2015 fundraising series (part one) - "building your story"

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The Fundraising Series (Part One) –

“Building Your Story”

January 20, 2015Featuring:

• Niko Bonatsos, General Catalyst Partners

• Steve Goldberg, Venrock

• Arif Janmohamed, Lightspeed Venture Partners

• Glenn McCrae, Early Growth Financial Services

Arif JanmohamedPartner, Lightspeed

Jan 20, 2015

[email protected]

@arifj

Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 3

Lightspeed at a Glance

19 Investment professionals

140+ Active investments

$3B of committed capital

Investing out of $1B Fund X

Lead investment approach with board involvement

Deep expertise in

enterprise

technology,

consumer, digital

media1990’s TODAY

Lightspeed is an early stage venture capital firm focused on

innovations in the Enterprise and Consumer industries. For over two

decades, Lightspeed Partners have backed and helped build more

than 200 global companies, many of which have become market

leaders.

Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

Background: Arif Janmohamed

My Background :

• Joined Lightspeed in 2008, promoted to Partner in 2011

• Cisco Systems, Mergers & Acquisitions

• Key transactions include WebEx ($3.3B), Securent ($100M),

Postpath ($200M), Jabber and Latigent

• Novitas Capital, an early-stage venture capital firm

• Sun Microsystems, Andes Networks (SUNW), WebTV (MSFT)

My Education:

• MBA from the Wharton School, University of Pennsylvania

• BSc in Computer Engineering from the University of Waterloo, Canada.

My Focus Areas at Lightspeed:

• Infrastructure (networking / storage)

• Mobile

• Cloud

• SaaS

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@arifj


Two topics to cover today…

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Company Value

Propositionwhat am I selling?

Investor Value

Propositionhow to raise capital from venture capitalists



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Company Value


Investor Value



So what is a value proposition?

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Value Propositioninform a choice


What matters?

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5 things…purpose. audience. significance. category. uniqueness


5 things matter…

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Purposewhat is it?


5 things matter…

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Audiencewho cares?


5 things matter…

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Significancekey benefits. painkiller or vitamin?


5 things matter…

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Categorycompetition. economics.


5 things matter…

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Uniquenessdifferentiation. substitutes.



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Company Value


Investor Value



What matters to investors…

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3 Things…team. market. plan.


What matters to investors?

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Teamunfair advantage



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Marketlarge, rapidly growing



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Plansustainable leverage


Ok got it. Now what?

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First Meetinggoal is the second meeting


I got the meeting!

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First impressionsfirst 3 minutes matter

who are you?

why is your product important?

unfair advantage?


Why is Value Prop important?

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Elevator Pitchpurpose. audience. significance. category. unique.


Why is Value Prop important?

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Elevator Pitchsimple. concise. investment thesis

Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 23

Takeaway

The value proposition is ALL an investor needs

to know about your business.

So, make sure you concisely emphasize the points that

make your business a compelling investment

opportunity


Venture Math…

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20% - 30%series A ownership


Venture Math…

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10x – 20xexpected return


Venture Math…

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$500M+exit value


Venture Math…

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$50M+revenues


Venture Math…

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So think carefully about

whether you really want to

raise capital!


2014: What are the odds?

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5000deals evaluated



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500deals in diligence



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50deals presented to the partnership


So how do I overcome the odds??

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Processpipeline. iterate. feedback.


Turn-offs – how to get to “No”

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• Asking an investor to sign an NDA

• Talking about “exit strategy” at the early stage

• Thinking too small

• Asking for term sheet ahead of diligence

• Focusing too much energy on valuation


What next

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Q&A? ask me anything. just not for money now.

Arif Janmohamed

[email protected]@arifj

mailto:[email protected]

Glenn McCraeChief Strategy OfficerEGFS

Building Your Financials: Creating Your 3-Year Financial

Plan

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“Startups face a huge burden in today’s

economy, often having to choose

between funneling resources toward

creating their goods and services or

managing the often complex accounting,

tax and financial strategy planning

necessary to run a successful business.

~ David Ehrenberg,

Founder and CEO

Early Growth Financial Services

WWW.EARLYGROWTHFINANCIALSERVICES.COM

Building Your Story with Numbers

“The point of financial projections is to tell a story with numbers—a story about opportunity, resource requirements, market forces, growth, milestone achievements, and profits.

Your job is to create a numerical framework that complements and reinforces the vision you’ve painted with words.” – Guy Kawasaki

WWW.EARLYGROWTHFINANCIALSERVICES.COM 38

Presentation OverviewThe essentials of startup financial management

• What are investors looking for in your finances?

• What is a financial model?

• Setting financial goals and objectives

• Milestone funding

• Bottom-up financial projections

• Spend

• Budgeting

• Top-down projections

• Cost assumptions

• Reforecasting

39WWW.EARLYGROWTHFINANCIALSERVICES.COM

Why a 3-Year Financial Model?A comprehensive financial pictures serves as the road-map for your business

• Helps you understand your cash burn

• Forces you to evaluate key performance drivers

• Validates your assumptions

• Puts challenges into perspective

• Iterative process continuously improves your assumptions

• Insight into your business model

• Clarifies decision-making process (short-term and long-term)

• Gives you leverage of accurate baseline valuation


What Goes Into a 3-Year Financial Model?Essential components to your model

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Major objectives

Milestones

Key assumptions

Trending analysis

Key variables

Timeline


Identify Major Objectives for Your CompanyAssess where you are and what you want to achieve

Venture funding and negative cash burn

Positive cash burn andno venture funding

What do you want to accomplish with next raise?

What are the goals you want to achieve during this time period?


Process for Creating Your Financial ModelHow to approach the process and get buy-in

1. Go to stakeholders and members of executive team – what do they need to achieve objectives (revenue, product, market, strategic, etc.)?

2. What is needed from a programmatic perspective?

3. Compile information and discuss with CEO (maybe executive team):

total amount requested relative to milestone

4. Dialogue about wants and tradeoffs

5. Use dialogue to create bottom-up forecasting budget


Bottom-Up Financial ProjectionForecast for realistic revenue potential


Spend for Bottom-Up ProjectionsConsider relevant operational costs

• Customer/Cost details

• Human resource costs

• Consultant and professional services

• Research and development

• Office and admin

• Sales and marketing

• Capital spending


Budgeting Use your budget to plan your actions

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• Budgeting created on accrual basis: budgeting versus actual results

• Difference between cash and accrual is around capital expenditures

• Report budget by department and major cost drivers (expense categories and revenue categories)

• Plan actions: how quickly will this impact revenue and what will you be able to achieve based on spending

• Identify key variables • Identify key revenue assumptions• Run different scenarios


Budgeting ExerciseStart from a milestone perspective

• If company has been around for a while, look at historical costs

• What do you need to accomplish before you run out of money, or in a specific time period

• Ask budget owners what they need to accomplish goals

• Tradeoffs

• Trending analysis

• Trending initiative


Top-Down Projection?Not particularly useful, but necessary for investors to show market potential


ReforecastingYour financial plan is always evolving

• Don’t do a 5-year plan, at most 3-year

• Update your budget on a quarterly basis (at least)

• For investors budget on a quarterly basis for first year and then annually

• What’s realistic in terms of timeline and reforecasting on monthly or quarterly basis?


Thank You and Q&A

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Glenn McCrae

[email protected]

415-234.3437

www.earlygrowthfinancialservices.com

Follow us @EarlyGrowthFS


mailto:[email protected]

http://www.earlygrowthfinancialservices.com/

Niko Bonatsos

@bonatsos General Catalyst Partners

The mechanism by which the company proposes to deliver their product’s unique value proposition to their target market.

◦ Who to sell to?

◦ How much will we charge?

◦ What is our product portfolio for target customers?

◦ How will we promote our products?

◦ How will we sell our products?

@bonatsos

@bonatsos

Iterate all the time

Distribution, distribution, distribution

Every business is different

Great product is “table-stakes” today

Advisors & experts vs. customers & market

Startup = Growth (Paul Graham)

@bonatsos

Market Sizing and

Competitive Analysis

Steve Goldberg

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Orrick Fundraising SeriesJanuary 20, 2015

*Special Thanks to Steph Palmeri of Softtech VC

Proprietary and ConfidentialProprietary and Confidential

What matters to investors…..

Great team

Great product

Fundable plan

Big market*

Differentiated

offering*

….we’ll discuss what is ‘big’ and what is ‘differentiated’

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Market Sizing

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Why $1B…..

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Valuation not revenue

VC fund size

Return commitment to LP’s

Market share

Time to liquidity


Market Types

Existing: Better, Faster, Cheaper

Re-segmented: Specialized, Niche

Completely new market: Did not exist

Clone: Copy of existing business in new geography

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Market Attractiveness

• Monetization potential

• Growth rate

• Share

• Timing

• Competition

• Disruptive

• Regulatory

• Consolidation

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Who are you targeting?

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Computing numbers

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Analyst estimates Proxy markets Growth rate Total $’s available Market/Channel activity

Salespersons x $’s per year Count customers x rev/customer Count $’s being spent



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Competing by sellingthe same product

Competing for thesame market


Market Ecosystem

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Proprietary and ConfidentialProprietary and Confidential 77


SWOT

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Strengths: Characteristics of the businessor project that give it an advantage

Weaknesses: Characteristics of the business or project rendering a disadvantage

Opportunities: Elements that the projectcould exploit to its advantage

Threats: Elements in the environment that could cause trouble for the business or project


SWOT

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Feature Set Comparison

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Spider Chart

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Magic Quadrant

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Magic Quadrant for CRM

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Competitive Advantage

Barriers to entry

Sustainable advantage

Regulatory climate

Market Disruption

Funding

Freedom to operate

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Snapshot in time

Your product in x months or years

Your competitors product today

Your competitors product in x months or years

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VC ‘Speak’

What you hear……..

Who do you compete with today?

Who will you compete with tomorrow?

{Insert Name} just raised $50M from these firms, how are you

different?

What they are thinking…..

How are you different from the 15 other dating services?

When does Facebook plan to do this?

Your competition has deep pockets…will there be anyone

around to fund your next round?

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Questions/Contact Info

[email protected]

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2015 fundraising series (part one) - "building your story"

Business

stoday lightspeed

lightspeed partners

arifjlightspeed confidential

choicelightspeed confidential

investor value propositionhow

capital investing

latigentnovitas capital

value propositioninform