LA Tech Startups Call To Action

Blog: darrenrush.com Twitter: /darrenrush

Darren Rush – 3/24/2009

• Background

• Koders: Tips for Early Stage Funding

• The Next Startup

• LA Startup Ecosystem Call-to-action


Thesis & Agenda

• Whereas– LA has a rich, sparse history of tech success - relative to Silicon Valley– Restructuring of the Venture Capital system, lower costs of entry

for startups, broadband convergence are positive macro trends – The current economic climate will motivate regulatory changes,

increase gov't funding for tech and result in an influx of capital into the markets - resulting in a re-opening of the IPO market

• Therefore, LA should be the biggest beneficiary of the next tech up-cycle, if we can:– Increase density of ‘hardcore’ tech talent at universities and startups– Improve magnitude and competency of local investor community– Increase collaboration between angels, technologists and

entrepreneurs


Background

• School

– Georgia Tech Computer Eng.

• Work

– Internet Security Systems IPO IBM

– TeleoMicrosoft

– Koders Black Duck Software

– Profinity, LifeClient, eCityDeals, others


• Search engine for software developers

• Timeline:

– Concept in 2004

– Launched in 2005

– Funded in 2006 (Founders Fund, Angel Investors)

– Sold in April 2008


3 Hidden Variables in the Fundraising Formula

1. How long have you known the partner sponsoring the deal?

2. What is the distance from your office to their office?

3. Are they actively doing deals (Dry Powder test)?

• More Tips & Takeaways:– Traction, Traction, Traction – no metrics, no $$$

– Eskimos have 100 ways to say ‘snow’, VCs have 100 ways to say ‘no’ -- “Maybe”

– Best way to get a term sheet is to have a term sheet

– Capitulation in the industry – missed capital calls, scrutiny from LPs, consolidation, investments to protect – constricting new deal funding


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

How Much to Raise?

What percentage to sell?

Pre-money Valuation

Simplifying Fundraising• Pre-money Valuation = (Investment/% sold) - Investment

What’s my pre-money valuation?Seed/Series A


Simplifying Fundraising• Pre-money Valuation = (Investment/% sold) - Investment

5% 10% 15% 20% 25% 30% 35%

25,000 475 225 142 100 75 58 46

50,000 950 450 283 200 150 117 93

100,000 1,900 900 567 400 300 233 186

250,000 4,750 2,250 1,417 1,000 750 583 464

500,000 9,500 4,500 2,833 2,000 1,500 1,167 929

1,000,000 19,000 9,000 5,667 4,000 3,000 2,333 1,857

1,500,000 28,500 13,500 8,500 6,000 4,500 3,500 2,786

2,000,000 38,000 18,000 11,333 8,000 6,000 4,667 3,714

5,000,000 95,000 45,000 28,333 20,000 15,000 11,667 9,286

8,000,000 152,000 72,000 45,333 32,000 24,000 18,667 14,857


Simplifying Fundraising: Summary

• How much should I raise?– Angels invest $25K – must be qualified investors

– Super Angels invest $100K

– VCs -$250, 500, 1MM, 1.5MM, 2MM, 3MM, 5MM, 7.5MM, 10MM, 12MM

• How much should I give away?– 25-35% - keep control, investors don’t want to manage

• How much is my company worth?– Post money, based on how much you can raise and 25-35%


Designing the Next Startup• 3 Member Founding Team (CEO, Tech, Sales/Mkting)

• Find an existing revenue/spending category and cannibalize it

• Leverage online influence of the team – FB, Twitter, Blogs

• Take Risks Big Companies Can’t– PayPal vs eBay (CC Policies), YouTube vs Google (DMCA)

http://dwarfurl.com/b8ade

• Feed the Addiction, Apps as Games, Viral Adoption

• Where to Locate…


Los Angeles Ecosystem Challenges• Talent

– What is retention rate of CS/Eng grads who stay in LA? - Need more ‘hardcore’ techies

– Mixing of tech/business – better team formation, more qualified executive leadership

• Investors– Need more angels with tech domain expertise investment and advisement

– Need boutique VCs doing smaller deals (First Round, Y-Combinator, other models?)

• Geography– Multiple Centers of Gravity – To define as ‘Southern California’ or LA?

– Change misconception that LA is good for ‘media investment’, bad for ‘tech investment’

• How can LA community develop our natural assets for an unfaircompetitive advantage?


Call To Action for LA Web Dev

• Get Universities Involved– Hire interns – spur demand for CS/Eng students at local

universities, increase awareness about local tech businesses– What else?

• Angels and Tech meetups should organize into SIGs and co-host mixers:– iPhone SIG, iPhone Angels*– SAAS SIG, SAAS Angels– Social Media SIG, Social Media Angels– Media Monetization SIG, Media Monetization Angels

• More discussion…Contact me


National Challenges – Education

http://paul.kedrosky.com/archives/2008/11/13/engineers_finan.html

http://paul.kedrosky.com/archives/2008/11/13/engineers_finan.html


Fini

• Darren Rush

• [email protected]

LA Tech Startups Call To Action

Technology

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