This page is part of an in-progress commentary by Roger
Frye
on High Altitude
Thinking: The International Informatics Summit.
Nothing more American than starting a company. Technology Venture Capital. Non-profit.
Mission: to form and expand business based on technologies from publicly funded ...
47 new compnaies, $332M, 2,162 economic base jobs...
Risk and reward in technology startups. Personal pop quiz for why you want to be an entrepreneur. Family support? boostrap cash flow, survive failure? work long hours (days are phenomenally long, and the years are short).
Commercial pop quiz. original idea? protect enough to profit from it. feed the meter day to day. can you access the market. competitive product?
Growth and scaling. Barriers to entry. IP can stop others from entering your markets.
Order of importance (hi to lo) patents, copyrights, trademarks, service marks. Each both U.S. and foreign. Example of Budweiser "born on date" advertising. Company doing it has trade secret on how they do it. Patent becomes increasingly important as product becomes successful. Example of crescent wrench at Sears. Inventor sued for years and finally won.
Funding your startup business. Bumper sticker: trust every one, but brand your cows.
Fuding sources (equity money). Angels, venture caps, state or fed gov (the 3 Fs). Slide shows graph of increasing risk vs Decreasing return. FFF is first at the idea stage under $100K. Followed by angels, gov't. Then big circle of venture capital surrounded by strategic partners (high risk and high reward). Banks come in to handle debt. IPO is final stage of profitability after there is cash flow.
Startup Road map show funding sources. Present conditions: two arrows: venture captial going down, strategic partners going up.
TURN OVER TO JIM NOVAK
An entrepreneur's perspective on equity capital investments. What he has learned from going through the process. Motivation = develop entrepreneur's checklist of ideas.
SenSolve Lessons for entrepreneurs and investors: negotiating the deal, terms of the deal, execution lessons. He has been scarred, but the wounds are healed enogh to talk about it.
History of SenSolve company. Start at Sandia, Found in 1996 ... does not exist anymore.
Revolutionizing extreme processes. measures alignment, enables automation. Motto: Sensolve goes where others can't.
Bypassed the term sheet phase. Negotiate business issues before the lawyers get into details. Investor generated to mitigate their risk. If deal fell through, would be on the hook for legal expenses.
The whole deal: Investors will focus on capitalization, governance, financial. Founder issues are performance, motivation upside and downside.
Capitalization Zones. valuation -- liquidity as well as ownership. shares issues -- number and types of shares. capitalization amounts. Avoid negotiating valuation without considering other terms.
Governace terms: Board composition -- ownership vs exptertixe, commitment to contribute. Independent -- D&O insurance, compensation. Priorities will change after the close. Independents will help improve the dynamics.
Financial terms. Liquidation prefs, dividends, ...
Performance terms. Stages of risk mitigation from inside to outside-- proof of concept, prototpe, product, 1st sale, IP, Pricing/volume. Contingency processes. Milestones should reflect a realistic assesment of risk stages.
Motivation terms: compensation issues are sensitive. Motivating key people -- compensation, removal, noncompetence agreements ...
Execution lesson: key people decided not to join the company because of delay till go the money. The team is the plan. Goals and plans based on key people. Hire key people first.
Early hires are huge fraction of culture. technologists -- stability and specialization. new grads -- energetic and enthusiastics. generalized specialists.
Summary Best deals align interest of all parties. expect to deviate. mistakes involving key people have big affect.
Question: Jan Hauser as veteran of foreign wars (silicon valley) 2.5 startups. His experience. signed order required. Answer. Meyers graph of previous inflated expectations, now seeing onerous downside protections. As entrepreneurs ad venture capitalists get more educated ...
Question. Another veteran of silly com valley. Recmmends go find a strategic partner with money and vested interest. Can go back for more money. Answer: As CEO should cultivate those relationships. Obvious strategic relationship would be robot makers because their sensor was at end of the arm of the robot.
Question.entrepreneurs need to do as much due diligence as venture. Answer yes.
Question what do when engineer doesn't have entrepreneur characteristics. Answer Excellent CTO, find a CEO.
Question from Stu Kauffman: implication of anti-dillution clause.
Question how many companies has VTC invested in. Answer we are intermediary, not investment. $25M.
END