Guide to Startups_Berkeley

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					 Insider’s Guide to Startups
1) My background
2) Do it yourself! (prepare now)
3) Key stages in a startup
   a) in the beginning
   b) raising money
   c) running the company
   d) exit

                UC Berkeley
            Stephen Hsu, PhD 1991
• Geek background: Physics major, arrived here for
graduate school at 19.
• Day job: theoretical physicist.
• My engineer buddies all talked about starting
companies while I was studying general relativity…
• I was an academic migrant laborer (PhD Berkeley,
Research Fellow Harvard, Asst. Prof. Yale, now
tenured at U Oregon). Quantum field theory, anyone?
• But something strange happened along the way…

                         UC Berkeley
Secure Extranet Appliance
      security made simple

             UC Berkeley
UC Berkeley
UC Berkeley
UC Berkeley
UC Berkeley
            SafeWeb, Inc.
• 32 employees, 25 technical.
• 10 PhDs from physics and computer
  science.
• Graduates of Caltech, Berkeley, Yale,
  Carnegie-Mellon, U Oregon, IIT (India)
• Venture capital funding: $11.5 M
• Customers: Google, EMC, Schlumberger,
  WHO, U.S. Navy, CIA, NSA

                   UC Berkeley
              SEA Tsunami
Creates encrypted connection between remote
Web browser and intranet using SSL encryption.

SSL VPN: new product category, vs. IPSEC VPN
Cost effective: no remote client on user machine




                    UC Berkeley
SEA Network Diagram




               UC Berkeley
UC Berkeley
                   Do it yourself!
    (Berkeley needs to produce more entrepreneurs)
•     Start Preparing NOW by developing critical skills
•      Practice “Fermi problems” for business: estimate cash
      flows, margins, costs, etc. (like in management
      consulting)
•     Negotiation is an art. Practice.
•     Communication skills:
      •   SELLING (not just for used car salesmen)
      •   Be CLEAR and CONCISE (bandwidth is limited)
      •   How to motivate and lead others (self-discipline)

                              UC Berkeley
  Tech Startup = complicated machine with
                       many moving parts

Hopefully, a money making machine! But, at least should
be an innovation machine…

• People
• Technology
• Capital (fuel)
• Information (customer feedback, market intelligence)

                        UC Berkeley
              The kitchen table
• The team: choose people you trust and can work side
by side with through difficult times. Character is
paramount. To be melodramatic, you are going to war
together.
• Due diligence and sanity checks
• The idea: what is the innovation? technology or
business model?
• Business plan: the one you show to VCs, and the real
one.
• Ready?
                        UC Berkeley
                  Fundraising
• VCs really are dumb about technology. (But not about
everything.)
• Network! Network! Network! (bounded rationality)
• Presentation is everything. Anticipate questions.
• Anticipate Due Diligence issues: demos, references...
• Negotiate hard, but leave something on the table for
everyone. (Find counsel that has done VC deals.)
• Valuation is not the only issue: preferences,
employment contracts, vesting, etc.
                          UC Berkeley
             Dealing with VCs
• VCs really are dumb about technology. (But not about
everything.)
• They are going to be on your board and part of your
life at every stage of the company’s development
• You must manage their expectations
• You must meet as many as you can as you are always
fundraising.



                        UC Berkeley
          Managing your equity stake
• Keep your eye on the ball – how much $$$ will you end up with?
• Every dollar of money raised dilutes your stake in the company.
Preferred hurdle – unless you beat this, you will only get peanuts
• Example:
Founding 40% (2 founders, plus 20% employee pool)
Round A 20% (VCs buy 50% stake; $3M at $3M “pre-money”)
Round B      14% (VCs buy 30% more; $6M at $14M pre)
Company acquired for $30M. Your take: about $4M (after tax:
$3M).
(If sold for less than $9M, zero for you! But, maybe you’ll get a
carve-out  )
                              UC Berkeley
  Managing and Leading Teams
• Managing is an art. Hiring decisions are among the most
important, and firing someone is one of the most painful
experiences you will go through.
• You are going to be managing under stress. DO NOT transmit
the pressure you are under to your employees.
• Tech teams are totally different from business teams.
• The more your team understands and accepts your vision, the
less managing you will have to do. Transparency is key.
• Always take the time to build relationships with and within your
team. In war, people die for their buddies, not their country.


                             UC Berkeley
                  Exit Strategies
• By the time you get here, you will have forgotten everything on
this slide, so this is just for fun.
• Unfortunately, I have no personal experience with IPOs, so I
can only tell you about acquisitions.
• Everything takes longer than you think it will – building the
product, proving out the market (sales), getting a deal done, etc.
• Keep your accounting and legal records clean and organized
(including patents). Avoid litigation like the plague.
• Be very, very careful when negotiating personal employment
agreements, non-competes, etc.
• Donate some of your money to Berkeley!
                              UC Berkeley
Good Luck!




   UC Berkeley

				
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posted:7/5/2011
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