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Babson How2Tuesdays - How to Raise a Seed Round - Nov 2017
David Chang, entrepreneur, angel investor, and director of the Babson Summer Venture Program, leads a practical session on how to pitch and land your first investors. David shares his experiences, talks about fundraising basics, walks through a 5-step “how-to” series of tactics to raise from angels/VCs, and finishes with pitch tips.
David Chang, entrepreneur, angel investor, and director of the Babson Summer Venture Program, leads a practical session on how to pitch and land your first investors. David shares his experiences, talks about fundraising basics, walks through a 5-step “how-to” series of tactics to raise from angels/VCs, and finishes with pitch tips.
8.
CAPITAL SOURCES
You hear a lot about
• Venture Capital
• Angel Groups
• Crowdfunding
• Friends and Family
• Customers
• Accelerators
• Competitions
Not much about
• SBA Loans and Personal
Debt
• Grants
• Corporate Venture
• Vendors or Equipment
Finance
• Bootstrapping (creatively)
9.
BUSINESS TRAJECTORY
Lifestyle
business
Bootstrap
Loans
Growth oriented
business
Crowdfunding
Personal raise
High growth
scalable business
Venture
Capital
10.
VENTURE CAPITAL STAGES
Growth Equity
Early Stage
Angel
Friends & Family
11.
VENTURE CAPITAL DYNAMICS
Skewed return distribution
VCs must swing for the fences
13.
HOW MUCH TO RAISE
• Basic financial model of
cost drivers and revenue
• Forecast monthly for 2
years
• Fundraise rule of thumb:
12-18 months’ cash
14.
USE OF PROCEEDS
• Build out the product
• Grow the team
• Marketing
• Customer acquisition
• Working capital
15.
MILESTONES
See www.techcrunch.com/2015/06/24/running-out-of-money-isnt-a-milestone
Team
Product Development
Market Demand
Product / Market Fit
Business Model
Execution
21.
SOCIALIZE
• Prioritize sequence
• Find strongest connections to 30+ targets
• Tactics: lead gen, cold calling, warm intros
• Network over 2-3 months
22.
DON’T ASK FOR MONEY!
“I’m not ready to raise”
“Who would be helpful?”
“Who else should I talk to?”
23.
REFINE PITCH
• Incorporate feedback
• Double down on consistent themes
• Avoid whiplash changes
24.
GO FOR THE ASK
• Approach your top candidates at the same time
• Run conversations in parallel
• Decide whether / when to tell investors about each
other
25.
CREATE URGENCY
• Anchor investor acts as the first domino
• “Triggering events” to get a (or better) term sheet
27.
STRUCTURE
• Preferences over common
• Board seat or 2
• Option pool
• Liquidation preference
• Control over sale, new options
• Debt that becomes preferred equity
when you raise it
• No valuation, but the “cap” is a
ceiling
• Interest accrues, rate <10%
• Conversion discount
Equity
Preferred Stock
Debt
Convertible Notes, SAFEs
29.
Seed A B
$15
$6
$1
$30
$12
$5
VALUATION & DILUTION
?
Dilution: what’s your end stake?Valuation ($M)
?
30.
VALUATION & DILUTION
37%
See www.ownyourventure.com
Raise $1M on $5M pre
33%Raise $1M on $3M pre
34%Raise $1.5M on $5M pre
Dilution: what’s your end stake?Valuation ($M)
Seed A B
$15
$6
$1
$30
$12
$5
31.
FINAL DEAL POINTS
• Rolling close vs. set close
• Not done until money is in
the bank
Key terms
❑ Board composition
❑ Option pool
❑ Voting rights
❑ Founder vesting
❑ Change of control
❑ Redemption rights
❑ Information rights
❑ Anti-dilution
32.
HOW LONG DOES IT TAKE?
• Longer than you expect
• 3-6 months
• Speed limited by access to investors
• Your ability to find them
• Calendar availability (surprisingly hard)