Startup Lifecycle & Foundings:

-> Before fund raising we have to determine how much money our start-up values and when rise them. In order to feed correctly our new enterprise we have to define in which stages and from whom we can rise fundings.

Right amount of money to sustain activities before financial break-even (not too much & too early);

-> INDEXES:

Cash Burn Rate: average montly cash flows (if negative): it indicates what is your montly financial need.

-> Average montly cash flow (if < 0)

-> We’ve to determine the monthtly cash flow statement.

Runway: number of months covered by the existing funds with the current cash burn rate;

-> Computed dividing the funds by the CBR.

-> Complementary of the CBR

📌$1,1b is the amount of money invested in startups in one day in US.

Different Approaches:

Each stage has a different business goal
Each stage has different financial needs
Each stage you have to contact different types of investors
Each stage has a different traction: a “Quantitative evidence of market demand”.

Traction is proof that somebody wants your product. Ideally, it should communicate momentum in market adoption

Different Marketing Goals

Lifecycle & Founding:

1.When collecting Funds:

-> GENERALLY:

The later the better, the value of your company has grown & the risk is lower.
Type & Size of funds and sources changes along the startup lifecycle.
Investors always try to delay their entrance;
The GOAL of fund raising, the SIZE and TYPES of investors are different at each stage.

-> DEFINITIONS:

STOCK OPTION: financial instruments that allow managers to acquire (or assign) shares with a given price if a setted goal is reached.
NEW VENTURE: new company established without an innovative BM;
STARTUPS: new company with a new business model.
- They have to make experiment, test to validate the BM.
VENTURE CAPITAL FUNDS: company whose objectives is make money out of itself, by buying shares of companies at a price and selling them at higher price in a second moment.
- They last 10 years (if I’ll rise money, I’ll get them in 10 years).
LIMITED PARTNER: an investor, who contributes capital to a business partnership in exchange for a proportion of the share of the venture profits.
EMPLOYEES: managers/ analyst/ associate, people that really work for the
IPO: the Startups go on the public stock exchange.
BUYOUT: financial transaction where a a company buy a business from the owner.

Funding Rounds

-> PHASES:

Pre-seed Seed Round A Round B Later Stages	Trade Sale (Starting of EXIT) Buyout IPO
📌 During these first stages, the founders don’t sell their shares, they are locked in and must work in developing products and market	📌 During these 3 stages, founders and first investors sell their shares. Founders usually are locked in for a while and can’t create a competitive business for a period.
1.Pre-Seed: ->	2.Seed:
-> Funding: from savings, FFF, crowdfunding, grants Size: € 10K – € 100K No revenues (or very small) -> CHAR: Business Plan, Prototype Teams: founders who develop the product Financial objective: Cash Burn Rate (as low as possible) Corporate objective: conceive and develop the product; test and understand the market	-> Funding: from savings, FF, crowdfunding, Business Angels Size: € 500K – € 1 Mio Very small revenues -> CHAR: Prototype, product Teams: founders who develop the product Financial objective: Cash Burn Rate (as low as possible) Corporate objective: develop the product and match the market
3.Round A (early stage) ->	4.Round B:
-> Funding: Business Angels, Venture Capitalist Funds Size: € 1-5 Mio First revenues, toward breakeven -> CHAR: Teams: founders and first contributors Financial objective: Prove the revenue model works Corporate objective: find the product-market fit, search of customers, business model test	-> Funding: Operating Profit and/or Venture Capital Funds, Private Equity Size: € 5-20 Mio Operating Profit(EBIT) -> CHAR: Boards with founders, VC, other experienced C-Levels Teams: engineers and business developers Objective: Break-even, operating profit, scale-up

5.Later Stages (–> EXIT):

-> Funding: Private Equity, Stock Exchange

Size: € 10-50 Mio
Stabilization of cash flows

-> CHAR: Boards with founders, VC, other experienced C-Levels

Structured team
Corporate organization
Founders can have a minority stake
Objective: Cash Flows, stabilization, exit (for early stage investors, ventures and founders)

Investment Readiness Level:

-> Steps are the phases defined for the Customer Development Model.

-> Consider that the size and the type of funds should be aligned with the life phase of the startup.

📌Steven Blank’s tools to measure whether startups is ready to get funds.

Pending Issues of Italian Market:

2.How Many Money:

-> Ideally, the startup should receive the minimum amount of money to enforce plan activity till next round or break-even

-> TYPES of money:

Debts (banks that lend money. If the company fails they still have rights on the loan)

Equity (shareholder buy a par, some shares, of the company, becoming a part of it. If the company fails => it has no rights because it is part of it);

-> RIGHT SIZE: is enought to sustain the activities before financial break-even but not too much too early.

-> PROCESS:

What is the pre-money value of the company?
How much do external investors put into the company?
What is the post-money value of the company?
How to define the price and share of ownership?

-> The final price is the result of many other factors, including the bargaining power (and interest) of the parties.

Pre-money and post-money valuation

Is not a real evaluation.

General Advices:

• Share the ownership with non-founders the later the better (when your company’s value is bigger) -> The risk is to make the following rounds impossible • Don’t undervalue or overvalue your startup: in the former case, you give away too much, in the latter, you could devalue the startup in future rounds. This is odd and usually a bad message for investors • Have a long term plan: you probably need future rounds -> Have multiple plans • Judge yourself (where are you now?) -> Get first commitment

• Select the investors not just for the money: -> Because you will have to deal with them, -> Because they can offer other assets, like networks, expertise. • Raise money only if necessary in the right moment (startups don’t raise money! Startups grow fast) • Get introduction to investors -> Talk to investors in parallel (non serially) • Don’t sell more than 25% in phase 2 • Stop fundraising if it’s not working

3.Who are the Investors:

-> Source of founding can have different impact on your financial structure, composition of the ownership, level of risk, etc…

Different types of investors invest at different stages of startup lifecycle
There are many overfunded and underfunded startups

-> Financial resources are part of 2 main families:

• Equity

• Debt [be financial (loans, short term debts) or commercial (accounts payable)]

-> Ultimately, a company can fund itself via:

• Commercial debt • Financial debt • Operating activities

• Grants • Equity

-> It’s possible to add grants, prizes, and forms of incentives.

Usually don’t have an impact on the ownership and have no monetary costs if you don’t have to pay interests on them

-> Founders don’t have to loose part of the control beause the size, type of resources and funders can have a strong impact in following fundings rounds.

At the beginning => rely on a personal savings and resources;
Then => involve external people (FF, BA, etc…)

-> ACTORS:

• Business Angels → Early Stage / Round A • Seed Funding Firms (incubators or others) → Early Stage / Round A • Venture Capital Funds → Round A / B

• Private Equity → Later Rounds and Exit • Trade Sale → Exit • Stock Market → Exit

0.Savings -> Seed:

-> CHAR:

• Founders keep complete ownership • First phases (idea generation, first prototypes, sometimes first product) • The risk is high

• The fund raising would be meaningless • Don’t waste time in fund raising when you don’t have the product yet

-> Typical size: € 10/20 K

-> As a general rule, it is better to postpone the entrance of external investors, when the value of startup is a bit higher. The value of an idea is Zero!

1.Family, Friends & Fools-> Seed:

-> DEF: no professional investors

Usually don’t ask too much for their money
Could be a problem in later rounds as they are not professional investors
Don’t offer any additional support
Have doubts about your evaluation

-> CHAR:

• First phases (concept, business plan, prototype, or MVP, Test A/B, etc.)

• Don’t provide metrics, business plans, results

-> Typical size: € 20-50 K

2.Angel Investors & Business Angels-> Early Stage & Round A:

-> DEF: Are private, like former managers or entrepreneurs, with a large savings that want to invest (in part) in startup

Former managers or entrepreneurs;
Offer managerial or entrepreneurial support, networks (keep a strategic role and you can be tight)
Have to negotiate their participation: size and share of the ownership

-> CHAR:

• Seed stage (product ready, market entry, first metrics)

• Invest in the team (even more than in the product)

• Giving them more than 20% in this stage can block future capital increases

• Their interest is to delay the entrance (the later they enter the lower the risk)

-> Typical size: € 50K to € 1M

3.Seed Funding Firms → seed & early stage

-> DEF: are similar to Business Angels but are companies (=> can be more strict on some terms);

-> CHAR:

• Seed stage (product ready, market entry, first metrics)

• They offer you services and consulting

• Part of their investment can be in services like the office, the internet connection, mentorship, etc.

• Difficult to assess the value of non monetary services

• The deal is the result of a bargain, there are no fixed rules

• Although, in seed investment, seed funding firms (and business angels) often have fixed policies like the size of the investment and the valuation of the startups, and thus the share of the ownership

• Most famous one are rigorous, second tiers can be more aggressive

4.Venture Capital Funds→ round A/B

-> DEF: They are companies and have fixed rules to select investments

Manage portfolios of their clients and follow guidelines
Are professional investors
Become parts of the board, and sometimes they assign the CEO role to an experienced manager and not to a founder, especially if she/he has a technical background

-> CHAR:

• A competitive exit strategy is needed;

• You must create a relationship with them

• Senior fund managers are more objective

• They invest some millions

• Founders are usually not allowed to sell their shares till final exit

5.Private Equity, Stock Exchange, Private Sales → Exit

=> This is the phase of exit

Usually founders can sell part of their shares and monetize

-> In this case the company is no more a startup, and thus ready for PE funds and even the stock exchange

-> Competitors, incumbents, bigger entrants can buy the company through a private deal to acquire products, markets, technologies

FORMAL INVESTOR: are professional investor, using tools and a structurated strategy;

UNFORMAL INVESTOR: are not professional, don’t work as investors. Don’t are structured.

Venture Capital Process:

-> Is a deal. They must see the opportunity to multiply in fewyears the value of their investment.

Business Plan Submission: entrepreneurs get in touch with investors and present their business plans, or metrics, or MVP and tests, etc.
Due Diligence: analysis if company’s management team, market, products and services, operating history, corporate governance documents, and financial statements. This step can include developing a term sheet describing the terms and conditions under which the fund would make an investment.
Deal – Valuation and Negotiation: there is a pre-money valuation to assess what’s the share of the new investors; the valuation can be as analytical as possible, but the price is the result of a negotiation.
Investment: VC enter the company and board, founders sign term sheets

Execution with VC control: usually investment is released in batches if targets are reached
Exit: VC’s final objective is to exit within a few years through mergers, acquisitions, and IPOs (Initial Public Offerings)

How startups value the company:

Fund raising: evaluate the share of ownership to sell during a round

Work for Equity and other 3rd parties participations; in order to match the value of labor and the value of ownership
Exit: evaluation of the price to sell parts of the company

4.How to Present the Business to Investors:

-> DEF ELEVATOR PITCH: is brief presentation to introduce your business idea, your product, your service, to summarize who you are, what you do and why an investor should invest in your venture:

Its name reflects the fact that you can deliver its content in the time span of an elevator ride
Elevator Pitch is a short graphic and catchy presentation of the business; it is more emotional than rational, and its goal is to attract interest
Business Plan is an analytical document, with analysis, plans, premises, and consequences, and all the details

-> GOAL: persuade an investor to put some money in the venture and become owner of a part of the Company

Show that business is profitable, funders have the skills to manage a company, know the market, will have positive cash flow after a while, can control costs, business is scalable, can create and sustain competitive advantages, the market is growing, you have a long-term strategy…

-> The Deck gives the potential investors the first impression of funders and their company

Elevator Pitch Deck – The sections

SLIDE 1	SLIDE 2	SLIDE 3	SLIDE 4	SLIDE 5
-> Introduce yourself! Name of the startup and slogan Brief history (founded on …, in…, by name of founders) A brief statement to introduce the activity: -> Example: Buy from emerging designers Create your digital wardrobe Share your style with friends -> Contact	Introduce the problem, client’s pain, need / opportunity • Describe the market need • Describe the clients pain • Explain why current solutions don’t work or are fully satisfactory	Your Solution: your product • What do we offer? • Benefits of the product / services • How do we relieve the customers’ pain? • What’s the source of our competitive advantage? (types: market, technology, relationships, …) • Describe the product (and show in picture, if you can)	Your Team • For each member: name, role, experiences • Organizational chart of the company • Capitalization table (major shareholders %)	What’s done so far? • Phase of the product /service development • Date of foundation • Capital invested • Employees • Revenues • Gross Margin, Operating Profit, Net Profit • Cash Burn Rate • Metrics • Clients • Partnerships • Patents, trademarks, licenses
SLIDE 6	SLIDE 7	SLIDE 8	SLIDE 9	SLIDE 10
Market (TAM) & Competitors • TAM (Total addressable market) • Size of the market • Trends • Main characteristics • Potential Market – Available Market – Target Market • Key Success Factors • Description of main direct* and indirect* competitors • Competitive Advantages	Users / Sales / Cost Forecast • Clients Forecast • Sales Forecast • Costs • Metrics • Targets (milestones) If you have historical data is (relatively) easy, otherwise, you have to do assumptions and create your own plan	Cash Burn Rate / Runaway / Use of proceeds • Monthly, yearly Cash Burn Rate • Financial Need • Use of proceeds (activity, objectives, milestones, …)	Valuation and Exit • Valuation Method • Comparables • Analytical Method • Exit Strategy	Call to action • Who you are • Where you want to go • What you need • Add your contact details • Add your logo, payoff, name of the company

⚠️BP is not part of the elevetor Pitch and viceversa.

Fundings Rounds for Startups

Startup Lifecycle & Foundings:

1.When collecting Funds: