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FUNDRAISING 101:

HOW TO PITCH AND LAND YOUR FIRST INVESTORS
FINANCING YOUR STARTUP & YOURSELF
DAVID CHANG
@CHANGDS
H B S ...
Fundraising
Basics
How to Raise
a Round
Tips
Student
Entrepreneurs
BACKGROUND
STARTUP EXPERIENCES
Direct Via Syndicate/Fund
ANGEL INVESTMENTS
Fundraising
Basics
How to Raise
a Round
Tips
Student
Entrepreneurs
WHAT OBSTACLES STAND IN YOUR
WAY?
BUSINESS TRAJECTORY
• Lifestyle or social good
• Linear growth or revenue fueled
• High growth, scalable venture
Source: Jean Hammond & MassChallenge
Size
Cost
Equipment Financing
Traditional VC
Micro VC
Angel Groups
AngelList
Angels
C...
VENTURE CAPITAL STAGES
Growth Equity
Early Stage
Angel
Friends & Family
VENTURE CAPITAL DYNAMICS
Skewed return distribution
VCs must swing for the fences
RAISING A ROUND
HOW MUCH TO RAISE
• Basic financial model of
cost drivers and revenue
• Forecast monthly for 2
years
• Fundraise rule of t...
USE OF PROCEEDS
• Build out the product
• Grow the team
• Marketing
• Customer acquisition
• Working capital
MILESTONES
See www.techcrunch.com/2015/06/24/running-out-of-money-isnt-a-milestone
Team
Product Development
Market Demand
...
Fundraising
Basics
How to Raise
a Round
Tips
Student
Entrepreneurs
Prep Target Socialize Raise Close
FUNDRAISING CAMPAIGN
BASIC PREP
✓ Legal representation
✓ Founders agreements
✓ Financials and budget
✓ Teaser (1 page)
✓ Pitch deck (10 pages)
Stage Location
Industry
Vertical
Business
Model
Investment
Thesis
Social /
Trust Filter
TARGET CRITERIA
BUILD PIPELINE
SOCIALIZE
• Prioritize sequence
• Find strongest connections to 30+ targets
• Tactics: lead gen, cold calling, warm intros...
DON’T ASK FOR MONEY!
“I’m not ready to raise”
“Who would be helpful?”
“Who else should I talk to?”
REFINE PITCH
• Incorporate feedback
• Double down on consistent themes
• Avoid whiplash changes
GO FOR THE ASK
• Approach your top candidates at the same time
• Run conversations in parallel
• Decide whether / when to ...
CREATE URGENCY
• Anchor investor acts as the first domino
• “Triggering events” to get a (or better) term sheet
STRUCTURE
Equity
Debt
STRUCTURE
• Preferences over common
• Board seat or 2
• Option pool
• Liquidation preference
• Control over sale, new opti...
CLOSING THE DEAL
Seed A B
$15
$6
$1
$30
$12
$5
VALUATION & DILUTION
?
Dilution: what’s your end stake?Valuation ($M)
?
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...
FINAL DEAL POINTS
• Rolling close vs. set close
• Not done until money is in
the bank
Key terms
❑ Board composition
❑ Opti...
HOW LONG DOES IT TAKE?
• Longer than you expect
• 3-6 months
• Speed limited by access to investors
• Your ability to find...
FIND THE RIGHT INVESTORS
Fundraising
Basics
How to Raise
a Round
Tips
Student
Entrepreneurs
38
A bachelor’s or
advanced degree is
the cost of admission
to the workforce, but
the skyrocketing cost
of education is
pu...
Feeling the Weight of Loans?
$37,000
The average student debt for
the 7 out of 10 graduates who
leave college with student...
Good Time to Seek for Jobs
Unemployment Rate
0.0%
2.5%
5.0%
7.5%
10.0%
Jan-09 Aug-09 Mar-10 Oct-10 May-11 Dec-11 Jul-12 Fe...
Job Hopping
44%
Millennials who intend to quit
their jobs within the next two
years1.
3 million
Number of Americans who le...
START OR JOIN A COMPANY
PEOPLE BONDS > COMPANY BOUNDARIES
Engineer
Product
Management
MarketingInvestor
Corporate
Development
Business
Development
EXPAND YOUR SKILLS
Function
Size
Location
Industry
WHAT ROLE FITS BEST?
Fundraising
Basics
How to Raise
a Round
Tips
Student
Entrepreneurs
1:1 PITCH EXERCISE
SCENARIO 1: COFFEE SHOP
Instructions for Audience
You love everything the pitcher tells you.
You get so excited that you r...
SCENARIO 2: GROCERY STORE
Instructions for Audience
You ripped your pants 5 minutes ago.
So you desperately want to leave ...
KNOW YOUR AUDIENCE
ADJUST FOR STYLE
SHARE YOUR SUMMIT & BASECAMP
DON’T SHARE EVERYTHING AT ONCE
• 1 Sentence
• 1 Paragraph
• 1 Page
• 1 Light Deck
• 1 Follow-up Deck
Articulate in 90 seconds
Why you’re the right team
Know numbers and
business model cold
KEVIN O’LEARY
pexels.com
thenounproject.com
TYPICAL PARTS
Overview Problem Solution Market
Traction
Marketing
Strategy
Team
Competition Conclusion
Financial
Projectio...
www.nextviewventures.com/blog/free-startup-pitch-decks-template
www.bestpitchdecks.com
RESOURCES
• Legal
• Goodwin Procter www.foundersworkbench.com
• Foley & Lardner www.foley.com
• Pierce Atwood
• Techstars ...
FUNDRAISING 101: Q&A
DAVID CHANG
@CHANGDS
H B S F I E L D X
HBS Field Y: Fundraising 101 - Feb 2019
HBS Field Y: Fundraising 101 - Feb 2019
HBS Field Y: Fundraising 101 - Feb 2019
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HBS Field Y: Fundraising 101 - Feb 2019

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For this semester's HBS Field Y class, we’ll cover the basics of raising money from angel investors and VCs, walk through a 5-step “how-to” series of tactics, talk about the unique perspective of student entrepreneurs, and finish with pitch tips.

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HBS Field Y: Fundraising 101 - Feb 2019

  1. 1. FUNDRAISING 101:
 HOW TO PITCH AND LAND YOUR FIRST INVESTORS FINANCING YOUR STARTUP & YOURSELF DAVID CHANG @CHANGDS H B S F I E L D Y
  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. Fundraising Basics How to Raise a Round Tips Student Entrepreneurs
  7. 7. WHAT OBSTACLES STAND IN YOUR WAY?
  8. 8. BUSINESS TRAJECTORY • Lifestyle or social good • Linear growth or revenue fueled • High growth, scalable venture
  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
  10. 10. VENTURE CAPITAL STAGES Growth Equity Early Stage Angel Friends & Family
  11. 11. VENTURE CAPITAL DYNAMICS Skewed return distribution VCs must swing for the fences
  12. 12. RAISING A ROUND
  13. 13. 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
  14. 14. USE OF PROCEEDS • Build out the product • Grow the team • Marketing • Customer acquisition • Working capital
  15. 15. 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
  16. 16. Fundraising Basics How to Raise a Round Tips Student Entrepreneurs
  17. 17. Prep Target Socialize Raise Close FUNDRAISING CAMPAIGN
  18. 18. BASIC PREP ✓ Legal representation ✓ Founders agreements ✓ Financials and budget ✓ Teaser (1 page) ✓ Pitch deck (10 pages)
  19. 19. Stage Location Industry Vertical Business Model Investment Thesis Social / Trust Filter TARGET CRITERIA
  20. 20. BUILD PIPELINE
  21. 21. SOCIALIZE • Prioritize sequence • Find strongest connections to 30+ targets • Tactics: lead gen, cold calling, warm intros • Network over 2-3 months
  22. 22. DON’T ASK FOR MONEY! “I’m not ready to raise” “Who would be helpful?” “Who else should I talk to?”
  23. 23. REFINE PITCH • Incorporate feedback • Double down on consistent themes • Avoid whiplash changes
  24. 24. 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
  25. 25. CREATE URGENCY • Anchor investor acts as the first domino • “Triggering events” to get a (or better) term sheet
  26. 26. STRUCTURE Equity Debt
  27. 27. 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
  28. 28. CLOSING THE DEAL
  29. 29. Seed A B $15 $6 $1 $30 $12 $5 VALUATION & DILUTION ? Dilution: what’s your end stake?Valuation ($M) ?
  30. 30. 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
  31. 31. 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
  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)
  33. 33. FIND THE RIGHT INVESTORS
  34. 34. Fundraising Basics How to Raise a Round Tips Student Entrepreneurs
  35. 35. 38 A bachelor’s or advanced degree is the cost of admission to the workforce, but the skyrocketing cost of education is putting that price out of reach. College Tuition vs Median Income $52,000 $53,500 $55,000 $56,500 $58,000 $0 $5,000 $10,000 $15,000 $20,000 2005 2006 2007 2008 2009 2010 2011 2012 Cost of College Median Income 1https://college-education.procon.org/view.resource.php?resourceID=005532
  36. 36. Feeling the Weight of Loans? $37,000 The average student debt for the 7 out of 10 graduates who leave college with student loans1. 1 million Parents each year who take out loans to send their children to college2. 55% Respondents who say that student loans have impacted their ability to buy a house3. 55% Parents who expect their child will have to rely on student loans to fund their college education4. 1Thttps://www.debt.org/students 2http://time.com/money/4846020/popular-college-loans-guide/ 3Life Delayed: The Impact of Student Debt on the Daily Lives of Young Americans 4 https://www.credible.com/blog/student-loans/parents-expect-kids-will-take-out-student-loans/
  37. 37. Good Time to Seek for Jobs Unemployment Rate 0.0% 2.5% 5.0% 7.5% 10.0% Jan-09 Aug-09 Mar-10 Oct-10 May-11 Dec-11 Jul-12 Feb-13Sept-13Apr-14 Nov-14 Jun-15 Jan-16 Aug-16 Mar-17 Oct-17 May-18 Unemployment Rate 1https://data.bls.gov/pdq/SurveyOutputServlet?request_action=wh&graph_name=LN_cpsbref3
  38. 38. Job Hopping 44% Millennials who intend to quit their jobs within the next two years1. 3 million Number of Americans who leave their jobs voluntarily each month2. 90%-200% Percentage of an employees’ annual salary that it costs to replace them3. 73% Employees are open to hearing about new job opportunities4. 1The Deloitte Millennial Survey 2017 2https://www.bls.gov/news.release/jolts.nr0.htm 3Retaining Talent: A Guide to Analyzing and Managing Employee Turnover; Society of Human Resources Management. 4https://blog.accessperks.com/2017-employee-engagement-loyalty-statistics#1
  39. 39. START OR JOIN A COMPANY
  40. 40. PEOPLE BONDS > COMPANY BOUNDARIES
  41. 41. Engineer Product Management MarketingInvestor Corporate Development Business Development EXPAND YOUR SKILLS
  42. 42. Function Size Location Industry WHAT ROLE FITS BEST?
  43. 43. Fundraising Basics How to Raise a Round Tips Student Entrepreneurs
  44. 44. 1:1 PITCH EXERCISE
  45. 45. SCENARIO 1: COFFEE SHOP Instructions for Audience You love everything the pitcher tells you. You get so excited that you repeatedly interrupt them, trying to finish their sentences.
  46. 46. SCENARIO 2: GROCERY STORE Instructions for Audience You ripped your pants 5 minutes ago. So you desperately want to leave and try to end the conversation with the pitcher ASAP.
  47. 47. KNOW YOUR AUDIENCE
  48. 48. ADJUST FOR STYLE
  49. 49. SHARE YOUR SUMMIT & BASECAMP
  50. 50. DON’T SHARE EVERYTHING AT ONCE • 1 Sentence • 1 Paragraph • 1 Page • 1 Light Deck • 1 Follow-up Deck
  51. 51. Articulate in 90 seconds Why you’re the right team Know numbers and business model cold KEVIN O’LEARY
  52. 52. pexels.com
  53. 53. thenounproject.com
  54. 54. TYPICAL PARTS Overview Problem Solution Market Traction Marketing Strategy Team Competition Conclusion Financial Projections
 (high level) Money Being Raised and
 Use of Funds Revenue Model & Business Model
  55. 55. www.nextviewventures.com/blog/free-startup-pitch-decks-template
  56. 56. www.bestpitchdecks.com
  57. 57. 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
  58. 58. FUNDRAISING 101: Q&A DAVID CHANG @CHANGDS H B S F I E L D X

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