Tel Aviv Startups Event October 1st, 2013

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Review of how to raise capital for a group of Tel Aviv - based entrepreneurs

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Tel Aviv Startups Event October 1st, 2013

  1. 1. Mastering the VC Game: How to Raise Your First Round of Capital Jeffrey Bussgang Flybridge Capital Partners, General Partner Harvard Business School, Senior Lecturer October 1st, 2013
  2. 2.  General Partner at Flybridge Capital Partners, early- stage VC firm based in Boston and NYC 40+ active portfolio companies, Fund III: $280M  Senior Lecturer at HBS – Launching Tech Ventures  Former entrepreneur Cofounder Upromise (acq‟d by SallieMae), VP at Open Market (IPO „96)  Author: Mastering the VC Game  Blog: SeeingBothSides.com Context For My Perspective
  3. 3. 3 Personal Context
  4. 4. 9  Scope out the firm – size matters, as does the individual  Arrange for a warm introduction  Prepare, be brief (VCs Blink)  Don‟t downplay risk  Mutual due diligence is fair play 04/09/10 9 Raising $ from VCs: Find the Sweet Spot
  5. 5. 8 Why Raise Money from VC? Deep Pockets: High risk tolerance and additional funding for follow- on rounds Swing Big: VCs don’t invest in niches, they invest in transformative ideas that can build large companies Experience Matters: VCs have “seen the movie” over and over again and can help avoid pitfalls to find the path to success Value-Add: VCs provide domain experience, industry contacts, and strategic planning
  6. 6. VCs vs. Angels  Will want some control (voting, board, veto)  Will want to own 20-30%  Very actively engaged (they get paid to do this!)  Can add tremendous value and be great business partners  Can be total disasters  Typically rational actors, commercially-driven, but if inexperienced…  Will want no control (“send me an annual email”)  Will want to own 1-10%  Maybe engaged or not (often a hobby, sometimes a personal mission)  Can add tremendous value and be great business partners  Can be total disasters  Typically rational, but if unsophisticated: naïve irrational, emotional
  7. 7.  Most VCs and Angels have ADD – operate on “BLINK” instincts  Want to SEE everything, but DO very, very few deals  Make their decision within the first 10-15 minutes  Typical VC and angel will invest in one out of every 300-500 deals they see  Long odds – you need to really stand out  Like college applicants – triage quickly Context About VCs and Angels
  8. 8.  Ideas are a dime a dozen  Having a world-class team is golden  Laser focus of the young entrepreneur is very powerful  E.g., Bill Gates, Michael Dell, and Mark Zuckerberg 1004/09/10 10 The Right People: an Unfair Advantage
  9. 9. Investor‟s Decision Tree Worth 3 minutes (email, phone)? Worth 30 minutes (phone, in person)? Worth 60-90 minutes (in person)? Worth 2nd mtg (in person)? Ignore Pass gracefully Pass but stay In touch Serious due diligencePass but be helpful No No No No
  10. 10. Elements of the Pitch  Intro  who are you, why are you here and why are you special?  Problem  what is the customer pain?  Solution  what‟s your disruptive, breakthrough compelling solution? Is the “Gain vs. Pain” ratio 10x?  Opportunity / market size  top down and bottoms up  Competitive advantage  what is your unique differentiation? what‟s your “competitive moat”?  Go to market plan  how are you going to reach the customer?  Business model  how are you going to make money?  Financials  what‟s the bottom line, what are your key assumptions? How are you going to make ME money?  The ask  how much do you want, how long will it last you and how much will you achieve? 11
  11. 11. Top 3 Things To Do  Be gracious and personable  Say something that makes you smile…authentically  Tell your personal history, tell a story  Be crisp and on point  Personal intro should take < 5 minutes  Team introduction 5-10 minutes  Make it relevant – don‟t go off on tangents  If you can‟t show good summarization skills, how will you handle a board room?  Know your stuff  They will push you to test you  John Doerr/Upromise case study
  12. 12. Top 3 Things To Avoid  Do not exaggerate  Assume everything you say will be verified in due diligence  Assume the listener is a cynic and a professional BS detector  There‟s no “I” in team  If you are self-aggrandizing, investors will assume you can‟t build teams  Do not name drop  No one is going to be impressed with who you know unless the relationships are both real and relevant.
  13. 13. Typical Investment Criteria  Tangible things investors like to see:  Very big market (> $500m)  Unfair advantage (why you? why now?)  Attractive business model (recurring, high gross margin)  Unique technology or business model approach  Intangible things investors like to see:  “Pied Piper” – an ability to recruit and retain a great team, partners  Interpersonal chemistry  Movie, not a snapshot
  14. 14. So You‟ve Had a Good Meeting… Then What?  Treat fundraising like a sales process – build a pipeline, work people through the pipeline, build up to crescendo  VCs get distracted – typically only pursue 2-3 high priority new investment opportunities at any given time  Stay connected, top of mind, build a sense of momentum  Need to sell the individual “champion”, then the help them sell the partnership  Address objections with specific data  Make the investment case for them  Give them tools/materials to share with their partners 15
  15. 15. Then, Expect More Due Diligence  Customers / partners  Team  Technology  Business model  Market size / analysts As with sales, package up the information, make it easy on the VC – provide reference list, financial models, detailed market size analysis – all in readable form 16
  16. 16. The Vote 17 A B JB D E Average Market 4 4 4 4 4 4.0 Team 4 4 4 4 5 4.2 Product/Tech 2 3 4 4 2 3.0 Business Model 5 4 5 3 3 4.0 Competitive Landscape 4 3 3 3 4 3.4 Finance/Cap Markets 4 3 4 3 3 3.4 Disruption 4 4 4 4 4 4.0 Network Effects 2 4 3 4 4 3.4 Total 29 29 31 29 29 29.4
  17. 17. Expectations and Milestones  Have well-documented milestones that represent what you expect to achieve during the initial funding period  Team building  Technical progress/product development  Customers, revenue  Budget  Talk to the investor about the next round before you close this round  Expectations, amount, price 18
  18. 18. Who‟s Ready to Raise Money?
  19. 19. Mastering the VC Game: How to Raise Your First Round of Capital Jeffrey Bussgang Flybridge Capital Partners, General Partner Harvard Business School, Senior Lecturer October 1st, 2013

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