Seed Fundraising 101
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Seed Fundraising 101

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24 seed fundraising questions answered by the best advice on the internets, featuring Chris Dixon, Brad Feld, Elad Gil, PG, Mark Suster, and many more entrepreneurs and VCs. ...

24 seed fundraising questions answered by the best advice on the internets, featuring Chris Dixon, Brad Feld, Elad Gil, PG, Mark Suster, and many more entrepreneurs and VCs.

Questions include:
-How much should I raise?
-How do I put together a great pitch deck?
-What am I looking for in seed investors?
-Should I raise from angels or VCs?
-Should I apply to incubators like Y Combinator or 500 Startups?
-What questions will investors ask?
-How do I negotiate terms like valuation cap and discount?
-How do I work well with my investors?

Here's the accompanying blog post: http://www.kevinrandom.com/seed-fundraising-101-the-best-articles-blog-posts-and-quora-threads/

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  • @ElenAwalom of course, elen :) hope you're doing well...i'm moving back to the bay area in a few weeks...i'll email you, we should grab coffee
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  • Sorry guys, the links for Q1 are missing no matter what I do. Keynote -> PDF probably not the best future path for Slideshare. Here are the links for the curious:

    Shoehorning startups - http://cdixon.org/2012/07/19/shoehorning-startups-into-the-vc-model/

    20 questions to ask yourself - http://blog.eladgil.com/2010/08/20-questions-to-ask-yourself-before.html

    Value of fundraising - http://www.ventureblog.com/2013/01/the-value-of-fundraising.html
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    Seed Fundraising 101 Seed Fundraising 101 Presentation Transcript

    • Seed Fundraising 101 The best advice on the internets, featuring Chris Dixon, Brad Feld, Elad Gil, PG, Mark Suster, and many more entrepreneurs and VCs by Kevin Gao (Hyperink founder; I curate and summarize startup content for fun)
    • 24 questions answered Question 1: Do I need to raise a seed round? Question 2: How much should I raise? Question 3: Will I be able to raise? Question 4: How do I put together a great pitch deck? Question 5: What are the different types of investors? Question 6: What am I looking for in seed investors? Question 7: How do I hire an entrepreneur-friendly lawyer? Question 8: How do I meet investors (angels and VCs)? Question 9: Should I raise from angels or VCs? Question 10: Should I use AngelList, and what are best practices? Question 11: Should I apply to incubators like Y Combinator or 500 Startups? Question 12: Once I start fundraising, what is the process like? Question 13: What advice do you have on scheduling, running, and following-up on investor meetings? Question 14: What questions will investors ask? Question 15: What financing terms should I know? How do I read a termsheet? Question 16: How do I follow-up with investors? Question 17: How do multiple fundraising rounds work? Question 18: How do I negotiate terms like valuation cap and discount? Question 19: Should I do reference checks? Question 20: They said yes! How do I get money in the bank? Question 21: Should I create a board of directors? Board of advisors? Question 22: How do I best work with my investors? Question 23: How do I get PR? Question 24: When should I raise another round? Seed Fundraising 101 | www.startuptextbook.com
    • Q1: Do I need to raise a seed round? tldr: only if you're building a billion-dollar company and raising millions is necessary to get there; however, fundraising is valuable whether you take money or not reads: Shoehorning startups into the VC model (Chris Dixon) 20 questions to ask yourself (Elad Gil) There are, broadly speaking, 2 types of ways to build value in a business. (a) An “equity” based business in which the stock value will grow significantly with time (b) A “cash” based business, in which the company will generate a lot of cash on an annual basis, but the value of the stock will remain a low multiple of earnings The value of fundraising (David Hornik) Seed Fundraising 101 | www.startuptextbook.com
    • Q2: How much should I raise? tldr: raise enough to reach an important milestone, with some cushion; generally 18-24 months with conservative spending reads: How to do seed fundraising right (Kate Endress) What’s the right amount of seed money to raise? (Chris Dixon) Short answer: enough to get your startup to an accretive milestone plus some fudge factor. “Accretive milestone” is a fancy way of saying getting your company to a point at which you can raise money at a higher valuation. How much funding is too little? Too much? (Marc Andreessen) Seed Fundraising 101 | www.startuptextbook.com
    • Q3: Will I be able to raise? tldr: the bigger your market, the better ($5-10B or more); growth and who else is investing are key; prepare to be rejected! reads: Why you shouldn’t raise VC (Mark Peter Davis) High Resolution Fundraising (Paul Graham) Fundraising is an extremely momentum-based process. Hardest part is getting “anchor” investors.These are people or institutions who commit significant capital (>$100K) and are respected in the tech community or in the specific industry you are going after (e.g. successful fashion people investing in a fashion-related startup). 6 Tips To Get Your Startup Off The Ground (Anthemos Georgiades) Seed Fundraising 101 | www.startuptextbook.com
    • Q4: How do I put together a pitch deck? tldr: follow Guy’s 10 slides/20 minutes/30 pt font rule; tell a good story; have a thorough appendix reads: 365 Days, $10 Million, 3 Rounds, 2 Companies, All With 5 Magic Slides (Tim Young) The 10/20/30 Rule of Powerpoint (Guy Kawasaki) A PowerPoint presentation should have ten slides, last no more than twenty minutes, and contain no font smaller than thirty points.While I’m in the venture capital business, this rule is applicable for any presentation to reach agreement: for example, raising capital, making a sale, forming a partnership, etc. Size markets using narratives, not numbers (Chris Dixon) Seed Fundraising 101 | www.startuptextbook.com
    • Q5: What are the different types of investors? tldr: don’t pick investors by name-recognition alone; fewer is better than many; hire a great lawyer; know what unique value your investor brings (connector, product expert, tacticians, etc) reads: A SuperAngel’s Investment Guide (Fabrice Grinda) The 7 types of angel investors (Elad Gil) 1. Connectors, 2. Product people, 3.Tacticians & builders, 4. Smart business people, 5. Domain expert, 6.The brand, 7.The filler (aka dumb money) How to select your angel investors (Chris Dixon) Angel funding advice (Mark Suster) Having fewer investors (3-5) is better than many investors (10-15) and PLEASE make sure you hire a great lawyer who has experience in doing start-ups to avoid pitfalls... Seed Fundraising 101 | www.startuptextbook.com
    • Q6: What am I looking for in seed investors? tldr: domain knowledge,VC relationships, deep pockets, relationships with buyers and those w/ the most experience reads: Angel Investing Skill 2 - Domain Knowledge (Mark Suster) The Most Underrated Skill: Access to Buyers (Mark Suster) Imagine that you funded Larry & Sergey, Chad Hurley & Steve Chen, Mark Zuckerberg, Mark Pincus or Evan Williams. Or eBay / PayPal, Salesforce.com, Skype, etc. Imagine the kind of relationship you’d have with these folks and your ability to discuss their needs as well as your portfolio successes at which they should be looking. Or imagine that you were colleagues with any of these individuals before becoming an investor. Pick Your Angel Investors Wisely (David Hornik) Seed Fundraising 101 | www.startuptextbook.com
    • Q7: How do I hire a good lawyer? tldr: go with an experienced startup firm, read every word of every legal doc, and use standardized docs when possible reads: Ideal first round funding terms (Chris Dixon) You Should Read Every Word of Every Legal Doc (Elad Gil) Reid Hoffman was one of my company’s (Mixer Labs, acquired by Twitter) investors. One piece of advice he gave me was to read every word of every contract I signed on behalf of Mixer Labs (including the crazy ALL CAPS parts and legalese).This is one of the better pieces of advice I received. A Challenge To Startup Lawyers (Fred Wilson) Seed Fundraising 101 | www.startuptextbook.com
    • Q8: How do I meet investors? tldr: meet fellow entrepreneurs who can refer you; offer value to people you want to meet (by sharing what you learned, know) reads: Getting Access to the Old Boys’ Club (Mark Suster) How to get meetings with people too busy to see you (Steve Blank) The meeting requests that now jump to the top of my list are the few, very smart entrepreneurs who say, “I’d like to have coffee to bounce an idea off of you and in exchange I’ll tell you all about what we learned about xx.” How To Reply to Angel Investor Intro Emails (Elad Gil) 1. Move the introducer to BCC.They don’t want to be on the 15 emails it takes to schedule the meeting. Seed Fundraising 101 | www.startuptextbook.com
    • Q9: Should I raise money from angels or VCs? tldr: if a VC invests and says no to your Series A, it could be a bad signal; but chemistry and value-add are most important reads: Understanding a VC’s Seed Funding Policy (Mark Suster) VC Signaling Coming Home To Roost (Elad Gil) A large number of seed rounds in the last 12-18 months have included traditional venture funds as investors. Sometimes having a VC in your seed can be super helpful. However, a number of the the companies who raised from VCs are now regretting it, as having a VC in your seed round can backfire.There are a number of ways to mitigate this signaling risk. The problem w/ taking seed money from big VCs (Chris Dixon) Basically big VCs are spending 5% of their budget generating captive leads for their real business: investing $10M into a companies at the post-seed stage. Seed Fundraising 101 | www.startuptextbook.com
    • Q10: What is AngelList and how do I use it? tldr: AngelList can be used for fundraising and recruiting; there’s no downside for entrepreneurs; big investors all pay attention to it reads: A Primer For Fundraising on AngelList (Aaron Hall) How we built Shyp on AngelList and raised $2.1M (Kevin Gibbon) AngelList is not only about fundraising — it is a recruiting beast! Jack Smith reached out to us after we were featured to see if he could help out in any way. Joshua and I later convinced him to join as a late co-founder. Our first employee Andrew Wyatt, who is a fucking rockstar, also reached out via AngelList. The AngelList (Fred Wilson) Seed Fundraising 101 | www.startuptextbook.com
    • Q11: Should I apply to incubators like YC? tldr: you get a lot done; depending on the incubator you get great advice and build a network; Demo Day is an efficient, effective way to raise money reads: Everything you need to know to succeed after (YC) Demo Day (Ash Rust) The Start-up Guru (Max Chafkin) I recall that a number of founders have warned me that Graham has the habit of throwing out business ideas at a rapid clip, without really thinking through what he’s saying. Still, says Kan, “you always come away feeling energized.You could be working on the most boring piece of software, and you talk to Paul and you think, Man, I’m excited to go back to work.” The most important question to ask before taking seed money (Chris Dixon) Seed Fundraising 101 | www.startuptextbook.com
    • Q12: What is the fundraising process like? tldr: you get a lot done; depending on the incubator you get great advice and build a network; Demo Day is an efficient, effective way to raise money reads: If you aren’t getting rejected on a daily basis (Chris Dixon) How To Raise A $1M Seed Round (Sunil Rajaram) Looking back at my inbox, it looks like we received a total of around 120 intros to individual angels and institutions – a little over 10 folks invested in our round. WTF is Traction? A 6-Step Relationship Guide to VC (Mark Suster) If you wait until you’re “ready” to fund you’re too late. Funding is about developing a relationship over time. Most of us wouldn’t get married on the first weekend we met someone in Vegas. And most VC’s wouldn’t fund the first time we meet you. Seed Fundraising 101 | www.startuptextbook.com
    • Q13: How do I run investor meetings? tldr: prep with, and arm, your meeting sponsor (the coordinating partner); nail the opening minutes; pitch your product and vision reads: Pitch yourself, not your idea (Chris Dixon) How to Present to Investors (Aaref Hilaly) We think of it as being similar to a James Bond movie. Everyone who watches Bond loves the opening sequence, before the titles come on.There’s suspense, action, and unbelievable stunts – in essence, those first 5 minutes bring home why you love Bond, and that keeps you going through the next 2 hours of nonsensical plot twists. How to Present at Big Meetings without Going Down a Rat Hole (Mark Suster) Seed Fundraising 101 | www.startuptextbook.com
    • Q14: What will investors ask? tldr: everything. that’s what a fat appendix is for reads: Questions VCs Will Ask You (Elad Gil) Who is your team? Why is your team uniquely qualified to solve this problem? What is your business model? How will you make money? How big of a market is your specific market really (i.e. the market or customers from which you will extract direct value, not “Local is huge, and we are in local, so of course we will be huge”)? Who is the competition? Why will you beat them? Why do users care? How has distribution worked so far? What has worked/not worked? What milestone will the capital get you to? Seed Fundraising 101 | www.startuptextbook.com
    • Q15: How do I read a termsheet? tldr: know difference between equity and convertible notes, how to value your startup, and the terms (eg, vesting, discount rate, cap) reads: Converts versus equity deals (Chris Dixon) Everything you wanted to know... (Scott Edward Walker) Convertible Debt in Plain English (Barrett Sheridan) Another common element of a convertible note is a discount.This is kind of like a floating-rate cap. It basically means that, whatever the value of your company when you take your first equity investment, I get to invest as if it’s happening at a lower valuation. So if a $100,000 note has a 25% discount, and you raise money at a $1 million valuation, your note holder gets $100,000 / ($1 million * 0.75 = $750,000) = 13.3% of your company (rather than 10%). Seed Stage Valuation Guide (Jordan Cooper) Seed Fundraising 101 | www.startuptextbook.com
    • Q16: How do I follow-up with investors? tldr: follow-up politely but persistently; sometimes you gotta read between the lines; get rejected every day reads: Signs A VC Is Just Not That Into You (Elad Gil) Saying No In Less Than 60 Seconds (Brad Feld) I can figure this out from the first interaction at least 50% of the time and my first email response is (hopefully a polite) version of “no” that usually consumes a total of less than 30 seconds from beginning to end. Another 25% of the time I need a little more information and request it via mail.This has the side effect of eliminating another chunk of interactions since the person on the receiving end never bothers to respond. I emailed a VC and never heard back (Mark Suster) Seed Fundraising 101 | www.startuptextbook.com
    • Q17: How do multiple rounds work? tldr: easy with convertible notes, just issue a separate note for each investor reads: How Do I Do Multiple Closings for an Angel Round? (Brad Feld) A: For a convertible debt round, you can keep it as simple as issuing a promissory note for each investor…You can do as many closings as you want by simply issuing a separate promissory note for each investor.The best way to do multiple closings on an angel equity round is to raise the early money using the convertible debt approach above with an automatic conversion into a pre-negotiated equity financing once a certain amount of money is raised. Seed Fundraising 101 | www.startuptextbook.com
    • Q18: How do I negotiate terms? tldr: know an investor’s priorities; in early stages, price matters more to you than them; get protection on change of control, firing reads: First Round Funding Terms and Founder Vesting (Mark Suster) 6 Tips To Get Your Startup Off The Ground (Anthemos Georgiades) First, don’t be afraid to ask investors to match the best offer you have.We improved our valuation cap by 50 percent in 48 hours by rallying our investors behind the most favorable term sheet on the table. It’s tough to go up against big VCs, but if they like you, they like you. The negotiation on valuation means less to VCs in the early stages than it will to you and your team. Play up to that imbalance. It favors you, not them. How to Negotiate Valuation With a VC (David Pakman) Seed Fundraising 101 | www.startuptextbook.com
    • Q19: Should I do reference checks? tldr:YES reads: How Do You Reference Check a VC? (Mark Suster) Make sure to call the companies in that VCs portfolio that didn’t succeed. Feel free to ask the VC after they give you the official list for a list of 3 CEO’s where the company stumbled. Do a web search to find companies that they didn’t give you. Ask the CEO’s about the VC when the chips were down. Do research and find some CEO’s who were fired by the VC.That would be instructive. I’ve met some that actually say positive things about the VCs. I’ve heard others that say the opposite. Seed Fundraising 101 | www.startuptextbook.com
    • Q20: They said yes! What’s next? tldr: job is far from done: be persistent through due diligence; read every legal doc closely reads: 6 Tips To Get Your Startup Off The Ground (Anthemos Georgiades) “yes” does not mean “yes.” Put the Champagne back on ice. It took us four times as long to close our seed round as it did to get verbal commitments.The whole process took five months.That’s quite skewed as we had a series of VCs in our round – a different proposition to having a couple of angels – but in general it’s a fair warning.The legal back and forth takes time. Investors can be less responsive about the ‘boring’ stuff. Move quickly and get it done. You Should Read Every Word of Every Legal Doc (Elad Gil) Seed Fundraising 101 | www.startuptextbook.com
    • Q21: Should I create a Board of Directors? tldr: yes, and choose wisely; small is better than big; seek outside experience to supplement your own reads: Ideal first round funding terms (Chris Dixon) A board consisting of 1 investor, 1 management and 1 mutually agreed upon independent director. (Or 2 VCs, 2 mgmt and 1 indy). As an entrepreneur, the way I think of this is if both my investors and an independent director who I approved want to fire me, I must be doing a pretty crappy job and deserve it. How To Choose A Board Member (Elad Gil) Seed Fundraising 101 | www.startuptextbook.com
    • Q22: How do I work with my investors? tldr: send regular updates; hang out with them; know what they’re best at and ask for that sort of help reads: Put Your Investors To Work For You (Elad Gil) If you have 12 investors, and are meeting with each of them monthly it means you are wasting too much time on investor communication instead of focusing on your startup...Ask your angels what they are good at, and what they can help with.When the time comes to close your first employee, negotiate that business deal, or figure out the best channels by which to buy traffic, contact the right angel or investor and ask them for help. The Most Underrated Skill: Access to Buyers (Mark Suster) Send monthly updates to your investors. Hang out at their events and get to know them. And don’t be scared to ask for help. Seed Fundraising 101 | www.startuptextbook.com
    • Q23: How do I get PR? tldr: pitch the most exciting story possible; always be promoting your company; get nice tshirts! reads: How I Pitched Techcrunch and 13 Ways To Get Press When You Launch Your Startup (Jason Baptiste) So when we pitched TechCrunch, we didn’t pitch it as a WordPress plugin company.That’s just not big news and though it’s a very cool, it doesn’t provide excitement.We gave a taste of the future of being available to All CMS’s, a hosted platform, and helping pave the way for the future of media via tablet publishing. How To Get PR For Your Startup (Jason Calacanis) Seed Fundraising 101 | www.startuptextbook.com
    • Q24: When should I raise another round? tldr: ideally when you don’t need it; get growth or get to profitability first! but build long-term relationships with VCs reads: Raising Angel Money (Mark Suster) If you have many angels (say a group of 10-15 people) and if these people are not sophisticated serial angel investors it could cause problems. The Expanding Birthrate Of Web Startups (Fred Wilson) So, if you are an entrepreneur you should be very focused on either getting to profitability or getting a VC firm or two with deep pockets into your company (or both). Seed Fundraising 101 | www.startuptextbook.com
    • That’s it, folks! For more, check out www.startuptextbook.com or my founder education newsletter, 1-Read-A-Day ...or email me!