These are slides from a talk I gave in 2016 at the DisruptAsia conference in Colombo, SrI Lanka about raising money for a startup company. In addition to concepts I also went through some of the journey of WSO2 funding.

1. Funding Journey
(Or, Buckle Up, Its Going to Get Rough)
Sanjiva Weerawarana, Ph.D.
Founder, CEO and Chief Architect
July 28, 2016 – Disrupt Asia Conference

2. Who owns your company?
• Founders
• Common vs. preferred stock
• Vesting
– Or what happens if a co-founder
quits or has to be fired
• Example:
– 3 founders: A, B & C
– 40/30/30
– Assume total of 1m shares
– So A=400,000, B=300,000, C=300,000
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0%
20%
40%
60%
80%
100%
A

3. Why do you need money?
• To build a product
• To market something you’ve built to get more customers
• To have bigger parties
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4. Valuation
• Or, if I’m to give you Rs. 5m for the company, how much of the
company do I get for it?
• Pre-money vs. Post-money valuation
• Early stage (= idea + slide deck)
– Random numbers .. US concept when I started was $500k/founder
• Revenue generating
– Revenue multiplier with appreciation for growth potential
• In reality
– Really random, luck, hype etc. etc.
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5. Employee Stock Options
• If you want to build a world dominating company, you can’t
do it alone
• Share the potential for non-linear return with everyone
– That’s my philosophy anyway – you as the owners get to do what you
want. In WSO2, everyone is a shareholder and about ~27% of the
company is owned by employees right now.
• How? Create a pool of stock options and issue them to people
– Strike price
• Good investors will insist on this
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6. Angel / Seed Round
• Friends and family or angel investors
• Good model is if you can get convertible debt as you have no
idea what the real value is
– YCombinator SAFE
• If investor refuses, you really have no choice .. If you need
their money you need them
– Only way to get better valuations is if there are multiple investors are
interested and you can get them to fight to own a piece of your baby
– Angel/seed investors may have simple benchmarks like 6%, 10% or
whatever
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7. Example
• Lets assume you get an offer to invest Rs. 5M at a post-money
valuation of Rs. 20M and the investor also wants 10% option
pool to be created
• New structure of share holding
– Investors: 5/20 = 25%, 384,615 shares
– Reserved for stock options = 10%, 153,846 shares
– Founders = 65%, 1000,000 shares
• A = 400,000/1,538,461 = 26%
• B, C = 300,000/1,538,461 = 19.5%
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0%
20%
40%
60%
80%
100%
A

8. WSO2 Angel/Seed Round
• Friend I had (James Clark): $250k
• Paul’s father: $200k
• Two others: $50k each
• Co-founders: $25k each (x 3)
• Total $625k, initial pre-money valuation: $1.5M
– Investors got 625/(1500+625) = 29.4% of company
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9. The Pitch
• Lots of theories on what is a good pitch – google it
• Friend (Miko Matsumara) helped WSO2 with initial deck for first
“institutional round”
• Pitched to lots of people
– Easy to get intros – people with money want to meet people with
(hopefully good, FUTURE valuable) ideas
• Earlier the stage the company is in the higher the risk for investor
– That means return POTENTIAL must be similarly high
– Pitch world domination, not Western Province domination
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10. Due Diligence
• Checking out whether what you said is really what it is
• Keep your legal, finance. HR house in order
• Common sense, really
– No need to be creative, innovative, etc. – just follow the law and keep
things 100% perfectly in order
• Now you have nothing to worry about in due diligence
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11. What are investor reactions?
• No
• No answer
• No answer
• No answer
• No answer
• No answer
(And if you’re lucky)
• Yes
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12. Control
• Sri Lankans are hung up over 51%
• In tech companies, founders have a lot of control
– No matter what %ge of the company they own
– E.g. Steve Jobs being fired
• If you need the money, worry about that first and later about
control
• Good strategy: get multiple investors who are slightly not cool
with each other
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13. When do you raise funds?
• Matra goes “when you don’t need it”
• Well duh … but you also have to run a company and deliver on
the BS you told the investors (I mean vision)!
• I’ve raised when I had to
– Not the best strategy
• It take a LOT of effort to raise funds
– Unless you get lucky
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14. WSO2 Funding Rounds
• Seed: $625K
• A: $4M
• B: $6M (including bridge conversion)
• C: $10M
• D: $25M (including bridge conversion)
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15. How many times have you pitched?
• < 5?
• < 10?
• < 20?
• > 20?
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16. WSO2 pitches
• So far I have personally pitched > 120 times
• And managed to get 5 to say yes and to actually give money
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17. 5/19/2018 17
“If at first you don’t
succeed, try, try, try
again.”
W.E. Hickson, Author, 1803-1870

18. Does it get easier to get money?
• For some, yes!
• For WSO2, so far not so 
– (That’s why I laugh inside when people say “you guys are so
successful”)
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19. Clean Money vs. Complex Money
• Investors (naturally) want to protect their money
– If the company is going down they get to take whatever possible first
– Founders will get nothing probably
• Some also want to take more of the cake
– Liquidation preferences
– Ratchets
– Other crap I don’t understand
• WSO2 got lucky
– Pradeep Tagare in Intel Capital started it
– We have refused complex money – that means 27% ESOP means 27%
of actual value
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20. Summary
• If you need to raise money don’t hesitate
• Raising money is not easy
– OK at least for me – some do get damned lucky (e.g Slack)
• Use the money intelligently
– Watch those parties (or fish tanks)
– Eventually, your shares are getting diluted
• (I now own < 3% of WSO2)
• Life is too short to take anything seriously
– Even other people’s money
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21. 5/19/2018 21
“Don’t be encumbered
by history. Go and do
something wonderful.”
Robert Noyce, Founder of Intel, 1927 - 1990