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Capital Raise Process


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A simple deck on raising capital for early-stage founders.

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Capital Raise Process

  1. 1. 1 Raising Capital
  2. 2. 2 Three Parts to Raising Capital q Part 2: Investor presentations, communicating, adapting q Part 1: Preparing, timing and identifying the correct firms, partners q Part 3: Cap table, term sheet, diligence, and closing docs
  3. 3. 3 Optimizing the process Contracts & diligence: Pure Speed Presentation& Follow Up: Anticipate and engage Outreach: Efficiency and Iteration
  4. 4. 4 The Reality of Fundraising EVERYONE ELSE
  5. 5. 5 Fundraising is actually a ton of fun.. Besides capital, here are the other benefits you get from fundraising: 1. Do it once, you learn what it takes to do it again 2. Learn the intricacies of sales 3. Amazing networking opportunity 4. Design and presentation practice 5. Humbling… you’ll learn how to bounce back from failure 6. Great team bonding activity 7. Forces you to think outside the box about your business and have honest conversations 8. UNBELIVABLE learning experience from what venture investors have seen elsewhere
  6. 6. 6 When do you raise? AWARE of monthly cash burn (run rate) ANTICIPATE at least a 6 MONTH capital raise process AIM to have 3-4 months of cash left at end of process for leverage ACTIVATEcapital raising process 9 MONTHS before you will run out of cash (hint: raise 18 months of capital to allow for 9 months of focus) ALWAYS know the trends of your business, downward momentum kills a deal even with explanation
  7. 7. 7 Steps before your first contact with potential investors o Get board members or other objective third parties to review your deck and offer feedback on strengths and weaknesses o Recognize your public (and private when possible) comps to understand how to position against them o Use comps to direct your story - YOU NEED TO GUIDE INVESTORS TO THE POTENTIAL OF YOUR COMPANY AND HOW YOU FIT IN THEIR PORTFOLIO o Create a tracking document – you’ll be contacting a lot of investors and process is important o Develop slightly different decks for each investor type – teaser, full-length, venture v. strategic o Prepare a data room in Google Drive or Dropbox – include pitch deck, legal docs, board notes, financials, term sheet, market research, marketing, org charts, IP, product backlog, etc…
  8. 8. 8 Identify the different types of prospective investors Venture Strategic (corporate) Important things to note: 1. Thesis 2. Geo-focus 3. Stage focus Important things to note: 1. Industry 2. Process takes way longer 3. Valuation will likely be lower
  9. 9. 9 Does your startup fit the size of the fund? 1. Make sure the investor focuses on the investment size you are seeking 2. Ensure the fund is the right size (some firms have more than one fund) a) Example: $100M fund expects: i. 20-25 investments over 5 years ii. 60% of capital is follow-on for winners iii. $40M left for initial investments, $2M per first check 3. Check the age of the fund a) Funds typically make their investments in the first 5 years of the fund b) Recognize your proximity to fund close – you could be great for year 1 or 5 but it is fair to ask. You might be pressured to exit early if firm is on the board.
  10. 10. 10 How to Identify the Correct Venture Investors 1. Start with a WIDE funnel that encompasses: A. Industry Investors B. Business Model Investors C. Stage Specific Investor 2. Alter your deck slightly based on the terms each investor may value A. Marketplaces: GMV, $/visitor, cohort analysis, CPA, LTV B. SaaS: RMR, LTV, CPA, cohorts, churn C. Hardware: margin, retention, RMR (increasingly), units sold 3. Find venture firms and their opinions online A. Recent deals B. Online presence: blogs, Twitter, panels, guest posts on industry publications C. Referrals 4. Rank potential investors, start from the bottom to build and perfect your deck for the top 20%
  11. 11. 11 During the pitch process o Have your house in order– build a CRM in Excel, Airtable, Hubspot o Have a KPI that you are confident will never go down o Have a “drip” of positive news ready for the end of every week for prospective investors o Don’t waste time with investors that are “bottom feeders” i. Ask what firms the investor has looked at in your space ii. Ask other investors and lawyers about them iii. Association with them can be a negative to good investors o ALWAYS respond to no’s i. Get feedback – what do VCs need to see to consider the next round? ii. Improve iii. Move On – learn the difference between investor pulling vs. you pushing Example of data included in CRM on VCs, combine with relevant timeline of communication(s)
  12. 12. 12 Close the Deal • Know when and how to push – a simple “So, what do you think?” • Gauge the reaction • Caveated answer is usually a no (It’s interesting, but..) • Next steps is usually a good sign of progress • Guide the valuation (remember the public comps?) • Revenue multiples • RMR multiples • EV/LTM multiple • EV/NTM multiple • Close as quickly as possible – many uncertainties can derail the process • Term Sheet • Due Diligence • Closing Docs
  13. 13. Kevin Stevens Email :