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@iainmcdtweet      Iain McDougallRaising Your FirstRound of Capital                        December 11, 2012
CONTEXTTech & Biotech
OK YOU’VE GOT A BIG IDEAGloves translate signlanguage into speech
BUT HOW TO GET FUNDEDDECEMBER 11th 2012
3-OPTIONSBootstrap   + Customers   = Raise $$
GOAL FOR TODAY                    Angel or VC                  Finding Investors                How to Pitch Them         ...
VC’S vs ANGELS                                                 May want some control (“send me an annual                  ...
WHY RAISE VC    Deep Pockets:             Experience Matters:High risk tolerance and        VCs have “seen the additional ...
1Does my business fit?
Typical Investment Criteria    Tangible things investors like to see:        Very big market (> $500m)        Unfair ad...
PEOPLE MATTERS                       Great Idea                     Huge Markets                  Massive Gross Margin    ...
PEOPLE MATTERSIdeas are a dime a dozenHaving a world-class teamis goldenLaser focus of the youngentrepreneur is verypowerful
2Am I Prepared?
Raising Money isReally, Really, Really Tough
LONG ODDS300 : 1
12months - 2 years..!
Investor Deck  Prospect List                     Business PlanExecutive Summary                    Financial Model
3Getting the 1st Meeting
FIND THE SWEET SPOTScope out the firm – sizematters, as does the individualArrange for a warmintroductionPrepare, be brief	...
Context About VCs and Angels  Most VCs and Angels have ADD – operate on     “BLINK” instincts        Want to SEE everyth...
Investor’s Decision Tree                             Worth 3 minutes                             (email, phone)?          ...
4The Pitch
3 MUST DO’S    1                 2                            3Be gracious,   Be crisp & on                Know yourperson...
DO NOT...       1                             2                              3Exaggerate                   This is about  ...
5Another Meeting
So You’ve Had a Good Meeting…                                            Then What?  Treat fundraising like a sales proce...
6Full Partner Meeting
7Term Sheet - Finally
Term Sheet Time                          Frequently Asked Questions…  Should I include VCs in my first round or just ange...
Aligning Interests
ECONOMICS   CONTROL
PRICE A+B=CPre-Money                 Post-Money             Investment Valuation                 Valuation
PRICE   £400k + £100k = £500kPre-Money                 Post-Money Valuation   Investment    Valuation
EQUITY%age Equity              = C   Post-Money                     Valuation                B                    Investment
EQUITYLookingto Raise                 £500k              £100k          =           20%                                   ...
What Is Market?Rough Numbers (vary slightly by coast and sector):   Seed: $500k-$2m raise on $3-5m pre-money (or cap)   ...
8MONEY IN THE BANK
MUST READS
Who’s Ready to Raise      Money?
THANK YOUFeel free to ask questions           orFollow-up @iainmcdtweet
Raising VC
Raising VC
Raising VC
Raising VC
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Raising VC

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eSpark presentation on raising Venture Capital.

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Transcript of "Raising VC"

  1. 1. @iainmcdtweet Iain McDougallRaising Your FirstRound of Capital December 11, 2012
  2. 2. CONTEXTTech & Biotech
  3. 3. OK YOU’VE GOT A BIG IDEAGloves translate signlanguage into speech
  4. 4. BUT HOW TO GET FUNDEDDECEMBER 11th 2012
  5. 5. 3-OPTIONSBootstrap + Customers = Raise $$
  6. 6. GOAL FOR TODAY Angel or VC Finding Investors How to Pitch Them Valuation Math Negotiating Deal TermsDemystify the VC Angel World
  7. 7. VC’S vs ANGELS May want some control (“send me an annual email”)Will want some control (voting, board, veto) Will want to own 1-10% Will want to own 20-30% Maybe engaged or not (often a hobby, sometimesActively engaged (they get paid to do this!) a personal mission) Can add tremendous value and be great Can add tremendous value and be great business business partners partners Can be total disasters Can be total disasters Typically rational actors, commercially- Typically rational, but if unsophisticated: naïve driven, but if inexperienced… irrational, emotional
  8. 8. WHY RAISE VC Deep Pockets: Experience Matters:High risk tolerance and VCs have “seen the additional funding for movie” over and over follow-on rounds again and can help avoid pitfalls to find the path to success Value-Add: Swing Big: VCs provide domain VCs don’t invest in niches, experience, industry they invest incontacts, and strategic transformative ideas that planning can build large companies
  9. 9. 1Does my business fit?
  10. 10. 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
  11. 11. PEOPLE MATTERS Great Idea Huge Markets Massive Gross Margin Unique & ProtectableBut People Trumps Everything
  12. 12. PEOPLE MATTERSIdeas are a dime a dozenHaving a world-class teamis goldenLaser focus of the youngentrepreneur is verypowerful
  13. 13. 2Am I Prepared?
  14. 14. Raising Money isReally, Really, Really Tough
  15. 15. LONG ODDS300 : 1
  16. 16. 12months - 2 years..!
  17. 17. Investor Deck Prospect List Business PlanExecutive Summary Financial Model
  18. 18. 3Getting the 1st Meeting
  19. 19. FIND THE SWEET SPOTScope out the firm – sizematters, as does the individualArrange for a warmintroductionPrepare, be brief (VCs Blink)Don’t downplay riskMutual due diligence is fair play
  20. 20. Context About VCs and Angels  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
  21. 21. Investor’s Decision Tree Worth 3 minutes (email, phone)? No Ignore Worth 30 minutes (phone, in person)? No Pass gracefully Worth 60-90 minutes (in person)? No Pass but stay In touch Worth 2nd mtg (in person)? NoPass but be helpful Serious due diligence
  22. 22. 4The Pitch
  23. 23. 3 MUST DO’S 1 2 3Be gracious, Be crisp & on Know yourpersonable point stuff Personal intro should take You will be pushed and < 5 minutes. Team tested introduction 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?
  24. 24. DO NOT... 1 2 3Exaggerate This is about Name Drop Team not You No one is going to beEverything you say will be There is no I. impressed with who youverified in due diligence know unless the If you are self- relationships are both realAssume the listener is a aggrandizing, investors will and relevant.cynic and a professional assume you can’t buildBull-shit detector teams
  25. 25. 5Another Meeting
  26. 26. 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 13#
  27. 27. 6Full Partner Meeting
  28. 28. 7Term Sheet - Finally
  29. 29. Term Sheet Time Frequently Asked Questions…  Should I include VCs in my first round or just angels?  How big should the option pool be?  How should I think about valuation?   “Promote” definition - http://bit.ly/8NpdM  Should I do a convertible note with a cap, no cap or a priced round?  How should I think about control? 15#
  30. 30. Aligning Interests
  31. 31. ECONOMICS CONTROL
  32. 32. PRICE A+B=CPre-Money Post-Money Investment Valuation Valuation
  33. 33. PRICE £400k + £100k = £500kPre-Money Post-Money Valuation Investment Valuation
  34. 34. EQUITY%age Equity = C Post-Money Valuation B Investment
  35. 35. EQUITYLookingto Raise £500k £100k = 20% For X% of my business You Value your business as £400k + £100k = £500k Pre-Money Post-Money Investment Valuation Valuation
  36. 36. What Is Market?Rough Numbers (vary slightly by coast and sector):   Seed: $500k-$2m raise on $3-5m pre-money (or cap)   Series A: $3-6m raise on $6-10m pre-money   Series B: $8-12m raise on $15-20m pre-moneyOption pool: 10-20%   The smaller the pool, the more confidence in the founding team   Do an “option pool budget” to determine the right pool 17#
  37. 37. 8MONEY IN THE BANK
  38. 38. MUST READS
  39. 39. Who’s Ready to Raise Money?
  40. 40. THANK YOUFeel free to ask questions orFollow-up @iainmcdtweet
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