How-to guide on raising startup capital (VC, angel, seed) as a structured process. Part of a 3-part lecture series given at General Assembly in San Francisco by Nathan Beckord, Founder of www.venturearchetypes.com
HELLO.General Assembly is a global network of campusesfor individuals seeking opportunity and education intechnology, business, and design founded in NYC.Follow us on Twitter at @GA_SF for the latest newson classes, courses, and events in San Francisco, anduse the hashtag #GASF to continue theconversation.Take a look at our course catalog atgeneralassemb.ly/sf for a list of classes currentlyoffered. Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 2 Nathan Beckord @startupventures October 4, 2012
Hi. My name is...Nathan Beckord, CFA. Principal, www.VentureArchetypes.com • My Job: Startup CFO, Advisor, and BD Guy • 100+ Startup clients over the past eight years • E.g. Kickstarter, Clicker, Autonet, Zerply, GetHired, etc. • Clients have raised over $98 million in seed capital and achieved 5 exits • Example: I ran ﬁnancial modeling for Clicker.com, which raised 2 rounds of VC and sold for $100m in 3 years. • Previously: Technology ValuaYon | Investment Banking | Venture Capital • Chartered Financial Analyst (CFA) and MBA Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 3 Nathan Beckord @startupventures October 4, 2012
Do you really want to raise $$? + Plus + -‐ Minus -‐ •Fuel for Growth •DiluYon •Credibility •Misalignment of Goals •Hiring Boost •ReporYng DuYes / “Boss” •Advice, Network •Exit ObligaYon •Extended Runway •ProtecYve Provisions •PR / PosiYve Signaling •Loss of Control •Rainy Day Fund •Founders Get FiredReality Check: less than 5% of companies successfully raise capital Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 4 Nathan Beckord @startupventures October 4, 2012
Are you sure you want VC? IPO $ 100M Strategic PartnersDecreasing Return $ 50M Venture Capital Banks $ 1M Angels FFF Gov’t Business Plan Beta Profitability Idea Prototype Sales Decreasing Risk Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 5 Nathan Beckord @startupventures October 4, 2012
Let’s talk about the... Funding Process Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 6 Nathan Beckord @startupventures October 4, 2012
But first, how NOT to do it This pretty much sums up what most do (wrong)... Instead: treat the fundraising game as what it really is: SALES 101: Lead-Gen, Qualification, and Closing Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 7 Nathan Beckord @startupventures October 4, 2012Itʼs very important to target the right investorsFinding (and qualifying) the right investors takes a tremendous amount of workThis is your job, not your advisors, friend, etc.
Sales process snapshot Generate initial, broad database of potential investors Screen by geography, stage, sector focus; Filter out those with direct competitors Select appropriate partner or contact person within firm Generate target list YOUR JOB is to Filter by best matches; seek herd investors “warm” introductions from the top of the funnel (Leads) Initiate investor outreach Arrange pitch meetings to the Close Present business plan (Shares Sold) Follow-on meetings Due diligence Term sheets Execute share purchase agreement Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 8 Nathan Beckord @startupventures October 4, 2012 Sales 101
Step 1: Pick a leader Who’s the designated driver? CEO CFO VP BD is oden the “sales as “ﬁnance guy” is oden the guy/gal” in early this ﬁts job role; ‘startup hustler’ startups = skillset but few startups and skillset crosses match have a CFO both categories Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 9 Nathan Beckord @startupventures October 4, 2012Supporting team: CTO / VP engineering.Many engineers are now hustlers too. Sales 101
Step 2: Build funnel FOCUS here on adding names to Sources for Leads: the top of the •Browsing Angel List funnel...aim for •Friends / colleagues 100 minimum •PEHub, VentureWire •Conference speakers •TechCrunch arYcles We will ﬁlter down •Cross-‐referencing funded to 30 -‐ 50 later deals on Crunchbase •Quora, CapLinked, etc. Start to look, and you’ll UlYmately ending start to “see” relevant in 2-‐4 term sheets investors everywhere... Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 10 Nathan Beckord @startupventures October 4, 2012Naval Ravikant sent me this tip for using AngelList: "Heres a killer feature for building a target list: http://angel.co/people. Choose stage, market, location. Sort by paths. Itll create a personalized list of investors foryou to approach, sorted by how easy it is for you to get to them." Sales 101
Step 3: Create tracking system (in google docs) To-Dos / Task Task Alerts / VC firm Investor Email Last contact Current status List Owner Due by Refd By STRONG INTEREST June 16, 2006 - Reviewed presentation and provided positive August Capital David Hornik firstname.lastname@example.org feedback. Wants to be kept up-to-date. Send revised deck Ben 21-Sep Todd Interested in further engagement Salil Deshpande, Entrepreneur-in- July 21, 2006 - Email introduction with other partners at Bay; Ping him next week Bay Partners Residence email@example.com to Blueprint Ventures. Referred to Blueprint Ventures. to sched mtg Jake Todd Richard Yen, Principal/David Frankel, Managing Director/ George Hoyem, Managing Richard@blueprintventures.co Aug. 18, 2006 - Meeting to review Intro him to our Blueprint Ventures Director m financials. ???? seed investor Jake 19-Sep Nate INTERESTED Joyce Chung, General Partner Aug. 15, 2006 - Email exchange Follow up meeting scheduled for Cardinal Venture Capital (Founding) firstname.lastname@example.org on meeting to review technology. Aug. 24 at Kiptronic HQ. Follow up meeting Ben Todd DSpreng@crescendoventures. com/ David Spreng, General Partner/ email@example.com July 14, 2006 - Email of financial Crescendo Ventures Jason Hable, Associate m docs. Currently reviewing financial docs. N/A Todd Nate Aug. 16, 2006 - Sent intro email Stalk him outside Founders Fund Ken Howery, Partner firstname.lastname@example.org based on mutual friend. Waiting for response. his apartment Ellen 26-Sep Jim Plans to review docs and schedule another session; Need IDG Ventures Abhijit Pradhu email@example.com July 24, 2006- Email of docs to reschedule meeting. N/A Todd Todd NOT DEAD YET Kayne Anderson Capital July 24, 2006 - Phone Send Google Advisors Healy Jones firstname.lastname@example.org conversation Wants to be kept up-to-date. Analytics report Ben Nate North Bridge Venture Aug. 22, 2006 - Update meeting Partners Paul Santinelli pas@NBVP.COM Aug. 2, 2006 - Phone call scheduled Send new deck Jake 21-Sep Todd Aug. 10, 2006 - Phone Simeon Simeonov, General email@example.com conversation; Put him in touch with Work back Polaris Ventures Partner om Kiptronic partners. Follow up next week. channels Ben Todd NEW LEADS firstname.lastname@example.org/ Revise our Team Shasta Ventures Ravi Mohan/Jason Pressman email@example.com Met him years ago slide Ellen 21-Sep Nate Trinity Ventures Jim Tybur firstname.lastname@example.org Met him at Giants game Ping him next week Jake Todd Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 11 Nathan Beckord @startupventures October 4, 2012build it in docs.google.comyou can also build it in excel and upload it to google docs Sales 101
Step 4: Filter down to direct hits Filtering Criteria: •Invested in compeYtors •No dry powder (funds) •Wrong sector focus •Wrong stage FOCUS here on •Wrong geo. locaYon ﬁltering down to •Has bad reputaYon about 30 direct targets. Diligently cut down the list now for a beBer hit rate later. Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 12 Nathan Beckord @startupventures October 4, 2012For ﬁnding out about good / bad reputation, check out Thefunded.comAlso, ask founders of companies theyʼve funded for candid feedback. Sales 101
Step 5: Organize your posse Recruit from: •Startup friends •Anorney, accountant •Advisory Board •Professors •Startup ‘connectors’ Tips: •Play to their ego •Make it easy / low risk •Get everyone together for dinner / wine. Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 13 Nathan Beckord @startupventures October 4, 2012 Sales 101
Step 6: Degrees of Separation LinkedIn Angel List Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 14 Nathan Beckord @startupventures October 4, 2012Really what we’re doing here is mapping our social graph on top of our target list to ﬁnd the BEST WARM INTRO Sales 101
Step 7: Polish your pitch & model + Angel List Proﬁle Page (angel.co) Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 15 Nathan Beckord @startupventures October 4, 2012Get momentum story in placeBuild really slick, fricYonless pitchBuild Angel List at same Yme you build the deck (but keep stealth for a bit)
Step 7.5: Hacking Angel List 1.Get a lead investor ﬁrst 2.Build mulYple forms of social proof 3.Peacock your proﬁle 4.Hollywood soundbite 5.Tweak proﬁle + status 6.Hustle to be “ Trending” 7.Create catalyst Excerpted from hBp://www.seedstagecapital.com/2011/07/hacking-‐angel-‐list.html Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 16 Nathan Beckord @startupventures October 4, 2012Geqng lead takes 80% of the Yme / eﬀort. A name brand lead is even bener.Social proof = Advisors, Board, Referrer, References, Incubator, Anorney. Angels rely on “who you know” as ﬁrst ﬁlter. Get these people to follow, share, status updates, etc. Peacocking = great product slides, tracYon slides, team bios, etc. Soundbite-‐-‐ either X for Y or what you doUse catalyst to close
Step 8: Open ‘er up and let ‘em fly Intros: •Get introduced (v. cold) •Make it easy for your posse to make intros Pitch: •A/B test your pitch •ConYnually reﬁne it, improve it Process: •Aim for concentrated ‘blitzkrieg’ approach •Compress meeYngs into short Yme frame Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 17 Nathan Beckord @startupventures October 4, 2012Key here is warm leads, plus conYnually improving pitch (like interviewing) and packing many meeYngs into compressed window, all to get your mojo on. Build momentum for the deal.
Step 8.5: Making it easyYou write this with the “ask”: ...and have your “Hi Nathan, I see you are connected to Lewis at ACME connector write this: Ventures. I would love it if you could introduce us. “Lewis, Iʼd like to intro you to Scott Shepherd, founder of CatBnB. Scott wasAs you know, we launched CatBnB to make life better the engineer #3 at Facebook and his co-for the 82m cat owners in the U.S. when they go on founder, Janet, was a top salesperson atvacation. Since launching our closed beta 3 months Salesforce. ago, we have had nearly a million cat owners register,and 75k have already boarded a cat in their home. Iʼve been advising them since inceptionWeʼve recently introduced our subscription model and to and they know how to execute; they areour delight, 15% of our users have upgraded. It now (selectively) starting to talk to investors. costs us $3 to acquire a new paying customer, each of Take a look at their AngelList proﬁlewhom generates an average $12.50 ARPU. and their exec sum, attached. I will leave it to you to to connect; let me know whatWe will soon be looking for funding to scale. I see that transpires. Best, Nathan” Lewis has a background in exotic cat breeding and hasjust raised a new fund. Iʼd love to show him what weʼredoing.” Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 18 Nathan Beckord @startupventures October 4, 2012
Step 9: Pitch hard + Go for the close TIps: •Expect 3-‐6 meeYngs per VC before geqng a term sheet •More term sheets = more leverage, faster close •Follow up frequently •It can be very hard to get an actual “no” Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 19 Nathan Beckord @startupventures October 4, 2012Live pitch meeting is usually an hour.Goal is always to get to next step in process...always ask what that is at end of meetingThere will be progressively more people / partners in each successive meeting.Be rapid in your responses and follow up. Be ready for DD.If youʼre getting, “weʼd like to see... (traction / more team / deals / a lead ) thatʼs usually a “no”
Fundraising is just the beginning Notes: •Geqng funded is just the start of what is (usually) a long journey •Now you have an obligaYon to perform, so... Go Get ‘Em! and Have Fun! Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 20 Nathan Beckord @startupventures October 4, 2012Cheeky monkey
Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY21 Nathan Beckord @startupventures October 4, 2012
MVP (minimal viable pitch) Message: What you’re More people than ever (78M!) have dogs. They ✓ Problem ✓ Market size & Trends doing & why spend $2bln/yr puqng dogs in kennels but it’s ✓ SoluYon / Product expensive & dogs hate it. We are “airbnb for dogs.” ✓ Clear & big Vision Samir-‐ VP Engr, prev. @Adobe; Samantha-‐ Designer, ✓ Solid Team-‐-‐Hacker, Hustler, Designer Who are you prev. @Apple, NYU; Stewart-‐ Stanford MBA; ✓ Pedigree, Experience ✓Peer reference / Advisors: Steve Blank, Andrew Chen. “social proof” What’s going POC in SF, NY, Atlanta (now); Adding 3k members & ✓ Thesis Validated ✓ TracYon / Growth on 120 boarders / week via events, AKC partnership, ✓ MarkeYng Plan select GOOG ads. Avg. booking $55 x 7% = $3.85 ✓ Bus. Model ✓ Momentum What you $4m Series A @$16m pre to hit 6 more geo. mkts ✓ Sensible UOF ✓ Strong Future Vision want Burning $75k/mo. Cash Flow B/E @ 2k bookings / ✓ Economics Scale ✓ Path to Proﬁtability week (2013). LTV > CAC ($145 vs. $33). ✓ RealisYc ValuaYon Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 22 Nathan Beckord @startupventures October 4, 2012each of these could easily be a slide, in 40 point font...add a title, add a clever image or a supporting chart ordiagram, and youʼre done. Killer MVP.To note, I intentionally did not include a competition slide, as that can be a rathole. Make them ask about it,make them bring it up. But def have a thoughtful analysis and appendix slide to answer.
Information progression Level of Informational Detail! Negotiations / Structuring / Close st ! Due Diligence Documentation re te In or st ve Business Plan / Offering Memorandum e In siv es gr P ro Investor Presentation and Pitch Book Investment Opportunity Summary Elevator Pitch / Introductory Email Teaser Timeline and Progression! Raising Startup Capital -- Fundraising Process GENERAL ASSEMBLY 23 Nathan Beckord @startupventures October 4, 2012this is a little outdated, but conveys the general idea that deeper information is transferred as you progresswith series of meetings. Sales 101