Start-Up Venture:

Venture Financing

The Start-Up Capital Formation Process

Adapted from Saratoga Venture Financing, and High Tech Start Up, by Nesheim, J.L.

 

10 Rules for Building a High-growth Business

 

Venture Financing Funnel

 

Venture Financing: Key Documents

 

7 Routes To High Profits

Entrepreneur  Download PowerPoint presentation, pdf e-book

6+6 Drivers for Entrepreneurship

8 Key Entrepreneurial Questions

 

 

  

 

Key Stages

Main Focus Activity

Elapsed Time Required

Typical Time Schedule Cumulative

Typical Participants

Help Needed

Major Costs

Main Risks

Results:

ROI &

Output

Idea

Secure a vision

Months to years

__

Yourself

Understanding the venture planning process

Entrepreneurial creativity

Reality check

Own time

Lacks commercial realism

Inspiration & vision

Personal profile

Kitchen Table

Solidify a dream

2-6  Months

Month 6

Friends & founders

Confidentiality

Business judgment

Technology

Strategic thinking

Time of several people

Secrets leak out

Crisp view of risk-reward tradeoffs

Founders' Commitment

Get firm commitments from key people

1-2 Months

Month 7

Founders only

Commitment of 1 to 3 founders

Nerves to commit

Cold feet of founders

Yes or no from founder candidates

Pullout from Employer

Leave current employer: "stay clean"

1 Month

Month 8

Founder

Lawyer

Good legal counsel: intellectual property, and labor law

Nerves to start to live on own savings

Counteroffers or threat of legal action by former employers

Clean, legal separation from former employers

Business Plan Creation

Write fresh business plan

2-6 Months

Month 14

Founders

Consultants

Lawyer

CPA Firm

Intellectual property attorney

Wise business judgment, especially marketing and financing

Sustainable competitive advantage advantage

Time

Personal computer

Business support software

Copying & printing equipment

Plan is not worthy of being funded

Plan lacks distinctive competence

Inspired document

Sustainable advantage

Clever strategy

Filling Management Team

Attract vital talent

2-9 Months

Month 18

Friends

Consultants

Media

CPA Firm

Recruiters

Candidates

Compensation plan

Wise people selection

Lots of time for interviewing

Compromise

No money, no hire

Leaks of secrets

Distractions from business plan

Recruitment of top notch managers

Raising Seed Capital

Get $ cash commitment from lead venture investor

2-12 Months

Month 27

Business angels

Venture capitalists

Consultants

Founders

Understanding the founding round and and venture investing process

Search for investors

Coaching on venture presentationnegotiation, and structuring the deal

Judgment on pricing and valuation

Time

Patience

Copies

Deliveries

Telecom

Travel

No lead venture capitalist

Get shopworn

Firm commitments of seed venture capitalists

Closing Capital & Incorporation

Get cash into bank account

1-2 Months

Month 28

Lawyer

Venture capitalists

Founders

Commercial banker

Good negotiating tactics

Writing an agreement (see sample agreement)

Financial counsel

Legal advice

Legal fees

No cash, so must start over

$ Cash in the bank

Finding a Home

Rent working quarters

1 Month

Month 29

CEO

Real estate broker

Real estate broker

Facilities consultant

Time

Rental deposits

Bad choice: size locations, $ per month, wrong length of lease

Place to work for a year

Start-Up

Hire people

Get started building first product

6-18 Month

Month 30

Board of directors

Investors

Employees

Suppliers

Strategic partners

Start-up experience

Burn rate: $ per month

Short of good people

Product completion slips

Competition starts too soon

Live company in action

Secondary Capital Rounds

Raise more $ cash

Leverage expensive equity

2-6 Month each round

In Years 2-4 after Seed Round closes

Venture capitalists

Corporate investors

CEO

Equipment lessors

Venture capital leads

Equipment lessors

Time of top management

Lack of management focus

Run out of cash, miss payroll

Bankruptcy

Sufficient $ cash in bank

Price per round higher than last round

Launch First Product

Get customers

1-2 Years from start on work

24-36 Months

Customers

Whole company

PR firm

Strong marketing skills

Positioning of company and first product

Cash reserves

Quality of execution of plan

Burn rate: $ per month

Lack of focus

Product slips

Poor market acceptance

Big competitor counter-punch

Finish first product

Begin first sales to customers

Raise Working Capital

Leverage equity

3 Month for each banking or leasing round

After first quarter of profitability

CEO

CFO

Commercial banker

Profitability

Savvy banking and leasing contacts

Time of CFO and CEO

Have to use precious equity instead of cheaper loans

Funding for growth in working capital needs

Initial Public Offering (IPO)

Gets shares liquid

Cash in some chips

Celebrate

4 Months including road show

Goal: IPO ready at end of Year 3

Investment banker

Securities lawyers

Stock exchange analysts

Industry media

General public

Timing

Pricing of shares

Underwriter's fees

Legal fees

CPA fees

Travel costs

Road show slides

Bad price per share

Market window closes

Business sours

Funding capitalists: 5 to 10 investment

Founders: $ millions each

Employees: years of wages

Image as successful company

Overall

Create and grow a viable, exciting, successful high-tech company

4-8 Years from start to IPO

Aim at 5 years start to finish

Many risk takers

Lots of effort

Several big breaks

Founders' time, nerves, and money

$ 3-50 million of investors' capital

Bankruptcy

Company survives but is too small, not able to get public

Viable company

Great place to work

Created $ millions of wealth

Growing, high ROI business

 

 

7 Characteristics of Successful Entrepreneurial Firms

By National Business Incubation Association (NBIA). Used by permission.

  1. An effective management team that works cooperatively and consists of members selected to provide a range of knowledge and skills... More