How to raise a seed series a, without losing your company.

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How to raise a seed series a, without losing your company.

  1. How to raise your Seed/Series A without losing your company
  2. The Ideal VC Startup Relationship = Rocket Fuel for your Super Rocket • A constant belief in the team, value and market • A good work dynamic and clear expectations = capital, advice, connections and moral support • Lift off as planned = User growth, revenue growth, network effect, viral loop, etc… • More rocket fuel = Series B, C, etc… • Exiting our rocket = everyone becomes super rich
  3. Steve and I get a lot of credit, but Mike Markkula was probably more responsible for our early success. ~ Steve Wozniak Steve Wozniak Interview Quote: http://failuremag.com/feature/article/steve_wozniak_interview/P2/
  4. The Typical VC Startup Relationship = Our Rocket launched, but isn’t going up • An inconsistent belief in the team, value and market • A limited work dynamic and clear expectations = capital, limited advice, connections, limited support • Lift off, but not as planned = iteration/pivoting for X days, months, years, using X investor dollars • Lift off as planned = User growth, revenue growth, network effect, viral loop, etc… • More rocket fuel = Series B, C, etc… • We must sell my rocket = Someone makes money, someone loses their hope for more
  5. Will your investors support you long enough to become the smartest guy? Uniqueness of your product That lone “Crazy” The smartest guy in the room Everyone's “Wrong” Time to compete on price Value to your customer Adapted from Guy Kawasaki’s Lecture at Tie Con 2006, “The Art of the Start”
  6. A Bad VC Startup Relationship = Our Rocket isn’t working… • Limited belief in the team, value or market • A bad work dynamic and unclear expectations = capital, no advice, no connections, no support • Poor performance for X days = – Change in Management – Buyback of investor’s shares Eg: Twitter, Stumbleupon – Selling the company cheaply as an “Acqui-hire” – Close down the company and return remaining capital
  7. The Worst VC Startup Relationship = You $&#@@! me • VC thinks he can easily replace management. Management thinks they can easily replace VC = Adversarial and detrimental work dynamic • VC wins the long unproductive fight for ownership = company dies in the meantime • VC loses all capital in a half dead leaderless company for which he has no management = stops VC/Angel Investing in ~2 Years
  8. How to raise, use and return capital fairly?
  9. Taking Money = Agreeing on expectations Entrepreneurs • Have the right to own over 51% of their company after all fundraising is completed • Should take only as much capital as they need Investors • Have the right to make large returns • Should allocate their time to make the largest possible returns for their investors/interests Adapted from Lawrence Lenihan’s Funding Bill of Rights: http://lawrencelenihan.wordpress.com/the-funding-bill-of-rights/
  10. Different investors = Different expectations Angel Investors • Invest their own personal capital • Have not made promises to achieve specific returns to anyone = can accept 2-3X returns Venture Capitalists • Invest other’s capital; their Limited Partners • Have made promises to achieve 10X returns = cannot accept 2-3X returns on capital
  11. The Funding Life Cycle and Your Ownership Seed: Launches product, allows you to prove value • Founders: 80-90% of the company • Investors: 1 – 3; own 10-20% of the company Series A: Scales a value proposition the market pays for • Founders: 60-70% of the company • Investors: 2 – 5; own 20-40% of the company Series B: Accelerates growth for a scalable product • Founders: 50-60% of the company • Investors: 4 – 8+; own 40-50% of the company Series C+: You can and will capture X of this market • Founders: owns 30-50% of the company • Investors: 4 – 8+; own 70-50% of the company
  12. Using Money = Performing Entrepreneurs • Have the right to remain CEO if they perform • Should meet the milestones they agreed upon • Should share information about the company Investors • Have the right to protect their investment • Should have measurable + reasonable milestones • Should provide more than just capital Adapted from Lawrence Lenihan’s Funding Bill of Rights: http://lawrencelenihan.wordpress.com/the-funding-bill-of-rights/
  13. Making/Returning Money = Agreeing on when and how you exit Entrepreneurs • The right to go for the exit they set out for • Should make the economic result they prefer and will settle for clear eg: any exit over XMM Investors • The right to go for the exit they set out for • Should make the economic result they prefer and will settle for clear eg: any exit over XMM Adapted from Lawrence Lenihan’s Funding Bill of Rights: http://lawrencelenihan.wordpress.com/the-funding-bill-of-rights/
  14. Local VS International Investors = What is your target market? Local Investors • Know the local market = Consumer Web • Proximity does matter = Mentorship International Investors • Know international markets = High Tech • May have unique experience = BOD meetings
  15. What Investors do not want to see = that you will lose all of their money • Lack of focus; we have 6 “ideas” for 4 markets • We will take your money and pay consultants to build our product for us, because we can’t do it • We want much more money than we need • We have no idea how to acquire customers and plan to figure it out later once we have no money • We know everything possible about a market we have never worked/competed in 7500+ KM away • We have no competitors and will not have any
  16. How to make an investor presentation that is convincing...
  17. Logo Site URL Direct Contact Info
  18. One sentence about your company’s mission/purpose Eg: [Company Name] is the X (cheapest, fastest, easiest to use, etc…) source for Y (buying shoes, forex trading, etc..) online
  19. A Big Problem/Pain in the market • Describe the problem you are solving and it’s size – Eg: X customers don’t have access to Y – Eg: 250MM people can’t easily learn a language online • Describe the pain point you are solving – Eg It is very hard to do A because of B right now – Eg: It is dangerous and difficult for consumers to use existing online banking applications At the end of this slide we should believe: there is a substantial unsolved problem people will pay for
  20. A SIMPLE description of how you solve the problem • Describe in a few words what “value proposition” you are offering users/customers – Eg: we allow user to learn a language through our easy to use online platform • Explain in simple terms how you solve the problem. – Eg: we have unique language learning content At the end of this slide we should: clearly and easily understand what you are offering users
  21. Why is your solution unique and 10X better than what already exists? • Here you can briefly describe what makes your product offering unique – Eg: We have the best semantic analysis of social media data because of X, Y and Z – EG: Our patented semantic algorithim does X to attain a previously unattainable result of Y At the end of this slide we should believe: your solution is unique and does something which current solutions are not able to because of X
  22. A competitive analysis of why your product is clearly superior Competitive Matrix Feature Feature Feature Feature Eg: Ease of use Eg: SaaS Eg: Cost Eg: Speed Feature Eg: Customer Service Your Company Competitor #1 Competitor #2 Competitor #3 Competitor #4 Competitor #5 At the end of this slide we should believe that your substantially better than existing competitors
  23. Your current progress • Describe what you have achieved up to this point using clear data points – Date of the company’s founding/launch = timeframe – Number of Active Users, Unique Visitors, etc… – Revenue, signed partnerships, etc… At the end of this slide we should believe that your previous claims of uniqueness and competitive advantage are substantiated by the market’s reaction to your offering thus far
  24. Your plan for future growth • Your customer acquisition plan which can include but is not limited to: – – – – Marketing Plan/Budget Sales Plan and prospective pipeline/customers Target user/customer acquisition numbers Product roadmap in it’s relation to your value for users At the end of this slide we should believe that you will be able to scale your unique, competitively advantageous product cost effectively and with attractive unit economics
  25. Your Financials • Basic 3 -5 Year Income Statement, with basic cash flow and a headcount at the bottom. By this slide we should already believe that you; are solving a large valuable problem, with a unique product that has a clear competitive advantage. All of which is validated by the market’s current reaction and that you will be able to scale that reaction to meet the above financials.
  26. Briefly Describe Your Founding Team • CEO – Previous work experience in one sentence – Education in one sentence • CTO – Previous work experience in one sentence – Education in one sentence • Other founding Team members – Previous work experience in one sentence – Education in one sentence
  27. Exit Scenario Appendix • Investors make returns/get paid/succeed when your company/their equity is bought. • Helping investors see the high likelihood of an acquisition, shows a clear path to returns. • If there are exit scenarios you believe in, that are based on current acquisition trends in your industry, make this point here. • Making this point poorly might have the opposite effect, so make sure it makes sense.
  28. The source of your intro is important: You are borrowing their reputation Best Sources for Investor intros • Someone who they coinvest with regularly • A portfolio company CEO they like and trust • A trusted source of good dealflow eg: Lawyer Worst Sources for Investor intros • Middle men who take money for intros • Anyone the investor thinks has bad judgment
  29. Fundraising Etiquette: Initial Investor Responses • No = I don’t understand, believe and/or have the capital to take on what I think this will cost • Not now/Maybe later = I want to wait to see if your successful and then invest with less risk • Lets have a partner meeting = we might be interested but I need my partners approval • Yes, here is a check = I am either spraying and praying or I am very experienced but won’t have the time to personally help build your company
  30. How to close smart money investors • Get oversubscribed = social validation • Set a firm closing date = requires commitment • The three types of seed/early stage investors – Those who “build companies”; motivated by your company’s ability to change the world – Those who “do deals”; motivated by economics and it’s underlying monetary gains or losses – Those who waste your time; treat venture investing as if it is a different business they already know well
  31. Thank You. Good Luck. Any Questions? S@QED.VC

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