1

5. Retention is the single most
important thing for growth.
Rapid Growth – 30% forward revenue/user growth per period
(per year for M&A or IPO) or per month/quarter (early stage)
Every single user on their 31st day after
registration, what percentage of them are
monthly active? Thirty-second day, thirty-
third day, thirty-fourth day. And that allows
you, with only 10,000 customers, to get a
real idea of what this curve is going to look
like for your product.
2
9 Factors

6. Scale – $1Bn+ market cap potential (a “unicorn”), with line of sight to
$1Bn+ in revenues
The Wall Street Journal and Dow Jones VentureSource are tracking
venture-backed private companies valued at $1 billion or more. See
how the club has expanded since the project began in January 2014.
The Billion Dollar Startup Club
9 Factors
3

7. One of the most common types of advice
we give at Y Combinator is to do things that
don't scale
Predictability – Recurring and visible revenue streams / user
growth (lifetime return customers)
The most common unscalable thing
founders have to do at the start is to recruit
users manually… founders ignore this path
because the absolute numbers seem so
small at first.
The mistake they make is to underestimate the power of
compound growth. We encourage every startup to measure
their progress by weekly growth rate. If you have 100 users,
you need to get 10 more next week to grow 10% a
week.” (that’s 14,000 users in Y1 and 2 million users in Y2)
9 Factors
4

8. Pricing before product – plan
distribution first; is your pricing
scalable?
Product and Customer Diversity – Multiple proven products,
features, customers, industry distribution channels, find customers
Uncontrolled distribution
leads to all manner of head-
ache and profit-bleeding.”.
It’s possible to niche market and
mass sell… Whether Apple or
Estee Lauder, sustainable high-
profit brands usually begin with
controlled distribution. Remember
that more customers isn’t the goal;
more sustained profit is.
5
9 Factors

9. Startup probabilities of success where cofounders don't have a long history are bad; when things go
wrong, there is no history to bind… A bad early hire can kill a company; in the early days the goal is
to not hire and stay small as long as possible… Be proud of how much can be done with fewer
employees; more equals high burn rate, complexity & slower decisions… Founders underestimate
how hard it is to recruit; the best employees have options; mission belief is the differentiator.
Proven Management Team – Track record managing growth increases
investor confidence in execution
The most important thing and the prime directive for
founders managing a startup is always keep momentum….
What happens when growth slows down is people start
getting unhappy and quitting and everything falls apart.
9 Factors
6

10. Globalization means copying things that
work… There is no innovation; you go
from building 1 to n typewriters (…)
Weak Competitive Landscape – Emerging leader taking share from
legacy vendors unable to respond (new and disruptive)
Technologization / technology, by contrast,
involves doing new things… True technology
companies—Palantir, SpaceX—involve going
from 0 to 1. This means going from
typewriters to word processors.
9 Factors
7

11. When you are starting a startup you need
revenue. You need validation. You need
users. You need commitment. Free trials
get you none of those things… You think
you've made progress but at the end of
the free trial you’re going to have to sell
them all over again
Strong Economic Model – Quantifiable and proven inputs for unit cost of
customer acquisition, revenues, margins and contributions over time
Two things you should be doing when you're
starting your company: talking to your users
(selling) or building your product. As a founder,
you have some unique advantages that make it
possible for you to be really, really good at sales:
passion for the product and your knowledge of the
industry and the problem that you're solving.
9 Factors
8

12. If you’re going to spend the best years of your
life working on something, you better make it
something you care about. The mission is not
the exact problem you’re going to solve, but
it’s the North Star. It’s telling you the direction
in which you should go.
The Elevator Pitch – One Sentence that Describes it All
9 Factors
Frequency, Density, and Pain have become three
variables that I now look at to analyze almost any problem.
Frequency: Does the problem you’re solving occur often?
Density: Do a lot of people face this problem?
Pain: Is the problem just an annoyance, or something you
absolutely must resolve?
Frequency, Density and Pain question can help you to
identify how often people have this problem? How many
people have this problem? Do they care?
9

13. How to Pick Investors?

14. How to Pick Investors?
One of the really cool things that's happening
right now is this massive proliferation of ways
to start a company and ways to get your
company funded
MORE OPTIONS THAN EVER TO GET A NEW COMPANY FUNDED:
— Aaron Harris, a partner at Y Combinator

15. HOW DOES AN EU COMPANY RAISE MONEY IN THE USA?
VC Funding not only route…
Set up a US affiliate which accepts US
funding (for legal reasons).
When there is a liquidation (sale, IPO),
the flow of funds need to be established
to pass to the international owners
(either directly via shares in US entity or
flow of funds).
Because of some commoditization of basic
entity set-up services in US, this can be
done for small amounts of money
The US company is the economic
and voting entity. The EU affiliate is
the R&D and operations entity.
$1,000 to set up entity $25,000 to
$50,000 to close financing deal.
Angel Funding, Syndicate Funding,
Crowdfunding viable
How to Pick Investors?

16. Team Leadership skills, operating knowhow
and industry knowledge are all tremendously
important. However, most entrepreneurs seem
to make their decisions more on perceived
brand, past successes and ability to intro.
How to Pick Investors?

17. Look at their portfolio list
Subtract out the extremely successful companies. a) they have no time for you
& b) everybody who has a super successful out-of-the-gate company loves
their VC because there was no conflict
Call the companies that are doing well but not yet household names. Ask
about the criteria above
More importantly, call the companies that struggled. You’ll learn most about
VCs when you find out how they handled themselves in tough situations. Make
sure to call 3-4 members of the management team to avoid one person’s bias
Past successes aren’t always relevant to future ones (web vs. mobile,
Traditional software vs. SaaS, SEO marketing vs. social marketing)
REFERENCE CHECK IS BEST WAY TO CHOOSE A VC:
How to Pick Investor?

18. Helpfulness, contacts are important…
Team Leadership? Most Important.
In almost every company there is executive management fighting…
Politics are a part of human nature and thus a part of all startups…
Knowing whom to back within an organization that is feuding and
when to back them is one of the hardest things about a VCs job.
And in the end must trust their own judgment..
How to Pick Investor?
REFERENCE CHECK IS BEST WAY TO CHOOSE A VC:

19. What are the differences / surprises for EU startups / entrepreneurs?
Additional Questions – I will get back to you
(1) LINKEDIN: Peter Szymanski
(2) EMAIL: Peter@SiliconValleyCounsel.com
Beta Test Silicon Valley Counsel online?
- Connect and I will send you a link… sneak peak…
Summary

20. SNEAK PEAK – LAUNCHING JUNE 22, 2015

21. EXTRA
The Remainder of the Slides are Extra in Case
of Questions

22. Never been easier to start a technology company…
In the USA or anywhere else…
Why?... Decreasing costs, market factors…
On the other hand… Silicon Valley is very
expensive…
Global Trends

23. It’s become 2x more expensive to scale a startup in silicon
valley in 2015 versus 2009
The combined inflation of real estate and wage costs in
Silicon Valley have a dramatic impact of the operating
expenses of startups. This chart compares the op-ex
(excluding marketing spend) of a hypothetical 20 person
Series A startup and a hypothetical 80 person Series B
startup over the past five years in Silicon Valley. In both
cases, the op-ex figures double from $2.5M to $5.0M
and from $7.9M to $15.6M respectively.
Global Trends

24. Each new
computing cycle
typically
generates 10x
the installed
base of previous
cycle…
Global Trends
Mobile internet has potential to be 10x bigger than desktop internet…

25. Global Trends
Mobile usage continues to rise rapidly…
25% of total web
usage vs. 14%
year over year

26. Internet use is huge but growth slowing...
+9% in 2013
+11% in 2012
+16% in 2011...
Global Trends

27. More powerful
phones =
more potential for
powerful apps
Global Trends
Smartphone costs declining… 5% annually from 2008-2013…

28. Global Trends
Bandwidth costs declining… 27% annually from 1999-2013…
Declining cost /
Performance of
bandwidth enables faster
collection & transfer of
data to facilitate richer
connections / interactions

29. Global Trends
Compute costs declining 33% annually (1990-2013)
Decreasing cost /
performance curve
enables computational
power at core of
digital infrastructure….

30. What about the global economy and technology startups?
2014 Technology IPOs US
Dollar Volume 73% Below
1999 Peak Levels (2014)
Global Trends

31. What about the Silicon Valley funding bubble?
Global Trends
Maybe in the
future… Today
we are just in a
boom!