Overview of Startup Fundraising
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Overview of Startup Fundraising

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Early-stage startup fundraising overview including: types of funding, how to decide how much money you need, creating the pitch deck, negotiating valuation, and how to approach investors. Talk I gave ...

Early-stage startup fundraising overview including: types of funding, how to decide how much money you need, creating the pitch deck, negotiating valuation, and how to approach investors. Talk I gave at Founder Bootcamp at Moscow State University (innovationlabs.net)

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    Overview of Startup Fundraising Overview of Startup Fundraising Presentation Transcript

    • Introduction to Fundraising When, Why & Who to Raise (and not raise) Money From Roy Rodenstein Global Innovation Labs Moscow State University, 6/4/2011
    • Who can be a successful entrepreneur? I believe anyone can… if they want it enough and get the right support
    • Even Чебурашка и Гена
    • Even Че Б урашка
      • User-Generated Local Events Content + Ticketing (originally HeyLetsGo)
      My Entrepreneurial Journey 2005 2006 2007 2008 2009 Co-found Going.com Rejected by YC Quit Day Job $500k Seed $3M Series A Additional Funding Acquired
    • Companies Mentor Investor/Advisor UX researcher early employee acquired by co-founder acquired by About Me @royrod how2startup.com
    • 5 Key Fundraising Topics
      • Deciding Who to Raise From
      • How Much to Raise
      • Contacting Investors
      • The Pitch
      • Negotiating Valuation
    • Deciding Who to Raise From Bootstrap aka yourself / co-founders Friends & Family Incubators / Seed Funds Angels Individuals, Groups VC
    • Deciding Who to Raise From Higher chance of making $5M (~1%) Higher chance of making $0.00 (>50 %) Bootstrap aka yourself / co-founders Friends & Family Incubators / Seed Funds Angels Individuals, Groups VC
    • Fundraising Decoder Ring Source Bootstrap aka yourself / co-founders Friends & Family Incubators / Seed Funds Angels Individuals, Groups VC Stage Idea Idea / Prototype Idea / Prototype Idea / Prototype “ Traction” Amount $5k - 200k+ $5k - $20k+ $50k - $1M+ $500k - $10M+ Form Debt, Convertible Debt Convertible Debt, Equity Equity Convertible Debt, Equity Equity Dilution 0% 5-10% 5-10% 5-20% 20-70% Time Days Weeks Weeks Weeks - Months Months Cost $0 - $1k $500 - $5k $500 - $5k $2k - $10k $10k - $50k+ Exit Any Any $5M+ $5M+ $20M+
    • Fundraising Decoder Ring Source Bootstrap aka yourself / co-founders Friends & Family Incubators / Seed Funds Angels Individuals, Groups VC Stage Idea Idea / Prototype Idea / Prototype Idea / Prototype “ Traction” Amount $5k - 200k+ $5k - $20k+ $50k - $1M+ $500k - $10M+ Form Debt, Convertible Debt Convertible Debt, Equity Equity Convertible Debt, Equity Equity Dilution 0% 5-10% 5-10% 5-20% 20-70% Time Days Weeks Weeks Weeks - Months Months Cost $0 - $1k $500 - $5k $500 - $5k $2k - $10k $10k - $50k+ Exit Any Any $5M+ $5M+ $20M+
    • Source: Bootstrap
      • Pros
      • No dilution
      • Simple, cheap, quick
      • Cons
      • It’s not OPM (Other People’s Money)
      • Morale impact if funds run low
      • Bottom Line
      • Good to get some personal involvement
      • But don’t overdo it- fundraising is better than giving up
    • Fundraising Decoder Ring Source Bootstrap aka yourself / co-founders Friends & Family Incubators / Seed Funds Angels Individuals, Groups VC Stage Idea Idea / Prototype Idea / Prototype Idea / Prototype “ Traction” Amount $5k - 200k+ $5k - $20k+ $50k - $1M+ $500k - $10M+ Form Debt, Convertible Debt Convertible Debt, Equity Equity Convertible Debt, Equity Equity Dilution 0% 5-10% 5-10% 5-20% 20-70% Time Days Weeks Weeks Weeks - Months Months Cost $0 - $1k $500 - $5k $500 - $5k $2k - $10k $10k - $50k+ Exit Any Any $5M+ $5M+ $20M+
    • Source: Friends & Family
      • Pros
      • Low dilution
      • Simple, cheap, quick
      • Feels great if make them money!
      • Cons
      • Feels horrible if lose their money!
      • Can complicate later rounds
      • “ Only money” / no further help
      • Bottom Line
      • Keep terms very basic, no board seats, no blocking rights...
      • Make sure it’s money they can afford to lose
    • Fundraising Decoder Ring Source Bootstrap aka yourself / co-founders Friends & Family Incubators / Seed Funds Angels Individuals, Groups VC Stage Idea Idea / Prototype Idea / Prototype Idea / Prototype “ Traction” Amount $5k - 200k+ $5k - $20k+ $50k - $1M+ $500k - $10M+ Form Debt, Convertible Debt Convertible Debt, Equity Equity Convertible Debt, Equity Equity Dilution 0% 5-10% 5-10% 5-20% 20-70% Time Days Weeks Weeks Weeks - Months Months Cost $0 - $1k $500 - $5k $500 - $5k $2k - $10k $10k - $50k+ Exit Any Any $5M+ $5M+ $20M+
    • Source: Incubators / Seed Funds
      • Pros
      • Moderate dilution
      • Help with Legal, IT, PR, etc.
      • Mentors & peers
      • Leg up on fundraising
      • Cons
      • $12k is not a lot of money
      • Usually have to move temporarily
      • Bottom Line
      • Great for first-timers
      • Post-program support differs, YMMV
      • Dilution is dilution
    • Fundraising Decoder Ring Source Bootstrap aka yourself / co-founders Friends & Family Incubators / Seed Funds Angels Individuals, Groups VC Stage Idea Idea / Prototype Idea / Prototype Idea / Prototype “ Traction” Amount $5k - 200k+ $5k - $20k+ $50k - $1M+ $500k - $10M+ Form Debt, Convertible Debt Convertible Debt, Equity Equity Convertible Debt, Equity Equity Dilution 0% 5-10% 5-10% 5-20% 20-70% Time Days Weeks Weeks Weeks - Months Months Cost $0 - $1k $500 - $5k $500 - $5k $2k - $10k $10k - $50k+ Exit Any Any $5M+ $5M+ $20M+
    • Source: Angels
      • Pros
      • Good middle ground, if pick right ones
      • Serious money w/o board seat
      • Manageable dilution e.g. convertible debt
      • Long-term morale, PR, etc. benefits
      • Cons
      • Their money == wrong angel is trouble
      • Can require herding cats
      • Bottom Line
      • Right angel can be hugely valuable
      • Beware of getting bogged down
      • Best or worst of both worlds
      West: Ron Conway, Dave McClure… East: Dharmesh Shah, John Landry… Groups: Founder Collective, eCoast, Founders Fund…
    • Fundraising Decoder Ring Source Bootstrap aka yourself / co-founders Friends & Family Incubators / Seed Funds Angels Individuals, Groups VC Stage Idea Idea / Prototype Idea / Prototype Idea / Prototype “ Traction” Amount $5k - 200k+ $5k - $20k+ $50k - $1M+ $500k - $10M+ Form Debt, Convertible Debt Convertible Debt, Equity Equity Convertible Debt, Equity Equity Dilution 0% 5-10% 5-10% 5-20% 20-70% Time Days Weeks Weeks Weeks - Months Months Cost $0 - $1k $500 - $5k $500 - $5k $2k - $10k $10k - $50k+ Exit Any Any $5M+ $5M+ $20M+
    • There is No Going Back From VC So just be very sure 
    • Source: VC
      • Pros
      • Real money for scale, can pay yourself
      • Right VCs have strategic relationship
      • Cons
      • Closing VC round s is major time sink
      • Board management is major time sink
      • Major dilution == big exit needed
      • Can come with strings e.g. CEO/team
      • Bottom Line
      • Commitment level == getting engaged
      • Complex deal terms, have to know which to fight for
      • Key for building a big company, from FB to Xobni
    • VC Fundraising Myth-Bustin’
      • Myth: Higher Valuation is Always Better
      • You can price yourself out of future rounds
      • “ Down” rounds (valuation falls) are really, really painful
      • Myth: Angel First, Then VC Reduces Dilution
      • Reality is Angel and VC valuations are not that different
      • Is $200k for 10% dilution better than $1M for 25% dilution?
      • Is 10% dilution and then 50% dilution better than 50% dilution?
      • Myth: Control is About Board Votes and % Ownership
      • Good VCs will never force founders to do something
      • In reality, nothing ever comes down to a “vote”
      • “ 50% ownership” is a red herring, VC controls are really about dilution and sale blocking rights
      • Myth: I Shouldn’t Talk to VCs Until I Need $1M
      • Yes, you should have your story together before talking to VCs
      • But much of “traction” == “I’ve been talking with them for a few months and see growth”
    • How Much to Raise
      • Make a financial model
        • add all expenses you can think of
      • This is for you , not for investors
      • Make it realistic. Make it pessimistic. Then double it.
        • make an Expected Case, and a Worst Case
      • You want 12-18 months of cash
        • Fundraising is a big distraction, don’t do it too often
        • And you need to start 3-6 months early
      • Внимание: You will get what you ask for!
    • Contacting Investors
      • Research the right investors
        • Who is interested in your space?
        • Who understands your space?
        • Crunchbase, VC websites’ partner profiles
      • Find an introduction
        • Top investors get bombarded with pitches
        • Someone recommending you makes a difference
      • Or else just do it
        • But, investors want to hear of good startups
        • So you can also just contact them… but do it well!
    • The Pitch examples from bit.ly/fwgoA0
      • What problem are you addressing? (“is this compelling?”)
      • How do you solve it? (“can you really fix this?”)
      • Why are you the ones to solve it? (“who are you?”)
      • Why is this a big problem? (“why should I care?”)
      • How will you make money? (“do I believe you?”)
      • How much money will you make? (“is it enough?”)
      • How much money are you raising? (“what’s the deal?”)
      • Who else is going after this opportunity? (“are you special?”)
      • What are your milestones? (“are you meeting a plan?”)
    • What problem are you addressing?
    • How do you solve it?
    • Why are you the ones to solve it?
    • Why is this a big problem?
    • How will you make money?
    • How much money will you make?
    • How much are you raising?
    • Competition
    • Negotiating Valuation
      • Guidelines
      • Angel deals: $700k - $5m+
      • VC deals: $2m - $10m+
      • It’s All About Traction
      • Is your team solid?
      • Is your product built?
      • Is anyone buying it?
      • Are they paying enough?
      • But anything helps: press, partnerships, innovation
    • Q&A Time!
      • Advanced Topics
      • Convertible rounds: discounts, caps, warrants
      • Valuation
      • Fostering deal competition
      • Deal terms e.g. pro-rata (& super), anti-dilution, etc.
      • Inside rounds, follow-on rounds, leading a round etc.
      • Managing the lawyers
      • Managing the board
      • Term sheets: comparing, exploding
      • Compensation across funding stages
      • Pitch decks
      • Financial modeling
      • Business plans (do plan, don’t do a 50-page document)
      • VC seed rounds
      • Signaling
      • VC fund size, fund life stages, LPs, etc.
    • Further Resources
      • VC & Angel Directories
      • AngelList: http://angel.co
      • Crunchbase: http://crunchbase.com
      • Relevant Blogs
      • VentureHacks: http://www.venturehacks.com
      • Mark Suster: http://www.bothsidesofthetable.com
      • Brad Feld: http://www.feld.com
      • Chris Dixon: http://cdixon.org
      • Fred Wilson: http://www.avc.com
      • Paul Graham: http://www.paulgraham.com/articles.html
      • Documents
      • YC Series AA Funding Docs: http://ycombinator.com/seriesaa.html
      • AVC Seed Docs: http://avc.com/a_vc/2010/03/standardized-venture-funding-docs.html
      • Wilson Sonsini Term Sheet Generator: https://dealbuilder.wsgr.com