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Smart Money

Dug Song
June 08, 2018

Smart Money

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

Dug Song

June 08, 2018
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  1. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC.
    Smart Money
    Dug Song

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  2. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC.
    Duo: Best-in-Class SaaS Company

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  3. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC.
    Ann Arbor San Francisco London
    Austin
    70+
    NPS

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  4. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC.

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  5. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC.

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  6. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC.

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  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

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  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

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  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

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  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

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  11. CONFIDENTIAL INFORMATION PROPERTY OF DUO SECURITY, INC.
    Leadership Eras

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  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

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  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

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  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 ⬤ ⬤

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  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

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  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

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  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!

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  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)

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  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!

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