Download - HBS Field X - Fundraising 101 - Nov 2017
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FUNDRAISING 101: HOW TO PITCH AND LAND YOUR FIRST INVESTORS
DAVID CHANG @CHANGDS
H B S F I E L D X
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BACKGROUND
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STARTUP EXPERIENCES
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Direct Via Syndicate/Fund
ANGEL INVESTMENTS
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NOW
Building Investing Connecting
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Fundraising Basics
How to Raise a Round
PitchTips
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WHAT OBSTACLES STAND IN YOUR WAY?
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CAPITAL SOURCESYou hear a lot about • Venture Capital
• Angel Groups
• Crowdfunding
• Friends and Family
• Customers
• Accelerators
• Competitions
Not much about
• SBA Loans and Personal Debt
• Grants
• Corporate Venture
• Vendors or Equipment Finance
• Bootstrapping (creatively)
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BUSINESS TRAJECTORYLifestyle business
BootstrapLoans
Growth oriented business
CrowdfundingPersonal raise
High growth scalable business
VentureCapital
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VENTURE CAPITAL STAGES
Growth Equity
Early Stage
Angel
Friends & Family
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VENTURE CAPITAL DYNAMICS
Skewed return distribution
VCs must swing for the fences
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RAISING A ROUND
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HOW MUCH TO RAISE
• Basic financial model of cost drivers and revenue
• Forecast monthly for 2 years
• Fundraise rule of thumb: 12-18 months’ cash
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USE OF PROCEEDS• Build out the product
• Grow the team
• Marketing
• Customer acquisition
• Working capital
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MILESTONES
See www.techcrunch.com/2015/06/24/running-out-of-money-isnt-a-milestone
Team
Product Development
Market Demand
Product / Market Fit
Business Model
Execution
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How to Raise a Round
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FUNDRAISING CAMPAIGN
Prep Target Socialize Raise Close
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BASIC PREP✓ Legal representation
✓ Founders agreements
✓ Financials and budget
✓ Teaser (1 page)
✓ Pitch deck (10 pages)
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TARGET CRITERIA
Stage Location
Industry Vertical
Business Model
Investment Thesis
Social / Trust Filter
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BUILD PIPELINE
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SOCIALIZE
• Prioritize sequence
• Find strongest connections to 30+ targets
• Tactics: lead gen, cold calling, warm intros
• Network over 2-3 months
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DON’T ASK FOR MONEY!
“I’m not ready to raise”
“Who would be helpful?”
“Who else should I talk to?”
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REFINE PITCH
• Incorporate feedback
• Double down on consistent themes
• Avoid whiplash changes
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GO FOR THE ASK
• Approach your top candidates at the same time
• Run conversations in parallel
• Decide whether / when to tell investors about each other
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CREATE URGENCY
• Anchor investor acts as the first domino
• “Triggering events” to get a (or better) term sheet
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STRUCTURE
Equity
Debt
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STRUCTURE
• Preferences over common
• Board seat or 2
• Option pool
• Liquidation preference
• Control over sale, new options
• Debt that becomes preferred equity when you raise it
• No valuation, but the “cap” is a ceiling
• Interest accrues, rate <10%
• Conversion discount
Equity Preferred Stock
Debt Convertible Notes, SAFEs
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CLOSING THE DEAL
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Seed A B
$15
$6
$1
$30
$12$5
VALUATION & DILUTION
?
Dilution: what’s your end stake?Valuation ($M)
?
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VALUATION & DILUTION
37%
See www.ownyourventure.com
Raise $1M on $5M pre
33%Raise $1M on $3M pre
34%Raise $1.5M on $5M pre
Dilution: what’s your end stake?Valuation ($M)
Seed A B
$15
$6
$1
$30
$12$5
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FINAL DEAL POINTS
• Rolling close vs. set close
• Not done until money is in the bank
Key terms ❑ Board composition
❑ Option pool
❑ Voting rights
❑ Founder vesting
❑ Change of control
❑ Redemption rights
❑ Information rights
❑ Anti-dilution
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HOW LONG DOES IT TAKE?
• Longer than you expect • 3-6 months
• Speed limited by access to investors • Your ability to find them • Calendar availability (surprisingly hard)
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FINDING THE RIGHT INVESTORS
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PitchTips
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KNOW YOUR AUDIENCE
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ADJUST FOR THEIR STYLE
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LEVERAGE YOUR NATURAL STYLE
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SHARE YOUR SUMMIT & BASECAMP
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DON’T SHARE EVERYTHING AT ONCE
• 1 Sentence
• 1 Paragraph
• 1 Page
• 1 Light Deck
• 1 Follow-up Deck
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RESOURCES• Pitch
• The Best Startup Pitch Decks www.bestpitchdecks.com • NextView www.nextviewventures.com/blog/free-startup-pitch-decks-template • Guy Kawasaki: 10 slides / 20 minutes / 30 point font • www.mjskok.com/resource/getting-behind-perfect-pitch
• Legal • Pierce Atwood • Foley & Lardner www.foley.com • Goodwin Procter www.foundersworkbench.com • Techstars www.techstars.com/docs • www.seriesseed.com
• General • www.jddavids.com • www.robkornblum.com
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FUNDRAISING 101: Q&A
DAVID CHANG @CHANGDS
H B S F I E L D X