Raising debt or equity to fund your startup.

1. EARLY-STAGE VENTURE
FINANCING
Mike O’Donnell
mike@startupbiz.com

2. $3M VC, Data Technologies, 1983 (lead)
$5M loans, angel and IBK, AskMe Multimedia, 1985-90
(lead)
$500M IPO, CompuServe, 1996 (support)
$22M VC, Design Intelligence, 1997 (support)
$30M angel and VC, iCopyright, 1999-2010 (lead)
$2M personal angel investor, 2011-present (lead)
VENTURE FINANCING EXPERIENCE

3. Stages
Structure
Tools
Timing
Debt/Equity Criteria
Story
Targets
Tips
TALKING POINTS
Q&A

4. STAGES OF VENTURE FINANCING
Stage Amount Source Structure
Idea/Prototype/IP $5k - $100k Self-F&F-Accelerators Debt or Equity
Seed 1: $100k - $500k Angels-CrowdFunding Convertible Note
MVP/P-M-F Secured Debt Guaranteed Loan
Seed 2: $500k - $3M Angels / Micro VC’s Conv. Note or Equity
Public Launch/Traction
Series A Crunch
- no revenue, no validated revenue model
- revenue, not profitable, slow growth
Series A $3M - $10M VC’s Preferred Equity
Series B $5M - $25M VC’s Preferred Equity
Series C – Mezzanine $25M - $100M+ VC’s / IBK Equity + Debt
EXIT $1B+ IPO or M&A Cash + Equity
VA L L E Y O F D E AT H

5. SBA / Economic Development Loans
Asset-Based Lenders / 401K ROBS (ideal for lifestyle business)
Friends and Family Bridge Notes
You have credit.
You have assets/collateral (home equity).
You have 401K or Life Insurance Policy.
You are willing to sign personal guarantee.
You have love, faith and trust.
DEBT FUNDING CRITERIA

6. Strong Management Team (relevant experience)
Size of Addressable Market ($1B+ - $100M+ rev opp)
Product Market Fit (validation)
Customer Acquisition Channels (scalability 1/3 cac/ltv)
Competitive Advantage (IP, switching costs, disruptive)
Barriers to Entry (not easily replicable, first mover)
Traction and Growth Trajectory (MRR $20K-100Kx10)
Exit Opportunities (3x3 Angel, 30x7 VC)
EQUITY FUNDING CRITERIA

7. Safe Note (simple agreement future equity)
Convertible Note (loan to equity)
valuation cap (typically $5M)
discount (typically 20%)
triggers
Priced Round for Equity, Specific Valuation
common stock (team and non-institutional investors)
preferred stock (institutional investors)
warrants (right to buy more stock at specified price)
FUNDING STRUCTURES

8. STORY
• Demonstrable
• Disruptive-10X Better
• Pain Pill
• Needed Now
• Competitive Advantage
• Barriers to Entry
• COGS-Margins
• Unique Insight
• TAM-Growing
• Segment-Niche
• User Persona
• Virality-Network
• Influencers
• 80/20 Adopters
• Full Time
• Balance
• Breadth-Depth
• Culture-Chemistry
• Staffing Plan
• Professional Advisors
• Ownership Structure
• Leverage-Piggy-Back
• Scalable-Embedded
• Partnerships
• Competitive Response
• Processes
• Focus-Thread Needle
• Contingencies (r4e)
• BizModel/Metrics
• Assumptions
• Projections
• Financing Needed
• Valuation
• Terms-Follow-on
• Exit-ROI
Product Market Team Strategy Economics

9. TOOLS
Pitch Deck
Proforma / Business Plan
Investor Platforms
Angel List
Gust
NFx Signal
Metrics
References / Intros
ARR (annual recurring revenue) and ARR per
customer (repeat business)
MRR (monthly recurring revenue)
Gross Profit
LTV (Life-Time Value)
CAC (Customer Acquisition Cost)
Downloads vs. Active Users
Month-on-Month (MoM) growth
Churn Rate
Burn Rate / Breakeven

10. TARGETS
Sector
Min. Investment / ROI Expectations
Operating Structure / Decision-Making
 Geography
 Intro / Submission Requirements
 Non-Negotiable Deal Terms
Asset Lenders
Crowdfunding
Angel Investors
VC’s
Family Offices
Social Venture Investors
Private Equity Groups
Investment Bankers

11. Story
Rating
1
10 NOT FUNDABLE
In Search of
a Biz Model
Nascent or
Non-Existent
Below Average
Weak
Weak
TIMING

12. Story
Rating
1
10 FUNDABLE
Early
Large
and
Growing
Strong
Strong
Weak
TIMING

13. TIP
S
Scalable Opportunity, Competitive Advantage, Traction
Raise for Right Stage: $ | Valuation | Terms
Know your market, know your numbers, hit your projections
Avoid hockey-stick projections
Focus on securing a lead investor
Count on 6 – 9 months, plus 3 months due diligence
Don’t raise – socialize, don’t shop - target
Don’t be piggy, be realistic, understand needs of investors

14. Q&A
mike@startupbiz.com
https://www.linkedin.com/in/mikeodonnell/