Preface xiii Acknowledgments xvii CHAPTER 1 Finance for Start-Ups 101 1 Fundraising Stages 1 Prefunding Period 2 Seed Funding Stage 3 Series A Funding Stage 3 Series B Funding Stage 5 Risk/Return 5 Types of Funding 7 Private Equity 7 Debt Funding 8 Alternative Types of Funding 9 Public Funding 12 Incubator/Accelerator Programs 13 Capital Structure 13 Intellectual Property 17 Valuation 19 Asset-Based Valuation Models 20 Pro Forma-Based Valuation Models 20 Comparable-Based Valuation Models 21 Strategic-Based Valuation 22 Exit Strategy 23 Summary 24 CHAPTER 2 Know Your Investors 27 KYI #1: Their Primary Objective Is to Make Money 27 KYI #2: There Are Many Types of Investors, Each with Different Expectations and Capabilities 30 Types of Investors 30 Investment Criteria 35 KYI #3: Prospective Investors Are Looking for Success Traits 37 Skin in the Game 38 Innovation 39 Defined Target Market 39 Value Proposition 40 Commercial Viability 41 Risk Mitigation Factors 42 Burn Rates 43 Strength of Management 43 Use of Funds 44 Traction 45 KYI #4: Money Is Not Enough 47 Know the Space 48 Nonfinancial Advantages 49 Alignment of Interests 49 Issues of Control 51 Summary 56 CHAPTER 3 Business Planning from a Strategic Financial Perspective 57 Value of a Business Plan 57 Composition of a Business Plan 59 Executive Summary 60 Defined Problem and Solution 61 Product/Service 63 Value Proposition 63 Marketing Plan 65 Management Team 72 Strategic Partners 74 Operational and Expansion Plan 76 Company Objectives 78 Current Positioning and Traction 80 Risk Factors 81 Financials 84 Exit Strategy 90 Business Plan Customization 91 Marketing Plan 91 Operational and Expansion Plan 92 Company Objectives 92 Financials 93 Exit Strategy 93 Business Plan Rudiments 94 Summary 95 CHAPTER 4 Financial Planning for Maximizing Returns 97 Importance of Having a Financial Plan 98 Assistance in Overall Business Planning 99 Ensuring the Health and Integrity of Capital Structure 101 Determining Sufficient Funding Amounts 101 Securing Funding in a Timely Manner 102 Securing Funds on the Most Favorable Terms 104 Determining Appropriate Responses to New Challenges and Opportunities 104 Instilling Discipline and Maintain Focus 105 Maximizing ROI upon Execution of Exit Strategy 106 Formulating a Financial Strategy 106 Financial Objectives 108 FREE 108 FREE Measurement Tools 109 Financial Plan Composition 120 Rules of Thumb 121 Summary 122 CHAPTER 5 Successful Fundraising 125 Planning Funding Presentations 125 Prospectus Materials 127 Executive Summary 127 Business Plan 127 Funding Proposal 128 Private Placement Memorandum 129 Shareholder Letter 130 Technology Brief 131 Demonstrations 131 Market Trends and Research Report 131 Other Miscellaneous Prospectus Materials 132 Different Types of Presentations 133 Elevator Pitch 134 Lobby (PowerPoint) Pitch 135 Conference Room Pitch (Formal Presentation) 135 Summary 140 CHAPTER 6 Becoming a Formidable Negotiator 143 Prenegotiations 144 Letter of Intent 144 Nondisclosure Agreement 144 KYI Research and Inquiries 145 Leverage 146 Negotiating Capital 149 Due Diligence 149 Due Diligence Checklist 149 Due Diligence Response 149 Actual Negotiations 150 Term Sheet 150 Negotiation Approaches 150 Best Practices and Tactics 151 Points of Negotiation (Terms) 153 Have a Negotiating Plan 168 Concluding Negotiations 174 Successful Conclusion of Negotiations 174 Unsuccessful Conclusion to Negotiations 174 Negotiation Postmortem 175 Summary 175 CHAPTER 7 Establishing an Investment-Grade Organization 179 Corporate Governance 180 Attributes 180 Benefits of Good Corporate Governance 181 Corporate Governance Best Practices 182 Corporate Governance Structures 182 Ethical Behaviors 189 Stakeholder Relations 194 Summary 199 CHAPTER 8 Financial Decision Making for Optimal Performance 201 Financial Decision-Making Process 202 Practicing Sound Corporate Governance 202 Understanding Existing and Potential Decision-Making Dynamics 203 Managing Financial Expectations 206 Financial Decision-Making Structures 208 Establishing Appropriate Decision-Making Bodies and Procedures 209 Allocating Decision-Making Authority and Responsibilities 212 Placing Individual Decision Makers on Appropriate Decision-Making Bodies 216 Financial Decision Making in Practice 219 Strategic Financial Planning/Fundraising 219 Budgeting 221 Operational (Day-to-Day) Financial Decision Making 222 Financial Dealings with External Parties 224 Exiting 228 Summary 232 Afterword 235 APPENDIX A Sample Financial Plan 237 APPENDIX B Sample Funding Proposal 241 APPENDIX C Dictums of Entrepreneurial Finance 245 Glossary 251 About the Author 271 About the Website 273 Index 275
DAVID SHELTERS provides investment banking, business brokerage, and financial advisement services through his company, Karon Business Consulting. He is also an active participant in the local tech entrepreneurial scene, presenting at numerous BarCamps and other tech conferences. Shelters currently mentors several local software start-ups and is the in-house financial mentor at Hubba, a co-working space in the heart of Bangkok. He has over fifteen years of entrepreneurial experience as a founder, cofounder, or financial advisor to numerous tech start-ups in both the United States and Asia. Shelters has a BA in history and political science from the State University of New York at Albany, an MS in international affairs from Florida State University, and has completed the coursework for a master's in international business studies at Georgia State University. David regularly blogs at www.financeforgeeks.com.
"The book should be an eye-opener for aspiring and new technology entrepreneurs and can help you navigate the dangerous waters known as venture capital. Even better, Shelters has over fifteen years of entrepreneurial experience as a founder, co-founder as well as an advisor to numerous United States-based and Asia-based startups." --YoungUpstarts.com