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Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
Global Innovation Labs Founders Bootcamp - Introduction to fundraising
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Global Innovation Labs Founders Bootcamp - Introduction to fundraising

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  • 1. Introduction to Fundraising When, Why & Who to Raise (and not raise) Money From Roy Rodenstein Global Innovation Labs Moscow State University, 6/4/2011
  • 2. Who can be a successful entrepreneur? I believe anyone can… if they want it enough and get the right support
  • 3. Even Чебурашка и Гена
  • 4. Even Че Б урашка
  • 5. <ul><li>User-Generated Local Events Content + Ticketing (originally HeyLetsGo) </li></ul>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
  • 6. Companies Mentor Investor/Advisor UX researcher early employee acquired by co-founder acquired by About Me @royrod how2startup.com
  • 7. 5 Key Fundraising Topics <ul><li>Deciding Who to Raise From </li></ul><ul><li>How Much to Raise </li></ul><ul><li>Contacting Investors </li></ul><ul><li>The Pitch </li></ul><ul><li>Negotiating Valuation </li></ul>
  • 8. Deciding Who to Raise From Bootstrap aka yourself / co-founders Friends &amp; Family Incubators / Seed Funds Angels Individuals, Groups VC
  • 9. Deciding Who to Raise From Higher chance of making $5M (~1%) Higher chance of making $0.00 (&gt;50 %) Bootstrap aka yourself / co-founders Friends &amp; Family Incubators / Seed Funds Angels Individuals, Groups VC
  • 10. Fundraising Decoder Ring Source Bootstrap aka yourself / co-founders Friends &amp; 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+
  • 11. Fundraising Decoder Ring Source Bootstrap aka yourself / co-founders Friends &amp; 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+
  • 12. Source: Bootstrap <ul><li>Pros </li></ul><ul><li>No dilution </li></ul><ul><li>Simple, cheap, quick </li></ul><ul><li>Cons </li></ul><ul><li>It’s not OPM (Other People’s Money) </li></ul><ul><li>Morale impact if funds run low </li></ul><ul><li>Bottom Line </li></ul><ul><li>Good to get some personal involvement </li></ul><ul><li>But don’t overdo it- fundraising is better than giving up </li></ul>
  • 13. Fundraising Decoder Ring Source Bootstrap aka yourself / co-founders Friends &amp; 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+
  • 14. Source: Friends &amp; Family <ul><li>Pros </li></ul><ul><li>Low dilution </li></ul><ul><li>Simple, cheap, quick </li></ul><ul><li>Feels great if make them money! </li></ul><ul><li>Cons </li></ul><ul><li>Feels horrible if lose their money! </li></ul><ul><li>Can complicate later rounds </li></ul><ul><li>“ Only money” / no further help </li></ul><ul><li>Bottom Line </li></ul><ul><li>Keep terms very basic, no board seats, no blocking rights... </li></ul><ul><li>Make sure it’s money they can afford to lose </li></ul>
  • 15. Fundraising Decoder Ring Source Bootstrap aka yourself / co-founders Friends &amp; 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+
  • 16. Source: Incubators / Seed Funds <ul><li>Pros </li></ul><ul><li>Moderate dilution </li></ul><ul><li>Help with Legal, IT, PR, etc. </li></ul><ul><li>Mentors &amp; peers </li></ul><ul><li>Leg up on fundraising </li></ul><ul><li>Cons </li></ul><ul><li>$12k is not a lot of money </li></ul><ul><li>Usually have to move temporarily </li></ul><ul><li>Bottom Line </li></ul><ul><li>Great for first-timers </li></ul><ul><li>Post-program support differs, YMMV </li></ul><ul><li>Dilution is dilution </li></ul>
  • 17. Fundraising Decoder Ring Source Bootstrap aka yourself / co-founders Friends &amp; 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+
  • 18. Source: Angels <ul><li>Pros </li></ul><ul><li>Good middle ground, if pick right ones </li></ul><ul><li>Serious money w/o board seat </li></ul><ul><li>Manageable dilution e.g. convertible debt </li></ul><ul><li>Long-term morale, PR, etc. benefits </li></ul><ul><li>Cons </li></ul><ul><li>Their money == wrong angel is trouble </li></ul><ul><li>Can require herding cats </li></ul><ul><li>Bottom Line </li></ul><ul><li>Right angel can be hugely valuable </li></ul><ul><li>Beware of getting bogged down </li></ul><ul><li>Best or worst of both worlds </li></ul>West: Ron Conway, Dave McClure… East: Dharmesh Shah, John Landry… Groups: Founder Collective, eCoast, Founders Fund…
  • 19. Fundraising Decoder Ring Source Bootstrap aka yourself / co-founders Friends &amp; 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+
  • 20. There is No Going Back From VC So just be very sure 
  • 21. Source: VC <ul><li>Pros </li></ul><ul><li>Real money for scale, can pay yourself </li></ul><ul><li>Right VCs have strategic relationship </li></ul><ul><li>Cons </li></ul><ul><li>Closing VC round s is major time sink </li></ul><ul><li>Board management is major time sink </li></ul><ul><li>Major dilution == big exit needed </li></ul><ul><li>Can come with strings e.g. CEO/team </li></ul><ul><li>Bottom Line </li></ul><ul><li>Commitment level == getting engaged </li></ul><ul><li>Complex deal terms, have to know which to fight for </li></ul><ul><li>Key for building a big company, from FB to Xobni </li></ul>
  • 22. VC Fundraising Myth-Bustin’ <ul><li>Myth: Higher Valuation is Always Better </li></ul><ul><li>You can price yourself out of future rounds </li></ul><ul><li>“ Down” rounds (valuation falls) are really, really painful </li></ul><ul><li>Myth: Angel First, Then VC Reduces Dilution </li></ul><ul><li>Reality is Angel and VC valuations are not that different </li></ul><ul><li>Is $200k for 10% dilution better than $1M for 25% dilution? </li></ul><ul><li>Is 10% dilution and then 50% dilution better than 50% dilution? </li></ul><ul><li>Myth: Control is About Board Votes and % Ownership </li></ul><ul><li>Good VCs will never force founders to do something </li></ul><ul><li>In reality, nothing ever comes down to a “vote” </li></ul><ul><li>“ 50% ownership” is a red herring, VC controls are really about dilution and sale blocking rights </li></ul><ul><li>Myth: I Shouldn’t Talk to VCs Until I Need $1M </li></ul><ul><li>Yes, you should have your story together before talking to VCs </li></ul><ul><li>But much of “traction” == “I’ve been talking with them for a few months and see growth” </li></ul>
  • 23. How Much to Raise <ul><li>Make a financial model </li></ul><ul><ul><li>add all expenses you can think of </li></ul></ul><ul><li>This is for you , not for investors </li></ul><ul><li>Make it realistic. Make it pessimistic. Then double it. </li></ul><ul><ul><li>make an Expected Case, and a Worst Case </li></ul></ul><ul><li>You want 12-18 months of cash </li></ul><ul><ul><li>Fundraising is a big distraction, don’t do it too often </li></ul></ul><ul><ul><li>And you need to start 3-6 months early </li></ul></ul><ul><li>Внимание: You will get what you ask for! </li></ul>
  • 24. Contacting Investors <ul><li>Research the right investors </li></ul><ul><ul><li>Who is interested in your space? </li></ul></ul><ul><ul><li>Who understands your space? </li></ul></ul><ul><ul><li>Crunchbase, VC websites’ partner profiles </li></ul></ul><ul><li>Find an introduction </li></ul><ul><ul><li>Top investors get bombarded with pitches </li></ul></ul><ul><ul><li>Someone recommending you makes a difference </li></ul></ul><ul><li>Or else just do it </li></ul><ul><ul><li>But, investors want to hear of good startups </li></ul></ul><ul><ul><li>So you can also just contact them… but do it well! </li></ul></ul>
  • 25. The Pitch bit.ly/fwgoA0 <ul><li>What problem are you addressing? (“is this compelling?”) </li></ul><ul><li>How do you solve it? (“can you really fix this?”) </li></ul><ul><li>Why are you the ones to solve it? (“who are you?”) </li></ul><ul><li>Why is this a big problem? (“why should I care?”) </li></ul><ul><li>How will you make money? (“do I believe you?”) </li></ul><ul><li>How much money will you make? (“is it enough?”) </li></ul><ul><li>How much money are you raising? (“what’s the deal?”) </li></ul><ul><li>Who else is going after this opportunity? (“are you special?”) </li></ul><ul><li>What are your milestones? (“are you meeting a plan?”) </li></ul>
  • 26. What problem are you addressing?
  • 27. How do you solve it?
  • 28. Why are you the ones to solve it?
  • 29. Why is this a big problem?
  • 30. How will you make money?
  • 31. How much money will you make?
  • 32. How much are you raising?
  • 33. Competition
  • 34. Negotiating Valuation <ul><li>Guidelines </li></ul><ul><li>Angel deals: $700k - $5m+ </li></ul><ul><li>VC deals: $2m - $10m+ </li></ul><ul><li>It’s All About Traction </li></ul><ul><li>Is your team solid? </li></ul><ul><li>Is your product built? </li></ul><ul><li>Is anyone buying it? </li></ul><ul><li>Are they paying enough? </li></ul><ul><li>But anything helps: press, partnerships, innovation </li></ul>
  • 35. Q&amp;A Time! <ul><li>Advanced Topics </li></ul><ul><li>Convertible rounds: discounts, caps, warrants </li></ul><ul><li>Valuation </li></ul><ul><li>Fostering deal competition </li></ul><ul><li>Deal terms e.g. pro-rata (&amp; super), anti-dilution, etc. </li></ul><ul><li>Inside rounds, follow-on rounds, leading a round etc. </li></ul><ul><li>Managing the lawyers </li></ul><ul><li>Managing the board </li></ul><ul><li>Term sheets: comparing, exploding </li></ul><ul><li>Compensation across funding stages </li></ul><ul><li>Pitch decks </li></ul><ul><li>Financial modeling </li></ul><ul><li>Business plans (do plan, don’t do a 50-page document) </li></ul><ul><li>VC seed rounds </li></ul><ul><li>Signaling </li></ul><ul><li>VC fund size, fund life stages, LPs, etc. </li></ul>
  • 36. Further Resources <ul><li>VC &amp; Angel Directories </li></ul><ul><li>AngelList: http://angel.co </li></ul><ul><li>Crunchbase: http://crunchbase.com </li></ul><ul><li>Relevant Blogs </li></ul><ul><li>VentureHacks: http://www.venturehacks.com </li></ul><ul><li>Mark Suster: http://www.bothsidesofthetable.com </li></ul><ul><li>Brad Feld: http://www.feld.com </li></ul><ul><li>Chris Dixon: http://cdixon.org </li></ul><ul><li>Fred Wilson: http://www.avc.com </li></ul><ul><li>Paul Graham: http://www.paulgraham.com/articles.html </li></ul><ul><li>Documents </li></ul><ul><li>YC Series AA Funding Docs: http://ycombinator.com/seriesaa.html </li></ul><ul><li>AVC Seed Docs: http://avc.com/a_vc/2010/03/standardized-venture-funding-docs.html </li></ul><ul><li>Wilson Sonsini Term Sheet Generator: https://dealbuilder.wsgr.com </li></ul>

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