Startup Roadkill??....these financing tools will help you avoid the 18 wheelers

presents Back to Basics: Financial Fundamentals For Startups

Get Funded: Financing your Startup August 13, 2013 Smith Anderson Silicon Valley Bank (617) 796-6958 Smanderson@svb.com Twitter: @SmithTown561 Dan Allred Silicon Valley Bank (617) 796-6904 dallred@svb.com Twitter: @dgallred http://danallred.tumblr.com

Chuck Goldman Apperian CEO and Co-Founder cgoldman@apperian.com Arye Barnehama Melon Co-Founder arye@usemelon.com

Why We’re Here Sources of Financing Overview Crowdfunding: A Kickstarter case study. Equity: What you need to know. Debt: When is it right for you.

Financing partners take risk

Bootstrapping • Vendor financing Trade credit Stretching payables • Customer financing Prepayments, deferred revenue • Self financing Working without pay Ge>ng others to do the same Personal credit, credit cards, etc.

Bootstrapping • Amount of capital RelaAvely small amounts • Use of capital Working capital (brings future cash inﬂow forward OR delays current cash ouElow) • Stage of company Useful at all stages, especially startup. • Who bears the risk & what type Personal risk early, bankruptcy risk later Working capital risk (risk of insolvency)

Crowdfunding deep dive

Crowdfunding Then..

Crowdfunding Then.. • 1884 this project ran out of money.

Crowdfunding Then.. • 1884 this project ran out of money. • Joseph Pulitzer wrote an arAcle asking for donaAons to fund project.

Crowdfunding Then.. • 1884 this project ran out of money. • Joseph Pulitzer wrote an arAcle asking for donaAons to fund project. • $100K raised to ﬁnish this project in just under 6 months

Crowdfunding Then.. • 1884 this project ran out of money. • Joseph Pulitzer wrote an arAcle asking for donaAons to fund project. • $100K raised to ﬁnish this project in just under 6 months • 125K people donated to this fund.

Crowdfunding Then.. • 1884 this project ran out of money. • Joseph Pulitzer wrote an arAcle asking for donaAons to fund project. • $100K raised to ﬁnish this project in just under 6 months • 125K people donated to this fund. • GiU from France

Crowdfunding: Today and Beyond Product/Project • Currently thriving – Pledgie (2006) – Sellaband (2006) – IndieGoGo (2008) – GiveForward (2008) – Kickstarter (2009) – RocketHub (2009) – Fundly (2009) – GoFundMe (2010) – Appsplit (2010) – Microventures (2010) – Fundageek (2011) • Incredibly powerful momentum in the last few years. Equity • Not legal…yet • JOBS Act passed July 10th • Accredited vs. non-‐accredited.

Crowdfunding: A Kickstarter story To Kickstart? Not to Kickstart? • Kickstarter -‐ Launched in 2009 • $750MM funding 46,000 projects. • 4K currently in progress, 110,000 total • Melon Kickstarter

Crowdfunding: A Kickstarter story To Kickstart? • Demand/market validaAon done before you go to market. Not to Kickstart? • Kickstarter -‐ Launched in 2009 • $750MM funding 46,000 projects. • 4K currently in progress, 110,000 total • Melon Kickstarter

Crowdfunding: A Kickstarter story To Kickstart? • Demand/market validaAon done before you go to market. • Almost zero risk if market Not to Kickstart? • Kickstarter -‐ Launched in 2009 • $750MM funding 46,000 projects. • 4K currently in progress, 110,000 total • Melon Kickstarter

Crowdfunding: A Kickstarter story To Kickstart? • Demand/market validaAon done before you go to market. • Almost zero risk if market • MarkeAng story done for you. Not to Kickstart? • Kickstarter -‐ Launched in 2009 • $750MM funding 46,000 projects. • 4K currently in progress, 110,000 total • Melon Kickstarter

Crowdfunding: A Kickstarter story To Kickstart? • Demand/market validaAon done before you go to market. • Almost zero risk if market • MarkeAng story done for you. • Almost immediate access to cash Not to Kickstart? • Kickstarter -‐ Launched in 2009 • $750MM funding 46,000 projects. • 4K currently in progress, 110,000 total • Melon Kickstarter

Crowdfunding: A Kickstarter story To Kickstart? • Demand/market validaAon done before you go to market. • Almost zero risk if market • MarkeAng story done for you. • Almost immediate access to cash Not to Kickstart? Ø No secrets to hide from compeAAon. • Kickstarter -‐ Launched in 2009 • $750MM funding 46,000 projects. • 4K currently in progress, 110,000 total • Melon Kickstarter

Crowdfunding: A Kickstarter story To Kickstart? • Demand/market validaAon done before you go to market. • Almost zero risk if market • MarkeAng story done for you. • Almost immediate access to cash Not to Kickstart? Ø No secrets to hide from compeAAon. Ø Price point • Kickstarter -‐ Launched in 2009 • $750MM funding 46,000 projects. • 4K currently in progress, 110,000 total • Melon Kickstarter

Crowdfunding: A Kickstarter story To Kickstart? • Demand/market validaAon done before you go to market. • Almost zero risk if market • MarkeAng story done for you. • Almost immediate access to cash Not to Kickstart? Ø No secrets to hide from compeAAon. Ø Price point Ø Go to Market Strategy • Kickstarter -‐ Launched in 2009 • $750MM funding 46,000 projects. • 4K currently in progress, 110,000 total • Melon Kickstarter

Crowdfunding: A Kickstarter story To Kickstart? • Demand/market validaAon done before you go to market. • Almost zero risk if market • MarkeAng story done for you. • Almost immediate access to cash Not to Kickstart? Ø No secrets to hide from compeAAon. Ø Price point Ø Go to Market Strategy Ø Runway • Kickstarter -‐ Launched in 2009 • $750MM funding 46,000 projects. • 4K currently in progress, 110,000 total • Melon Kickstarter

Crowdfunding: A Kickstarter story To Kickstart? • Demand/market validaAon done before you go to market. • Almost zero risk if market • MarkeAng story done for you. • Almost immediate access to cash Not to Kickstart? Ø No secrets to hide from compeAAon. Ø Price point Ø Go to Market Strategy Ø Runway Ø Timing • Kickstarter -‐ Launched in 2009 • $750MM funding 46,000 projects. • 4K currently in progress, 110,000 total • Melon Kickstarter

Crowdfunding: A Kickstarter story To Kickstart? • Demand/market validaAon done before you go to market. • Almost zero risk if market • MarkeAng story done for you. • Almost immediate access to cash Not to Kickstart? Ø No secrets to hide from compeAAon. Ø Price point Ø Go to Market Strategy Ø Runway Ø Timing Ø Funding Commitments • Kickstarter -‐ Launched in 2009 • $750MM funding 46,000 projects. • 4K currently in progress, 110,000 total • Melon Kickstarter

Is it right for you? Probably • Hardware with a speciﬁc cost for prototype. • Consumer facing projects • Micro-‐market products • Market unknown products. • One-‐oﬀ garage projects • ArAsts • Philanthropists Probably Not • Large companies • Complex products with intricate sales cycles • Infrastructure or enterprise products that are unlikely to touch consumers.

Angel Investors

Angels • Class of capital Equity (ownership in company) • Structure/organizaAon High net worth (HNW) individuals Some groups and clubs Some “super angel” funds • MoAvaAon/incenAves Upside – stock appreciaAon Most look for an “exit” (i.e. liquidity event

Angels • Amount of capital $100k to $2mm • Use of capital Growth capital (i.e. new cash for growth) • Stage of company Early-‐stage, product/market development • Who bears the risk & what type Angel investor bears risk Product/market risk, execuAon risk

Angels • Structure of investment Purchase of common or preferred stock SomeAmes converAble debt iniAally • Price of investment 25-‐50% of company’s stock ConverAble debt ~25% min ownership • Monitoring the investment ReporAng Some angels (or groups) want BOD seat • Value add $$$, industry experAse, connecAons

Venture Capital

Venture Capital • Class of capital Equity (ownership in company) • Structure/organizaAon Limited partnership 10 year funds (invest, grow & harvest) • MoAvaAon/incenAves Upside (30% IRR and 3x overall for fund) Looking for an “exit” (i.e. liquidity event)

Venture Capital • Amount of capital $1mm-‐20mm Some seed acAvity as well • Use of capital Extreme growth capital • Stage of company Early-‐stage and growth stage • Who bears the risk & what type Limited partners and general partners Product, market, tech & execuAon risk

Venture Capital • Structure of investment Purchase of preferred stock SomeAmes converAble debt iniAally • Price of investment 20-‐40% of company’s stock • Monitoring the investment ReporAng BOD seats RedempAon rights, registraAon rights • Value add $$$, industry experAse, capital markets

Debt

Debt • Class of capital Debt (senior debt as discussed here) • Structure/organizaAon Banks (regulated to accept deposits) Finance companies (corporaAons) Debt funds (limited partnerships) • MoAvaAon/incenAves Banks – interest & fee income Finance companies, funds – interest Venture debt – warrant income

Debt • Amount of capital $1mm-‐100mm • Use of capital Working capital Growth capital AcquisiAon capital • Stage of company All stages • Who bears the risk & what type The lender

Debt • Structure of investment Senior secured credit • Price of investment Interest and fees for established co’s Plus warrants for pre-‐proﬁt co’s • Monitoring the investment ReporAng Financial covenants AﬃrmaAve & negaAve covenants • Value add $$$, connecAons, patern recogniAon

Case study

• The early days… -‐Chuck – director of enterprise at Apple -‐Launches Apperian in January 2009 -‐App development for enterprise clients -‐Fee for service work • How did I ﬁnance the business?

• The early days… -‐Bootstrapping -‐Self-‐financing (and sacrifice) -‐Vendor relaAonships -‐Customer financing

• Six months later… -‐The dogs are eaAng the dog food -‐iPhone is exploding in the enterprise -‐Recurring service revenues -‐Vision for EASE (Enterprise ApplicaAon Services Environment) plaEorm How did I ﬁnance the business?

• Six months later… -‐$1mm seed round -‐Common Angels & Launch Capital -‐AddiAonal $500k in Q1-‐10

• Q1-‐10: the one year old startup… -‐Begin developing EASE plaEorm -‐Acquihire a small development shop -‐Focus solely on enterprise app clients -‐Begin transiAoning from services to products How did I ﬁnance the business?

• Q1-‐10: the one year old startup… -‐$500k SVB line of credit -‐Leverage A/R with enterprise clients -‐Smooth out cash-‐ﬂow as R&D expense ramps -‐Bridge between payrolls – when ﬂush with A/ R but low on cash, uAlize line of credit for payroll, expenses, etc.

• Q1-‐11: the two year old startup… -‐Enterprise mobility is hot! -‐BYOD, iPad in Xmas 2010 -‐Apperian building out management team -‐Customers converAng from service contracts to EASE plaEorm -‐ Key move: move to recurring SaaS Product How did I ﬁnance the business?

• Q1-‐11: the two year old startup… -‐$9.5mm series A -‐NorthBridge, Bessemer, Kleiner Perkins -‐1st enterprise investment from KP iFund -‐Over 2 years of cash runway

• The past two years… -‐ConAnued market expansion -‐MDM, MAM, BYOD, etc. -‐Enterprise security, compliance, etc. -‐DistribuAon partnerships • Personnel growth – 5-‐20 year one, 40 by year three and 70 year four How did I ﬁnance the business?

• The past two years… -‐$12.4mm preempAve series B in Mar ‘12 -‐$4.6mm series B extension in Jan ’13 with Intel Capital -‐ConAnued expansion of SVB credit relaAonship each year • Exit Scenario at 10x revenue – Looking at market trends…

Questions?

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