VolumeVII67$57,1*#$#+,*+07(&+#&203$1byMichaelL.BairdTheInstituteofElectricalandElectronicsEngineers,Inc.NewYork,NewYorkNetworkingtheWorldTMIEEEEngineersGuideToBusinessSeriesEditor:BarbaraStolerTypographer:JillR.BagleyCopyright©1995byTHEINSTITUTEOFELECTRICALANDELECTRONICSENGINEERS,INC.345East47thStreet,NewYork,NY10017-2394Allrightsreserved.Nopartofthisbookmaybereproduced,inanyformnormayitbestoredinaretrievalsystemortransmittedinanyformwithoutwrittenpermissionfromthepublisher.PrintedintheUnitedStatesofAmericaCONTENTSForewordPrefaceAcknowledgementsIntroductionPARTONETHEGENESISChapter1Start-upOpportunitiesforHigh-TechEntrepreneursChapter2Technology-OrientedProfessionalasCompanyFounderChapter3LifeinYourStart-UpPARTTWOGETTINGDOWNTOBUSINESSChapter4Market-VersusTechnology-FocusedApproachtoGrowingaBusinessChapter5WhenHigh-GrowthBusinessisDesirableandNecessaryChapter6Start-UpFinancingTerminologyandStagesPARTTHREEDUEDILIGENCEChapter7ElementsofaSuccessfulStart-UpChapter8CreateYourManagementTeamandBoardofDirectorsChapter9EvaluateMarketsandTargetCustomersChapter10DefineYourProductorServiceChapter11WriteYourBusinessPlanChapter12FundingIssuesSIDEBARSResourcesAvailabletoStart-UpEntrepreneursSymantecCorporation:RespondingtoaChangingNeedFinancialsforEngineers—ACrashCourseTrialsandTribulationsintheFinancingofOneStart-UpCompanyBusinessPlanWritingAidsandFinancialPlanningAidsOneVentureCapitalistsPerspectiveonPlanEmphasisSoftwareSuccess—WhoGetsFundingHowandWhere)25(:25'Entrepreneurshipisthecallofthel990s.Thisisparticularlythecaseinhightechnology,whereoursocietycontinuestoplacemorefeverishdemandsonAmericaningenuityforimprovementandinnovationintheproductsandservicesthatsurroundourlives.Everyonelookstocreatethefastestchip,thelightestlaptop,andthemostpowerfulsoftware.Thereisnolimittothetechnologicaladvancesrealizedwitheverynewproductintroduced,whichisexactlywhytherehasneverbeenabettertimetoconsideranentrepreneurialventure.Itishardtoescapetheimageofentrepreneurialsuccessintoday’smedia-consciousenvironment.Multi-billionairefounderBillGatesofMicrosofthasappearedrepeatedlyonthecoversofbusinessmagazines.EntrepreneurRossPerotreachesouttobethepresidentoftheUnitedStates.SuccessfulentrepreneursareubiquitousatatimewhenloyaltytoFortune500companiescontinuestodiminishamidthetrendoflayoffsandreorganization.Whenyouconsiderthattheoverwhelmingmajorityofnewjobscreatedthisdecadewillcomefromstart-upcompanies,ahigh-techbusinessventureseemsareasonable,ifnotdownrightadmirable,proposition.AsthepresidentandchiefexecutiveofficerofSiliconValleyBank,Ihavemetwiththousandsofambitiousentrepreneursfromeverywalkoflife.Iamveryproudtohaveprovidedguidanceandassistancetomanyoftheseindividuals,manyofwhosecompaniesarenowquitesuccessful.Whatdothesesuccessfulindividualsallhaveincommonwitheachother?YouwillnotfinditsurprisingwhenItellyouthattheseindividualsallsharethesametrait:motivation.Notmotivationforwealth,money,orpower,though.Rather,themoresuccessfulpeoplearethosewhodesperatelywantandseekoutautonomyandchallenge.Theywanttousetheirdrive,skills,andhardworktoturnanideaoradreamintoacompany.Start-upentrepreneurshaveaspecialpassionforlifeandvieweachnewworkdayasanewchallenge.Ofcourse,Iknowmygeneralitiescannotassimilatelifeinahigh-techstart-up,butIbelieveStartingaHigh-TechCompanydeliverstheimportantinformationandsageadvicethoseofyouconsideringahigh-techventureneedinordertomakeinformeddecisionsonhowtoproceed.Manyentrepreneurswhowanttostartaventuredonotknowwheretobeginorwhattoexpect.Inthisbook,classicformulasforsuccessarelaidoutinno-nonsenseterms.Lifeinastart-upisdescribedvividly,andreal-worldanecdotesdetailbothfailuresandsuccesses.Valuableadviceispresentedforcreatingwealthusingfounder’sstockandstockoptions,whicharetopicsnotalwaysfamiliartotechnicallyorientedentrepreneurs.Whilethebookspecificallyaddressesthehigh-techentrepreneur,thoseconsideringemploymentatastart-upwillfindithelpfulinunderstandingthedynamicsinvolvedinworkinginthatenvironment.Intheinvestmentcommunity,weseehigherqualitystart-upstodaythaninthe1980s.Competitionforventurefundingisintenseandglobal.Successfulcompaniesplanfromdayonetoattractsyndicatesofinvestorswhowillcarrythecompanyfromtheconceptstagethroughaninitialpublicofferingoracquisitionbyalarger,usuallypublic,company.Manystart-upsestablishearlystrategicpartneringrelationshipswithcustomers,suppliers,andgovernmentsworldwide.Thosecompaniesthatarewellplanned,arecreatedbystrongteams,andofferproprietarytechnologythatplaysintogrowingandtargetedmarketscanobtainfunding.Withfundingcomesanexcellentchanceforsuccess.Thisbookwillarmyouwiththeknowledgenecessarytocreatesuchacompany.Lifeinastart-upisoneofthemostexcitingthingsyoucanexperience,andIencourageyoutoexploreyouroptions.Doyourhomework,findyourplaceinlife,andliveyourentrepreneurialdream.RogerV.SmithSiliconValleyBankApril,199535()$&(Careerstabilityisbecomingincreasinglyvolatile.Forthemostpart,thebusinessre-engineeringprocesshascastoffthelivelihoodoftheindividualasacorporateconcern.Formostprofessionals,theoncecomfortingcareert