Cybersecurity Threats in Financial Services Protection.pptx
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How To Raise Your First Round of Capital
1. Mastering the VC Game:
How to Raise Your First Round of Capital
Jeffrey Bussgang
Flybridge Capital Partners, General Partner
Harvard Business School, Senior Lecturer
April 3, 2012
2. Context For My Perspective
๏ง General Partner at Flybridge Capital Partners, early-
stage VC firm based in Boston and NYC
๏40+ active portfolio companies, Fund III: $280M, 5 GPs
๏ง Senior Lecturer at HBS โ Launching Tech Ventures
๏ง Former entrepreneur
๏Cofounder Upromise (acqโd by SallieMae),
VP at Open Market (IPO โ96)
๏ง Author: Mastering the VC Game
๏ง Blog: SeeingBothSides.com
๏ง HBS โ95, Harvard โ91
3. Goals For Todayโs Session
๏ง As an entrepreneur, I
found venture capital to
be a black box
๏ง As a VC, I now see the
other side and wanted to
help entrepreneurs
understand how to
finance and build great
companies
๏ง Todayโs mission: to
demystify the VC/angel
world for entrepreneurs
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4. Why Raise Money from VC?
Experience Matters:
Deep Pockets: VCs have โseen the
High risk tolerance movieโ over and over
and additional again and can help
funding for follow- avoid pitfalls to find
on rounds the path to success
Value-Add: Swing Big:
VCs provide domain VCs donโt invest in
experience, industry niches, they invest in
contacts, and transformative ideas
strategic planning that can build large
companies
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5. VCs vs. Angels
๏ง Will want some control (voting, ๏ง Will want no control (โsend me
board, veto) an annual emailโ)
๏ง Will want to own 20-30% ๏ง Will want to own 1-10%
๏ง Very actively engaged (they ๏ง Maybe engaged or not (often a
get paid to do this!) hobby, sometimes a personal
๏ง Can add tremendous value mission)
and be great business partners ๏ง Can add tremendous value and
๏ง Can be total disasters be great business partners
๏ง Typically rational actors, ๏ง Can be total disasters
commercially-driven, but if
inexperiencedโฆ ๏ง Typically rational, but if
unsophisticated: naรฏve
irrational, emotional
6. Raising $ from VCs: Find the Sweet Spot
๏ง Scope out the firm โ
size matters, as does
the individual
๏ง Arrange for a warm
introduction
๏ง Prepare, be brief
(VCs Blink)
๏ง Donโt downplay risk
๏ง Mutual due diligence
is fair play
04/09/10 9 9
7. Context About VCs and Angels
๏ง Most VCs and Angels have ADD โ operate on
โBLINKโ instincts
๏ง Want to SEE everything, but DO very, very few
deals
๏ง Make their decision within the first 10-15 minutes
๏ง Typical VC and angel will invest in one out of every
300-500 deals they see
๏ง Long odds โ you need to really stand out
๏ง Like college applicants โ triage quickly
8. The Right People: an Unfair Advantage
๏ง Ideas are a dime a dozen
๏ง Having a world-class team is golden
๏ง Laser focus of the young entrepreneur is very
powerful
๏ง E.g., Bill Gates, Michael Dell, and Mark
Zuckerberg
04/09/10 10
10
9. Investorโs Decision Tree
Worth 3 minutes
(email, phone)?
No
Ignore Worth 30 minutes
(phone, in person)?
No
Pass
gracefully Worth 60-90 minutes
(in person)?
No
Pass but stay
In touch Worth 2nd mtg
(in person)?
No
Pass but be helpful Serious due diligence
10. Top 3 Things To Do
๏ง Be gracious and personable
๏ง Say something that makes you smileโฆauthentically
๏ง Tell your personal history, tell a story
๏ง Be crisp and on point
๏ง Personal intro should take < 5 minutes
๏ง Team introduction 10 minutes
๏ง Make it relevant โ donโt go off on tangents
๏ง If you canโt show good summarization skills,
how will you handle a board room?
๏ง Know your stuff
๏ง They will push you to test you
๏ง John Doerr/Upromise case study
11. Top 3 Things To Avoid
๏ง Do not exaggerate
๏ง Assume everything you say will be verified in due diligence
๏ง Assume the listener is a cynic and a professional BS detector
๏ง Thereโs no โIโ in team
๏ง If you are self-aggrandizing, investors will assume you canโt build
teams
๏ง Do not name drop
๏ง No one is going to be impressed
with who you know unless
the relationships are both real
and relevant.
12. Typical Investment Criteria
๏ง Tangible things investors like to see:
๏ง Very big market (> $500m)
๏ง Unfair advantage (why you? why now?)
๏ง Attractive business model (recurring, high gross margin)
๏ง Unique technology or business model approach
๏ง Intangible things investors like to see:
๏ง โPied Piperโ โ an ability to recruit and retain a great team,
partners
๏ง Interpersonal chemistry
๏ง Movie, not a snapshot
13. So Youโve Had a Good Meetingโฆ
Then What?
๏ง Treat fundraising like a sales process โ build a pipeline,
work people through the pipeline, build up to crescendo
๏ง VCs get distracted โ typically only pursue 2-3 high
priority new investment opportunities at any given time
๏ง Stay connected, top of mind, build a sense of momentum
๏ง Need to sell the individual โchampionโ, then the help
them sell the partnership
๏ง Address objections with specific data
๏ง Make the investment case for them
๏ง Give them tools/materials to share with their partners
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14. Then, Expect More Due Diligence
๏ง Customers / partners
๏ง Team
๏ง Technology
๏ง Business model
๏ง Market size / analysts
๏จAs with sales, package up the information, make it easy
on the VC โ provide reference list, financial models,
detailed market size analysis โ all in readable form
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15. Term Sheet Time
Frequently Asked Questionsโฆ
๏ง Should I include VCs in my first round or just angels?
๏ง How big should the option pool be?
๏ง How should I think about valuation?
๏ง โPromoteโ definition - http://bit.ly/8NpdM
๏ง Should I do a convertible note with a cap, no cap or a
priced round?
๏ง How should I think about control?
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16. Expectations and Milestones
๏ง Have well-documented milestones that represent what
you expect to achieve during the initial funding period
๏ง Team building
๏ง Technical progress/product development
๏ง Customers, revenue
๏ง Budget
๏ง Talk to the investor about the next round before you
close this round
๏ง Expectations, amount, price
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17. What Is Market?
Rough Numbers (vary slightly by coast and sector):
๏ง Seed: $500k-$2m raise on $3-5m pre-money (or cap)
๏ง Series A: $3-6m raise on $6-10m pre-money
๏ง Series B: $8-12m raise on $15-20m pre-money
Option pool: 10-20%
๏ง The smaller the pool, the more confidence in the
founding team
๏ง Do an โoption pool budgetโ to determine the right pool
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18. LATER STAGE VALUATIONS ARE
INCREASING, WHILE EARLY STAGE REMAINS
CONSISTENT
$70
$60
Median Premoney Valuation ($M)
$50
$40
$30
$20
$10
$-
2002 2003 2004 2005 2006 2007 2008 2009 2010 1H11
Later Stage Second Round First Round Seed Round
Source: Dow Jones VentureSource
20. Mastering the VC Game:
How to Raise Your First Round of Capital
Jeffrey Bussgang
Flybridge Capital Partners, General Partner
Harvard Business School, Senior Lecturer
April 3, 2012
Jeff@flybridge.com @bussgang
Editor's Notes
And this is showing up in increasing valuations, especially for later stage companies