VC Money, ProsCons, Comments

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VC Money, Pros/Cons, Comments

• Bryan Gregory
• Corona Optical Systems
• 630-705-1827
• bryan.gregory_at_coronasys.com

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Disclaimer

• Every start-up is different. Funding terms are
  all-over-the-map. The industry in NOT efficient.
• It has been a while since I attended one of these
  meetings. Hopefully this type of presentation is
  appropriate for this group ?

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Corona Overview

• Founded February 2000

• Investors
• Intel Capital, Sterling (Citibank), Megunticook,
  KB Partners, Venture Investors

• Locations Lombard, IL Eau Claire, WI

Headquarters

• Designs and Manufactures parallel optical modules
  and optical sub-systems

• Funding (public announcements)
• 2000 Several angel rounds
• 2001 12.4M led by Intel
• 2003 7.5M led by Megunticook

Design Group
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Corona Optical Products

• OptoCube40
• 12 ch, 13mm x 13mm
• 3.125 Gb/s/ch
• SMT Compatible
• Socketed OptoCube40
• Flexible mounting option
• Snap12
• Licensed from Emcore
• Multi-sourced
• Face plate mounting option

Up to 622,080 phone calls. Size of a dime!
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Coronas Case Elements of Value

• After almost five years in business, VCs ask
• When do we reach cash-flow positive?
• Total Sales
• GM on products sold
• Patents
• Customer base
• Outsourced manufacturing model
• Where are the exits?

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My thoughts on start-ups
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Quick Overview

• If you want to start your own company, just do
  it.
• If it is your dream, then make it happen and
  dont over rationalize it.
• It is never safe. Your mortgage is always at
  risk.
• No early-stage plan is ever perfect, or even safe
  enough to really stand up to true scrutiny.
• Learn from failure. Most great entrepreneurs
  dont truly succeed on their first try.
• Build a team
• Many will drop-out. Especially at the last
  minute.
• Takes a while to attract the best candidates

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Quick Overview (continued)

• Focus on the real issues
• Find a customer. Design, manufacture and sell
  products at a profit.
• Dont get distracted by excessive infrastructure,
  consultants, board requests etc.. Every activity
  should focus on customer and product.
• You start companies to Make Money
• It pays for salaries, generates investor return,
  creates opportunity, sends kids to college
• If youre trying to building cars and wheel
  bolts make more sense, then switch. Dont limit
  your boundaries.
• Entrepreneurs will focus on Customers
  Products. Investors will focus on Control, ROI
  Cash-flow Positive.

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Now some less inspiring comments

• Many of the best companies and richest men in
  America have successfully worked with VCs and
  built companies. It is not a bad system
• But, Venture Capital Money is like Morphine
• It is tightly controlled and hard to obtain
• There are serious side-effects
• It is really expensive
• You cant live on it forever
• It can destroy you
• The statements above are a joke (obviously) but
  the message has an element to truth.

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VC perspective.A great start-up

• Rocket-ride upward in valuation. Everyone is
  happy and there arent any hiccups. Quick drive
  to cash-flow positive. Liquidity event in less
  then four years with a return greater than 10x
  their investment.
• Organization that looks like a public company.
  Control is tightly held by the investors and
  board. Founders work very hard, but dont fight
  for control. Top management changes are possible
  and not traumatic events.
• These are not very common (obviously).

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VC Investing from your perspective

• Review your options
• Cash-flow based growth (bootstrapping)
• Moonlighting in the evenings
• Debt growth
• Angel or VC funding
• Other factors to consider
• Desire to gain experience
• Desire for financial return
• Time frame
• Control issues
• Personality issues
• Discuss pro/cons

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Terms

• Fund Raising and Terms Sheet (terms to know)
• Pre-money valuation
• Post money valuation
• Liquidation preferences
• Board composition / Drag-along rights / lots of
  other legal details which will be included in the
  Terms Sheet and investment documents. Expect a
  200 page investment agreement (not like buying
  stock on NASDAQ)
• Financial Terms (always include in funding
  discussions)
• Monthly burn
• Product gross margins
• Monthly sales to reach cash-flow positive
• Unique value proposition (must explain to
  3-year-old)
• Customers/Competitors etc.
• Also, learn QuickBooks and present all financials
  in a serious, well formatted manner. VCs are
  money managers. They focus on projected CF, BS,
  IS.

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Final Comments

• State of the VC industry
• Best Types of VCs / Worst Types of VCs
• How I would recommend doing a start-up.
• Will you really see any money given the current
  market?
• Experience is very valuable. REALLY.
• Comments on Corona