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 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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