Startup university - 5. funding & financials
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The document provides information on funding and financials for startups. It discusses three stages of funding - incubation, follow-up, and venture. Each stage has a target number of companies/founders, typical investment amounts, and objectives like developing an MVP or expanding distribution. Financial statements like the income statement and balance sheet are also covered, along with basic startup financial models and key elements to consider.
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Startup university - 5. funding & financials
- 1. Funding & Financials Funding for startups Financials for startups
- 2. Funding for startups • Development Stages • The Lean Investor Model • Financing terms & issues
- 3. Funding for startups • Development Stages Growth/ Incuba@on Follow-‐up Early Exit • Important: product and service businesses are very different!
- 4. Funding for startups • Development Stages – Funding & objec;ves by stage Growth/ Incuba@on Follow-‐up Early Exit • 20-‐25 startups • 5-‐10 companies • 3-‐5 companies • $15k per startup • $150k per company • Early exit or • Develop v1.0 of • Complete addi@onal growth at product product features scale through • Get first orders • Expand distribu@on tradi@onal VC/ • Validate market • Complete team PE model
- 5. Funding for startups • “Lean Investor” Model – Method: Invest in startups using incremental investment, itera@ve development. Start with lots of small experiments, filter out failure, and expand investment upon success. – Incuba@on: $10k-‐50k (“Product & Market Viability”) – Follow-‐up: $100k-‐$500k (“Expand Distribu@on”) – Venture: $1M-‐$5M (“Maximize Revenue”) Source: Dave McClure
- 6. Funding for startups • Investment #1: Incuba;on (“Product & Market”) – Structure • 1-‐3 founders • $10k-‐$50k investment • Incubator environment: mul@ple peers, mentors/advisors – Build “Minimum Viable Product” (MVP) & Test Market: • 3-‐6 months • Develop Minimal Cri@cal Feature Set • Instrument Basic Dashboard, Conversion Metrics • Test Customer Adop@on (10-‐1000 users) – Demonstrate Concept, Reduce Product & Market Risk, Test Func@onal Use – Develop Metrics & Filter for Follow-‐on Investment Source: Dave McClure
- 7. Funding for startups • Investment #2: Follow-‐up (“Distribu;on”) – Structure • 2-‐5 person team • $100k-‐$500k investment • Syndicate of Angel Investors / Small VC Funds – Improve Product, Expand Market, Test Revenue • 6-‐12 months • Test Marke@ng Campaigns & Mul@ple Customer Acquisi@on Channels • Setup A/B Tes@ng Framework, Op@mize Conversion – Prove Solu@on/Benefit with a larger customer base – Test Channel Costs, Revenue Opportunity – Determine Organiza@onal Structure, Key Hires Source: Dave McClure
- 8. Funding for startups • Investment #3: Venture (“Revenue”) – Structure • 5-‐10 person team • $1M-‐$5M investment • VC Investors – Make Money, Get to Sustainability: • 12-‐18 months • Marke@ng Plan -‐ Predictable Channels, Campaigns & Budget • Scale & Infrastructure, Customer Service & Opera@ons • Connect with Distribu@on Partners – Expand Market & Revenue, Opera@onalize Business – Future Milestones: Profitable/Sustainable, Exit Op@ons Source: Dave McClure
- 9. Funding for startups • Financing terms & issues – Valua@on – Stock ves@ng – Employee Stock Op@on Plan – Stock types – Conver@ble Debt – P/E ra@o – Dividends vs. re-‐investment Source: Venture Hacks
- 10. Funding for startups • Learn more – Dave McClure, Lean Investor Model – Venture Hacks
- 11. Financials for startups • Financial statements • Basic Financial Models • Key Elements of Financial Statements • Issues to keep in mind
- 12. Financials for startups • Financial Statements – Income Statement (profitability) – Balance Sheet (investment targets & sources) – Statements of Cash Flows (mee@ng obliga@ons) • CFIMITYM! Source: McKinsey & Co.
- 13. Financials for startups • Basic Financial Models – Online Soeware Subscrip@on • Salesforce.com, 37 Signals – Soeware development & licensing • Microsoe, Oracle, Mobile apps, – Marketplace • eBay, Expedia – User & demand aggrega@on • Mint.com
- 14. Financials for startups • Key Elements of Financial Statements Revenues • Product • Services =Total Revenue Cost of Sales • Infrastructure • Support • Cost of Services =Gross Income
- 15. Financials for startups • Key Elements of Financial Statements Other costs • Research & Development • Sales & Marke@ng • General & Administra@ve =EBITDA Taxes, Deprecia@on & Amor@za@on =Net Income
- 16. Financials for startups • Issues to keep in mind – Assump@ons – overall & per unit • Validate assump@ons on a small scale • Use a bojom-‐up approach – Changes over @me • For example, marke@ng costs per user can go down due to network effects and/or branding
- 17. Financials for startups • Learn more – Morgan Stanley, How to read financial statements – McKinsey & Company, Business Plans – Microsoe, Oracle, Salesforce.com, eBay, Expedia Financial Statements