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Startup Capitalization Table Vc

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					                                                 Contents at a Glance

Chapter 1—Introduction.................................................................................................... 17
  Alternative Routes and Destinations ............................................................................18
  What about Just Building a Profitable Independent Business?.................................20
  A Setting for your Journey—Startup Island ................................................................21
Chapter 2—Preparing for your Journey........................................................................... 23
  Poor Preparation Leads to Poor Performance—and can affect your Diet!............23
  Seven Point Travel Plan..................................................................................................24
  Targeting your Destination.............................................................................................27
  Picking your Team...........................................................................................................27
  Maintaining Momentum .................................................................................................29
  Taking your Bearings.......................................................................................................34
  What’s the Best Route for You and your Product? ....................................................43
Chapter 3—The Long Haul to Destination IPO (or Cash Flow Sale) ............................ 51
  Destination IPO Seed Stage...............................................................................................71
  Destination IPO Early Stage............................................................................................144
  Destination IPO Expansion Stage ..................................................................................180
  Destination IPO Mezzanine Stage..................................................................................194
  Switching to Destination Cash-Flow Sale ..................................................................224
Chapter 4—The Short Sprint to Destination Asset Sale...............................................227
Chapter 5—The Slippery Slope to Destination Shutdown ............................................251
  Slippery Slope to Cash Crisis........................................................................................252
  How a Cash Crisis Develops........................................................................................252
  On Detecting a Distant or Looming Cash Crisis......................................................255
  Climbing Back on Track—Raising Funds..................................................................260
  Slowing your Descent—Cutting Costs.......................................................................264
  Radical Momentum Maneuvers ...................................................................................275
  Making an Elegant Descent—Orderly Shutdown .......................................................291
Appendix 1—What’s it Worth? Valuing the Company ...............................................301
Appendix 2—Getting What you Want—Negotiating the Deal .................................313
Appendix 3—Gathering your Provisions—The Fundraising Process ......................325
Appendix 4—Selling the Company—The M&A Process...........................................351
Appendix 5—Every Journey Tells a Story.....................................................................377
Appendix 6—Resource Guide ........................................................................................393
Index....................................................................................................................................409
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                                                    Table of Contents

    Chapter 1—Introduction ................................................................................................... 17
     Alternative Routes and Destinations ............................................................................18
     What about Just Building a Profitable Independent Business?.................................20
     A Setting for your Journey—Startup Island ................................................................21
    Chapter 2—Preparing for your Journey........................................................................... 23
     Poor Preparation Leads to Poor Performance—and can affect your Diet!............23
     Seven Point Travel Plan..................................................................................................24
       Back-of-a-Napkin 7 Point Travel Plan Template for Any Journey .....................26
     Targeting your Destination.............................................................................................27
     Picking your Team...........................................................................................................27
       Founding Partners.......................................................................................................28
     Maintaining Momentum .................................................................................................29
       The Magic of Positive Momentum...........................................................................30
       The Menace of Negative Momentum ......................................................................30
       Gentle Momentum Maneuvers .................................................................................31
     Taking your Bearings.......................................................................................................34
       Why it’s Important to Regularly Pinpoint your Position.......................................34
       Company Navigator....................................................................................................35
       What you’re Looking For...........................................................................................38
       Taking your Bearings in 2 Simple Steps...................................................................38
       The Process of Selling the Company .......................................................................42
       When to Take your Bearings .....................................................................................43
     What’s the Best Route for You and your Product? ....................................................43
    Chapter 3—The Long Haul to Destination IPO (or Cash Flow Sale) ............................ 51
       Destination IPO ..........................................................................................................52
       Back-of-a-Napkin Travel Plan for the Long Haul from Zero-to-IPO ...............53
       A Team for the Long Haul ........................................................................................54
       Long Haul Contingency Plans...................................................................................59
     Destination IPO Seed Stage...............................................................................................71
       Write a Business Plan..................................................................................................72
       Take the Leap ..............................................................................................................76
       Hire a Good Startup Law Firm.................................................................................77
       Find a Good Bank.......................................................................................................78
       Hire a Good Firm of Accountants ...........................................................................79
       Recruit an Advisory Panel..........................................................................................79
       Secure Seed Funding...................................................................................................80
       Lease an Office............................................................................................................86
       Formulate your Core Messaging and Corporate Identity......................................87
       Form a Corporation....................................................................................................90
                                                                                                                                 9
  Select a Good Company Name.................................................................................92
  Set Up your Capitalization Table ..............................................................................93
  Create a Stock-Option Plan .......................................................................................95
  File Patents and Trademarks .....................................................................................98
  Create and Launch your Web Site ..........................................................................101
  Publish a Technical White Paper ............................................................................103
  Build a Product Prototype .......................................................................................104
  Form a Board of Directors ......................................................................................105
  Structure a Management Team................................................................................107
  Set Up a Bookkeeping & Accounting System.......................................................108
  Hire a Head of HR....................................................................................................109
  Prepare for a Recruitment Ramp-up ......................................................................109
  Outsource Everything that Moves..........................................................................111
  Define your Corporate Values.................................................................................112
  Establish a Benefits Package....................................................................................116
  Write an Employee Handbook ...............................................................................116
  Hire a Head of Marketing ........................................................................................118
  Appoint a PR Agency ...............................................................................................120
  Launch the Company................................................................................................130
  Test the Market..........................................................................................................134
  Close your First (VC) Round of Funding..............................................................138
Destination IPO Early Stage............................................................................................144
  Press all the ‘Go’ Buttons.........................................................................................144
  Hire a Career CEO....................................................................................................145
  Release the Product—in Preview, Alpha or Beta if Necessary ..........................148
  Seed Customers and Document their Positive Endorsements ..........................155
  Form Strategic Partnerships ....................................................................................155
  Publish a Corporate Web Site..................................................................................157
  Hire a VP of Sales .....................................................................................................160
  Structure Sales Agreements......................................................................................161
  Close Sales Agreements............................................................................................161
  Hire an In-House Accountant.................................................................................162
  Build a Scalable IT Infrastructure ...........................................................................163
  Set Up a Scalable Financial Management System.................................................165
  Appoint an Advertising or Marketing Agency ......................................................165
  Go International ........................................................................................................168
  Polish Your Business Plan Presentation ................................................................173
  Close Strategic Funding............................................................................................175
Destination IPO Expansion Stage ..................................................................................180
  Release Best-of-Breed Product Range....................................................................181
  Round-out the Management Team.........................................................................182
10
         Start to Act Like A Public Company......................................................................183
         Deliver Impressive Sales ..........................................................................................184
         Turn a Profit ..............................................................................................................185
         Appoint Investment Bank........................................................................................186
         Close Mezzanine Funding........................................................................................191
      Destination IPO Mezzanine Stage..................................................................................194
         Appoint Marquee Names to the Board of Directors...........................................195
         Enhance & Upgrade your Web Site .......................................................................197
         Take Decision to IPO ..............................................................................................198
         Brace the Company for the IPO Process ..............................................................204
         Go Quiet.....................................................................................................................204
         Assemble the IPO Team..........................................................................................206
         Carry Out the Financial Audit and Due Diligence...............................................208
         Draft the Prospectus and Other Documents........................................................211
         File Registration Documents with the SEC ..........................................................213
         Present the IPO Road Show....................................................................................215
         Set the Share Price.....................................................................................................216
         Prepare to Deal with Public Investors ...................................................................216
         Go Public—The IPO Itself .....................................................................................223
      Switching to Destination Cash-Flow Sale ..................................................................224
     Chapter 4—The Short Sprint to Destination Asset Sale ..............................................227
         Back-of-a-Napkin Travel Plan for the Short Sprint from Zero-to-Asset Sale.232
         Destination Asset Sale ..............................................................................................233
         A Short Sprint Team.................................................................................................238
         The Route from Zero-to-Asset Sale.......................................................................243
         Short Sprint Contingency Plans ..............................................................................244
         Reaching Destination Asset Sale & Cashing Out.................................................247
     Chapter 5—The Slippery Slope to Destination Shutdown ............................................251
      Slippery Slope to Cash Crisis........................................................................................252
      How a Cash Crisis Develops........................................................................................252
         On Track ....................................................................................................................252
         Scramble Zone...........................................................................................................253
         Survival Zone.............................................................................................................253
         Freefall Zone..............................................................................................................254
         Shutdown Zone.........................................................................................................254
      On Detecting a Distant or Looming Cash Crisis......................................................255
         Scramble Zone Action Plan.....................................................................................257
         Survival Zone Action Plan.......................................................................................258
         Freefall Zone Action Plan........................................................................................259
      Climbing Back on Track—Raising Funds..................................................................260
         Raising an ‘Up’ Round..............................................................................................260
                                                                                                                                          11
    Raising a ‘Down-Round’ ..........................................................................................260
    Raising a Bridge Loan ...............................................................................................262
 Slowing your Descent—Cutting Costs.......................................................................264
    Cutting Costs..............................................................................................................264
    Slashing Costs ............................................................................................................273
 Radical Momentum Maneuvers ...................................................................................275
    Switch Destinations...................................................................................................275
    Reinvent the Company .............................................................................................276
    Warm Restart .............................................................................................................280
    Cold Restart................................................................................................................285
 Making an Elegant Descent—Orderly Shutdown .......................................................291
    Shutdown Zone .........................................................................................................291
    Orderly Shutdown.....................................................................................................292
    Bankruptcy .................................................................................................................295
Appendix 1—What’s it Worth? Valuing the Company ...............................................301
    Economics 101—The Laws of Supply & Demand .............................................301
    Increasing the Price—the Golden Rule of Valuation ..........................................302
    Valuation Techniques for Technology Companies..............................................303
 Valuation Techniques—True Market Forces ............................................................303
 Valuation Techniques—Earnings Multiple................................................................303
    Liquidity Discount.....................................................................................................304
 Valuation Techniques—Revenue Multiple ................................................................304
 Valuation Techniques—Discounted Cash Flow.......................................................304
 Valuation Techniques—Build Cost Plus....................................................................305
 Valuation Techniques—Comparable Deals...............................................................306
 Valuation Techniques—Return on Investment ........................................................306
 Valuation Techniques—Rule of Thumb ....................................................................307
    Example Investor Rule of Thumb Valuation Table.............................................307
 Valuation Techniques—Weighted Average...............................................................308
 Valuation Techniques for a Seed Stage Company ....................................................308
    Playing the Discounted Cash Flow Game—for a Company with Very Little
    History ........................................................................................................................309
 Valuation Techniques for an Early Stage Company .................................................310
 Valuation Techniques for Expansion Funding .........................................................310
 Valuation Techniques for Mezzanine Funding .........................................................310
 Valuation Techniques for Cash Flow Sale .................................................................311
 Valuation Techniques for Asset Sale...........................................................................311
 Valuation Techniques for IPO ....................................................................................312
Appendix 2—Getting What you Want—Negotiating the Deal .................................313
 The Negotiation Process ..............................................................................................313
    Switch into Sales Mode.............................................................................................314
12
         Define Objectives—Where Are We Going?.........................................................314
         Pick the Negotiating Team & Establish Control..................................................314
         Connect With the Individual ...................................................................................315
         Connect With the Team ...........................................................................................316
         Select the Negotiating Strategy................................................................................316
         Agree on Agenda—How Are We Going To Get There? ...................................317
         Make the Opening Moves........................................................................................317
         Make Counter Moves ...............................................................................................318
         Reach Deadlock.........................................................................................................318
         Identify & Agree on Problems/Obstacles.............................................................318
         Explore Ways of Overcoming Obstacles ..............................................................319
         Make Concessions.....................................................................................................319
         Close............................................................................................................................319
      Negotiation Tips & Techniques ..................................................................................320
         Listen...........................................................................................................................320
         Reflect .........................................................................................................................320
         Some Deal Killers to Watch Out For ....................................................................321
         Watch the Clock ........................................................................................................321
         Charm..........................................................................................................................322
         Keep it Professional..................................................................................................322
         Emotional Displays...................................................................................................323
         Good Guy/Bad Guy ................................................................................................323
         Introduce Alternative Currencies............................................................................323
         Disengage Without Burning your Bridges.............................................................324
     Appendix 3—Gathering your Provisions—The Fundraising Process......................325
      The Fundraising Process...............................................................................................325
      Appoint Fundraising Team ..........................................................................................326
         Hiring a Professional Fundraiser ............................................................................327
      Formulate the Pitch .......................................................................................................329
      Identify Target Investors ..............................................................................................330
      Create Investor Information Packs.............................................................................331
      Prepare to Approach Investors....................................................................................332
         Contact Management System ..................................................................................334
      Approach Investors .......................................................................................................334
         Investor Pitch Events ...............................................................................................336
         Remember—Investors are Human Too................................................................337
      Present to Investors.......................................................................................................338
      Listen and Respond to Investor Feedback ................................................................340
      Negotiate and Agree Terms .........................................................................................341
         Preference Share Agreements..................................................................................342
         Liquidity Preference or Participating Preferred ....................................................342
                                                                                                                                        13
    The Dreaded Ratchet................................................................................................345
    Two Traunch Deals ..................................................................................................346
    Redemption Rights....................................................................................................347
    Co-Sale Rights............................................................................................................347
 Sign Term Sheet .............................................................................................................348
 Complete Due Diligence...............................................................................................348
 Close Round of Funding...............................................................................................349
Appendix 4—Selling the Company—The M&A Process...........................................351
 Take Decision to Sell.....................................................................................................352
 Pick M&A Team ............................................................................................................353
    Appointing an M&A Firm/Intermediary ..............................................................353
 Prepare your Paperwork ...............................................................................................357
 Dress the Company Up for Sale..................................................................................358
    Selling Materials .........................................................................................................358
 Identify Buyers ...............................................................................................................360
 Approach Buyers............................................................................................................360
 Present to Buyers ...........................................................................................................361
 Negotiate Terms.............................................................................................................362
    Negotiate the Price....................................................................................................362
    Negotiate the Structure & Currency.......................................................................362
 Agree Terms ...................................................................................................................366
 Board & Other Approvals............................................................................................366
 Prepare Agreements ......................................................................................................367
 Complete Due Diligence...............................................................................................367
 Close the Sale..................................................................................................................368
 Meet the Parents ............................................................................................................368
    Company is Integrated as a Self-Contained Subsidiary .......................................370
    Company is Absorbed into Parent..........................................................................370
    Integration Plan .........................................................................................................371
 Streamlining the M&A Process....................................................................................371
 Selling the Company in a Hurry...................................................................................372
    No Short Cuts when it comes to Preparation.......................................................373
    The Sales Team..........................................................................................................373
    Valuation.....................................................................................................................374
    Approaching Potential Buyers.................................................................................374
    Accelerated Negotiation ...........................................................................................375
    Bypass the Letter of Intent ......................................................................................375
    Due Diligence Process and Preparation of the Definitive Agreement .............376
Appendix 5—Every Journey Tells a Story.....................................................................377
    Zero-to-IPO Direct ..................................................................................................377
    Zero-to-Independent Survival.................................................................................378
14
        Zero-to-Cash Flow Sale Diversion.........................................................................379
        Zero-to-Cash Flow Sale Backtrack .........................................................................380
        Zero-to-Asset Sale Diversion (Intentional) ...........................................................381
        Zero-to-Asset Sale Diversion (Unsolicited Offer) ...............................................382
        Zero-to-Asset Sale Backtrack ..................................................................................383
        Zero-to-Shutdown Direct ........................................................................................384
        Zero-to-Bankruptcy—Direct ..................................................................................385
        Zero-to-Shutdown Popular Route..........................................................................386
        Zero-to-Bankruptcy Popular Route .......................................................................387
        The Costly Routes to Bankruptcy and Shutdown ................................................388
        Zero-to-Asset Sale Direct ........................................................................................390
        Zero-to-IPO Diversion ............................................................................................391
     Appendix 6—Resource Guide ........................................................................................393
      Executive Resources......................................................................................................393
        Business Planning Resources...................................................................................393
        Organizations for Technology Entrepreneurs......................................................393
        Entrepreneur & Startup Resources.........................................................................393
      Finance ............................................................................................................................394
        Accountant Lists & Directories ..............................................................................394
        Large Accounting & Auditing Firms......................................................................394
        Bookkeeping & Accounting Software....................................................................395
        Incubators...................................................................................................................395
        Investment Bank Lists ..............................................................................................395
        Investment Banks—Largest Based on Nasdaq IPO's 2000......................................395
        Investment Banks—Selection ....................................................................................396
        Investor Conferences & Events..............................................................................397
        IPO Resources and Information.............................................................................397
        Merger & Acquisition Intermediaries.....................................................................397
        Business Brokers .......................................................................................................398
        Investor Lists & Match-Making Services...............................................................398
        Angel Investor Lists..................................................................................................398
        Prominent VC Investors—Selection.........................................................................399
        VC Information & Resources .................................................................................400
        Valuation Information Sources ...............................................................................400
      Legal.................................................................................................................................400
        Corporation Formation Services.............................................................................400
        Immigration Lawyers & Resources ........................................................................401
        Lawyer Lists ...............................................................................................................401
        IPO Lawyers—Largest based on 2000 Nasdaq IPOs................................................401
        Boutique Law Firms..................................................................................................401
        IPO Lawyers ..............................................................................................................401
                                                                                                                                               15
    Legal Resources .........................................................................................................402
    Trademark, Patent & IP Lawyer Lists....................................................................402
  Human Resources..........................................................................................................402
    Benefit Brokers & Resources ..................................................................................402
    Large Executive Search Firms .................................................................................402
    Health Insurance & Resources................................................................................403
    HR & Payroll Resources...........................................................................................403
    Outsourcing................................................................................................................404
    Recruitment................................................................................................................404
  Operations ......................................................................................................................405
    Internet Domain, Search & Registraton ................................................................405
    Web Hosting Services...............................................................................................405
  Marketing ........................................................................................................................406
    Advertising & Marketing Agency Lists ..................................................................406
    PR Agency Lists.........................................................................................................406
    Selected PR Agencies................................................................................................406
    PR Resources .............................................................................................................407
    Press Release Distribution Services ........................................................................407
    Web Developer Lists ................................................................................................407
    Web Site Promotion Services ..................................................................................407
    Company Information & Research ........................................................................408
    Market Surveys & Research .....................................................................................408
Index....................................................................................................................................409

				
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