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Bridge to MassChallenge India - How to Raise a Seed Round - Oct 2020

Overview of tech/startup fundraising basics, a 5-step how-to on the tactics of raising a seed round, and general pitch tips/lessons learned

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Bridge to MassChallenge India - How to Raise a Seed Round - Oct 2020

  1. 1. Bridge to MassChallenge India How to raise a seed round D AV I D C H A N G @ C H A N G D S
  2. 2. Fundraising Basics How to Raise a Round Tips
  3. 3. Background
  4. 4. Startup Experiences
  5. 5. Angel Investments Direct Syndicate/Fund TBD Angels
  6. 6. What obstacles stand in your way?
  7. 7. What’s the business trajectory? Lifestyle or social good Linear growth or revenue fueled High growth, scalable venture
  8. 8. Where to get that first dollar? Revenue Prepaid product Crowdfunding Consulting service Equity Convertible notes SAFE Stock Partner Vendor services in advance Non-recoverable engineering Grants SBIR Pitch competitions Debt SBA loan Bank loan Personal note
  9. 9. 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 have tradeoffs
  10. 10. Raising during a pandemic • Active investors are out there • Active VC List, DocSend • Investors meeting during COVID-19 • Plan for longer runway • Valuations hit 20-30%
  11. 11. Venture capital stages Growth Equity Early Stage Angel Friends & Family
  12. 12. How the VC game works 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 product • Grow 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
  18. 18. Prep Target Socialize Raise Close Run a 5-step fundraising campaign
  19. 19. Basic Prep ✓ Legal representation ✓ Founders agreements ✓ Financials and budget ✓ Blurb (1 paragraph) / teaser (1 page) ✓ Pitch deck (10 slides)
  20. 20. Hone in on target criteria Stage Location Industry Vertical Investment Thesis Business Model Social / Trust Filter
  21. 21. Tools to build the pipeline
  22. 22. University Focused Corporate VC bit.ly/boston-area-investors-firms Local Investors Angel Groups Seed Stage Growth Stage Early Stage VC Tech VC Healthcare, Biotech, Energy
  23. 23. Socialize • Prioritize sequence • Find strongest connections to 30+ targets • Tactics: lead gen, cold calling, warm intros • Network over 2-3 months
  24. 24. Don’t ask for money! Improves hit rate Creates data points Doesn’t start the clock “Who else should I talk to?” “I’m not ready to raise” “Who would be helpful?”
  25. 25. Refine pitch • Incorporate feedback • Double down on consistent themes • Avoid whiplash changes
  26. 26. Go for it! Create FOMO • Approach your top candidates at the same time • Decide whether to tell investors about each other • Land anchor investor as the first domino • Use triggering events to get or improve term sheets “I’m closing a round”
  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. Close the deal • 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
  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 ownyourventure.com See dlopuch.github.io/venture-dealr Raise $1M on $5M pre 34%Raise $1.5M on $5M pre 33%Raise $1M on $3M pre Dilution: what’s your end stake?Valuation ($M) Seed A B $15 $6 $1 $30 $12 $5
  32. 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) How soon to start, how long it takes, general timeline you can expect, how to reduce time between the initial outreach and closing a deal?
  33. 33. Choose your investors carefully What characteristics to look for in a venture partner? How find someone who is properly aligned with your business? Board dynamics with the venture partner, what to expect, what to protect against, how to go about that board relationship?
  34. 34. Fundraising Basics How to Raise a Round Tips
  35. 35. Know your audience
  36. 36. Adjust for style
  37. 37. Share your summit & basecamp
  38. 38. Don’t share everything at once • 1 Sentence • 1 Paragraph • 1 Page • 1 Light Deck • 1 Follow-up Deck
  39. 39. Articulate in 90 seconds Why you’re the right team Know numbers and business model cold Kevin O’Leary
  40. 40. www.garage.com/resources/perfecting-your-pitch 10 slides 20 minutes 30 point font Guy Kawasaki’s tips
  41. 41. pexels.com
  42. 42. thenounproject.com
  43. 43. Typical Parts Overview Problem Solution Market Opportunity Go-to-Market Traction Revenue & Business Model Team Competitive Landscape Financial Projections Ask & Use of Proceeds Conclusion
  44. 44. www.nextviewventures.com/blog/free-startup-pitch-decks-template
  45. 45. www.bestpitchdecks.com
  46. 46. Resources • Legal • Goodwin Procter www.foundersworkbench.com • Foley & Lardner www.foley.com • Pierce Atwood • Techstars www.techstars.com/docs • www.seriesseed.com • General • www.jddavids.com • www.robkornblum.com bit.ly/startresources
  47. 47. Bridge to MassChallenge India How to raise a seed round D AV I D C H A N G @ C H A N G D S

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Overview of tech/startup fundraising basics, a 5-step how-to on the tactics of raising a seed round, and general pitch tips/lessons learned

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