1. Gorge OEN Boot Camp Funding Strategy & Plan

2. Gorge OEN Boot Camp You need it Theyve got it Money You need a funding plan!

3. Gorge OEN Boot Camp Investor$ Bank$ Government$ Family/Friend $ Your Pocket$ $pending YourCo Supplier $ Infra $ tructure Employee $ Facilitie $ Who Are They? Crowd$ Customer$

4. Gorge OEN Boot Camp Funding Plan Concept Development Pilot Go-To-Market Expansion Define clear milestones

5. Gorge OEN Boot Camp Founders$ Family, Friend$, Fan$ Customer$ (Bootstrapping) SBIR/STTR Grant$ Seed Fund$ CrowdFunding Angel$ Angel Group$ Venture Fund$ Venture Bank$ Loan$/Bond$ Factoring Receivable$ Merger or IPO Private Equity Strategic Investor$ Concept Development Pilot Go-To-Market Expansion Potential Sources by Stage Roughly speaking…

6. Gorge OEN Boot Camp Funding Plan How much will you need when? Concept Development Pilot Go-To-Market Expansion

7. Gorge OEN Boot Camp Concept Development Pilot Go-To-Market Expansion Funding Plan Investor$Loan$Grant$ Family/Friend$ Your Pocket$ Align sources with stages

8. Gorge OEN Boot Camp Bootstrapping Do you really need to raise money? Consider pay-as-you-go growth instead Can you get customers to fund you? Try to get product pre-orders A self-sustaining process that proceeds without external help 100% ownership 100% control Slower growth Competitive risk Pros Cons

9. Gorge OEN Boot Camp Angels Just people who want to make money by investing… … their own money

10. Gorge OEN Boot Camp VCs More people who want to make (lots of) money by investing… … (lots of) other peoples money

11. Gorge OEN Boot Camp Expectations YouThem Hard Work Low Pay Twice as long Twice as hard High Risk High Return Preferences Align expectations early; Check frequently

12. Gorge OEN Boot Camp Valuation Investors expect to own ~ 1/3 post-money How much do you need to achieve the next milestone? Q.E.D. Pre-money valuation = 2 x Raise This is not a rule! Stage/risk will determine actual valuation Can you convince investors to own less of the company? Can you show why the risks are low? If the risks are low, is there a high potential ROI?

13. Gorge OEN Boot Camp Stock Preferred Stock – Investors Series A Series B. Common Stock – Everyone Else Founders Employees Contractors Landlords Preferred Shareholders Get their money back first - more than 1X Have additional rights – approval of major events

14. Gorge OEN Boot Camp The So-Called Exit This is where shareholders get liquidity Investors get their money back – several X While you may be locked up for a while Common shares may get less than preferred You may need to keep working (beware earn-outs) You Them

15. Gorge OEN Boot Camp Summary Funding needs a Strategy and a Plan Like all important elements of your business Build it and they will come is a terrible strategy Alignment is key Right source(s) at right time(s) Investor/management expectations Cant run a company for the exit But investors need to know youre willing to sell Bootstrapping is the cheapest way

16. Gorge OEN Boot Camp 16 Exit Strategy

17. Gorge OEN Boot Camp Exit Strategy Investors require return on investment How will investors get between 10x and 30x return in 3-5 years? Convincing investors to put money in your company requires that you have thought this through 17

18. Gorge OEN Boot Camp 10x to 30x: Why so High? Investors think in terms of portfolio Most startups in their portfolio return zero And there will be dilution And it may take 5-7 years to get any return So 20-30% portfolio return requires some home runs 18

19. Gorge OEN Boot Camp 19 Exit Example Series A Jan-96 Series B Sep-96 Series C May-97 Series D Sep-98 Pre-money $4.6 Investment $2.0 Post-money $6.6 Series A % 30% Gadzoox Networks Cap Table

20. Gorge OEN Boot Camp 20 Exit Example Series A Jan-96 Series B Sep-96 Series C May-97 Series D Sep-98 Pre-money $4.6$17.0$69.0$135.1 Investment $2.0$8.0$10.1$21.0 Post-money $6.6$25.0$79.5$156.1 Series A % 30%19%16%13% Gadzoox Networks Cap Table

21. Gorge OEN Boot Camp Exit Strategy Well get bought is a bit too vague Name 3 potential buyers Why would they buy your company? When? For how much 21

22. Gorge OEN Boot Camp How Much? Typical valuation metric is multiple of revenue What multiple-of-revenue is the typical valuation for companies in your industry? Comparable examples give you credible justification for a revenue-multiple Find out by: Networking with investors and CEOs Check 10K reports for info on public company acquisitions 22

23. Gorge OEN Boot Camp Investor Expectations You are not guaranteeing that one of the companies you name will be the buyer - your just claiming its credible The more data you have (comparable examples) the more credible your valuation will be And having comparable examples shows you did your homework Thats more compelling than well get bought Alignment is key Among your team Between you and investors 23

24. Gorge OEN Boot Camp 24 Financial Projections

25. Gorge OEN Boot Camp 25 How much funding do you need - and when? Copyright © 2012, Oregon Technology Business Center Gorge OEN Boot Camp

26. What do we mean by Projections? 5 Year estimates of your Balance sheet, Income statement, & Cash flow statement And a list of key assumptions 26

27. Gorge OEN Boot Camp 27 A Summary Version: Units1010030010002500 Head count1015253080 Break Even Revenue Net Income 2012 2013 2014 2015 2016

28. Gorge OEN Boot Camp Cash Runway vs. Accounting Revenue cash-in Typically, revenue is recognized upon shipment For subscriptions, revenue may be monthly Expense cash-out Typically accrued when the product or service is delivered Expenses include depreciation 28

29. Gorge OEN Boot Camp 29 Financial Statement Forecast Cash Runway Managing Cash is critical!

30. Gorge OEN Boot Camp Financial Statements Balance sheet Income statement Cash flow statement 30

31. Gorge OEN Boot Camp Balance Sheet Assets Short Term Long Term Liabilities & Shareholder Equity Short Term liabilities Long Term liabilities Shareholder Equity Stock Retained Earnings 31

32. Gorge OEN Boot Camp Income Statement Revenue Cost of Goods Sold (COGS) Gross Profit Expenses Admin/Sales & Marketing/R&D/Operations Depreciation Net Income 32

33. Gorge OEN Boot Camp 33 Cash Flow Statement Beginning Cash + Net Income + Depreciation - Change in assets - Property/equipment purchases + Borrowings + Proceeds of stock sales = Ending cash

34. Gorge OEN Boot Camp 34 Projection Challenges You probably havent done this before Emerging markets have no historic sales data No direct comparable example No sure way to estimate customer adoption of something new Do you really have to do this?

35. Gorge OEN Boot Camp 35 Yes, you do

36. Gorge OEN Boot Camp 36 What if my projections are wrong?

37. Gorge OEN Boot Camp 37 What if my projections are wrong? Not to worry - they will be wrong

38. Gorge OEN Boot Camp 38 What if my projections are wrong? Not to worry - they will be wrong But they must be credible & defensible

39. Gorge OEN Boot Camp 39 How to get started?

40. Gorge OEN Boot Camp Think Bottoms Up: Revenue Start with month 1 What will you do that month to: Market (create leads) and sell (close orders)? How many leads will that create? How much in sales will that create that month? Are there channel discounts? Payment terms? Now do month 2 - and keep repeating! Document your assumptions! 40

41. Gorge OEN Boot Camp Revenue: Things to Think About How quickly can you bring on sales people? How long will it take for new sales people will be productive? How long will the sales cycle be? How many times must you connect with a prospect before they buy? 41

42. Gorge OEN Boot Camp Expenses: Think Bottoms Up Start with month 1 What will sales/marketing efforts cost? What other expenses (people, rent, etc.) ? Now do month 2 - and keep repeating! Document your assumptions! 42

43. Gorge OEN Boot Camp Expenses People Rent Insurance – Liability, Property, D&O Telecom/Broadband Cloud Expenses Legal Accounting Office Supplies Training Capital equipment Sales Travel & Entertainment Commissions Salesforce.com Marketing Branding White papers Trade Shows & Conferences Collateral Google Adwords Other Advertising 43

44. Gorge OEN Boot Camp 44 Predicting Expenses Remember: expenses tend to scale with revenue!

45. Gorge OEN Boot Camp 45 Iterate Plan Projections Assess

46. Gorge OEN Boot Camp Suggestion: Use a Forecasting Tool Templates help remind you of categories OTBC Excel forecast spreadsheet SCORE budget/forecast tool 46

47. Gorge OEN Boot Camp OTBC Forecast Spreadsheet You fill in Blue text items Black text items are calculated 47

48. Gorge OEN Boot Camp 48 OTBC Forecast Spreadsheet

49. Gorge OEN Boot Camp 49 OTBC Forecast Spreadsheet

50. Gorge OEN Boot Camp OTBC Forecast Spreadsheet Engineering Sales and Marketing Admin Operations 50

51. Gorge OEN Boot Camp OTBC Forecast Spreadsheet Engineering Sales and Marketing Admin Operations People Expenses Capital purchases 51

52. Gorge OEN Boot Camp 52 OTBC Forecast Spreadsheet

53. Gorge OEN Boot Camp 53 OTBC Forecast Spreadsheet

54. Gorge OEN Boot Camp 54 OTBC Forecast Spreadsheet

55. Gorge OEN Boot Camp 55 OTBC Forecast Spreadsheet

56. Gorge OEN Boot Camp Document your Assumptions Possible examples: Length of sales process Average sales price Sales channel (& discount) Changes in COGS 56

57. Gorge OEN Boot Camp Your Mission: Document your forecast assumptions Create a 12 month forecast Prepare your Financial Forecast slide 57