FUNDRAISING 101: HOW TO PITCH AND LAND YOUR FIRST INVESTORS

DAVID CHANG @CHANGDS

B O S T O N S TA R T U P W E E K

BACKGROUND

STARTUP EXPERIENCES

Direct Via Syndicate/Fund

ANGEL INVESTMENTS

NOW

Building Investing Connecting

Fundraising Basics

How to Raise a Round

PitchTips

WHAT OBSTACLES STAND IN YOUR WAY?

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)

BUSINESS TRAJECTORYLifestyle business

BootstrapLoans

Growth oriented business

CrowdfundingPersonal raise

High growth scalable business

VentureCapital

VENTURE CAPITAL STAGES

Growth Equity

Early Stage

Angel

Friends & Family

VENTURE CAPITAL DYNAMICS

Skewed return distribution

VCs must swing for the fences

RAISING A ROUND

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

USE OF PROCEEDS• Build out the product

• Grow the team

• Marketing

• Customer acquisition

• Working capital

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

How to Raise a Round

FUNDRAISING CAMPAIGN

Prep Target Socialize Raise Close

BASIC PREP✓ Legal representation

✓ Founders agreements

✓ Financials and budget

✓ Teaser (1 page)

✓ Pitch deck (10 pages)

TARGET CRITERIA

Stage Location

Industry Vertical

Business Model

Investment Thesis

Social / Trust Filter

BUILD PIPELINE

SOCIALIZE

• Prioritize sequence

• Find strongest connections to 30+ targets

• Tactics: lead gen, cold calling, warm intros

• Network over 2-3 months

DON’T ASK FOR MONEY!

“I’m not ready to raise”

“Who would be helpful?”

“Who else should I talk to?”

REFINE PITCH

• Incorporate feedback

• Double down on consistent themes

• Avoid whiplash changes

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

CREATE URGENCY

• Anchor investor acts as the first domino

• “Triggering events” to get a (or better) term sheet

STRUCTURE

Equity

Debt

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

CLOSING THE DEAL

Seed A B

$15

$6

$1

$30

$12$5

VALUATION & DILUTION

?

Dilution: what’s your end stake?Valuation ($M)

?

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

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

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)

FINDING THE RIGHT INVESTORS

PitchTips

KNOW YOUR AUDIENCE

ADJUST FOR THEIR STYLE

LEVERAGE YOUR NATURAL STYLE

SHARE YOUR SUMMIT & BASECAMP

DON’T SHARE EVERYTHING AT ONCE

• 1 Sentence

• 1 Paragraph

• 1 Page

• 1 Light Deck

• 1 Follow-up Deck

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

FUNDRAISING 101: Q&A

DAVID CHANG @CHANGDS

B O S T O N S TA R T U P W E E K