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Investment Workshop
David Chang
@changds
Harvard Business School, Entrepreneur-in-Residence
PersonalVC, Co-founder
Feb 14, 2017
Background
Startup Experiences
Direct Via Syndicate/Fund
Angel Investments
Fundraising
Basics
How to Raise
a Round
Tips
What Obstacles
Stand in Your Way?
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)
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
Venture Capital Stages
Friends and Family
Angel
Early Stage
Growth Equity
Venture Capital Dynamics
Skewed return distribution
VCs must swing for the fences
Source: @DawnUmlah
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
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
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
How to Raise
a Round
Fundraising Campaign
Prep Target Socialize Raise Close
Basic Prep
 Legal representation
 Founders agreements
 Financials and budget
 Teaser (1 page)
 Pitch deck (10 pages)
Target List of Investors
Stage Location
Industry
Vertical
Business
Model
Investment
Thesis
Social /
Trust Filter
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?”
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
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
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
Negotiating Valuation
Valuation & Dilution
?
$12
$30$6
$15
Seed A B
Valuation ($M) Dilution: what’s your end stake?
$1M raise $6M raise $15M raise
?
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
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)
Choose Investors Carefully
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
Tips
Share Your Summit & Basecamp
Leverage Your Natural Presentation Style
Adjust for Your Audience
No Blind Spots
Pricing
Customer
Collaborators
Funding
Promotion
Product / Service
Context
Place
Company
Concept
Competition
Pitch Materials for Each Level
•1 Sentence
•1 Paragraph
•1 Page
•1 Light Deck
•1 Follow-up Deck
Function
Size
Know Yourself
Location
Industry
Start or Join a Company
People Bonds > Company Bonds
Amplify Your Network
Investment Workshop
David Chang
@changds
Harvard Business School, Entrepreneur-in-Residence
PersonalVC, Co-founder
Feb 14, 2017

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Investment Workshop - Big Booster Boston Bootcamp

Editor's Notes

  1. …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
  2. …but never left Next 15 years Dumb luck: 1000+ amazing people, 5 startups/5 acquisitions My startup perspective shaped by where I’ve been
  3. 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
  4. Fundraising 101 – How-to
  5. 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?
  6. 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
  7. 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
  8. How much & who from? Not simply $500k, $1M Not simply 18 months Not simply salaries / costs
  9. Use of proceeds – pretty straightforward
  10. 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
  11. Fundraising 101 – How-to
  12. Also: Cap table Pitch materials
  13. 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
  14. HOW: Intros
  15. FOMO: momentum is a good thing Optics: oversubscribe
  16. First investors vs. last investors
  17. 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
  18. 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
  19. 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
  20. Like getting married But hiring someone who can fire you
  21. People lessons Pitch lessons
  22. 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)
  23. You shout or your slides shout?
  24. My 30-minute checklist (it takes me longer to interview someone) Think broad – internal consistency of levers Find your gaps
  25. …Starts by knowing yourself Broad vs. narrow lever Very handy when recruiting team members
  26. …Entrepreneurship isn’t just about starting a company Where connections (mini-PayPal mafia)
  27. Bonds with people, not companies Foreign concept for many College friend worried I couldn’t KEEP a job
  28. Everyone is 1 degree away Don’t be shy: Investors need you as much