A Game of Startups

Venture funding is all the rage now. Almost every company represented at Ruby Nation will have either received venture funding or have been confronted with the decision about whether to raise venture funding. There are some important rules for you to learn if you're going to play the Game of Startups. If you are running a startup, working for a startup or just curious about the startup scene, this talk will expose some of the dirty little secrets that are rarely talked about.

Transcript

1. RUBY NATION - 2014 Sean Schofield @uberzealot
2. RUBY NATION - 2014 2 About Me !   18 Years Programming Experience !   Creator of Spree !   CEO of Spree Commerce !   Currently Playing the Game
3. RUBY NATION - 2014 3 45,000 STORES worldwide…and growing TOP 100 OPEN SOURCE PROJECTS worldwide out of over 10 MILLION 3  
4. RUBY NATION - 2014 4 About Our Investors !   We’ve Raised $6.5M !   Investors on Both Coasts !   They know how to play the Game
5. RUBY NATION - 2014 7 When you play the game of startups, you either win or you die. There is no middle ground.
6. RUBY NATION - 2014 8 Why Call This a Game? !   There are Players !   A Distinct set of rules !   Winners and losers
7. RUBY NATION - 2014 9 Who are the Players? Founders Investors Employees
8. RUBY NATION - 2014 10 Let’s Define Winning !   Winning == Money !   Survival !   Exit
9. RUBY NATION - 2014 11 Winning == 10X Return
10. RUBY NATION - 2014 12 How do Investors Win? !   Investors Have Investors (LP’s) !   They Want a 20% Annualized Return !   That’s Works out to 3X of Invested !   Investing Large Sums !   Shares are not Liquid
11. RUBY NATION - 2014 13 VC’s Need Their Cut !   Management Fees !   2% Each Year !   Fund Lasts 10 Years !   20% of Fund Goes to the GP’s
12. RUBY NATION - 2014 14 Then There’s The “Carry” !   VC’s Keep a Portion of the Gains !   Typically 20% (Sometimes Higher) !   This is After the Management Fees !   Sometimes There is a “Hurdle Rate”
13. RUBY NATION - 2014 15 Finally There are Losers !   Some of the Companies “Go to Zero” !   Others go “Sideways” (1x-2x Return) !   Winners Need to Offset the Losers
14. RUBY NATION - 2014 16 The Math Total Invested $100M Investment Return $350M Carried Interest ($50M) Fund Return (3X) $300M Total Invested $100M Management Fee ($20M) Actually Invested $80M 25% Failures (0X) $0M 25% Sideways (2x) $40M 50% Success (7.7X) $310M Total Return (3.5X) $350M
15. RUBY NATION - 2014 17 Some Examples
16. RUBY NATION - 2014 18 Hypothetical Company Stockholder Percentage Founder #1 27.5% Founder #2 27.5% Investors 30% Option Pool 15% $10M Investment for 30% Plus 15% Option Pool
17. RUBY NATION - 2014 19 Small Exit $20M Sale Assuming, 1x Liquidation Preference
18. RUBY NATION - 2014 20 Small Exit Stockholder Payout Percentage Founder #1 $4M 20% Founder #2 $4M 20% Investors $10M 50% Employees $2M 10% $20M Sale Assuming, 1x Liquidation Preference Founder and Employee Numbers Rounded for Simplicity
19. RUBY NATION - 2014 21 Middling Exit $80M Sale w/$10M Invested for 30%
20. RUBY NATION - 2014 22 Middling Exit Stockholder Payout Percentage Founder #1 $22M 27.5% Founder #2 $22M 27.5% Investors $24M 30% Employees $12M 15% $80M Sale w/$10M Invested for 30%
21. RUBY NATION - 2014 23 Big Exit $19B Sale w/$58M Invested for 35% Let’s Change the Assumptions a Bit …
22. RUBY NATION - 2014 24 Big Exit Stockholder Payout Percentage Founders $9.5B 50% Later Investors $6.65B 35% Seed Investors $950M 5% Employees $1.9B 10% $19B Sale With $58M Invested
23. RUBY NATION - 2014 25 Does That Ever Happen? !   Founded in 2009 !   $58.3M Total Funding !   Acquired for $19B !   They Won The Game
24. RUBY NATION - 2014 26 Amazon
25. RUBY NATION - 2014 Sean Schofield @uberzealot sean@spreecommerce.com Still Want to Play the Game? You Here