Lecture: 2:00 pm - 3:15 pm, TR, Bidgood 140, January 9 - April 26, 2019
Office Hours: Wednesdays, 12:00 pm to 4:00 pm or by appointment, Alston 155
Icebreaker
Slides: How to read and discuss a case study
In-class case study: Spruce Irrigation
Putting things in context: Read
"Some Quick Things Every Founder Should Know" by Mark Suster (@msuster).
Pro rata Axios daily newsletter 12/21/18
Some mechanics of Super early stage investing. Fred Wilson on the Gotham Gal's wins and losses as an early-stage angel investor (1/7/19).
Infographic: How startup funding works
slides for Friends and Family Funding
continue slides for Friends and Family Funding
In class: (we will do similar activities for grades in class later)
Bonus Reading
Reading: VC, angel, and crowdfunding of entrepreneurial ventures: a literature review
Complete Quiz 1 by 11:59 pm, Jan 19
Excerpt from Dan Sullivan: Cue up at 22:00
No lecture. Complete Quiz 2.
Read out of class:
Complete Quiz 2 by 11:59 pm, Jan 25
Bonus viewing:
This week in startups: Fred Wilson, Union Square Ventures, What to look for in entrepreneurs.
And A VC reveals the metrics they use to evaluate new ventures
So what actually happens before a VC decides to invest in your company? Susan Liu looks at hundreds of startups every year for B2B software investor Scale Venture Partners. She explains the top 5 metrics they look at, and how a company can prepare to pass the investor diligence with flying colors. Guest: Susan Liu Scale Venture Partners https://www.scalevp.com/ https://twitter.com/susanwliu
Watch Autoshop video (below)
Complete graded, in-class F&F financing activity for Autoshop (5 points of grade)
If you were not in class today, you need to complete this assignment: Autoshop Mall Experiment. You'll need to watch the Autoshop video below to complete the assignment. Send your spreadsheet to me at 418finance@gmail.com by the end of the day for full credit. This activity appears on Blackboard as "Autoshop F&F Buildup."
Build-Up Method to start pro forma financials
Venture: GoGoGrandparent (a meta-app? test your assumptions with some build-ups) WATCH THIS VIDEO And THIS ONE TOO and then view their entry on Crunchbase.com
GoGoGrandparent (an example of the build-up method for opportunity evaluation)
Not so much into butterflies espresso shop build-up method
Complete Quiz 3 by 11:59 pm, Feb 1. Questions from the Quiz will come from the pro forma financials slides and will also likely include a question or two from GoGoGrandparent's build-up.
Read:
Related:
Feb 5
Skill set: Financial analysis methods
Blue Bottle Coffee Financing and Timeline
Feb 7
Graded in-class activity on financial analysis for startups: Stitch in Time (5 points of overall grade). [Note: if you can't be in class on 2/7, you have until 11:59, Friday, Feb 8, to submit it out of class to me to receive full consideration. Read the instructions to the activity.
Meanwhile:
Complete Quiz 4 by 11:59 pm, Feb 8.
This happened a year ago:
Eventbrite raises $230M in IPO. Event ticketing platform Eventbrite priced shares for its IPO at $23 each, the top of the proposed range, raising around $230 million. The offering sets a preliminary valuation of around $1.76 billion.
Convoy crosses $1 billion valuation after raising $185 million in CapitalG-led funding (neowin.net, 9/23/18). Convoy Incorporated, a provider of digital freight booking service, has secured $185 million in its latest financing round led by CapitalG, Alphabet's growth equity investment arm. The series C funding round puts the startup's market value at over $1 billion, with Convoy now having accumulated more than $265 million in raised capital. Convoy helps customers to connect with local and regional carriers and book freight trucks for shipping goods. Users will then be able to monitor their shipment in real time using the company's mobile application.
DoorDash 0:00 to 12:00 (or so)
Treat your startup ideas like experiments
In the news... DoorDash Said To Be Raising $500M At $6B+ Valuation (Crunchbase.com, 2/12/19)
How venture capital works (slides) (I think we already did these)
Slides - read your copy of Startup Valuation
Important file for you to play with numbers: Startup Valuation Explorer File from Stephen R. Poland
Complete Quiz 5 by 11:59 pm, Feb 15
Bonus Readings:
Here's a useful short video on the state of the private equity market in the US in 2016. Useful in terms of how VCs were looking at investments and the overall space and in terms of hindsight - not much has changed, though the IPO market is somewhat more optimistic.
How do entrepreneurs build value into their startups very early in the process? Value proposition canvas, business model canvas, design thinking, lean startup. Create a persona of one of your earliest customers. Identify key customer pains and possible gains and map them onto idea features and benefits for a unique value proposition. Work toward a minimum viable product. Dan Sullivan understands this. Few presentations articulate what I mean by validated learning and small experiments better than Dan's iLab presentation posted below.
See also page on this site: validation
"Non-technical entrepreneurs, stop talking big and start building small. Bemoaning your inability to attract a technical co-founder to "just build it" is failure's waiting room. Hiring out an agency to build your grand vision now is a great way to lose quickly.
"I will focus on the very short term nuts and bolts. We'll talk through what exactly can you do in the next four weeks to substantially move your idea forward. In our conversation, I'll answer questions, share my ideology and process, tips, tools, and talk plainly about the ups and downs of my own experience.
Feb 19 Topic: Continue Startup Valuations Slides
Feb 21 Topic: Continuation of valuation techniques with graded in-class activity. If you were not in class on 2/21 you need to view and make a copy of this google doc, respond to the questions, and submit it to 481finance@gmail.com in order to receive 5 points of credit toward your overall grade.
Supplemental readings:
If you missed class on you need to complete this valuation worksheet and send it to Prof Armstrong (481finance@gmail.com) (5 points of grade). This activity will appear / appears on Blackboard grades as "Startup Valuation 2/14."
Feb 21 Topic: Valuations with options - with solutions for the dilutions!
See also: Spike Diabetes Assistant and How Much Does it Cost to Develop an App? (2018). Why? Because if you're going to pitch an app business you should know what level of development and costs you'll need to invest in to build it. Spike Diabetes Assistant has filled out its core team, has users for both its iOS and Android versions, and customers through its partnerships with McDonald s, Subway, KFC, etc. Spike has also earned legitimacy by participating in and winning business competitions. These small victories add up when you use the risk mitigation method of valuation!
Read:
Antidilution: The Other Way VCs Take More Of Your Startup’s Equity (Crunchbase.com, September 26, 2017)
Complete Quiz 6 by 11:59 pm, Feb 22
Fun Friday: Wall-E takes care of Italy's trash
Feb 26 Topic: Cap Tables
Example from Stitch Fix IPO! and Ring Valuations
Here is a reverse-engineered cap table for Stitch Fix; I had to make assumptions about the pre- and post-money values; the IPO values should match up with the aggregated cap table in Stitch's S-1 document. ...and here is the promised "constructed" cap table for Stitch Fix; I had to make assumptions about the pre- and post-money values; the IPO values should match up with the aggregated cap table in Stitch's S-1 document.
Feb 28 Topic: More on cap tables. We a conducting a graded, in-class activity for cap tables today in class. If you cannot be in class today you are responsible for completing this assignment on your own. Here are the instructions for the graded assignment, and here is the link to the cap table you will revise based on the information in the instructions.
Related: Is DoorDash really worth $7 billion?
And here is some really useful knowledge from Brad Feld on Raising Capital
Complete Quiz 7 by 11:59 pm, March 1
Bonus Reading: Fred Wilson (AVC.com) on Swinging for the Fences, a short article that addresses the need for frameworks for measuring startup accomplishments. Read it!
Mike Miller is a Partner at Liquid 2 Ventures, a seed-stage firm started by hall of fame quarterback Joe Montana. They specialize in early-stage investments. Mike explains what he looks for in a company, how he decides to invest, and what you can do to maximize your odds of raising a seed round. Guest: Mike Miller Partner at Liquid 2 Ventures https://twitter.com/mlmilleratmit https://www.linkedin.com/in/mlmillera...
"Conventional wisdom is to raise about every 18 months, which implies that most startups never have more than two years of cash in the bank."
Source: Crunchbase.com
I think it's probably a good idea not to get too ambitious this week with graded assignments, so we'll do some review of down rounds today, and I'll figure out what we're doing on March 7 soon. Meanwhile, there is no weekly quiz this week.
In-class: Complete the Bio-Stuff valuation worksheet and send it to Prof Armstrong at (481finance@gmail.com) (5 points of grade). This case is designed to reinforce some, maybe most, of what we've learned so far this semester. This activity will appear in Blackboard as "BSI" when I update grades on that "site."
Bonus Readings
We will continue to work on Bio-Stuff in class on March 7. "What's that?" See above.
I will build upon the notes I took from the "down round" session on March 5 to talk about:
Don't you all feel better now? (I do.)
For March 7:
Exhibit: Red Hat Software Capitalization Structure pre-IPO and pro forma, 1999 and my reverse-engineering of Red Hat's IPO cap table when I was an MBA student.
Complete Quiz 8 by 11:59 pm, March 8, though I expect to send out the quiz on March 6 at the latest.
I'm moving Quiz 8 to March 22
And here is Team Beatbox's slides to set up the Beatbox Cap Table activity.
See also: Cap tables, share structures, valuations, oh my! A case study of early-stage funding (Techcrunch.com, 2017)
<insert happy happy fun time photo here/>
<insert Thrun and Altman video here/>
Sam Altman was a sophomore at Stanford when he applied to Y Combinator to become one of their incubator companies. Now he's CEO of Y Combinator and leading efforts in AI, nuclear energy, and many other initiatives. Sebastian Thrun (pictured left) is busy making the flying car you will buy in 10 years.
Throughout the semester we will highlight notable individuals with exemplary accomplishments as they visit the Culverhouse College of Business. This 'Speaker Spotlight' episode was filmed on October 22nd with Jeff Nagel, Operating Partner at AEA Investors. @ua_aei
Search Funds
Slides on search funds (in progress)
...We'll do these later...
Term Sheets
NVCA Model Legal Documents (NVCA.org)
Y Combinator Series AA Term Sheet (PDF and customizable docs)
Complete Quiz 8 by 11:59 pm, Mar 29
Quote of the day: "If you're not paying for the product, you're the product." Scott Galloway, LL2
Elsewhere:
Where the STEM Jobs Are (and Where They Aren’t)
and
Source: Venture Capital Funnel Shows Odds Of Becoming A Unicorn Are About 1%, CBInsights.com, 9/6/18
I STRONGLY urge you to attend at least some of the competition, especially in the morning for the early-stage competition presentations. I will consider proposals for offering extra credit in exchange for your attendance + ....
We will discuss:
Complete Quiz 9 by 11:59 pm, Mar 29
Meanwhile...
In the news: LYFT IPO oversubscribed (Crunchbase.com). Good read to understand what it means when an IPO is oversubscribed (for the company, investors, ...) and what an oversubscriptions signals overall.
https://angel.co/valuations by universities, incubators, locations, markets, and employers. Average valuation of Google-backed early stage startup is $4.9M.
Read for your enlightenment: We Looked at 101 Startup CEO Salaries – Here’s What We Found (Crunchbase.com). Duly noted excerpt: taking a low salary sets "an example for the rest of the company, establishes a culture of cash efficiency/frugality, and shows a founder putting the company ahead of himself/herself.
Founders taking low salaries also show very well when going to raise money. VC would much rather back a scrappy, frugal founder than one that spends gratuitouslyand the CEO salary tells you a lot about the CEO’s mantra."
Note: These are your final team project templates and instructions.
Discuss final team project: Spatial Systems. This is the first part of our final team project. We'll watch a demo of the technology and discuss the four-page information you have. Then you'll form into teams. Teams should be at least two in size and not any larger than four... Send me ONE email from each team listing members to 481finance@gmail.com (AND CC YOUR TEAM MEMBERS). We'll continue on Thursday. HERE IS THE SPREADSHEET FOR THE PRO FORMAS. AND here is the spreadsheet template you can use as a starting point for the risk reduction pre-money valuation methodology.
Check out Blue Vision Labs' Crunchbase entry for its Seed Round investment of $14.5M and this article in Venturebeat.com discussing the company and investment.
Oh yes, and here is the cap table template you've used before.
And here is the Armstrong Spatial Cap Table with Seed and Series A investments
NOT Spring 2019's Overview and Instructions for Team Project (google doc)
Work on Team Projects
READ: Some comments and observations from today's in-class teamwork:
READ AND LEARN: Due Diligence from Microventure's Venture Capital Education Center
For Recent IPOs, Valuation-Per-Employee Ranges From $80K To $50M, Crunchbase.com, 11/9/18. A company’s valuation commonly has little relation to how many people actually work there.
"Conventional wisdom is to raise about every 18 months, which implies that most startups never have more than two years of cash in the bank." - Source: Crunchbase.com (hence the VC Quick Valuation Method, aka the VC Lazy Valuation Method...)
and also: How much runway should you target between financing rounds? Medium.com, 10/26/17 "
According to CBInsights, running out of cash is the second leading cause of startup failure. Needless to say—it’s an important question to get right. If an entrepreneur tries to answer this question by triangulating from Google results, they’ll find a few sources that tell them the conventional wisdom is anywhere between 12-to-18 months."
Complete Quiz 9 by midnight, April 5.
Meanwhile...
I mentioned some time I had with Doug Humphrey as an MBA student in 2000. Here's a profile of him from the University of Maryland during his time as entrepreneur-in-residence.
Happy second week of the final team project!!! Here are some questions for you to consider as you work through the points:
Apr 9:
is here
.Apr 11: No lecture; I'm presenting a gamification workshop at San Diego State University's California Entrepreneurial Education Conference. The lead-off workshop! Yay!
Cool Tool: This tool from Trevor Blackwell calculates how much funding your startup needs. Assuming expenses are constant and revenues are growing, it shows you when you'll reach profitability (in fractions of years) and how much capital you'll need to burn through before you get there.
Quiz 10: won't be a "quiz," but a less stressful way to book five sure points.
Yep. We're going with the Mobile Munchies scenario for our final team project. Here is a description of their situation, planned milestones, and expected capital needs.
Work on team projects in class - Here is a template for you to use for Mobile Munchies cap tables
Stanford d school note: Prototype to test
Making sure here: We are not doing anything with Mobile Munchies for our final project. Sorry for the inadvertent copy-and-paste from last semester.
Bonus read: Evidence mounts that laptops are terrible for students at lectures (TheVerge.com, 11/27/17)
Stitchfix update! From IPO To CEO, Here Are 6 Things To Know About Stitch Fix
Here are your instructions for Tuesday's class and for turning in your final project
What's happening to Seed and early-stage investments? Read Fred Wilson's insights on AVC.com
Final presentations on 4/23; office hours on 4/25
Roundup of 2017 VC Predictions and Tech Industry Reports - Medium.com (1/12/2017)
From Private to Public: How to read an S-1 Document (Crunchbase.com)
Global Entrepreneurship Institute - What Financials Do We Need For Investors?
Tomasz Tunguz - The 10 Most Important Metrics In A Startup’s Financial Statements (12/13/2016)
The Four Main Things Investors Look for in a Startup - 2x entrepreneur and venture capital investor Mark Suster covers the "four Ms" of criteria for startups
Money-Zine - Building an Income Statement (6/21/22017)
Money-Zine - Analyzing Income Statements (6/21/22017)
Accounting Coach - Introduction to Cash Flow Statement
Forbes - Mastering the Balance Sheet Can Make or Break A Startup (3/27/2014)
Preparing A Balance Sheet -- TDBank.com
Preparing a Balance Sheet - TDBank.com This is an "Interactive Workshop"
How to develop a balance sheet - Coursera.org, Michael Pratt video with transcript; an exceptionally plain-spoken explanation of balance sheets
Resource:
Tools from Small Business Administration Course: How to Write a Business Plan
Tech Republic - Startup and Venture Capital Terms You Should Know (2/10/2014)
Entrepreneur - How to Choose the Best Legal Structure for Your Startup a basic overview of the pros and cons of the four most popular types of legal forms for business
Choosing the Best Business Entity for Your Startup - Early growth Financial Services
Guide to Venture Capital - Madison Park Group
Seedcamp - How Does an Early-stage Investor View Early-stage Companies includes discussion of circumstances where an early-stage investor will pay a premium to invest
Quora - What Metrics Do VCs Look for in Early-stage Companies?
IPOs
Amendment to Fitbit IPO - November 9, 2015 (sec.gov)
Amendment to Fitbit IPO - June 16, 2015 (sec.gov)
Michael Pratt: Why you should start with the business plan Coursera.org, 2015
A VC Reveals the Metrics They Use to Evaluate Startups — The Startup Tapes #031 (Focus on Scale Ventures)
<insert Susan Liu on startup metrics/>