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Harvard Law Entrepreneurship Project (HLEP) - Fundraising 101

  1. Harvard Law Entrepreneurship Project Lunch Talk: Fundraising 101 Nov 11, 2016 David Chang @changds
  2. My Journey Fundraising Basics How to Raise a Round
  3. $80 $4 $42 $7 $17 $110 $210 $270 $1 $135 Funding Exit My Startups – Venture Returns
  4. Direct Via Syndicate/Fund My Angel Investments
  5. Now Building Investing Connecting
  6. Fundraising Basics
  7. What Obstacles Stand in Your Way?
  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. Growth trajectory of your business? Lifestyle business Personal raise – loan, add folks to cap table Growth oriented business Crowdfunding and personal raise High growth scalable business Venture capital
  10. Venture Capital Stages Friends and Family Angel Early Stage Growth Equity
  11. Investors Seed Early Growth
  12. Venture Capital Dynamics •Skewed return distribution •VCs must swing for the fences Source: @DawnUmlah
  13. Amount to Raise How much funding do you need? •Basic financial model of cost drivers and revenue streams •Forecast monthly for 18 months •Fundraise rule of thumb: 12-18 months’ cash How Much For What To Prove
  14. Use of Proceeds What will you use the money for? •Build out the product •Grow the team •Marketing •Customer acquisition •Working capital How Much For What To Prove
  15. Milestones What will be proven that de-risks the business? •Product development •Market demand •Product / market fit •Business model •Execution How Much For What To Prove
  16. How to Raise a Round
  17. Fundraising Campaign Prep Target Socialize Raise Close
  18. Basic Prep ü Legal representation ü Founders agreements ü Financials and budget ü Teaser (1 page) ü Pitch deck (10 pages)
  19. Target List of Investors Stage Location Industry Vertical Business Model Investment Thesis Social / Trust Filter
  20. Socialize •Get warm intros • Find strongest mutual connections to 30+ potential investors • Network over 2-3 months •Ask for referrals, not money •Refine pitch • Incorporate feedback, but avoid whiplash changes “I’m not ready to raise” “Who would be helpful?” “Who else should I talk to?”
  21. Raise: Go for the Ask •Talk to 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
  22. Closing the Deal •Rolling close vs. set close •Reference check investors •Not done until money is in the bank Key terms q Board composition q Option pool q Voting rights q Founder vesting q Change of control q Redemption rights q Information rights q Anti-dilution
  23. Structure Preferred Stock • Preferences over common • Board seat or 2 • Option pool • Liquidation preference- they get their $ first • Control over sale, new options Convertible Debt • Debt that becomes preferred equity when you raise it • No valuation, but the “cap” is a valuation ceiling • Interest accrues, rate <10% • Conversion discount
  24. Negotiating Valuation
  25. Valuation & Dilution ? $12 $30$6 $15 Seed A B Valuation ($M) Dilution: what’s your end stake? $1M raise $6M raise $15M raise ?
  26. Valuation & Dilution ? $12 $30$6 $15 Seed A B Valuation ($M) Dilution: what’s your end stake? $1M raise $6M raise $15M raise 37% See Raise $1M on $5M pre 33%Raise $1M on $3M pre 34%Raise $1.5M on $5M pre
  27. How Long Does it Take? •Longer than you expect • 3-6 months •Speed limited by access to investors • Your ability to find them • Their calendar availability (surprisingly hard) • Bigger raises = more diligence (up to 30 days)
  28. Resources • Pitch • • • Guy Kawasaki: 10 slides / 20 minutes / 30 point font • NextView • • • Legal • Foley & Lardner • Goodwin Proctor • Techstars • • General • •
  29. Q&A
  30. Pitch Tips
  31. Share Your Summit & Basecamp
  32. Leverage Your Natural Presentation Style
  33. Adjust for Your Audience
  34. No Blind Spots Pricing Customer Collaborators Funding Promotion Product / Service Context Place Company Concept Competition
  35. Pitch Materials for Each Level •1 Sentence •1 Paragraph •1 Page •1 Light Deck •1 Follow-up Deck
  36. Function Size Know Yourself Location Industry
  37. Start or Join a Company
  38. People Bonds > Company Bonds
  39. Find the Right Co-founders
  40. Choose Investors Carefully
  41. Amplify Your Network
  42. Doing Business in Boston
  44. Local Pillar Tech Companies
  45. Big Tech Companies with Local Presence
  46. Industry Clusters of Expertise Marketing Tech e-commerce Cybersecurity Cloud Travel Mobile Ed Tech Robotics Life Sciences Health IT Energy
  47. Accelerators / Incubators Co-working Corporate University Independent
  48. Development Shops
  49. University Resources
  50. Events & Networking
  52. Media
  53. Community Groups & Trade Organizations
  54. @changds @scottbaileyBTV
  55. Talent EcosystemCapital