27 September 2006

Equity dilution:
• Single owner
Major change

100%

< 100%

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Equity dilution:
• Two owners
Major change x

A

B

50% each

< 50% each A+x>B B+x>A Even if x is small.
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Equity dilution:
• Four owners
Change in relationship? x

A C

B D

A C

B D

25% each

< 25% each NOT a major change!

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Equity dilution:
• Multiple owners
x

Who controls the company?

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Cash curves and the entrepreneurs dilemma
CASH Target

TEAM

TIME

How to fund?

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Cash curves and the entrepreneurs dilemma
CASH Microsoft Target

TEAM

TIME

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Cash curves and the entrepreneurs dilemma
CASH Microsoft Target

TEAM Bust

TIME

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Cash curves and the entrepreneurs dilemma
CASH Target

TEAM F F F

TIME

Angel

VC 1

Milestones with customers
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VC 2

Cash curves and the entrepreneurs dilemma
CASH

CASH FLOW

TEAM F F F

TIME

Angel

VC 1

Milestones with customers
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VC 2

Cash curves and the entrepreneurs dilemma
CASH Target CASH FLOW

TEAM F F F

TIME

Angel

VC 1

Milestones with customers
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VC 2

Cash curves and the entrepreneurs dilemma
CASH

CASH FLOW

TEAM Runway F F F Angel VC 1 VC 2

TIME

Milestones with customers
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Cash curves and the entrepreneurs dilemma
CASH

CASH FLOW

TEAM Runway F F F Angel VC 1 VC 2

TIME Increase runway by decreasing “cash burn”

Milestones with customers
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Cash curves and the entrepreneurs dilemma
CASH

Success
CASH FLOW

TEAM F F F

TIME

Angel

VC 1

Milestones with customers
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VC 2

Cash curves and the entrepreneurs dilemma
CASH CASH FLOW

Misery
TIME

TEAM F F F

Angel

VC 1

Milestones with customers
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VC 2

Equity Dilution – the target
CASH Target

TEAM

TIME

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Equity Dilution – the target
CASH

CASH FLOW

TEAM Runway F F F Angel VC 1 VC 2

TIME

Milestones with customers
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Equity Dilution – the target
CASH

CASH FLOW

TEAM VC 1 VC 1 VC 2

TIME VC 1

F F F

Milestones with customers
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Angel

Equity Dilution
TIME Growth Pre-money + Investment = VC investment Dilution Post-money

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Equity Dilution – the target
F F TEAM F Angel VC 1 VC 2 TIME Voila – la fingerprint!!!!!!!!!

VC 1

VC 1

Dilution VC 1 VC 2

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Team
IDEA IDEA IDEA

Lifestyle Cash Business Plan
Lots of Cash Needed?

Customers Profits

Sale?

Entrepreneur
IDEA

Cluster

Remodel Funding Funding In stages?
•Customers •Grants •Banks •Family & Friends •Angels •CEO Options •VCs

Customers Profits Sale

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Fast growth

E

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