Steve Bennet

@professorvc
www.professorvc.com
Source: https://qarea.com/blog/how-to-find-investors-12-californian-business-angels
Do you need to raise outside capital?
• Take the following quiz to test your bootstrapping
skills

Source: Greg Gianforte, Founder, RightNow Technologies

1. You’ve got an idea. What do you do first?
a) Write a business plan and then try and raise money
b) Call lots of people to understand the issues in your market
c) Develop a prototype of your product idea
d) Hire a marketing consultant

Correct Answer - b
2. You have a good product. What do you do next?
a) Find a good intellectual property lawyer to protect your idea
b) Try to raise money
c) Build a prototype and you personally start selling
d) Hire a salesperson to sell your product

Correct Answer - c
3. You find a prospect. What next?
a) Explain that you would like to have them join your beta-test
program
b) Try to get them to place an order
c) Tell them you don't have the product available yet
d) Tell them all about the features you are going to add to the
product

Correct Answer - b
1. Your product does not do everything a prospect
wants. You should?
a) Tell them it won't do those things
b) Get them to pay for the enhancements
c) Take the order and tell them it will ship in 4 weeks
d) Explain why those things are difficult to do and convince them to
buy the current product

Correct Answers – b or c
1. You've just made your first big sale and generated
your first monthly profit. You should:
a) Give yourself a raise
b) Get that bigger office you have had your eyes on
c) Hire a consultant
d) Throw a party

Correct Answer - d
5 • Bootstrapper – You’ve got what it takes!

3-4 • You can work in a Start-up

1-2 • Find a big company and call it home

0 • Bureaucrat - think about public office

• Entrepreneur with passion and relevant experience
• Nucleus of team
• Deep understanding of market and competition
• Big (enough) opportunity
• Compelling solution to a real problem
• Potential for competitive advantage
• Fundable by downstream investors / dual path
• Capital Efficiency
• Can a powerful business model be built?
• Traction / Accomplishments to Date
• Can I add value? Is the opportunity consistent with my values?
14
• 1980-82
– 6 months + 16 months (5 years from end of prior recession) - 2 separate (double-dip or W-shaped)
– energy crisis and inflation (sound familiar?)
• 1990-91
– 8 months (7.5 years)
• 2001
– 8 months (10 years)
– Felt in Silicon Valley earlier with bursting of dot-com bubble
– 9/11
• 2007-09
– 1.5 years (6 years)
– Subprime mortgage crisis, collapse of financial institutions, bailouts
• Next One (2022, 2023, 2024, never?)
– (13 years)
– pandemic, Corporate Debt Bubble, inflation, income inequality
• Good time to start company
– IF you don’t need to raise capital anytime soon
– IF you can play the long game
– Weaker entrepreneurs won’t do it
– Well funded competitors will go away
• Internet Privacy (anonymous web surfing)
• Founded in 1996 by Lance Cottrell
– 26-year old cypherpunk dropped out of Ph.D. program
(Astrophysics at UCSD)
– Activist for Online Freedom of Speech, Human Rights and
Privacy
– Encryption expert
• 1996 – Company founded
• 1996-99
– Grew consumer service with combination of free and paid users
– Revenue < $500K/year
– Angel financing < $1M
• 6/00
– Bill Unrue hired as CEO
• 7/00
– Best month for company (paying customers grew by 10% to
7,500, impressions grew 15% to 52M, Revenue $60K)
• 8/00
– McAfee offers to buy company for $12M
• 9/00
– 3 days before closing of acquisition received message below:
– “We are having a gut-check here at McAfee spurred by a variety
of internal issues and the deterioration in our stock price. I am
trying to see if there is a path to revisit the transaction.”
“We have zero cash and we have had more the 25k in the bank since we
started. We owe $450k. We have been threatened by every major supplier that
we will be shut off if we miss more payments. We are losing our Director of
System Admin to another company and my not be able to keep our two
programmers because of other offers.

Our major competitors have a 12-18month lead on us, $20-40 million and 80-
200 technical privacy focus employees and experts. Our current business
model is at least a difficult one to fund (your insights support this)”
• 10/00
– Reorg and business model pivot (layoffs and shift to b2b
licensing model)
– Exodus from Exodus
• 1/01
– ZKS offers to acquire for $1.5M in stock (No deal)
• 9/11/01
– Terrorists attack U.S.
– Anonymizer sets up anonymous tips for FBI
• 2002
– Revenue of $2.5M, EBITDA positive
– Paid subscribers exceed 35,000
– Product mix up to 25% Enterprise and Governement
• 2003 – 08
– Continued Growth and Profitability
• 4/08
– Acquisition by Abraxis (solution provider to National Security
agencies) for > $40M cash (less than $2M raised over life of
company)
• The Cool Kids don’t always win
• Cash is King – Bootstrap mode
• Cockroach Strategy
• Timing and Luck play a part
 Fagan
Rajat - MIT

Logan & Matt Marcus

Val Sam
Parker
John Zimmer - NYC
Sean Aggarwal – eBay VP
 16.9%
15.4%

10.2%

6.9%
5.6%
2.8%
1.3%

Aug - 07 Sept - 07 Oct - 07 Nov - 07 Dec - 07 Jan - 08 Feb - 08

“A Carpooling Startup That
Actually Makes Money”

“If you haven’t heard of Zimride, buckle up

because it’s likely the next non-word to
enter the English language.”
• Company formed in late 2006
• Launch facebook app – April 2007
• Sean Aggarwal invests $15K – July 2007
• Logan Green moves to Palo Alto - April 2008
• $250k fbFund - July 2008
• John Zimmer moves to Palo Alto – August 2008
• Sand Hill Angels Term Sheet – October 2008
• Focus on Product, Sales and Business Development - 2009-10
– Zipcar partnership
– 60 university/corporate customers
– Breakeven at <$1M annual revenue
• Floodgate Investment - $1.2M, August 2010
• Break-even
• $1.5M total funding to date
• 60 paying clients
• 10 person team in Palo Alto (3 dev, 5 sales, 2
acct mang)
• Exclusive Zipcar, Live Nation partnerships
• top 25 entrepreneurs under 25
 System Sales
• Immediate revenue
• All goals focus on sales
• Build self sustaining
business
• Future investment
becomes optional
• More time to develop
product
vs. The Next Big Thing
• Revenue = long-term
• All goals focus on raising VC $
• Prove growth/users
• Get funding or die
• Higher risk/reward
• Entrepreneurship is personal
• Don’t give up
• Consider all types of financing
• Clock reset with each financing round
• Initial business plan will be wrong
• A complete software platform for delivering home
management services
– Automation, security, energy mgmt, health and elder care, etc.
– Used by service providers (cable/telco and security) to deliver
new services to consumers
• New home automation service for Echelon
– Reza Raji (director of business development) came up with idea in
1999
– Pitched to CEO of current employer (Echelon)
– Wrote initial business plan
– Spent 3 years trying to launch at Echelon
• Side Project
– Chris Stevens and Gerry Gutt as co-founders
– Worked on architecture and business plan
– 8/03 – Reza left Echelon to pursue iControl full time
• 1/04 – Secured small office in
Palo Alto (paid with equity)
• 4/04 – Hired part-time VPM, VPO,
and CFO (yours truly)
• 6/04 – Convertible Debt
financing - $100K from angel
investor (another $175K later in
year from few others)
• Built prototype (contract
engineering and manufacturing)
• 2/05 – Launched at DEMO
conference
– Great Press, Interest from VC’s
• Near Death #1
• 6/05 – Angel Term Sheet from
Godel Capital (contingent)
– 9/30/05 – $425K of convertible debt
• 10/31/05 – Series A Term Sheet from Charles
River Ventures ($4M)
– First closing (12/05) of $2.7 including conversion of
debt and second closing of $2.4M in 3/06 from Intel
Capital
• 12/06 – Eastward Capital Venture Debt ($2M)
• 6/07 - Series A extension ($1.4M) – Insiders
• 10/07 - Paul Dawes as CEO
• 12/07 – 3/08: Convertible Debt – Insiders
• Near death #2
• 3/08 – $15M Series B led by Kleiner Perkins
• 3/09 – $23M Series C – ADT, Cisco, Comcast
and GE plus prior investors
• 3/10 Merger with uControl
– Paul Dawes and Jim Johnson Co-CEO’s
• 6/11 – $50M Series D
• 9/11 – Robert Hagerty named CEO
• 10/11 – Reza Raji leaves to repeat
entrepreneurial process
• 4/14 – Acquires Piper
• Fully funded?
• Available internationally through:
– ADT (branded as ADT Pulse)
– Comcast (xFinity Home)
– Cox (Cox Home Security)
– Rogers (Smart Home Monitoring)
– Swisscom (Quing Home)
– Time Warner Cable (Intelligent Home)
– BellAliant (Next Gen Home Security)
– Others
• Goal was IPO in 2014 or 2015
• Acquisition by Comcast and Alarm.com announced 6/16 and
finally closed 3/17 (stuck in federal antitrust review for 9 months)