raising capital: closing the deal

Raising Capital:Closing the Deal

Joe BeninatoAugust 27, 2009

joe |at| beninato |dot| comTwitter: @beninato

© Joe Beninato 2009

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


Who Is This Guy?• Joe Beninato

• MIT aerospace engineer

• 20 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


“Be prepared.”


Preparation• Raising money is not formulaic

• Present company in best light

• 9/1 is the beginning, not the end

• “Show a little leg”

• Get to first base

• Identify targets in advance and find them 9/1 -- scrum

• Long process -- get mentally prepared

• You will hear “no” WAY morethan you will hear “yes”

• Some of you will not get funded


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


Angels vs. VCs

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


Convertible Note vs. Priced Round

• Convertible Note

• Loan that gets added to next round with perks (discount, warrant coverage, cap)

• OPM = “Other People’s Money”

• Delays valuation determination

• Significantly lower legal fees ($5k?)

• Priced Round

• Investors generally prefer

• You know where you stand

• Higher legal fees ($30-50k for both sides)


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”


Finding the Right Investor is Hard


Maximizing Your Chances• Be honest

• Credibility

• fbFund REV winners

• Team accomplishments

• Advisors

• Lawyer

• Other investors

• Cool demos

• Users

• Page views

• Partnerships

• Revenue!

• Profit!!!!!


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


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


The Follow-Up• A game of patience and persistence

• A few hours after meeting, 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”

• Keep reviewing your spreadsheet and following up


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 beta looks like”

• “Have you thought about hiring a _______ ”

• “Have you thought about approaching _______ ”

• “We’re interested, but we don’t want to lead”


Closing the Deal:Angels

• Angels don’t need to own 20% like VCs

• They invest in people/concepts they like

• 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


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

• Rely upon your lawyer and advisors for advice

• Due diligence takes time

• Check references on your investors

• Board composition REALLY matters


Best of luck!

raising capital: closing the deal

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