7/14/09 BizSessions Presentation on "Funding models for cash-starved times"

1. bizSessions 1.0
“VC FTW or WTF? Funding models
for cash-starved times”
Jonathan Abrams
July 14, 2009

2. “It’s a great time to be an
entrepreneur”
“There’s never been a better time to be an
entrepreneur because it’s never been cheaper to be
one.
With costs so low, I think you’ll see many more
companies raise angel money and take it all the way
to profitability.”
Joe Kraus, June 29, 2005

3. So, What Happened?
PwC/NVCA/MoneyTree Report

4. “Could VC be a Casualty of the
Recession”
“When startups came back into fashion, around 2005, investors
were starting to write checks again. And while founders may
not have needed VC money the way they used to, they were
willing to take it if offered. … As long as VCs were writing
checks, founders were never forced to explore the limits of
how little they needed them.
VCs and founders are like two components that used to be bolted
together. Around 2000 the bolt was removed. Because the
components have so far been subjected to the same forces,
they still seem to be joined together, but really one is just
resting on the other. A sharp impact would make them fly
apart. And the present recession could be that impact.”
Paul Graham, Dec 2008

5. “Could VC be a Casualty of the
Recession”
“If founders decide VCs aren't worth the trouble, that could be
bad for VCs. When the economy bounces back in a few years
and they're ready to write checks again, they may find that
founders have moved on.
This recession may be different from the one after the Internet
Bubble. This time founders may keep starting startups. And if
they do, VCs will have to keep writing checks, or they could
become irrelevant.”
Paul Graham, Dec 2008

6. Buy High, Sell Low?
As long as VCs
With costs VCs and founders
were writing
so low… “fly apart”?
checks…
PwC/NVCA/MoneyTree Report

7. Sustainability of Venture Industry

8. “If Common Stock Is Worthless, What
Does That Mean for Entrepreneurship?”
“Plain common stock has become largely
worthless in funded companies. Preferred
shareholders have increased their rights and
protections, while liquidity events have
become rare. Meanwhile, common stock has
remained largely unchanged, having value
diminished by the changing world.”
Adeo Ressi, PE Hub, April 24th, 2009

9. “Help me rename "Lifestyle Business"”
“I think the industry places too much of a premium on raising
venture capital -- and it has become the default operating
assumption for every entrepreneur. Entrepreneurs can create
great businesses -- and have great outcomes -- without raising
meaningful outside capital.
Part of the problem, I think, is that the technology startup
ecosystem seems to be structured so that the goal of every
entrepreneur is to raise venture financing. There is a pretty
strong gravitational force that pulls entrepreneurs towards
raising VC dollars -- and it's often hard for an entrepreneur to
overcome the inertia.”
Josh Kopelman, First Round Capital, July 8, 2009

10. The Lean Startup
• “The next wave of capital efficient startups”
• Low burn rate
• Open source, cloud computing, etc.
• Customer development process (“The Four Steps to
the Epiphany”)
• Agile product development
• Minimal viable product
• Charge from day one
See: Steve Blank & Eric Ries