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Startup Funding: FAQ

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When it comes to raising money for your startup, there are certain questions investors ask startups during their pitch in order to evaluate your business idea as well as to see how prepared you are to take on all the challenges and responsibilities you set for yourself. Find out the most Frequently Asked Questions you need to know to successfully prepare your pitch.
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Presentation is created by Volodymyr Nesterenko, Managing Partner @ Digital Future.
Digital Future is the most active Ukrainian VC firm
Closed 11 deals in 2016, $4M+ invested in 2016
www.digital-future.org

Published in: Investor Relations
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Startup Funding: FAQ

  1. 1. Startup funding F.A.Q. Image source Volodymyr Nesterenko, Digital Future
  2. 2. Whatever I do, I end up in Investments Managing Partner @ Digital Future Digital Future is the most active Ukrainian VC firm Closed 11 deals in 2016, $4M+ invested About me
  3. 3. When to raise money How much to raise What valuation to expect Which investors to approach Debt or Equity Can I get paid my past cost Do I need a legal entity What is Term Sheet and do I need it Questions
  4. 4. When to raise money? Image source
  5. 5. When to raise money? When there is no other choice Image source
  6. 6. When to raise money? When there is no other choice You know how to use it and prove you can do it Image source
  7. 7. When to raise money? When there is no other choice You know how to use it and prove you can do it You have at least 6 months of runway Image source
  8. 8. Image source Runway
  9. 9. Runway: how many months a company can operate without new financing at the current level of cash burn Cash burn: monthly net cash outflow
  10. 10. Mailchimp: The most known bootstrapped company Founded in 2007, never raised venture capital $300M+ annual revenue, 550+ employees
  11. 11. Bootstraps Image source
  12. 12. How much to raise? Image source
  13. 13. How much to raise? The round should cover 12-18m runway Image source
  14. 14. How much to raise? The round should cover 12-18m runway If less: out of cash => depressed valuation (at best) Image source
  15. 15. How much to raise? The round should cover 12-18m runway If less: out of cash => depressed valuation (at best) If more: selling your stake too cheap Image source
  16. 16. How much to raise? The round should cover 12-18m runway If less: out of cash => depressed valuation (at best) If more: selling your stake too cheap Mind investors’ ticket Image source
  17. 17. What valuation to expect? Image source
  18. 18. The one promising an investor min 10x return over 5-7y What valuation to expect? Image source
  19. 19. The one promising an investor min 10x return over 5-7y Using revenue multiples is the most common method What valuation to expect? Image source
  20. 20. The one promising an investor min 10x return over 5-7y Using revenue multiples is the most common method Investors also check valuations vs potential exit value What valuation to expect? Image source
  21. 21. The one promising an investor min 10x return over 5-7y Using revenue multiples is the most common method Investors also check valuations vs potential exit value If it’s $50M, they’re unlikely to accept valuation >$5M What valuation to expect? Image source
  22. 22. Revenue multiple: a benchmark ratio that is used to measure a company's value based on its annual sales; expressed in ‘times revenue’: 3x, 5x, 10x ... Multiples depend on industry averages, growth and margins
  23. 23. Which investors to approach? Image source
  24. 24. Which investors to approach? Most appropriate for your stage Image source
  25. 25. Which investors to approach? Most appropriate for your stage Seed and earlier stages: raise where the money is Image source
  26. 26. Which investors to approach? Most appropriate for your stage Seed and earlier stages: raise where the money is Late seed, venture stages: raise where the revenue is Image source
  27. 27. Which investors to approach? Most appropriate for your stage Seed and earlier stages: raise where the money is Late seed, venture stages: raise where the revenue is Seek VCs which can bring clients and other investors Image source
  28. 28. Debt or Equity? Image source
  29. 29. Debt or Equity? They both suck Image source
  30. 30. Debt or Equity? They both suck Selling equity is better for a founder Image source
  31. 31. Debt or Equity? They both suck Selling equity is better for a founder But it steals much time and costs money Image source
  32. 32. Debt or Equity? They both suck Selling equity is better for a founder But it steals much time and costs money That’s why we use convertibles and SAFEs at early stages Image source
  33. 33. Convertible note SAFE* Preferred stock Common stock Class debt derivative equity equity Ownership no no yes yes Voting rights no no no yes Asset claim priority 1 1 2 3 Maturity yes no no no Interest yes/no no no no Valuation yes** yes**/no yes yes * Simple Agreement for Future Equity; it is neither equity, nor debt, as it doesn’t have any maturity or interest; ** So-called ‘valuation cap’ -- maximum valuation, at which the underlying amount will be converted into equity; actual equity round valuation can be lower (or higher)
  34. 34. Can I get paid my past cost? Image source
  35. 35. Can I get paid my past cost? Never ask this ^^^ question Image source
  36. 36. Can I get paid my past cost? Never ask this ^^^ question Yes, you can. If it’s not your personal debt Image source
  37. 37. Can I get paid my past cost? Never ask this ^^^ question Yes, you can. If it’s not your personal debt To repay personal debt, sell your own shares (be prepared for low valuation) Image source
  38. 38. Do I need a legal entity? Image source
  39. 39. Do I need a legal entity? YES - at any stage later than Friends & Family Image source
  40. 40. Do I need a legal entity? YES - at any stage later than Friends & Family Register where your clients are Image source
  41. 41. Do I need a legal entity? YES - at any stage later than Friends & Family Register where your clients are LLC is just fine until you need to issue shares Image source
  42. 42. Do I need a legal entity? YES - at any stage later than Friends & Family Register where your clients are LLC is just fine until you need to issue shares Corp - for raising equity and for SAFEs Image source
  43. 43. What is Term Sheet and do I need it? Image source
  44. 44. What is Term Sheet and do I need it? The summary of key terms of a future binding agreement Image source
  45. 45. What is Term Sheet and do I need it? The summary of key terms of a future binding agreement Needed to save time & money for everybody Image source
  46. 46. What is Term Sheet and do I need it? The summary of key terms of a future binding agreement Needed to save time & money for everybody Normally used by professional VCs Image source
  47. 47. What is Term Sheet and do I need it? The summary of key terms of a future binding agreement Needed to save time & money for everybody Normally used by professional VCs This is an investor’s document Image source
  48. 48. Get connected /nesterenko.v /digitalfuture digital-future.org

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