A Bootstrapping story (Bootstrap: starting a company with little capital)

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Marcus Daniel
8 years ago
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1 A Bootstrapping story (Bootstrap: starting a company with little capital)

2 We made 500 of each (Obama O's and Cap'n McCains). They were a numbered edition on the top of each box, and sold for $40 each. The Obama O's sold out, netting the funds we needed to keep??? alive. The Cap'n McCains they didn't sell quite as well, and we ended up eating them to save money on food.

The Obama O's sold out, netting the funds we needed to keep??? alive.

3 We couldn't wrap our heads around air mattresses on the living room floors as the next hotel room and did not chase the deal. Fred Wilson (Union Square Ventures)

4 $ 25 billion valuation

5 Financing your business

6 4 ways to finance a startup Grant Debt Equity Crowdfunding

7 Grant Definition: A financial award for a particular purpose Governamental institutions (ALMI, EU etc.) Pitching Contest (TC, StartUp Weekend, etc.) FFF (Family, Friends & Fools) Pros: Free of charge, enables Bootstrapping Cons: Time consuming (to find, to apply for, to report on) Generally little money Sometimes tied to specific purposes

) FFF (Family, Friends & Fools) Pros: Free of charge, enables Bootstrapping Cons:

8 Crowdfunding Definition: The use of small amounts of capital from a large number of individuals to finance a new business venture. Kickstarter, Indiegogo, Fundedbyme, AngelList, etc Pros: can do Reward (ideal for products), Equity, Loan Good to test the market Little loss of control (if Equity based) Cons: Some argues messy captable

Kickstarter, Indiegogo, Fundedbyme, AngelList, etc Pros: can do Reward (ideal for

9 Debt Definition: An amount of money borrowed by one party from another Banks / Financial institutions; individuals (up to a certain amount depending on legislation) Pros: Lenders Cons: Hight interest rate (cost of money), or Need a guarantee (assets, future cash flow)

certain amount depending on legislation) Pros: Lenders Cons: Hight

10 Equity Definition: refers to the sale of an ownership interest for business purposes. Angels, VCs, Banks / Financial Institutions, Pros: Generally comes with business knowledge, network etc. of the investor(s) Cons: reduction in ownership / control of the business

Angels, VCs, Banks / Financial Institutions, Pros: Generally

11 Convertible Definition: a type of loan that can be converted into a predetermined amount of company equity at a certain time during its life. Angels, VCs, Banks / Financial Institutions, Pros: Generally simpler and faster than priced rounds; It defers company valuation at subsequent round of financing giving time to determine fair price.

Angels, VCs, Banks / Financial Institutions, Pros: Generally simpler and faster than

12 Banks won t lend money to finance projects with no short term revenue generation So let s focus on shareholders (equity) (Equity = long-term financing needs in uncertain corporate investment) that s you

13 Who are the Shareholders for each step? Pre-seed Seed Series A & B Series C+ <100k 100k-1.5M 500k-5M M&A Savings F&F Grants Venture Capitalists F&F Business Angels Angel Funds Venture Capitalists Angel Funds Corporate Funds Venture Capitalists Growth Funds IPO Rule of thumb: each round you give around 20-30% of your remaining capital, except in pre-seed when you give around 5-10%

Capitalists Angel Funds Corporate Funds Venture Capitalists Growth Funds IPO Rule of thumb:

14 If you raise funds in tech, it will most likely be sooner or later with venture capitalists

19 Process

20 Valuation: the basics

21 Some say that Startup valuation is more an art than a science but at the end of the day the valuation of a startup is what the market is willing to pay

22 Loads of different methods David Berkus model for early stage companies Scorecard Method for early stage Industry multiples Discounted Cashflow P/E Ratio (for Mature Companies) Ratios on EBITDA Asset Based Approach

23 Investments In At a minimum, your startup should be worth the amount of money+ man-hours* that have been invested in it by the founders during all the time of startup existence. *1 man-hour costs an average salary one would get working elsewhere

24 Industry comparables Compare your startup to one that has had an exit or is at the similar stage. Mind different geographical regions! Check:

25 Should you rise funds? When?

27 Avoid investors till you decide to raise money, and then when you do, talk to them all in parallel, prioritised by expected value, and accept offers greedily. That's fundraising in one sentence. Don t introduce complicated optimisations, and don't let investors introduce complications either. Fundraising is not what will make you successful. It's just a means to an end. Your primary goal should be to get it over with and get back to what will make you successful making things and talking to users and the path I've described will for most startups be the surest way to that destination. Be good, take care of yourselves, and don't leave the path. - Paul Graham

28 Net Profit line Product / Market fit Growth Stages Exit

29 Financial model

30 Use Excel Drivers Revenues Cost Net Profit Projection & KPIs

31 Drivers # Users, Product(s) price - use average price for multiple products etc. include growth for each driver Plot in a graph to adjust

32 Revenues Revenues = Price x Quantity Volume business (low margin) v. price based business Can do both, but difficult

33 Cost List ALL your cost: CoGS (cost of good sold) or direct cost = anything that can be directly correlated to sales - e.g. services related to the sales, e.g. servers. Indirect cost = usually fixed: Marketing, R&D, Rent, electricity etc. Keep salaries and other expenses (lawyers, travel and other expenses) separate

34 Net Profit Total Revenue - Total Costs = Net profit

35 Projections create a spreadsheet by month (but report by quarter) over 3 years adjust every number that seems incorrect When is your break-even? Plot Revenues, and net profit

36 KPIs Identify your KPIs (Key Performance Indicator): e.g. financial based, Sales related, cost control, num users etc Monitor them over time and adjust your business (or KPIs) accordingly)

37 PnL (example)

38 KPIs and Break even (example)

Early Stage Funding. Dragon Law. This book is for sale at http://leanpub.com/earlystagefunding. This version was published on 2015-12-09

Early Stage Funding. Dragon Law. This book is for sale at http://leanpub.com/earlystagefunding. This version was published on 2015-12-09 Early Stage Funding Dragon Law This book is for sale at http://leanpub.com/earlystagefunding This version was published on 2015-12-09 This is a Leanpub book. Leanpub empowers authors and publishers with