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Show Me the Money: Pitching and Fundraising for Tech Startups

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Presentation on pitching and fundraising for tech start-ups, Presented at General Assembly in NYC. Thomas Wisneiwski, New York Angels

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Show Me the Money: Pitching and Fundraising for Tech Startups

  1. 1. To all who attended the SMTM Session 2 on Thursday @GA: • Thanks! Hope you enjoyed it and gained something. Feedback welcome. • This document lives online at www.slideshare.com/th omaswis “Show Me the $$$$!”…Session 2: Pitching ***The next class I will teach at GA is: SMTM 3: Insiders View of Angel Investing (11/19/2013) http://bit.ly/1h1uFb7 *** • Email me at Thomas@rosepaul.co m. Connect with me on LinkedIn/Twitter for updates, etc. (Page 23 of this deck has my details) ….Cheers, -TW Learn from VC’s, Angels and Entrepreneurs: What do INVESTORS love (and Hate!) to see in a Pitch? General Assembly / RosePaul Investments Event Tom Wisniewski RosePaul Investments Thursday, October 24th, 2013
  2. 2. Agenda I. Kick-off and Introductions II. Some Context and Background: Seed-Stage Fundraising III. Guest Speaker Q&A: Investor Perspective • BREAK: Networking and Beverages IV. Best Practices: Pitching and Communication V. Guest Speaker Q&A: Founder Perspective • WRAP-UP: Networking and Beverages 1 confidential
  3. 3. I. Kick-off and Introductions a Start-Up of Sorts: …. this class and the SMTM series.  Started out with a 1 hour class and 10 students @GA 2 years ago: • Angels and Angel Groups.  It experienced: “Product/Market Fit” “Growth” “Product Scope Creep” “Several Pivots”  “Show Me the Money” series • Simple formula: 1 part focused, actionable content 2 parts speakers, opinions and discussion 1 part networking • Hate attending LAME classes and events  SMTM Session 1: Accelerators (July 2013)  SMTM Session 2: Pitching (Today!)  SMTM Session 3: Angel Investing (November: Tues, 11/19)  SMTM Session 4: [TBD Topic] (December: Tues, 12/17) 2 confidential
  4. 4. Seminar Rationale: Why are we here? What is the PROBLEM?  The "1 in 100 get funded” ratio = REALITY. • -----> Raising seed-stage money = TOUGH.  Poor communication ----DRIVES----> the “DING“  Feedback = LIES?!?  Pitching = 10-page PowerPoint.  *NO* shortage of pitch advice! = conflicting = WTF??? CHALLENGING 3 confidential
  5. 5. However, we can change the ODDS. Pitching = Learned ART (and Science) So….. what helps?  Understand the basics of “Good Communication”  Leverage other experience: Sales, Interviewing, Dating  Review examples the good and the bad.  Understand the rationale, the "why”  Study. Practice. Pitch. Repeat. Everyone can improve their pitch. Channel some energy and become a "student" of the pitching 4 confidential
  6. 6. Having received (and delivered!) a lot of good and BAD presentations, I have become a student of the Pitch myself… Tom Wisniewski: My background  Born in NYC; grew-up in Montclair, NJ  Physics and Philosophy major undergrad (Clark University); MBA at Tuck School (Dartmouth)   1st Job: Programmer at Morgan Stanley then moved to Investment Banking After B-school: joined a start-up management consulting firm Mitchell Madison Group; focus on Strategy/Operations/IT for financial services, tech, outsourcing, private equity/VC clients (1993 to 2000)  Walker Digital: helped set-up and run an early “internet incubator” (2000)  Independent Advisor / Turn-arounds: Advised VC and PE Firms on portfolio company strategy and new investments; joined the management team of two companies  Currently: • Early stage investor and advisor to start-ups • Investor and advisor to VC and PE funds • Member and director at New York Angels confidential
  7. 7. Additional Introductions  Pedro Torres Picon, Founder, Quotidian Ventures  Jacob Brody, Partner, MESA+ Ventures  Peter Sullivan, Founder/CEO of JackPocket 6 confidential
  8. 8. What would I like you to walk away with?  Better understanding of pitching.  A set of specific insights that will *change* your pitch.  A “to-do” list: starting point(s), actions, things to try.  A set of recommended resources to consult and learn more from.  A few new relationships with others in the NYC startup/fundraising ecosystem: fellow entrepreneurs, investors, etc.  Answers to specific questions about pitching that you might have. 7 confidential
  9. 9. So….what questions do you have about Pitching?  xxx 8 confidential
  10. 10. II. Some Context and Background: Seed-Stage Fundraising 9 confidential
  11. 11. Context: Common Sources of Fundraising Capital Earlier Stage “You” aka Bootstrapped Later Stage “Seed” Friends and Family Angel Investment Venture Capital “Seed” VC “Traditional Series A” VC Round Size $: • $10’s of K to $100K • $100’s of K to $1M+ • $500K to $1.5M • $5M-$15M Investment Size $: $5K – $10’s of K • $25K – $75K • $250K-$750K • $3M – $5M Valuation (PreMon): • < $1 M • $1 – 5 M • $5-10 M • $10 – 25 M Who/what are they? • People you already know, that trust you, and (maybe) understand your venture • Experienced early stage investors (individuals or a group) • Accredited Investors. • Angel investing is not their “job”; may not be F/T endeavor • E.g.: NY Angels, GoldenSeeds • Firm with multiple professionals that raises, invests and manages individual funds (other people’s $) • Working F/T (this is their job…) • E.g.: Greycroft, RRE, Union Square 10 confidential
  12. 12. Some Context: “VC” Business Process and the “100 : 1” Ratio Fundraising Deal Sourcing and Evaluation Deal Structuring and Execution Portfolio Management “Final Due Diligence and Legal” The “Universe” of Companies “Screening” 100 : 10 “Evaluation (and Due Diligence)” 10 : 3 3:1 “Portfolio” 10’s of Companies 1000’s : the “100” 11 confidential
  13. 13. III. Guest Speaker Q&A: Investor Perspective  Personal background and story?  Firm background?  Investment focus? • Stage, investment size, sectors, etc.? • Minimum threshold? (e.g. company generally needs to have xxx ?)  Some recent investments?  What do you like to see in a pitch?  What are some “Red Flags”?  Common mistakes generally?  What are your “turn-ons” with start-ups and pitches in particular? 12 confidential
  14. 14. Tom Wisniewski: Investor Profile  Direct “Angel” Investor in Companies • $25K-250K investments; Typical valuations: $1-5 Million, • Typical Stage: at least some “product” done, some customer/sales traction • Sector focus: Opportunistic generally within internet/software space; - fair amount of Saas B2B, and consumer “marketplace” models, ecommerce enablers. - NOT (or not much?): hardware, heathcare/pharma, cleantech • NYC based: 50% investments in NYC area companies; total of ~80% NE overall (e.g Boston, DC), 20% West Coast. • Examples: - Sociocast (social/behavioral big data analytics) - LiveLook (Saas, live collaboration sales/service platform) - Anvato (Ad insertion to live video streaming via proprietary machine vision) - Moveline (Uber for the moving industry) - Bizodo (Saas, paperwork automation; “Adobe 2.0” internet document sharing) - Movio (Digital “RedBox”; content delivery via “last 100 ft” of wifi internet) - HeTexted (Relationship advice forum generating content, media opportunities) - Wanderu (Kayak for ground transportation) - DealFlicks (a “Priceline” or “Hotel.com” for movie theater tickets) - iCharts (tool that enables engaging, sharable, embedible chart content)  Investor in Funds • In addition to direct investments in start-ups, invest in VC and PE funds. • Examples: - Social Starts (Seed fund for start-ups leveraging the Social Web) - Brooklyn Bridge Ventures (Charlie O’Donnell’s fund) - Entrepreneurs Roundtable Accelerator (ERA Fund) - Greycroft Partners (Venture Fund) 13 confidential
  15. 15. III. Best Practices: Pitching and Communication 14 confidential
  16. 16. Communication is Critical…Why?  “Finding Diamonds in the Rough” problem. There is no shortage of supply: lots and lots of ideas, pitches, people, etc. • The problem for investors is finding the “diamonds”.  The “first minute” problem. If you loose someone’s interest in the “first minute”, you usually loose them. • “First minute” = “first minute”…sometimes first 30 seconds! • “First minute” = a conversation, a meeting, anything • I need to quickly figure out whether I should “spend” more time/effort with you, or move on to something else.  The “0 to 60” problem. Potential investors (or potential employees, customers, etc.) usually start out knowing nothing about you or your venture. • Getting someone “from 0 to 60 mph” is very challenging: too much to say, don’t know where to start.  A Pitch is a “Sale”. You not just trying to “describe”, you are “selling”. Easy to tell people what you are doing; harder to get them to ‘buy”. • You are selling your “product” to prospective “customers”. Product = your company and the opportunity it presents. • You are interviewing for a “new job”. You and your team = great fit for… 15 confidential
  17. 17. Principles of Communication: A Starting Point To start, lets use a simple framework: Audience, Messages, Storyline, Goals, Situation.  Audience. Who is the audience? Who are you selling to? …If you don’t understand someone's “perspective” you will be ineffective • For example: “they have 6 Saas investments vs. they can’t spell Saas” • People generally understand things by association (to things *they* know).  Messages. What points you are making? What is the single key thought you are trying to impart with each page? • “the market is huge and growing” is a message; a chart, some stats, some explanation is what makes up the page  Storyline. What is the narrative story you are building with the collection of messages? Does the story flow well and get to your conclusions?  Goals. What is the goal of this specific meeting? • Unlikely it is getting a “check”. Getting to the next step in the process.  Situation. What the format of the pitch? What are the constraints? • 2 minute elevator pitch vs. 10 minute Power Point pitch vs. email attachment 16 confidential
  18. 18. The Communication Pyramid Level of Detail in a Document Level of Detail in Different Documents The Executive Summary 1 page summary First Page of Each “Chapter” 10 –page deck Each Chapter 20 –page deck Each Chapter with all the Back-up 20 page deck, +++ 17 confidential
  19. 19. “Good” Pitch Deck From “Triple Play” of VC Presentations by Mark Suster (former entrepreneur, now VC)                 Slide 1 – Team Bio Slide 2 – 50k foot view of your company Slide 3 – Problem Definition Slide 4 – How do you solve the problem? Demo Web Version and a Demo Video Example Slide 5 – Market Sizing Slide 5 warning: (Market Sizing Pitfalls) Slide 6 – Competition Slide 7 – Customer Adoption / Traction Slide 8 – Team Slide 9 – Financial projections Slide 10 – Use of Proceeds Slide 11 – Fund raising process / Next steps Appendix – Back-up slides How to deal with the dreaded question of valuation? http://www.bothsidesofthetable.com/pitching-a-vc/ Adapted from “10 Slides to an Awesome Pitch” by Dave McClure, 500 Start-Ups 1. Elevator Pitch 2. The Problem 3. Your Solution (Demo Here!) 4. Market Size 5. Business Model ($) 6. Proprietary Tech 7. Competition 8. Marketing Plan 9. Team / Hires 10. Money / Milestones http://www.slideshare.net/dmc500h ats/how-to-pitch-a-vc-sept-2010 18 confidential
  20. 20. V. Guest Speaker Q&A: Founder Perspective  Peter Sullivan Founder CEO of JackPocket 19 confidential
  21. 21. Key Success Factors and Take-Away’s  Find Fit. Does this investor have “fit”? Do they invest in ventures like mine? ......if not, then move on. (or at least prioritize accordingly)  Prepare! Don’t be lazy; invest some time. • Steve Jobs: 30 hours to develop, 30 hours of practice…30 minutes of presentation. • For example : “Audience”. What have they invested in? Recently? What can you find out about their background? Interests? Hot buttons? - How? Duh….Google: Blogs, Quora, YouTube, CrunchBase; talk to people they know, better…talk to those they have invested in.  Pitch, Get Feedback, Revise. Repeat. No venture idea was built in a vacuum. The ONLY way to develop business ideas is to share them, solicit feedback, make adjustments, develop/refine/add and…..DO IT AGAIN! • 1 part “studying” pitching, 1 part “doing” pitching, 10 parts repeating both……this is becoming a “student” 20 confidential
  22. 22. What would I like you to walk away with?  Better understanding of pitching.  A set of specific insights that will *change* your pitch.  A “to-do” list: starting point(s), actions, things to try.  A set of recommended resources to consult and learn more from.  A few new relationships with others in the NYC startup/fundraising ecosystem: fellow entrepreneurs, investors, etc.  Answers to specific questions about pitching that you might have. 21 confidential
  23. 23. SMTM coming up……Join us:  SMTM Session 3: •Angel Investing (November: Tues, 11/19) “Curious about Angel Investing? Love to be a fly on the wall to see how it really works?” - Who are these Angel Investors? Why do it? Where do you find them? Why would you want to? What are Angel Groups? How/why do the work? What about AngelList, “Soper Angels” and Angel Funds? How do Angel Investors differ? What does the Angel Investment process look like?  SMTM Session 4: •[TBD Topic] (December: Tues, 12/17) 22 confidential
  24. 24. Thanks! Thomas Wisniewski Contact Info Email: thomas@rosepaul.com LinkedIn: http://www.linkedin.com/in/thomaswis Twitter: @thomaswis This presentation: http://www.slideshare.net/Thomaswis/ New York Angels www.newyorkangels.com New York Angels Educational Meetup: http://www.meetup.com/NY-Angels/ 23 confidential
  25. 25. Additional Slides 24 confidential
  26. 26. II. Pitching to Prospective Investors Sources of Investment: Seed Fundraising, Angels and VC’s Earlier Stage “You” aka Bootstrapped Later Stage “Seed” Friends and Family Angel Investment Venture Capital “Seed” VC “Traditional Series A” VC Round Size $: • $10’s of K to $100K • $100’s of K to $1M+ • $500K to $1.5M • $5M-$15M Investment Size $: $5K – $10’s of K • $25K – $75K • $250K-$750K • $3M – $5M Valuation (PreMon): Stage (Pre-Round): • Expected to have: • < $1 M • $1 – 5 M • $5-10 M • $10 – 25 M • An idea, initial/rough b-plan • Initial founders, key advisors • Path to ??? • • • • Detailed b-plan, Key founders (bus & tech) full-time Prototype/alpha done and tested, Some piloting (paying?) customers, some revenues?, • All legal documentation in place, board of directors • Path to break-even or next funding • Significant variation among firms but…. Angel req. +: - Anchor clients on board, revenue growth (B2B), - Growing base of users, with strong usage trends (B2C) - …..Growth potential! Credible path to $100M Rev • Don’t Expect: • $ Rev, Customers, Minimum Viable Product (MVP); full legal documentation • Income (e.g. cash flow positive); all key management ; completely developed business model (e.g. understand it will change) • Income (e.g. cash flow positive) Who/what are they? • People you already know, that trust you, and (maybe) understand your venture • Experienced early stage investors (individuals or a group) • Accredited Investors. • Angel investing is not their “job”; may not be F/T endeavor • E.g.: NY Angels, GoldenSeeds • Firm with multiple professionals that raises, invests and manages individual funds (other people’s $) • Working F/T (this is their job…) • E.g.: Greycroft, RRE, Union Square confidential 25
  27. 27. Given this landscape, how do I get to the pitch?   Who are the “right” investors? Where is there a “fit”? • Reality Check. “people invest in things that they understand and have experience with” - Target find Fit: Find investors that come from industries, sectors, business models etc. that are same/similar to your venture and your customers How to “get” a pitch meeting? • Connect. The hard part. - Avoid “cold-calls”; look for “warm introductions” - Networking. Who do you know that knows them? - Find them at an event. (Email sucks!)  Really you should be thinking…How do I build a relationship first? • Pitching by its very nature can be awkward. “This guy wants something from me.” • Most investors mean-well, and would like to help…but are busy  Solution: Build a relationship before you need to pitch. OK, How? • Give, don’t Ask: what can you do for them? • “Ask for advice, not money” • Debate / Discuss a topic, Ask opinion about X. • Find ways to “show” rather than “tell”: 26 confidential
  28. 28. Common “Forms” of Pitch Communication. What are they? Which should I use? “Document” Simplistic Description Common Situation/ Use 1-pager “1 pager Exec Summary, Word doc” • • Email attachment or handout Online platforms e.g. Gust, AngelList Email Brief “Teaser paragraph of text / bullets” • “In the intro email” (w/ attachments) Business Plan “10-40 page Word doc” • • Detailed discussions (similar use) Stand-alone, due diligence Pitch Deck “10 page PowerPoint presentation” • • “15 minute stand-up presentation” Email attachement Long-Form Pitch Deck “20-40 page version of 10 pager; PowerPoint presentation” • “60-90 minute follow-up meeting with smaller group” Elevator Pitch “No document, just you talking for 60 seconds” • Your quick intro after you meet someone in person “Video” Pitch “10 minute video of your deck/ demo w/ you voice” • • Email attachment Online platforms e.g. Gust, AngelList Due Diligence Docs “All the detailed spreadsheets, data, etc. that back-up your pitch” e.g. Financial Projections, Sales Funnel, Legal Docs • For detailed discussions with interested investors, usually postterm-sheet Online platforms e.g. Gust, AngelList • The Good News: • you don’t need to have all of them (maybe ever, certainly 1 or 2 to start is fine) • much of the content, messages, storylines can be shared and reused • Preparing thoughtful docs ……refines your thinking and your venture. confidential 27
  29. 29. Who are these “Angels”? What do they look like?  Experienced, successful entrepreneurs: frequently multiple exits • Some from “tech-start-ups” some from other businesses • Usually some link to  Successful “corporate” business people: CEO or CxO-types  Older: most are in the 40-60 age group. But there are also notable angels in their 20’s and 30’s e.g. newly minted start-up millionaires  3 – 10+ Angel Investments  ~10% of investible capital in Angel Investments  Differ *widely* in: Industry/Functional Experience, Investment Expience, Interests, Target Sectors/Stage, Investment $, Risk Tolerance, personal do’s/don’ts and hot buttons.  Lists? Not many. All are partial. AngelList? Gust? Other? 28 confidential
  30. 30. NY Angels Profile www.newyorkangels.com  Member Profile: ~80 investor/members; several early-stage funds; Member backgrounds are generally representative of the tech / entrepreneurs / industries in NYC: software, e-commerce, ad-tech, finance, media  Sector Focus: Internet, e-commerce, new-media, software; B2C and B2B. Mostly NYC Area.  Stage. Mostly early stage (with some customers/revs), some seed stage (pre-revenue)  Valuations/ Investment Size: NYA pre-money valuations tend to range from $1M – 4M; investments tend to range from $250K to $1M+; • For larger rounds, NYA often leads the deal and helps find the rest of the capital by sharing/syndicating the deal with other Angel Groups  Group Structure / Investment Decisions. NYA core structure is as a group of individual investors. Individual investors “opt in” to deals and make their own investment decisions. • Typical member invests $25-50K in a deal. • In addition to the core “opt-in” model, NYA has just closed a small seed fund that will operate in parallel (using a “democratic model” for investment decisions)  History/Background. NYA has invested $45M+ in 70+ companies. • We are very active in the NYC entrepreneurial / early-stage ecosystem 29 confidential
  31. 31. Variations on the Theme: Other Players  “Super Angel” (vs. Angels, Angel Groups). Sophisticated angel investor with a large portfolio of early stage investments (30? 50?) and that is investing frequently (10 + per year). E.g. David Rose, Fabrice Grinda  Microfund or Micro VC Fund. Small VC fund ($1-10 M) often run by a single person typically making “angel” size investments in early stage companies.  Seed Fund. VC fund focused on “seed” (aka Angel) stage investments: often pre-revenue, pre-product. Some VC’s that typically invest in “Series A” rounds will reserve a portion of their fund for seed investments: e.g. $250 – 750K investments at $1-5 Million valuations  Incubator/Accelerator. Entity that provides non-monetary support/services (in addition to $’s) to early stage ventures. Typical support/services can include: space, IT infrastructure, shared admin service, advice/feedback, introductions/networking. Public vs. private, independent vs. captive. Examples: TechStars, ER Accelerator, DreamIT, Y-Combinator  Strategic Partner/Investor. Some operating companies will invest in ventures. Typically it is in an industry/ sector / product-space similar to theirs (sometime with an eye toward potential acquisition in the future)  Crowd Funding Platforms. Currently this is financing via donation or “pre-sale” of products. Equity financing under JOBS Act is TBD. Not obvious this will be a good match for most Tech  AngelList. Similar to an angel group, but without centralized control. More of a open “marketplace” of individual investors and ventures to facilitate funding.  Gust. Software platform that most angel groups utilize (and many small VC’s) to run their investment process and connect angel groups together to share deals. 30 confidential
  32. 32. Additional Thoughts…..  Lots of start-up advice out there. Lots about the art of fundraising. • Huge volume of blogs, articles, Quora-posts, etc. • Well…….that’s good, right? Yes. • But why doesn’t it help? - Overwhelming - Conflicting - Not specific - Not enough context - It’s just advice, ideas, …..not interactive, not experience. • Need to understand the “why” behind it all and adapt it to your venture, your situation.  Beware of simple answers, absolutes. As you are reading and listening to all these opinions, data sources • For any “fact” “rule” “truth”… if you don’t understand how it is both true/false, you don’t really understand the point. - Under what circumstances is this “rule for fundraising” “true”? Where does it apply well With whom? - How and when is it not true (Or less true)? 31 confidential

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