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Harvard Business School FIELD X

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Fundraising 101: How to land your seed round

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Harvard Business School FIELD X

  1. 1. Fundraising 101: How to land your seed round David Chang Harvard Business School, Entrepreneur-in-Residence @changds
  2. 2. My Journey Raising a Seed Round Lessons Learned
  3. 3. $80 $4 $42 $7 $17 $110 $210 $270 $1 $135 Funding Exit Venture Returns
  4. 4. Direct Via Syndicate/Fund My Angel Investments
  5. 5. Raising a Seed Round
  6. 6. What Obstacles Stand in Your Way?
  7. 7. 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)
  8. 8. Growth trajectory of your business? Lifestyle business – no plans for big hiring Personal raise – loans Growth oriented business Crowdfunding and personal raise High growth scalable business Venture capital
  9. 9. Venture Capital Stages Friends and Family Angel Early Stage Growth Equity
  10. 10. Venture Capital Dynamics • Skewed return distribution • VCs must swing for the fences Source: @DawnUmlah
  11. 11. Amount to Raise How much funding do you need? • Basic financial modeling 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
  12. 12. 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
  13. 13. 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
  14. 14. Fundraising Campaign Prep Target Socialize Raise Close
  15. 15. Basic Prep ü Legal representation ü Founders agreements ü Financials and budget ü Teaser (1 page) ü Pitch deck (10 pages)
  16. 16. Target List of Investors Stage Location Industry Vertical Business Model Investment Thesis Social / Trust Filter
  17. 17. 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?”
  18. 18. 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
  19. 19. 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
  20. 20. 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
  21. 21. Negotiating Valuation
  22. 22. Valuation & Dilution ? $12 $30$6 $15 Seed A B Valuation ($M) Dilution: what’s your end stake? $1M raise $6M raise $15M raise ?
  23. 23. 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
  24. 24. 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)
  25. 25. Resources • Pitch • www.pitchenvy.com • www.bestpitchdecks.com • Guy Kawasaki: 10 slides / 20 minutes / 30 point font • NextView www.nextviewventures.com/blog/free-startup-pitch-decks-template/ • www.mjskok.com/resource/getting-behind-perfect-pitch • Legal • Foley & Lardner https://www.foley.com • Goodwin Proctor www.foundersworkbench.com • Techstars www.techstars.com/docs • www.seriesseed.com • General • www.soulmix.com/remix/619 • www.robkornblum.com

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