How to Raise a Seed Round - The Players Impact - June 2021

How to Raise a Seed Round - The Players Impact - June 2021
The Players Impact Fundraising 101: How to raise a seed round D AV I D C H A N G @ C H A N G D S
Fundraising Basics How to Raise a Round Rookie Mistakes
Background
Startup Experiences
Angel Investments Direct Syndicate/Fund TBD Angels
What obstacles stand in your way?
What’s the business trajectory? Lifestyle or social good Linear growth or revenue fueled High growth, scalable venture
Where to get that first dollar? Revenue Equity Partners Grants Debt
Where to get that first dollar? Revenue Prepaid product Crowdfunding Consulting service Equity Convertible notes SAFE Stock Partners Vendor services in advance Non-recoverable engineering Grants SBIR Pitch competitions Debt SBA loan Bank loan Personal note
Capital sources have tradeoffs 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 Size Cost Source: Jean Hammond & MassChallenge
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%
Venture capital stages Growth Equity Early Stage Angel Friends & Family
How the VC game works 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 thumb: 12-18 months’ cash
Use of Proceeds • Build product • Grow 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 Product / Market Fit Business Model Execution
Prep Target Socialize Raise Close Run a 5-step fundraising campaign
Basic Prep ✓ Legal representation ✓ Founders agreements ✓ Financials and budget ✓ Blurb (1 paragraph) / teaser (1 page) ✓ Pitch deck (10 slides)
Hone in on target criteria Stage Location Industry Vertical Investment Thesis Business Model Social / Trust Filter
Tools to build the pipeline
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
Socialize • Prioritize sequence • Find strongest connections to 30+ targets • Tactics: lead gen, cold calling, warm intros • Network over 2-3 months
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?”
Refine pitch • Incorporate feedback • Double down on consistent themes • Avoid whiplash changes
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”
Structure Equity Debt
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
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
Seed A B $15 $6 $1 $30 $12 $5 Valuation & Dilution ? Dilution: what’s your end stake? Valuation ($M) ?
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
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?
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?
Players Tips
Ideas alone are worthless
Don’t go solo
Find the right co-founders
Function Size Location Industry Recruit team based on today’s fit
Engineer Product Management Marketing Investor Corporate Development Business Development Make yourself obsolete
Execution Tips
Value builds in steps Team Product Development Market Demand Product / Market Fit Business Model Execution
Focus your experiments
1.10^ 12 = 3.1 1.01^ 365 = 37.8 Shorten iteration cycles for big payoffs
Focus vs. Pivot
Stay true to the guiding north star
Pitch Tips
Anchor your summit & basecamp
Don’t share everything at once • 1 Sentence • 1 Paragraph • 1 Page • 1 Light Deck • 1 Follow-up Deck
pexels.com
thenounproject.com
Typical Parts Overview Problem Solution Market Opportunity Go-to-Market Traction Revenue & Business Model Team Competition Differentiators Financials Ask & Use of Proceeds
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 www.techstars.com/docs • www.seriesseed.com • General • www.jddavids.com • www.robkornblum.com bit.ly/startresources
Q&A Fundraising 101: 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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