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Harvard Law Entrepreneurship Project (HLEP) - Fundraising 101
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
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
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
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 www.ownyourventure.com
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)
44.
Local Pillar Tech Companies
http://bostontechguide.com
45.
Big Tech Companies with Local Presence
http://bostontechguide.com
46.
Industry Clusters of Expertise
Marketing
Tech e-commerce Cybersecurity Cloud
Travel Mobile Ed Tech Robotics
Life Sciences Health IT Energy
http://www.slideshare.net/bussgang/boston-startup-scene-fall-2015
47.
Accelerators / Incubators
Co-working
Corporate University Independent