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Trading Places With An Investor: Would You Fund Your Own Startup?

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*** This deck was shared during sessions that took place in Haifa, Jerusalem and Tel Aviv in the summer of 2015. These talks were aimed at helping entrepreneurs that are looking to raise their Seed and Series A financing rounds ***

Understanding how investors evaluate startups and what triggers an investment is key to an entrepreneur's success. In this interactive session, Gil Ben-Artzy, UpWest Labs Partner, will offer concrete advice on topics such as: investor mindset, startup evaluation, fundraising strategies, etc.

Gil will be drawing from his experience working with 50+ startups that have successfully fundraised from VCs and Angel Investors in both Israel and the US.

Published in: Technology
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Trading Places With An Investor: Would You Fund Your Own Startup?

  1. 1. Trading Places With An Investor: Would You Fund Your Own Startup? -- Summary Slides -- Haifa (June 22) | Jerusalem (June 24) | Tel Aviv (July 2)
  2. 2. Work Life Edu
  3. 3. Introduction Why Fundraise? Implications? (OPM, sacrifice) No “Truth”; Always exceptions This is the short version… Objectives: better understand - 1. Investor mindset 2. How investors evaluate your venture 3. Fundraising best practices Please ask questions throughout the session
  4. 4. Technology Oriented 95% applicable to adjacent domains High-Growth, Capital Intensive Angels/Early Stage VCs Refer to other sources Israel-Based References to US Context for This Session Startups Investors
  5. 5. Investor Mindset Startup Evaluation Fundraising Best Practices Agenda
  6. 6. Corporate Funds Venture Capital Funds Micro VCs FFF Angels Chief Scientist Crowdfunding $100M+ $20-50M $0-?M Fundraising Options
  7. 7. Pension Funds, University Endowments, Wealthy Families, Corporations, etc Bonds, Stocks, etc VC Capital Allocation to Venture Capital = 3-10% Who Invests in VCs?
  8. 8. Top 20 VC Funds Other VC Funds <1x 1-2x 2-3x >3x VC ReturnsVC Funds 98% 95% 2% 5% Do VCs Meet Investor Expectations? 50% 33% 10% 7% VC ReturnsVC Funds
  9. 9. Fund Returns Exits $200M $600M $3B 3X 20% Equity * Few Investments per Partner How Do VCs Make Money?
  10. 10. Imagine your fund made 30 investments…. Option A Option B Exit 1 Exit 2 Exit 3 Exit 4 Exit 5 Exit 1 Exit 2 Exit 3 Returns = $600M Returns = $600M How Do Most Of The Best VCs Reach 3x?
  11. 11. VC Startup “I need to show potential for $50M ARR in Year 5 (or >100M users)”1 VC Partner “Should I bet part of my career on this startup?” * VC could agree to smaller exits if you are not going to be big as they had hoped, IRR & fundraising considerations, founding team really insist, etc So What Does This Mean? 1. Numbers are for illustration purposes only… Just aim super-high :-)
  12. 12. VCLarge Funds Micro-Funds Angel Investors “I need large exits” “Small exits are unlikely… Need micro-funds to invest in my startups” “Medium-size exits are unlikely… Need large funds to invest in my startups” VC Economics Impact All Investors How Does This Impact Your Pitch to Angels?
  13. 13. VC 15.7 4.2 3.4 Silicon Valley New York Israel Venture Capital Investment in 2014 ($B) “Let’s Go Abroad, It’s Easier to Raise Money in Silicon Valley!” Is It Easier To Raise Funding In the US?
  14. 14. VC … and one day someone you don’t know drops by… Would you invest in someone… … you have never met before … whom you have no context about … and whom lives thousands of KM away*? *Amazing traction? Unique tech? Strong reference? You meet with hundreds of startups from your network… Imagine You Are an Israeli Investor… 81 49 F-16 ZellTalpiot TechnionGoogle 8200
  15. 15. Fund Returns Exits $200M $1B $3B $3B $15B US Funds 3X 20% Equity $600M
  16. 16. Goal: Investing In The Winners
  17. 17. Investor Mindset Startup Evaluation Fundraising Best Practices Agenda
  18. 18. How Do Investors Evaluate Startups? Goal: Invest in high potential startups Investors differ in investment stage, domain expertise, required traction, points of emphasis, etc Subjective, far from exact science…. Look for signals / social proof in: Market Momentum Team
  19. 19. 1. Size of Addressable Market 2. Timing (e.g., Mobile Advertising) 3. Level of Competition 4. Distribution Channels • Recent investments in this market: when, how much, by whom • How many have tried this before You can tell a lot by… Market
  20. 20. Momentum = f * “Perceived Momentum” has some value as well :-) Users / customers (number, engagement) Partners IP Advisors (industry, domain) New Hires Investment Commitment Thought Leadership (conferences, blogs) Press (credibility, not traction) etc Momentum
  21. 21. 1. Personal definition of success 2. Domain knowledge 3. Previous success 4. Team dynamics 5. Smart / Coachable / High Integrity / etc “Do I want to work with them for the next 5-7 years?” Team
  22. 22. “Market always wins” Cold/Lukewarm Market Super-hot Market In the event of a “Tie” Show momentum (or find a new idea…) Strong team is the key (can raise with little proof) When Am I Attractive Enough? Attractive to Investors = Market Momentum Team
  23. 23. Investor Mindset Startup Evaluation Fundraising Best Practices Agenda
  24. 24. 1-2 months 3-6 months 1. Craft Your Story 2. Finalize The “Details” Finding The Right Investor for You 3. Approach Investors 4. Manage The Process
  25. 25. 50% 12.5% 12.5% 12.5% Unique story: –Team: Why you, why this team –Market: Why this venture, why now –Momentum: Current Proof? Future goals? • Users, revenue, small-scale economics, vision Source: https://www.cbinsights.com/blog/seed-series-a-data-startup/ Materials: • Deck, Verbal pitch (7, 30, 120) Practice: • Existing investors and entrepreneurs • Who speaks? CEO >70% • Focus on weak points 1. Your Story
  26. 26. 50% 12.5% 12.5% 12.5% 1. Your Story: The Deck Source: https://medium.com/@michaelrwolfe/what-should-be-in-my-fundraising-slides-eca162d14d2a Problem: What are they trying to solve?1 Vision: Does this matter? Is this interesting/big enough?2 Product/Demo: What are they doing? How does it work?3 Tech: Is there anything unique here?4 Momentum: Do they any proof that this is working?5 Market: Is this a big enough opportunity?6 Competitors: Do they know them? Are they different?7 Biz Model: How will they make money?8 Distribution: Is this credible? Do they have proof?9 Team: Why them?10 Milestones/Ask: Will they be in a good place in 1 year?11
  27. 27. 2. The “Details”: Timing Feb June Sep Nov Your “shelf life” = 3-4 months* * Everybody talks….
  28. 28. Enough for 15-18 months; Reduce the risk and get you to the next round Pick just one number, not a range Milestone-based? Equity vs. note? 2. The “Details”: Amount
  29. 29. 2. The “Details”: Equity Target $ Needed % Equity Valuation = % Equity = { negotiations, # of offers,…}f
  30. 30. Other & Future employees CEO CTO VP R&D Pre-seed & Seed investors50% 12.5% 12.5% 12.5% 12.5% 2. The “Details”: Equity Target What Would a Series A Investor Think? (hint: not good…)
  31. 31. 2. The “Details”: Investor List Fund Name Relevant Investments Contacts First intro Notes Next Steps? Priority Money VC Mary Smith Ring, Flippr, ReStore Mike M John R 1/1/14…. Reach out Q2 High … Identify & prioritize relevant investors: • Domain expertise • Partners vs. Non-Partners • Lifecycle of fund • Completion of a recent deal Track all investor engagement:
  32. 32. If all meet you once and say “No” Wait! Before Beginning The Process Identify 4 investors: If 2 meet you multiple times and only then say “No” Reconsider the round Kickoff the round
  33. 33. Intros via people investors trust, never cold-call Parallel-process, begin with “second priority”, escalate with traction Focus on lead investor; Keep list of “follow-on” Iterate on your pitch and materials Reach potential customers 3. Approach Investors How Have You Done It?
  34. 34. = Everything else = Signed term sheet = Meeting other partners asap “Amazing Meeting!” “Great Meeting” “INYIM Meeting”1 “Bad Meeting” = “We really like you…” = “This is cool stuff…” = “Give us a few days to think about it” 3. Is The Meeting going well? 1. “It’s Not You It’s Me” Meeting
  35. 35. 4. Manage The Process • Force a decision (be careful!): Parallel processing, momentum updates • Not a Yes is a No • Commitment? (joining a round) • Get a good lawyer! • Negotiations & terms signals on how it will be like working with this investor • Money in the bank only!
  36. 36. 4. Process: Interview The Investors Will they care about their investment? (size of fund) Do they know the market, customers, partners? What is their follow-on record? Did top investors participate in their rounds? Ties to US? How have they treated founders of previous investments? (both failed and successful ones) Given their engagement style, do you want to work with them?
  37. 37. If You Are Raising In Silicon Valley…. No “2-week funding roadshows” Get local proof: customers, advisory board, etc Learn from Israeli entrepreneurs (R&D in Israel, etc) Ask for help, leverage friendly intros Move before the round (50%+ can work too) Early Stage Investing is a Local Business
  38. 38. Final Thoughts This is only the beginning… …And just a means to an end 25 40 55
  39. 39. Thank Yougil@upwestlabs.com

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