Startup #10: Tech Startup Formation Steps

Source for this table

Source and Links to detailed topics:http://www.1000ventures.com

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Key Stages Main Focus Activity Elapsed Time Required Typical Time Schedule Cumulative Typical Participants Help Needed Major Costs Main Risks Results:

ROI &

Output

Idea Secure a vision Months to years

__

Yourself Understanding the venture planning process

Entrepreneurial creativity

Reality check

Own time Lacks commercial realism Inspiration & vision

Personal profile

Kitchen Table Solidify a dream 2-6  Months Month 6 Friends & founders Confidentiality

Business judgment

Technology

Strategic thinking

Time of several people Secrets leak out Crisp view of risk-reward tradeoffs
Founders’ Commitment Get firm commitments from key people 1-2 Months Month 7 Founders only Commitment of 1 to 3 founders Nerves to commit Cold feet of founders Yes or no from founder candidates
Pullout from Employer Leave current employer: “stay clean” 1 Month Month 8 Founder

Lawyer

Good legal counsel:intellectual property, and labor law Nerves to start to live on own savings Counteroffers or threat of legal action by former employers Clean, legal separation from former employers
Business Plan Creation Write freshbusiness plan 2-6 Months Month 14 Founders

Consultants

Lawyer

CPA Firm

Intellectual property attorney

Wise business judgment, especially marketing and financing

Sustainable competitive advantage advantage

Time

Personal computer

Business support software

Copying & printing equipment

Plan is not worthy of being funded

Plan lacks distinctive competence

Inspired document

Sustainable advantage

Clever strategy

Filling Management Team Attract vital talent 2-9 Months Month 18 Friends

Consultants

Media

CPA Firm

Recruiters

Candidates

Compensation plan

Wise people selection

Lots of time for interviewing Compromise

No money, no hire

Leaks of secrets

Distractions from business plan

Recruitment of top notch managers
Raising Seed Capital Get $ cash commitment from lead venture investor 2-12 Months Month 27 Business angels

Venture capitalists

Consultants

Founders

Understanding the founding round and and venture investing process

Search for investors

Coaching on venture presentation,  negotiation, and structuring the deal

Judgment on pricing andvaluation

Time

Patience

Copies

Deliveries

Telecom

Travel

No lead venture capitalist

Get shopworn

Firm commitments of seed venture capitalists
Closing Capital & Incorporation Get cash into bank account 1-2 Months Month 28 Lawyer

Venture capitalists

Founders

Commercial banker

Good negotiating tactics

Writing an agreement (seesample agreement)

Financial counsel

Legal advice

Legal fees No cash, so must start over $ Cash in the bank
Finding a Home Rent working quarters 1 Month Month 29 CEO

Real estate broker

Real estate broker

Facilities consultant

Time

Rental deposits

Bad choice: size locations, $ per month, wrong length of lease Place to work for a year
Start-Up Hire people

Get started building first product

6-18 Month Month 30 Board of directors

Investors

Employees

Suppliers

Strategic partners

Start-up experience Burn rate: $ per month Short of good people

Product completion slips

Competition starts too soon

Live company in action
Secondary Capital Rounds Raise more $ cash

Leverage expensive equity

2-6 Month each round In Years 2-4 after Seed Round closes Venture capitalists

Corporate investors

CEO

Equipment lessors

Venture capital leads

Equipment lessors

Time of top management Lack of management focus

Run out of cash, miss payroll

Bankruptcy

Sufficient $ cash in bank

Price per round higher than last round

Launch First Product Get customers 1-2 Years from start on work 24-36 Months Customers

Whole company

PR firm

Strong marketing skills

Positioning of company and first product

Cash reserves

Quality of execution of plan

Burn rate: $ per month Lack of focus

Product slips

Poor market acceptance

Big competitor counter-punch

Finish first product

Begin first sales to customers

Raise Working Capital Leverage equity 3 Month for each banking or leasing round After first quarter of profitability CEO

CFO

Commercial banker

Profitability

Savvy banking and leasing contacts

Time of CFO and CEO Have to use precious equity instead of cheaper loans Funding for growth in working capital needs
Initial Public Offering (IPO) Gets shares liquid

Cash in some chips

Celebrate

4 Months including road show Goal: IPO ready at end of Year 3 Investment banker

Securities lawyers

Stock exchange analysts

Industry media

General public

Timing

Pricing of shares

Underwriter’s fees

Legal fees

CPA fees

Travel costs

Road show slides

Bad price per share

Market window closes

Business sours

Funding capitalists: ×5 to ×10 investment

Founders: $ millions each

Employees: × years of wages

Image as successful company

Overall Create and grow a viable, exciting, successful high-tech company 4-8 Years from start to IPO Aim at 5 years start to finish Many risk takers Lots of effort

Several big breaks

Founders’ time, nerves, and money

$ 3-50 million of investors’ capital

Bankruptcy

Company survives but is too small, not able to get public

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