Babson How2Tuesdays - How to Raise a Seed Round - Nov 2017

David Chang
David ChangEntrepreneur & Angel Investor at Hunt Club
@CHANGDS
BACKGROUND
STARTUP EXPERIENCES
Direct Via Syndicate/Fund
ANGEL INVESTMENTS
NOW
Building Investing Connecting
Fundraising
Basics
How to Raise
a Round
Pitch

Tips
WHAT OBSTACLES STAND IN YOUR
WAY?
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)
BUSINESS TRAJECTORY
Lifestyle

business
Bootstrap

Loans
Growth oriented
business
Crowdfunding

Personal raise
High growth
scalable business
Venture

Capital
VENTURE CAPITAL STAGES
Growth Equity
Early Stage
Angel
Friends & Family
VENTURE CAPITAL DYNAMICS
Skewed return distribution
VCs must swing for the fences
RAISING A ROUND
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
USE OF PROCEEDS
• Build out the product
• Grow the team
• Marketing
• Customer acquisition
• Working capital
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
How to Raise
a Round
FUNDRAISING CAMPAIGN
Prep Target Socialize Raise Close
BASIC PREP
✓ Legal representation
✓ Founders agreements
✓ Financials and budget
✓ Teaser (1 page)
✓ Pitch deck (10 pages)
TARGET CRITERIA
Stage Location
Industry
Vertical
Business
Model
Investment
Thesis
Social /
Trust Filter
BUILD PIPELINE
SOCIALIZE
• Prioritize sequence
• Find strongest connections to 30+ targets
• Tactics: lead gen, cold calling, warm intros
• Network over 2-3 months
DON’T ASK FOR MONEY!
“I’m not ready to raise”
“Who would be helpful?”
“Who else should I talk to?”
REFINE PITCH
• Incorporate feedback
• Double down on consistent themes
• Avoid whiplash changes
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
CREATE URGENCY
• Anchor investor acts as the first domino
• “Triggering events” to get a (or better) term sheet
STRUCTURE
Equity
Debt
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
CLOSING THE DEAL
Seed A B
$15
$6
$1
$30
$12
$5
VALUATION & DILUTION
?
Dilution: what’s your end stake?Valuation ($M)
?
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
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
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)
FINDING THE RIGHT INVESTORS
Pitch

Tips
KNOW YOUR AUDIENCE
ADJUST FOR THEIR STYLE
LEVERAGE YOUR NATURAL STYLE
SHARE YOUR SUMMIT & BASECAMP
DON’T SHARE EVERYTHING AT ONCE
• 1 Sentence
• 1 Paragraph
• 1 Page
• 1 Light Deck
• 1 Follow-up Deck
Babson How2Tuesdays - How to Raise a Seed Round - Nov 2017
Babson How2Tuesdays - How to Raise a Seed Round - Nov 2017
RESOURCES
• Pitch
• The Best Startup Pitch Decks www.bestpitchdecks.com
• NextView www.nextviewventures.com/blog/free-startup-pitch-decks-template
• Guy Kawasaki: 10 slides / 20 minutes / 30 point font
• www.mjskok.com/resource/getting-behind-perfect-pitch
• Legal
• Pierce Atwood
• Foley & Lardner www.foley.com
• Goodwin Procter www.foundersworkbench.com
• Techstars www.techstars.com/docs
• www.seriesseed.com
• General
• www.jddavids.com
• www.robkornblum.com
@CHANGDS
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Babson How2Tuesdays - How to Raise a Seed Round - Nov 2017