Raising Capital: Closing The Deal

Raising Capital: Closing the Deal Joe Beninato August 27, 2009 joe |at| beninato |dot| com Twitter: @beninato

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 © Joe Beninato 2009

Who Is This Guy? • Joe Beninato • MIT aerospace engineer • 20 years in Silicon Valley • 6 startupsacquisitions, 2 TBD 2 IPOs, 2 full-time • 15+ startups advisor/board • $200+ million capital raised • >$1 billion in exits © Joe Beninato 2009

“Be prepared.” © Joe Beninato 2009

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” “yes” more than you will hear WAY • Some of you will not get funded © Joe Beninato 2009

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 © Joe Beninato 2009

Angels vs. VCs Angels Angel Seed Seed Funds VCs Groups Incubators Ron Conway Band of Angels fbFund REV fbFund Sequoia Reid Hoffman Sand Hill Angels Y Combinator First Round Capital Benchmark Russ Siegelman Angels Forum TechStars True Accel Aydin Senkut Golden Gate Angels Seedcamp SoftTech Sutter Hill XG Ventures Keiretsu Forum Launchbox Digital Baseline Union Square Ariel Poler PAPA Maples Foundry Brett Bullington MHS (Sugarman) Shasta Mitch Kapor Amidzad August Chris Sacca Alsop-Louie Greylock Bill Harris CRV Quickstart Founders Fund Joi Ito Tugboat DFJ Esther Dyson Nueva CRV Michael Dearing Agile Trinity Naval Ravikant Amicus Matrix O’Reilly AlphaTech Venrock Founders Collective Andreessen- Horowitz ... *My apologies to anyone omitted on this slide...no offense intended © Joe Beninato 2009

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) © Joe Beninato 2009

Finding the Right Investor is Hard “I’m on “not “no revenue too many enough model” boards” traction” “it’s a small “too market” expensive” “I don’t like “my partners “weak team” sports” don’t like it” © Joe Beninato 2009

Finding the Right Investor is Hard © Joe Beninato 2009

Maximizing Your Chances • Be honest • Credibility • fbFund REV winners • Team accomplishments • Advisors • Lawyer • Other investors • Cool demos • Users • Page views • Partnerships • Revenue! • Proﬁt!!!!! © Joe Beninato 2009

The Approach • Identify relevant targets and make a spreadsheet • You need a warm intro • Don’t approach competitors • Don’t waste time on associates if you can avoid it • Send intro paragraph & 1 page exec summary and/or link to site • Be clear on your “ask” • NEVER COMMUNICATE A VALUATION! • Be persistent, but once declined, back down • Lather, rinse, repeat • NOTE: Be really friendly to assistants © Joe Beninato 2009

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 © Joe Beninato 2009

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 © Joe Beninato 2009

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” © Joe Beninato 2009

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 © Joe Beninato 2009

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 © Joe Beninato 2009

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Raising Capital: Closing The Deal

by Joe Beninato

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