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Babson Summer Venture Program: How to Raise a Seed Round - July 2019

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Overview of tech/startup fundraising basics, some how-to tactics on raising a seed round, and general pitch tips/lessons learned

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Babson Summer Venture Program: How to Raise a Seed Round - July 2019

  1. 1. BABSON SUMMER VENTURE PROGRAM HOW 2 RAISE A SEED ROUND JULY 2019 DAVID CHANG @CHANGDS
  2. 2. Fundraising Basics How to Raise a Round Tips Student Entrepreneurs
  3. 3. BACKGROUND
  4. 4. STARTUP EXPERIENCES
  5. 5. Direct Via Syndicate/Fund ANGEL INVESTMENTS
  6. 6. TODAY
  7. 7. Fundraising Basics How to Raise a Round Tips Student Entrepreneurs
  8. 8. WHAT OBSTACLES STAND IN YOUR WAY?
  9. 9. BUSINESS TRAJECTORY • Lifestyle or social good • Linear growth or revenue fueled • High growth, scalable venture
  10. 10. Source: Jean Hammond & MassChallenge Size Cost Equipment Financing Traditional VC Micro VC Angel Groups AngelList Angels Corporate / Strategic Venture Customers Jobs Bill Portal Crowdfunding Vendors Founder Friends & Family Crowdfunding Grants- Gov & Foundation Venture Debt Bank Loans Personal Loans Private Equity Competitions Accelerators & Contests Impact Angels & VCs CAPITAL SOURCES
  11. 11. VENTURE CAPITAL STAGES Growth Equity Early Stage Angel Friends & Family
  12. 12. VENTURE CAPITAL DYNAMICS Skewed return distribution VCs must swing for the fences
  13. 13. RAISING A ROUND
  14. 14. 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
  15. 15. USE OF PROCEEDS • Build out the product • Grow the team • Marketing • Customer acquisition • Working capital
  16. 16. 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
  17. 17. Fundraising Basics How to Raise a Round Tips Student Entrepreneurs
  18. 18. Prep Target Socialize Raise Close FUNDRAISING CAMPAIGN
  19. 19. BASIC PREP ✓ Legal representation ✓ Founders agreements ✓ Financials and budget ✓ Teaser (1 page) ✓ Pitch deck (10 pages)
  20. 20. Stage Location Industry Vertical Business Model Investment Thesis Social / Trust Filter TARGET CRITERIA
  21. 21. BUILD PIPELINE
  22. 22. SOCIALIZE • Prioritize sequence • Find strongest connections to 30+ targets • Tactics: lead gen, cold calling, warm intros • Network over 2-3 months
  23. 23. DON’T ASK FOR MONEY! “I’m not ready to raise” “Who would be helpful?” “Who else should I talk to?”
  24. 24. REFINE PITCH • Incorporate feedback • Double down on consistent themes • Avoid whiplash changes
  25. 25. 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
  26. 26. CREATE URGENCY • Anchor investor acts as the first domino • “Triggering events” to get a (or better) term sheet
  27. 27. STRUCTURE Equity Debt
  28. 28. 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. 29. CLOSING THE DEAL
  30. 30. Seed A B $15 $6 $1 $30 $12 $5 VALUATION & DILUTION ? Dilution: what’s your end stake?Valuation ($M) ?
  31. 31. 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
  32. 32. 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
  33. 33. 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)
  34. 34. FIND THE RIGHT INVESTORS
  35. 35. BABSON SUMMER VENTURE PROGRAM HOW 2 RAISE A SEED ROUND JULY 2019 DAVID CHANG @CHANGDS

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