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How-to guide on raising startup capital (VC, angel, seed) as a structured process. Part of a 3-part lecture series given at General Assembly in San Francisco by Nathan Beckord, Founder of......

How-to guide on raising startup capital (VC, angel, seed) as a structured process. Part of a 3-part lecture series given at General Assembly in San Francisco by Nathan Beckord, Founder of www.venturearchetypes.com

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  • 1. Raising Startup CapitalSession 3- The Fundraising ProcessNathan Beckord @startupventuresGeneral AssemblySan FranciscoOctober 4, 2012
  • 2. HELLO.General Assembly is a global network of campusesfor individuals seeking opportunity and education intechnology, business, and design founded in NYC.Follow us on Twitter at @GA_SF for the latest newson classes, courses, and events in San Francisco, anduse the hashtag #GASF to continue theconversation.Take a look at our course catalog atgeneralassemb.ly/sf for a list of classes currentlyoffered. Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 2 Nathan Beckord @startupventures October 4, 2012
  • 3. Hi. My name is...Nathan  Beckord,  CFA.    Principal,  www.VentureArchetypes.com • My  Job:  Startup  CFO,  Advisor,  and  BD  Guy • 100+  Startup  clients  over  the  past  eight  years • E.g.  Kickstarter,  Clicker,  Autonet,  Zerply,  GetHired,  etc. • Clients  have  raised  over  $98  million  in  seed  capital  and  achieved  5  exits • Example:  I  ran  financial  modeling  for  Clicker.com,  which  raised  2  rounds  of  VC   and  sold  for  $100m  in  3  years. • Previously:  Technology  ValuaYon  |  Investment  Banking  |  Venture  Capital • Chartered  Financial  Analyst  (CFA)  and  MBA Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 3 Nathan Beckord @startupventures October 4, 2012
  • 4. Do you really want to raise $$? +  Plus  +   -­‐  Minus  -­‐   •Fuel  for  Growth •DiluYon •Credibility •Misalignment  of  Goals •Hiring  Boost •ReporYng  DuYes  /  “Boss” •Advice,  Network •Exit  ObligaYon •Extended  Runway •ProtecYve  Provisions •PR  /  PosiYve  Signaling •Loss  of  Control •Rainy  Day  Fund •Founders  Get  FiredReality  Check:  less  than  5%  of  companies  successfully  raise  capital Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 4 Nathan Beckord @startupventures October 4, 2012
  • 5. Are you sure you want VC? IPO $ 100M Strategic PartnersDecreasing Return $ 50M Venture Capital Banks $ 1M Angels FFF Gov’t Business Plan Beta Profitability Idea Prototype Sales Decreasing Risk Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 5 Nathan Beckord @startupventures October 4, 2012
  • 6. Let’s talk about the... Funding Process Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 6 Nathan Beckord @startupventures October 4, 2012
  • 7. But first, how NOT to do it This pretty much sums up what most do (wrong)... Instead: treat the fundraising game as what it really is: SALES 101: Lead-Gen, Qualification, and Closing Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 7 Nathan Beckord @startupventures October 4, 2012Itʼs very important to target the right investorsFinding (and qualifying) the right investors takes a tremendous amount of workThis is your job, not your advisors, friend, etc.
  • 8. Sales process snapshot Generate initial, broad database of potential investors Screen by geography, stage, sector focus; Filter out those with direct competitors Select appropriate partner or contact person within firm Generate target list YOUR  JOB  is  to   Filter by best matches; seek herd  investors   “warm” introductions from  the  top  of  the  funnel  (Leads)   Initiate investor outreach Arrange pitch meetings to  the  Close   Present business plan (Shares  Sold) Follow-on meetings Due diligence Term sheets Execute share purchase agreement Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 8 Nathan Beckord @startupventures October 4, 2012 Sales 101
  • 9. Step 1: Pick a leader Who’s the designated driver? CEO CFO VP BD is  oden  the  “sales   as  “finance  guy”   is  oden  the   guy/gal”  in  early   this  fits  job  role;   ‘startup  hustler’   startups  =  skillset   but  few  startups   and  skillset  crosses   match have  a  CFO both  categories   Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 9 Nathan Beckord @startupventures October 4, 2012Supporting team: CTO / VP engineering.Many engineers are now hustlers too. Sales 101
  • 10. Step 2: Build funnel FOCUS  here  on   adding  names  to   Sources  for  Leads:   the  top  of  the   •Browsing  Angel  List funnel...aim  for   •Friends  /  colleagues 100  minimum •PEHub,  VentureWire •Conference  speakers •TechCrunch  arYcles We  will  filter  down   •Cross-­‐referencing  funded   to  30  -­‐  50  later deals  on  Crunchbase •Quora,  CapLinked,  etc. Start  to  look,  and  you’ll   UlYmately  ending   start  to  “see”  relevant   in  2-­‐4  term  sheets investors  everywhere... Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 10 Nathan Beckord @startupventures October 4, 2012Naval Ravikant sent me this tip for using AngelList:  "Heres a killer feature for building a target list:  http://angel.co/people.  Choose stage, market, location.  Sort by paths. Itll create a personalized list of investors foryou to approach, sorted by how easy it is for you to get to them."    Sales 101
  • 11. Step 3: Create tracking system (in  google   docs) To-Dos / Task Task Alerts / VC firm Investor Email Last contact Current status List Owner Due by Refd By STRONG INTEREST June 16, 2006 - Reviewed presentation and provided positive August Capital David Hornik hornik@augustcap.com feedback. Wants to be kept up-to-date. Send revised deck Ben 21-Sep Todd Interested in further engagement Salil Deshpande, Entrepreneur-in- July 21, 2006 - Email introduction with other partners at Bay; Ping him next week Bay Partners Residence salil@baypartners.com to Blueprint Ventures. Referred to Blueprint Ventures. to sched mtg Jake Todd Richard Yen, Principal/David Frankel, Managing Director/ George Hoyem, Managing Richard@blueprintventures.co Aug. 18, 2006 - Meeting to review Intro him to our Blueprint Ventures Director m financials. ???? seed investor Jake 19-Sep Nate INTERESTED Joyce Chung, General Partner Aug. 15, 2006 - Email exchange Follow up meeting scheduled for Cardinal Venture Capital (Founding) joyce@cardinalvc.com on meeting to review technology. Aug. 24 at Kiptronic HQ. Follow up meeting Ben Todd DSpreng@crescendoventures. com/ David Spreng, General Partner/ jhable@crescendoventures.co July 14, 2006 - Email of financial Crescendo Ventures Jason Hable, Associate m docs. Currently reviewing financial docs. N/A Todd Nate Aug. 16, 2006 - Sent intro email Stalk him outside Founders Fund Ken Howery, Partner ken@thefoundersfund.com based on mutual friend. Waiting for response. his apartment Ellen 26-Sep Jim Plans to review docs and schedule another session; Need IDG Ventures Abhijit Pradhu aprabhu@idgventures.com July 24, 2006- Email of docs to reschedule meeting. N/A Todd Todd NOT DEAD YET Kayne Anderson Capital July 24, 2006 - Phone Send Google Advisors Healy Jones kapi2@kaynecapital.com conversation Wants to be kept up-to-date. Analytics report Ben Nate North Bridge Venture Aug. 22, 2006 - Update meeting Partners Paul Santinelli pas@NBVP.COM Aug. 2, 2006 - Phone call scheduled Send new deck Jake 21-Sep Todd Aug. 10, 2006 - Phone Simeon Simeonov, General ssimeonov@polarisventures.c conversation; Put him in touch with Work back Polaris Ventures Partner om Kiptronic partners. Follow up next week. channels Ben Todd NEW LEADS ravi@shastaventures.com/ Revise our Team Shasta Ventures Ravi Mohan/Jason Pressman jason@shastaventures.com Met him years ago slide Ellen 21-Sep Nate Trinity Ventures Jim Tybur jim@trinityventures.com Met him at Giants game Ping him next week Jake Todd Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 11 Nathan Beckord @startupventures October 4, 2012build it in docs.google.comyou can also build it in excel and upload it to google docs Sales 101
  • 12. Step 4: Filter down to direct hits Filtering  Criteria:   •Invested  in  compeYtors •No  dry  powder  (funds) •Wrong  sector  focus •Wrong  stage FOCUS  here  on   •Wrong  geo.  locaYon filtering  down  to   •Has  bad  reputaYon about  30  direct   targets. Diligently  cut  down  the   list  now  for  a  beBer  hit   rate  later.   Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 12 Nathan Beckord @startupventures October 4, 2012For finding out about good / bad reputation, check out Thefunded.comAlso, ask founders of companies theyʼve funded for candid feedback. Sales 101
  • 13. Step 5: Organize your posse Recruit  from:   •Startup  friends •Anorney,  accountant •Advisory  Board •Professors •Startup  ‘connectors’ Tips:   •Play  to  their  ego •Make  it  easy  /  low  risk •Get  everyone  together   for  dinner  /  wine.   Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 13 Nathan Beckord @startupventures October 4, 2012 Sales 101
  • 14. Step 6: Degrees of Separation LinkedIn Angel  List Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 14 Nathan Beckord @startupventures October 4, 2012Really  what  we’re  doing  here  is  mapping  our  social  graph  on  top  of  our  target  list  to  find  the  BEST  WARM  INTRO   Sales 101
  • 15. Step 7: Polish your pitch & model +  Angel  List   Profile  Page    (angel.co) Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 15 Nathan Beckord @startupventures October 4, 2012Get  momentum  story  in  placeBuild  really  slick,  fricYonless  pitchBuild  Angel  List  at  same  Yme  you  build  the  deck  (but  keep  stealth  for  a  bit)  
  • 16. Step 7.5: Hacking Angel List 1.Get  a  lead  investor  first 2.Build  mulYple  forms  of   social  proof 3.Peacock  your  profile 4.Hollywood  soundbite 5.Tweak  profile  +  status 6.Hustle  to  be  “ Trending” 7.Create  catalyst Excerpted  from  hBp://www.seedstagecapital.com/2011/07/hacking-­‐angel-­‐list.html Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 16 Nathan Beckord @startupventures October 4, 2012Geqng  lead  takes  80%  of  the  Yme  /  effort.      A  name  brand  lead  is  even  bener.Social  proof  =  Advisors,  Board,  Referrer,  References,  Incubator,  Anorney.    Angels  rely  on  “who  you  know”  as  first  filter.    Get    these  people  to  follow,  share,  status  updates,  etc.  Peacocking  =  great  product  slides,  tracYon  slides,  team  bios,  etc.  Soundbite-­‐-­‐  either  X  for  Y  or  what  you  doUse  catalyst  to  close  
  • 17. Step 8: Open ‘er up and let ‘em fly Intros:   •Get  introduced  (v.  cold) •Make  it  easy  for  your   posse  to  make  intros Pitch: •A/B  test  your  pitch •ConYnually  refine  it,   improve  it Process:   •Aim  for  concentrated   ‘blitzkrieg’  approach •Compress  meeYngs  into   short  Yme  frame Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 17 Nathan Beckord @startupventures October 4, 2012Key  here  is  warm  leads,  plus  conYnually  improving  pitch  (like  interviewing)  and  packing  many  meeYngs  into  compressed  window,  all  to  get  your  mojo  on.    Build  momentum  for  the  deal.  
  • 18. Step 8.5: Making it easyYou  write  this  with  the  “ask”: ...and  have  your  “Hi Nathan, I see you are connected to Lewis at ACME connector  write  this:  Ventures. I would love it if you could introduce us.   “Lewis, Iʼd like to intro you to Scott Shepherd, founder of CatBnB.  Scott wasAs you know, we launched CatBnB to make life better the engineer #3 at Facebook and his co-for the 82m cat owners in the U.S. when they go on founder, Janet, was a top salesperson atvacation.  Since launching our closed beta 3 months Salesforce. ago, we have had nearly a million cat owners register,and 75k have already boarded a cat in their home.  Iʼve been advising them since inceptionWeʼve recently introduced our subscription model and to and they know how to execute; they areour delight, 15% of our users have upgraded.  It now (selectively) starting to talk to investors. costs us $3 to acquire a new paying customer, each of Take a look at their AngelList profilewhom generates an average $12.50 ARPU.    and their exec sum, attached.  I will leave it to you to to connect; let me know whatWe will soon be looking for funding to scale. I see that transpires.  Best, Nathan”  Lewis has a background in exotic cat breeding and hasjust raised a new fund. Iʼd love to show him what weʼredoing.”  Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 18 Nathan Beckord @startupventures October 4, 2012
  • 19. Step 9: Pitch hard + Go for the close TIps:   •Expect  3-­‐6  meeYngs  per   VC  before  geqng  a  term   sheet •More  term  sheets  =  more   leverage,  faster  close •Follow  up  frequently •It  can  be  very  hard  to  get   an  actual  “no”   Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 19 Nathan Beckord @startupventures October 4, 2012Live pitch meeting is usually an hour.Goal is always to get to next step in process...always ask what that is at end of meetingThere will be progressively more people / partners in each successive meeting.Be rapid in your responses and follow up. Be ready for DD.If youʼre getting, “weʼd like to see... (traction / more team / deals / a lead ) thatʼs usually a “no”
  • 20. Fundraising is just the beginning Notes:   •Geqng  funded  is  just   the  start  of  what  is   (usually)  a  long  journey •Now  you  have  an   obligaYon  to  perform,   so... Go  Get  ‘Em!            and  Have  Fun! Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 20 Nathan Beckord @startupventures October 4, 2012Cheeky monkey
  • 21. Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY21 Nathan Beckord @startupventures October 4, 2012
  • 22. MVP (minimal viable pitch) Message: What  you’re   More  people  than  ever  (78M!)  have  dogs.  They   ✓  Problem ✓  Market  size  &  Trends doing  &  why spend  $2bln/yr  puqng  dogs  in  kennels  but  it’s   ✓  SoluYon  /  Product expensive  &  dogs  hate  it.  We  are  “airbnb  for  dogs.” ✓  Clear  &  big  Vision Samir-­‐  VP  Engr,  prev.  @Adobe;  Samantha-­‐  Designer,   ✓  Solid  Team-­‐-­‐Hacker,       Hustler,  Designer Who  are  you prev.  @Apple,  NYU;  Stewart-­‐  Stanford  MBA;     ✓  Pedigree,  Experience ✓Peer  reference  /   Advisors:  Steve  Blank,  Andrew  Chen.   “social  proof” What’s  going   POC  in  SF,  NY,  Atlanta  (now);  Adding  3k  members  &   ✓  Thesis  Validated ✓  TracYon  /  Growth on   120  boarders  /  week  via  events,  AKC  partnership,   ✓  MarkeYng  Plan   select  GOOG  ads.    Avg.  booking  $55  x  7%  =  $3.85   ✓  Bus.  Model ✓  Momentum What  you   $4m  Series  A  @$16m  pre  to  hit  6  more  geo.  mkts ✓  Sensible  UOF ✓  Strong  Future  Vision want   Burning  $75k/mo.      Cash  Flow  B/E  @  2k  bookings  /   ✓  Economics  Scale ✓  Path  to  Profitability week  (2013).      LTV  >  CAC      ($145  vs.  $33). ✓  RealisYc  ValuaYon Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 22 Nathan Beckord @startupventures October 4, 2012each of these could easily be a slide, in 40 point font...add a title, add a clever image or a supporting chart ordiagram, and youʼre done. Killer MVP.To note, I intentionally did not include a competition slide, as that can be a rathole. Make them ask about it,make them bring it up. But def have a thoughtful analysis and appendix slide to answer.
  • 23. Information progression Level of Informational Detail! Negotiations / Structuring / Close st ! Due Diligence Documentation re te In or st ve Business Plan / Offering Memorandum e In siv es gr P ro Investor Presentation and Pitch Book Investment Opportunity Summary Elevator Pitch / Introductory Email Teaser Timeline and Progression! Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 23 Nathan Beckord @startupventures October 4, 2012this is a little outdated, but conveys the general idea that deeper information is transferred as you progresswith series of meetings. Sales 101