Working with Investors. William Quigley, Clearstone Venture Partners

CLEARSTONE V E N T U R E P A R T N E R S® Venture Capital For Innovators Entire Presentation is Clearstone Confidential CONFIDENTIAL CLEAR STO N E V E N T U R E P A R T N E R S Seeking Venture Capital? Know your responsibilities… 2 CLEAR STO N E CONFIDENTIAL V E N T U R E P A R T N E R S First Question Should you raise venture capital? 3 CLEAR STO N E CONFIDENTIAL V E N T U R E P A R T N E R S Appropriate for Very Few Co’s <1% of all companies started each year receive VC funding 4 CLEAR STO N E CONFIDENTIAL V E N T U R E P A R T N E R S VC Rare Even in Fastest Growing Companies • Just 16% of Inc. 500 received venture capital 5 CLEAR STO N E CONFIDENTIAL V E N T U R E P A R T N E R S Why So Few Co’s VC funded? Most VC backed companies share 3 characteristics: 1. Target a new or fast growing market 2. Capable of achieving a big exit value 3. Some degree of innovation CLEAR STO N E CONFIDENTIAL V E N T U R E P A R T N E R S 6 Areas of Innovation Always Shifting… • "I don't know if I would look at the computer industry. You want to go into a field where the innovation rate is high.” Larry Ellison, Oracle CEO 7 CLEAR STO N E CONFIDENTIAL V E N T U R E P A R T N E R S Listen (selectivity) to Investor Comments… • They often see what is/is not working • But……. • The phrase „herd mentality‟ was first applied to VC‟s, only later to cattle 8 CONFIDENTIAL V E N T U R E CLEAR STO N E P A R T N E R S The Two Cultures…. • Learn the vocabulary 9 CLEAR STO N E CONFIDENTIAL V E N T U R E P A R T N E R S What They Say vs. What They Hear VC’s Say • We would like some evidence that the model works” • “Have you considered _____‟s business model?” • “Let‟s upgrade the management team” 10 Entrepreneur’s Hear • “Call us when you are profitable” • “We love imitations!” • “We want to replace you” CLEAR STO N E V E N T U R E P A R T N E R S CONFIDENTIAL Understand What Venture Capital Is • Rocket fuel • Not for „experimenting‟ • When no other form of capital available 11 CLEAR STO N E CONFIDENTIAL V E N T U R E P A R T N E R S Other Factors to Consider When Taking Venture Funding • A 7 to 10 year personal commitment 12 CLEAR STO N E CONFIDENTIAL V E N T U R E P A R T N E R S Other Factors to Consider When Taking Venture Funding • Willing to step down as CEO 13 CLEAR STO N E CONFIDENTIAL V E N T U R E P A R T N E R S Other Factors to Consider When Taking Venture Funding • Signing up for having your business decisions second guessed 14 CLEAR STO N E CONFIDENTIAL V E N T U R E P A R T N E R S Other Factors to Consider When Taking Venture Funding • Hard to get off the venture capital „addiction‟ once started….. • Why? 15 CLEAR STO N E CONFIDENTIAL V E N T U R E P A R T N E R S Remember What You Signed Up For • Ramping the business rapidly • Focus on revenue growth, not profitability • A negative cash flow business 16 CLEAR STO N E CONFIDENTIAL V E N T U R E P A R T N E R S • Have a basic understanding of venture capital economics 17 CLEAR STO N E CONFIDENTIAL V E N T U R E P A R T N E R S How Much Is Enough To Make A VC Firm Care? • 10% ownership? Probably not • 20% to 25% more likely 18 CLEAR STO N E CONFIDENTIAL V E N T U R E P A R T N E R S VC’s Either Go Big or……. • Forgoing small (but potentially personally rewarding) exit opportunities 19 CLEAR STO N E CONFIDENTIAL V E N T U R E P A R T N E R S Board Dynamics • Common stockholders (i.e. founding management team) will generally have a minority representation on the board 20 CLEAR STO N E CONFIDENTIAL V E N T U R E P A R T N E R S A Few Final Thoughts…. • When serious doubts arise about the viability of the business, voice those concerns 21 CLEAR STO N E CONFIDENTIAL V E N T U R E P A R T N E R S CLEARSTONE V E N T U R E P A R T N E R S® Venture Capital For Innovators Entire Presentation is Clearstone Confidential CONFIDENTIAL CLEAR STO N E V E N T U R E P A R T N E R S