Smart Money

Brief talk on fundraising and board management for David Brophy's class at UM Ross Business School

Transcript

1. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC. Smart Money Dug Song
2. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC. Duo: Best-in-Class SaaS Company
3. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC. Ann Arbor San Francisco London Austin 70+ NPS
4. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC.
5. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC.
6. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC.
7. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC. Company Stages Startup • Builders • Rapid Change • Not Predictable • Many Hats Growth • Improvers • Iterative Change • Some Predictability • Roles Forming Scale • Operators • Controlled Change • Predictable • Defined Roles
8. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC. Product, Market, Team Risk Seed + Series A • Productize • Build product • Product/market fit • Early traction Series B • Operationalize • Management team • Grow distribution • Reliable results Series C • Strategize • Product portfolio • Revenue models • Leadership
9. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC. Leadership Molecule COO Operations CEO + CTO Vision & Strategy CFO Systems Infrastructure Governance Discipline Growth Execution Alignment Product Culture Brand
10. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC. Org Design COO Operations CEO + CTO Vision & Strategy CFO Systems Finance & Acctg ISS Facilities Marketing Sales & BD Cust Success Product People Engineering Security Corp Dev Legal
11. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC. Leadership Eras
12. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC. Duo Board Lorrie Norrington Nominations & Governance Ron Gill Audit Hilarie Koplow-McAdams Compensation Matt Cohler, Karim Faris, Puneet Agarwal
13. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC. Board and Committee Composition Audit Comp Nom & Gov Puneet Agarwal ⬤ Karim Faris ⬤ ⬤ Matt Cohler ⬤ Lorrie Norrington ** ★ Ron Gill ★ ⬤ Hilarie Koplow-McAdams ★ Recruit 1 ⬤ Recruit 2 ⬤ ** Lead ★ Chair • Member
14. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC. Board Background & Experience Security Sales Finance / Accounting SaaS Strategy / Ops PubCo Board / CEO exp. Puneet Agarwal Karim Faris ◒ ◒ Matt Cohler ◔ ◔ Lorrie Norrington ** ◒ ◒ ◒ ⬤ Ron Gill ⬤ ⬤ ◒ Hilarie Koplow-McAdams ⬤ ⬤ ◒ Recruit 1 ⬤ ⬤ Recruit 2 ⬤ ⬤
15. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC. Board Meetings • Not status meetings ◦ Operationalize metrics, no weather reporting. Make the news, don’t just report it. ◦ Convene board for strategic help and governance • Send board report 2-3 days in advance ◦ Plans, progress, problems - company overview, and then 3-5 paragraphs per dept ◦ Google Doc with comments enabled • Board meeting every 6 weeks until $10m ARR ◦ Then quarterly meetings, and mid-quarter calls - but still a board report before each • Agenda: ◦ Prior quarter review ◦ Next quarter plan ◦ 2-3 Strategic topics ◦ Board business
16. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC. Venture Truths • First rule of venture capital: there are no rules • The most dilution you will ever take is from a cofounder • Average venture-backed software company exit: $30m (from Early Exits by Basil Peters - exits.com) • VCs invest in exits, not companies • Build a great company, and the rest follows
17. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC. Venture Math / Goals • Align company expectations and investor return profile ◦ 10x early - e.g. raise $1m on $3m pre-money, sell for $40m ◦ 2-3x is angel-target return - but also growth / late stage ◦ Fund size = strategy: exit potential should be >= size of the fund investing in you • Expect ~15-25% target ownership in any equity round ◦ % is based on fund strategy; this is avg representation to LPs ◦ No intrinsic value - priced by competitive/market dynamic ◦ But later, revenue multiple as a sanity check (e.g. in SaaS 10x) • Raise enough for 18-24 months • But grow into your post-money valuation in 12 months!
18. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC. Fundraising Strategy • Time-bounded ◦ Create market dynamic for your deal. On average, first-time founders take 6-8 months! • Targeted ◦ Seek investors in related startups. Vintage, size, activity, market, thesis, operating experience • Warm intros ◦ Reference via portfolio CEOs, then get intro. Litmus test if you can sell, recruit, pitch? • Structured ◦ New lead each round ◦ Preserve optionality - do not overraise, and set a bar the company can’t clear! • See “Startup seed raising skillzzz” - Swooshing (travisk)
19. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC. Choosing Investors • More about the partner than the firm - but the firm matters ◦ Partner with you for many years, find folks who know the struggle ◦ Also know the partnership; the best firms offer more than money ◦ Grocery store test: if you saw them, would you run up to them, or hide in the next aisle? • Must understand your industry and/or business model ◦ Look for relevant portfolio companies ◦ Call those CEOs and ask for a confidential blind reference ◦ Do not waste time teaching lay investors about your space • Responsive, honest, direct, helpful ◦ A clear no, and why, is better than a non-committal “come back when you…” ◦ The best are fast to commit, a pleasure to work with, and super-responsive via text, etc. because they understand: tech is a people business!