Raising Funds from Silicon Valley
K r a k o w , P o l a n d M a y 2 0 1 5 What Silicon Valley investors look for in Polish companies…

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 Poland Nine Factors Silicon Valley VC Investors Look For SILICON VALLEY FUNDING Introduction - From Wroclaw University of Technology, Jun and Oct 2014 Structuring Polish-US investor companies

Why Me? 14+ Years of
Top-Notch Experience

Why Me? Why is Poland
the right place right now? Why Poland?

Why Me? Polish companies are
already being funded Why Poland? Brainly, DocPlanner, UXPin, Estimote, Oort, others MATTERMARK MULTIPLE $M FINANCINGS 527 PL startups listed ANGEL LIST 1,835 PL startups at pre-funding thru growth funding 2,624 PL founder-CEOs (out of 1,560,000 PL professionals on LI) LINKEDIN

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

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

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

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

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

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

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

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

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

How to Pick Investors?

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

HOW DOES A POLISH 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 Polish 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?

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?

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?

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:

What are the differences /
surprises for Polish startups / entrepreneurs? Additional Questions: (1) Connect on Linkedin (Peter Szymanski) – I will accept your request (2) Email me: Peter@SiliconValleyCounsel.com – I will get back to you Beta Test Silicon Valley Counsel online? - Connect and I will send you a link… sneak peak… Summary

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

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

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

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…

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

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

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

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

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

What about the global economy
and technology startups? 2014 Technology IPOs US Dollar Volume 73% Below 1999 Peak Levels (2014) Nasdaq is 18% Below March 2000 Peak (2014) Global Trends

What about the silicon valley
funding bubble? Global Trends