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Investment Workshop - Big Booster Boston Bootcamp

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Investment Workshop - Big Booster Boston Bootcamp

  1. 1. Investment Workshop David Chang @changds Harvard Business School, Entrepreneur-in-Residence PersonalVC, Co-founder Feb 14, 2017
  2. 2. Background
  3. 3. Startup Experiences
  4. 4. Direct Via Syndicate/Fund Angel Investments
  5. 5. Fundraising Basics How to Raise a Round Tips
  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 Personal raise – loan, add folks to cap table 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 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
  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 See www.techcrunch.com/2015/06/24/running-out-of-money-isnt-a-milestone
  14. 14. How to Raise a Round
  15. 15. Fundraising Campaign Prep Target Socialize Raise Close
  16. 16. Basic Prep  Legal representation  Founders agreements  Financials and budget  Teaser (1 page)  Pitch deck (10 pages)
  17. 17. Target List of Investors Stage Location Industry Vertical Business Model Investment Thesis Social / Trust Filter
  18. 18. 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?”
  19. 19. 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
  20. 20. Closing the Deal •Rolling close vs. set close •Reference check investors •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
  21. 21. Structure Preferred Stock • Preferences over common • Board seat or 2 • Option pool • Liquidation preference- they get their $ first • Control over sale, new 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
  22. 22. Negotiating Valuation
  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 ?
  24. 24. 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
  25. 25. 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)
  26. 26. Choose Investors Carefully
  27. 27. 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 • www.soulmix.com/remix/619 • Legal • Foley & Lardner www.foley.com • Goodwin Proctor www.foundersworkbench.com • Techstars www.techstars.com/docs • www.seriesseed.com • General • www.jddavids.com • www.robkornblum.com
  28. 28. Tips
  29. 29. Share Your Summit & Basecamp
  30. 30. Leverage Your Natural Presentation Style
  31. 31. Adjust for Your Audience
  32. 32. No Blind Spots Pricing Customer Collaborators Funding Promotion Product / Service Context Place Company Concept Competition
  33. 33. Pitch Materials for Each Level •1 Sentence •1 Paragraph •1 Page •1 Light Deck •1 Follow-up Deck
  34. 34. Function Size Know Yourself Location Industry
  35. 35. Start or Join a Company
  36. 36. People Bonds > Company Bonds
  37. 37. Amplify Your Network
  38. 38. Investment Workshop David Chang @changds Harvard Business School, Entrepreneur-in-Residence PersonalVC, Co-founder Feb 14, 2017

Editor's Notes

  • …3 key periods in my professional life (1. Background, 2. Startups, 3. Angel Investing)
    First 10 years of professional life in NY
    Came to New England, thinking a great place to go to school
  • …but never left
    Next 15 years
    Dumb luck: 1000+ amazing people, 5 startups/5 acquisitions
    My startup perspective shaped by where I’ve been
  • Past 5 years – lucky to invest in other people
    Small checks - very early/seed level
    My motivation: networking/connections, sharing expertise (less financial)
    Focus: software, disproportionate knowledge, ONE THIRD in women
    Developed pattern recognition – what works and what doesn’t
  • Fundraising 101 – How-to
  • Past examples:
    How do I get funding in an industry when it’s out of favor (ad tech)?
    There’s lots of U.S. investment in clean tech. How do I connect with investors?
  • Bootstrap, crowdfunding too
    Local angels and angel groups
    Seed stage VC firms
    Corporate VC arms
    Trends
    Angels alongside VCs
    Syndicates
    Contracts / financing terms
    Valuation methods – tech vs. knowledgeable
    First time entrepreneurs
  • Out of 10 investments:
    1 home run ($1B+ exit, >10x capital) – IS YOUR STARTUP ONE OF THEM?
    2-3 modest returns (2-3x capital)
    The rest WILL FAIL

    Investors must
    * Own significant stake
    * Be able to change the team
  • How much & who from?
    Not simply $500k, $1M
    Not simply 18 months
    Not simply salaries / costs
  • Use of proceeds – pretty straightforward
  • Buying information to de-risk
    How de-risk: what do you need to discover in order to de-risk the business?
    Can you build it, do people want it/traction, execution, etc.
    Confirm problem / solution fit?
    Find customer acquisition model that ROCKS?
    Test differing pricing models?
    These are “Milestones”, but the term is often misunderstood
  • Fundraising 101 – How-to
  • Also:
    Cap table
    Pitch materials
  • WHO
    Strategy/approach
    Targets (broader than capital sources slide): Mix of angels vs. VCs vs. funds vs. syndicates, People, F&F, Banks, Partners
    Current investors to pull in new investors

    Stage / investment amount
    Location: HQ vs. your location
    Business model: B2B Enterprise, B2B SMB, B2C
    Investment thesis – type of innovation : business or technical risk
  • HOW: Intros
  • FOMO: momentum is a good thing
    Optics: oversubscribe
  • First investors vs. last investors
  • Example – you own 100% of company, raising your first $1M, what valuation?
    $5M  37%
    $3M  33%
    $1.5M raise @$5M  34%
    Valuation grows in step functions
    Less important than you think: don’t poison the relationship with greed
    Professional investors will offer a reasonable range
    Down rounds are ugly
  • Example – you own 100% of company, raising your first $1M, what valuation?
    $5M  37%
    $3M  33%
    $1.5M raise @$5M  34%
    Valuation grows in step functions
    Less important than you think: don’t poison the relationship with greed
    Professional investors will offer a reasonable range
    Down rounds are ugly
  • When to start? Raise when you can, not when you need to.
    Don’t get disheartened before you hit your goal: Don’t make a goal “miss” be your first fail
  • Like getting married
    But hiring someone who can fire you
  • People lessons
    Pitch lessons
  • Need both – otherwise the investor is left guessing
    Path to the summit will change: pivot
    Presentation flow: fireside chat (end big), exec sum (start big)
  • You shout or your slides shout?
  • My 30-minute checklist (it takes me longer to interview someone)
    Think broad – internal consistency of levers
    Find your gaps
  • …Starts by knowing yourself
    Broad vs. narrow lever
    Very handy when recruiting team members
  • …Entrepreneurship isn’t just about starting a company
    Where connections (mini-PayPal mafia)
  • Bonds with people, not companies
    Foreign concept for many
    College friend worried I couldn’t KEEP a job
  • Everyone is 1 degree away
    Don’t be shy: Investors need you as much
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