closing the deal 2011
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Raising Capital:Closing the Deal
Joe BeninatoApril 14, 2011
joe |at| beninato |dot| comTwitter: @beninato
© Joe Beninato 2011
Topics• Preparation
• Should I Raise Money?
• Angels vs. VCs
• Convertible Note vs. Priced Round
• Finding the Right Investor
• The Approach
• The Meeting
• The Follow-Up
• Closing the Deal
© Joe Beninato 2011
Who Is This Guy?• Joe Beninato
• Founder/CEO of Tello
• 500 Startups investee
• 500 Startups mentor
• MIT aerospace engineer
• 22 years in Silicon Valley
• 6 startups full-time2 IPOs, 2 acquisitions, 2 TBD
• 15+ startups advisor/board
• $200+ million capital raised
• >$1 billion in exits
© Joe Beninato 2011
“Be prepared.”
© Joe Beninato 2011
Preparation• Raising money is not formulaic
• Present company in best light
• Demo Day is the beginning, not the end
• “Show a little leg”
• Get to first base
• Long process -- get mentally prepared
• You will hear “no” WAY morethan you will hear “yes”
• Some of you will not get funded
© Joe Beninato 2011
Q: Should I Raise Money?
A: Only if you have to• Professional investors change your life &
company
• What’s your goal?
• Can you wait?
• Breakeven now or soon?
• Credibility
• Rainy day fund
• Competition
© Joe Beninato 2011
Angels vs. VCs - circa 2009
Angel Groups
Band of AngelsSand Hill AngelsAngels Forum
Golden Gate AngelsKeiretsu Forum
PAPA
Angels
Ron ConwayReid Hoffman
Russ SiegelmanAydin SenkutXG VenturesAriel Poler
Brett BullingtonMitch KaporChris SaccaBill Harris
Joi ItoEsther Dyson
Michael DearingNaval Ravikant
Seed Incubators
fbFund REVY Combinator
TechStarsSeedcamp
Launchbox Digital
Seed Funds
fbFundFirst Round Capital
TrueSoftTechBaselineMaples
MHS (Sugarman)Amidzad
Alsop-LouieCRV Quickstart
TugboatNuevaAgile
AmicusO’Reilly AlphaTechFounders Collective
VCs
SequoiaBenchmark
AccelSutter Hill
Union SquareFoundryShastaAugust
GreylockFounders Fund
DFJCRV
TrinityMatrix
VenrockAndreessen-
Horowitz...
*My apologies to anyone omitted on this slide...no offense intended
© Joe Beninato 2011
Angels vs. VCs - circa 2011
Angel Groups
Band of AngelsSand Hill AngelsAngels Forum
Golden Gate AngelsKeiretsu Forum
PAPA
Angels
AngelListRuss SiegelmanMark GoinesXG VenturesAriel Poler
Brett BullingtonOpen Angel Forum
Seed Incubators
500 StartupsY Combinator
TechStarsFounder Institute
Seed Funds
500 StartupsSV Angel
FelicisLowercaseFirst Round
True VenturesSoftTechBaseline
FLOODGATEO’Reilly AlphaTechFounder Collective
Harrison MetalFreestyle
Kapor Capital
VCs
SequoiaBenchmark
AccelSutter Hill
Union SquareFoundryAugust
GreylockFounders Fund
DFJCRV
TrinityMatrix
VenrockAndreessen-
Horowitz...
*My apologies to anyone omitted on this slide...no offense intended
© Joe Beninato 2011
Finding the Right Investor is Hard“I’m on
too many boards”
“it’s a small market”
“I don’t like sports”
“not enough traction”
“weak team”
“no revenue model”
“too expensive”
“my partners don’t like it”
© Joe Beninato 2011
Finding the Right Investor is Hard
© Joe Beninato 2011
Convertible Note vs. Priced Round
• Convertible Note
• Loan that gets added to next round with perks (discount, warrant coverage, cap)
• Cap = essentially a priced round
• Nocap = delayed valuation
• Significantly lower legal fees ($5k)
• Priced Round
• Investors generally prefer
• You know where you stand
• Higher legal fees ($40-50k for both sides)
© Joe Beninato 2011
Maximizing Your Chances• Be honest
• Credibility
• 500 Startups Accelerator
• Team accomplishments
• Advisors
• Lawyer
• Other investors
• Cool demos
• Users
• Page views
• Partnerships
• Revenue!
• Profit!!!!!
© Joe Beninato 2011
The Approach• Identify relevant targets and make a spreadsheet
• You need a warm intro
• Don’t approach competitors
• Don’t waste time on associatesif you can avoid it
• Send intro paragraph & 1 pageexec summary and/or link to site
• Be clear on your “ask”
• NEVER COMMUNICATEA VALUATION!
• Be persistent, but once declined,back down
• Lather, rinse, repeat
• NOTE: Be really friendly to assistants
© Joe Beninato 2011
AngelList
• It works and is changing the game
• Highly efficient introductions
• Social proof
• Be careful about broadcasting to competitors
• Doesn’t change the hard work after the intro
• Know your investors
© Joe Beninato 2011
The Meeting• Do your homework
• Confirm the night before via email
• Don’t be late
• Don’t meet for lunch
• Find out how much time you have
• Have a great deck - concise, clear
• Be confident, smile, show passion
• Know your business• Know your pitch inside and out• Teach them something
• Don’t argue
• If you don’t know an answer, say“I don’t know, let me follow up”
• Be clear on your “ask” - NEVER COMMUNICATE A VALUATION!
• If you don’t suck, and you feel there’s interest, ask about next steps
© Joe Beninato 2011
The Follow-Up• A game of patience and persistence
• The next morning, send follow-up email
• Thank them for their time
• Make sure they know you heard their issues
• Follow-up on any open issues
• Confirm next steps (if any)
• A day after they miss the next step (and they will), email again
• 5 days after they miss the next step (and they will), call them
• Pay close attention to the feedback
• Don’t be insulted with a “no” -- embrace it!
• Keep reviewing your spreadsheet and following up
© Joe Beninato 2011
How VCs Say “No”
• “No” “Nein” “Non” “Nyet”
• They don’t return your calls or emails
• “We love what you’re doing but would like to see more progress”
• “We’d like to see what your new beta looks like”
• “Have you thought about hiring a _______ ”
• “Have you thought about approaching _______ ”
• “We’re interested, but we don’t want to lead”
© Joe Beninato 2011
Closing the Deal:Angels
• Angels invest in people/concepts they like
• They don’t need to own 20% like VCs
• Get an angel to commit and leverage that
• You need a lead investor to provide term sheet
• Sometimes you can provide term sheet
• Make sure your angels aren’t wannabe CEOs
• No board seats for angels
• Rely upon your lawyer and advisors for advice
© Joe Beninato 2011
Closing the Deal:VCs
• VCs typically want 20% minimum
• Get angel(s) to commit and leverage that
• Ideal: get multiple VCs to compete
• Never rush an investor
• Don’t lie about a fictitious term sheet, etc.
• Rely upon your lawyer and advisors for advice
• Due diligence takes time
• Check references on your investors
• Board composition REALLY matters
© Joe Beninato 2011
Blatant ad:Go download Tello now!
© Joe Beninato 2011
Best of luck!