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Financing A Startup: Steve Bayle

This document discusses various options for financing a startup, including friends and family money, angels, angel groups, convertible debt, SAFEs, venture capitalists, strategic investors, royalty investors, grants and contests, credit cards, crowdfunding, incubators, customer revenue, going public, digital tokens, and performing due diligence on investors. It provides an overview of each option, highlighting important factors like typical investment amounts, expectations, advantages, and disadvantages to consider for each financing path.

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30 views20 pages

Financing A Startup: Steve Bayle

This document discusses various options for financing a startup, including friends and family money, angels, angel groups, convertible debt, SAFEs, venture capitalists, strategic investors, royalty investors, grants and contests, credit cards, crowdfunding, incubators, customer revenue, going public, digital tokens, and performing due diligence on investors. It provides an overview of each option, highlighting important factors like typical investment amounts, expectations, advantages, and disadvantages to consider for each financing path.

Uploaded by

wclonn
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Financing a Startup

Steve Bayle [email protected] https://mentorphile.com


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Type of venture determines
how to finance it

 Sole proprietorship – S-Corp

 Slow growth business - S-Corp or LLC

 High growth business – C-Corp


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Friends & Family money

 Angels & VCs may expect you to have friends & family invest

 Shouldn’t invest more than they can afford to lose

 Some investors expect founders to invest – see point 2 above!

 Keep in mind all the sweat equity you are investing


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Angels

 Wealthy individuals who are accredited investors

 Rule of thumb: must have net worth of $1 million +

 Tend to invest with heart as well as mind

 Angels can help, but also hinder


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Super Angels

 Extremely wealthy individuals who can write a six-figure check

 Relatively few on East Coast due to lack of IPOs

 May have incredible expertise & contacts

 A long shot for most founders


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Angel Groups

 Filling need for startup funding not being met by VCs

 Either group invests or individuals make their own investments

 Older angel groups getting more like VCs (not good!)

 Contact the managing director


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Convertible Debt

 Obviates need to value the company

 Preserves equity

 Investors get to convert their loan into equity at a discount

 Very popular with early stage companies


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SAFE

 Simple Agreement for Future Equity

 Variation on convertible debt but has no interest rate or maturity


date

 Simpler than convertible debt

 See my post
What’s the difference between SAFE and a convertible note
?
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Venture Capitalists

 Most expensive money there is!

 Warm introduction mandatory

 Rocket fuel designed for scaling, not building

 Investment based on team, market & product

 CEO most important member of team


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Strategic Investors

 Motivated by strategic advantage as well as financial gain

 Rarely if ever lead rounds – you need to find a lead

 May cap your upside

 What is their added value?

 Usually only invest in first round


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Royalty Investors

 Don’t take equity

 Invest a sum in exchange for % of your revenue over time

 Must have steady revenue stream to qualify

 Very rare & hard to find


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Grants, Foundations & Contests

 Equity-free capital!

 SBIR grants for scientists

 Long & calendar-centric funding cycle

 Applications can be time consuming

 Awards can generate good PR


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Your Credit Cards

 Lots of tales about founders doing this

 High interest rates

 Might be a last resort in lieu of bridge loan


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Crowdfunding

 Kickstarter & IndieGogo the leaders

 Funding is not for equity

 Funders get some advantage: earlier shipment, reduced price

 Can succeed if you have a great incentive


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Incubators

 Small amount of capital - $100,000 for 6% equity

 Access to current founders & alumni network

 High quality mentoring

 Access to venture capitalists & angels

 The best are harder to get into than MIT!


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Customer Revenue

 NRE - Non-Recurring Engineering

 The best way to finance – no dilution

 Usually not the best way to scale


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Going Public 

 The grand slam home run of entrepreneurship!

 Goal of VCs

 Advice & guidance of experienced CFO required


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Digital Tokens & Alternatives to IPO

 Check out JOBS – Jumpstart Our Business Startups Act

 SEC Regulation A+ – legitimizes digital tokens

 Direct listing – doesn’t raise money like IPO

 Tap capital markets with expense of an IPO


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Perform investor
due diligence

 Study their previous investments (portfolio)

 Contact their founders

 How do they act when a venture stumbles?

 How deep are their pockets?

 Do they syndicate with other investors?

 What’s their added value?


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Resources

 Brad Feld: Venture Deals: Be Smarter Than Your Lawyer and


Venture Capitalist.

 https://www.sec.gov/spotlight/jobs-act.shtm

 https://mentorphile.com/category/raising-capital/

 https://mentorphile.com/category/investors/

 https://www.quora.com/

 https://xconomy.com/boston/resources/angel-investing-groups/

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