Funding for Startup by ejr35512


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									 Angel Capital Summit:
Venture Labor & Raising
    Crowd Capital
 Presented by Brian Tsuchiya
• What will we do today?
• Gratitude, What does success look like?
• Bt background
• Part I: What’s the challenge with funding? Q&A
• Part II: How can crowdlabor(venture labor) help
  my business? Q&A
• Part III: What is crowd capital? Q&A
• Closing statements
               Background of Expertise
•   I have personally raised almost $2 million cash from private investors and
    approximately $2 million in equity compensated labor to fund my own
    companies using the principals of CrowdFunding

•   Our clients have raised another $1 million using our CrowdFunding

•   Created and built four companies that generated over $1M in revenues

•   I have been using CrowdLabor for funding my businesses for almost 10 years

•   Walking Orbit is likely the largest exclusively equity funded startup in history-
    over 100 people, 12 full time executive team, over 30,000 hours and $1.5M in
                   Who Am I?
•   Entrepreneur- Experienced Success and Failure
•   Dad- two active boys Luke and Zane
•   Live a balanced and active life
•   Booked that transformed my life
         Part I
What’s the challenge with
How Many Entrepreneurs Are Seeking Funding?

Working from a baseline of 30M U.S. entrepreneurs…
         (Source: Global Entrepreneurship Monitor)

        Est.3-5m companies seeking funding annually
           (Source: Keiretsu Forum, AngelSoft, ACA
          member orgs receive 10 plans for every plan

               Est. 300k-500k companies get
               vetted by ‘manager managed’
                         Angel groups
                 (Source: UNH & ACA vet 10
               plans for every funded company)

                       Approx. 55K
                   companies get funded
                      (Source: SBA)

      Provided by Business Catapult
Economic Realities of Self-Funding
  1. Stock Market Decline- Savings and retirement
     accounts down 25%
  2. Housing Value Declines- Home equity values
     have plummeted over 30%
  3. Credit Has Tightened- 100% swing
  4. Retail Sales- dropped billions
  5. Unemployment 9.7%- Highest in over 26 years
Two Very Important Slides
          What do Angels Invest in?

During the year(2006), ventures in the healthcare
services and medical devices and equipment industries
accounted for 21% of total angel investment. The
combined industries—which led all others in terms of
investment—were followed by the software industry,
which secured 18% of angel funds, and biotech, also
with 18%.
(Source: The Center for Venture Research at the University of New Hampshire (UNH;
Durham, NH))
               What are the Angel Stats?
 The number of angels making angel investments from
  2001-2003 ranged between 331,000 & 629,000
• They invested an average of $23 billion per year in
  those years
• The number of companies receiving angel investments
  in those years ranged from 50,700 to 57,300
• The typical size investment was $10,000 in those years
  (Note: „manager managed‟ group data was
  $31,000 per Angel per deal in 2008)

  (Source: Scott Shane, “The Importance of Angel Investing” US SBA Office of Advocacy Working
                              Paper, Sept., 2008)
Venture Funding Ecosystem
           Institutional Investors

•   Public Employees’ Retirement Funds
•   Pension Funds
•   Banks
•   University Endowments
•   Super High Net Worth Individuals
           Venture Capital

Scott Shane in his book The Illusions of
Entrepreneurship states your odds of
getting seed-stage VC funding is:

          less than 1 in 4,000.
           What do VC’s Fund?
  According to Scott Shane:
• Computer hardware and software,
  semiconductors, communication, and
  biotechnology account for 81 percent of all
  venture capital dollars
• 72% of the companies that got VC money over
  the past fifteen or so years.
• Only about 84 startups outside of these
  industries receive venture funding per year!
          Part II
How can crowdlabor (venture
 labor) help my business?

You want
to hire
Mary, she


• I have a great idea, no money and need a
  lot of people to launch my business, what
  do I do?
           What we will cover?

•   Legal Challenges
•   What?
•   Why?
•   When?
•   How?
•   Who?
                 Legal Challenges

• Securities and Exchange Commission (SEC) has
  oversight of the distribution of all equity and debt granted
  per the 1933 and 1934 Securities Acts
• Internal Revenue Services (IRS) has oversight of
  distribution of equity as income
• Department of Labor has oversight on wages and
  minimum wages
• State blue sky laws

Equity: Equity acquired by founders and/or
 team members in lieu of cash
               Types of Equity:
               •   Common Shares
               •   Options or Warrants
               •   Restricted Stock Grants
               •   Phantom Stock
               •   Employee Stock Option Plan
                    – Qualified
                    – Non-qualified
               •   Employee Stock Ownership Plan (ESOP)

• Little or no cash to pay key people early in
  the development of your business
• Want key people to be vested in value
  growth of business
• Conserve cash by using equity to justify a
  lower salary or no salary

• The best time to dole out equity is at the
  beginning of your business before you raise
• When you have identified someone who creates
  value for your company
• Be careful not to treat equity with little value and
  issue a bunch, people will value it if you value it

• This part is very tricky
• The key to distribution is in the timing and
  company value
• Timing
• Value
• Organization chart- Look out 5 years and the roles you will need to
  run it
• Recruiting
   – Friends, peers, network, facebook
   – List of resources
         • Industry trade events, networking
         • Posting on,,
           LinkedIn, traditional sites like Monster
   – Recruit based on core values just as if you were hiring this
   – Make sure you are clear position is equity compensation in the
     job posting
Part III: What is Crowd Capital?

From Wikipedia: Crowd funding (sometimes called
crowd financing or crowd sourced capital), inspired
by crowdsourcing, describes the collective cooperation,
attention and trust by people who network and pool their
money together, usually via the Internet, in order to
support efforts initiated by other people or organizations.
Crowdfunding occurs for any variety of purposes, from
disaster relief to citizen journalism to artists seeking
support from fans, to political campaigns.
         What is Crowd Capital?

• Is the placement of securities to a crowd:
  1. Relationships
  2. Public
• Raising large amounts of money with a
  large number of investors that invest
  smaller amounts of money than is typical
          Crowdfunding Examples

•   First example March of Dimes 1938
•   2004 Howard Dean Campaign
•   2008 Barack Obama Campaign
•   Trampoline Systems- tech company in UK
•   A Swarm of Angels
•   MyFootBallClub
     Why does Crowd Capital Matter?
• The large majority of startups are neither angel or
  venture fundable
• There are some solid singles, doubles and triples in all
  types of industries- $10M-$50M- however it might take
  10 years
• It is time for a new system to be developed for funding
• It is time for the investing public to have more access to
  solid startups
• How else are you going to address the black hole in
                 Private Placements
• Network Model for Crowd Capital

• Private Placements- solicit qualified investors
   – 504- $1M/12 months- no limit
   – 505- $5M/12 months, only 35 non-accredited
   – 506- No limit, only 35 non-accredited yet sophisticated
                 Direct Public Offers

• Advertising model from Crowd Capital

• Direct Public Offerings- general advertising, state filings
   –   SCOR- 43 States, $1M/12 months
   –   Intrastate- 48 States, no limit
   –   Reg A- Federal, $5M/12 months
   –   S-1- Federal, no limit
                  Thank You
                Brian Tsuchiya
                 StartUp Guru

•   303-408-3671- Brian’s Mobile Number
•   Twitter: @StartUpGuru and @StartUpGuruNews
•   Facebook and LinkedIn: Brian Tsuchiya

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