Hutch Fishman

CFO, cMarket; CFO, Veveo

Founding CFO of:

• Sonus Networks
• Viaweb
• Winphoria Networks
• VideoServer
• Family Education Network *adult video download

Formerly Senior manager at Deloitte & Touch

Financing Stages

seed

• startegy and market research
• develop busines plan

first round

• complete initial product
• build initial team

second round

• bring product to market
• initial customer deployment
• complete team

third round

• expand sales and marketing
• significant risk taken out of the business

fourth round / mezzanine

• working capital needed for liquidity event

Some VC's only do 1st round financing.

Type of investment / equity

common stock

• founders
• employees

preferred stock

• investors
• prefereneces over stock
  • board representation
  • liquidity
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  • dividends
  • redemptions
  • anti-dilution: weighted average

goal: get current market terms

advice: get a really good lawyer

Dilution impact

what happens when you go to a financer

sample first round financing * $5M pre-money valuation * $5M series A preferred financing * $10M post-money valuation * $1.00 price per share

Liquidity events

acquisition

• top choice today
• frequently strategic partnership in place with acquiror prior to event
• deal structure
  • stock for stock: large potential upside with stock (i.e. viaweb 15x increase in value in 18 months)
  • stock for cash

IPO

• currently weak market
• sarbanes-oxley impact
• senior executives
  • high risk with today's environment
  • difficult to get liquid

Pricing of stock

investors pay FMV

• VC - preferred
• Angels - preferred / common

founders

• purchase stock before investor money is received
• cheap stock ($0.01 per share)

employees

• discount from FMV in early stage: price 10% of last round of preferred stock
• over time pricing must move closer to FMV
• tax advantages in purchasing stock rather tahn granting options
  • options - the right to purchase shares at a specified price for a period of time
  • restricted shares - ownership passes to holder, company has right to repurchase unvested shares

vesting for founder / employees

• vesting - provides for holder to retain shares or the right to purchase shares
• typically 4-5 years with one year cliff, monthly or quarterly thereafter

banks / venture leasing companies

available financing

• fixed assets - hardware, software (capped)
• security deposits for facilities - letters of credit
• acconts receivable - factoring
• working capital - usually available once profitable

other consideration

• early stage companies must have VC / Angel backing
• financial covenants
  • minimum cash balance, working capital, debt to equity, equity

equity participation

• warrants - to purchase preferred stock
• exercise price
• ...

budgets

Very Important!

operating

• head cont, fringe (20% of slaries), facilities, hardware, PR, marketing, etc.

capital

• equipment, software, etc.

equity

• establish table based on employee position / compensation
• based on all new hires for the year

all budget should be done in advance of fiscal year

• require BOD (board of directors) approval

professional firms

legal

• corporate lawyer - go for larger firms
• IP lawyer - go for larger firms
• employment lawyer - boutique firms OK or part-time lawyers
• licensing / customer (consider part-time in house counsel)

accounting

• big 4 firm
  • deloitte, pwc, e&y, kpmg
• other international firms
  • bdo seidman, grant thornton

you really need to have a liquidity event before you use other international firms.

questions