Raising Capital: Closing The Deal

Raising Capital:
Closing the Deal
Joe Beninato
August 27, 2009
joe |at| beninato |dot| com
Twitter: @beninato

Topics
• Preparation
• Should I Raise Money?
• Angels vs.VCs
• Convertible Note vs.
Priced Round
• Finding the Right Investor
• The Approach
• The Meeting
• The Follow-Up
• Closing the Deal
© Joe Beninato 2009

Who Is This Guy?
• Joe Beninato
• MIT aerospace engineer
• 20 years in Silicon Valley
• 6 startupsacquisitions, 2 TBD
2 IPOs, 2
full-time

• 15+ startups advisor/board
• $200+ million capital raised
• >$1 billion in exits


“Be prepared.”

Preparation
• Raising money is not formulaic
• Present company in best light
• 9/1 is the beginning, not the end
• “Show a little leg”
• Get to ﬁrst base
• Identify targets in advance and
ﬁnd them 9/1 -- scrum
• Long process -- get mentally
prepared
• You will hear “no” “yes” more
than you will hear
WAY

• Some of you will not get funded

Q: Should I Raise Money?
A: Only if you have to
• Professional investors change your life &
company
• What’s your goal?
• Can you wait?
• Breakeven now or soon?
• Credibility
• Rainy day fund
• Competition

Angels vs. VCs

Angels Angel Seed Seed Funds VCs
Groups Incubators
Ron Conway Band of Angels fbFund REV fbFund Sequoia
Reid Hoffman Sand Hill Angels Y Combinator First Round Capital Benchmark
Russ Siegelman Angels Forum TechStars True Accel
Aydin Senkut Golden Gate Angels Seedcamp SoftTech Sutter Hill
XG Ventures Keiretsu Forum Launchbox Digital Baseline Union Square
Ariel Poler PAPA Maples Foundry
Brett Bullington MHS (Sugarman) Shasta
Mitch Kapor Amidzad August
Chris Sacca Alsop-Louie Greylock
Bill Harris CRV Quickstart Founders Fund
Joi Ito Tugboat DFJ
Esther Dyson Nueva CRV
Michael Dearing Agile Trinity
Naval Ravikant Amicus Matrix
O’Reilly AlphaTech Venrock
Founders Collective Andreessen-
Horowitz
...

*My apologies to anyone omitted on this slide...no offense intended


Convertible Note vs. Priced Round
• Convertible Note
• Loan that gets added to next round
with perks (discount, warrant
coverage, cap)
• OPM = “Other People’s Money”
• Delays valuation determination
• Signiﬁcantly lower legal fees ($5k?)
• Priced Round
• Investors generally prefer
• You know where you stand
• Higher legal fees ($30-50k for both
sides)

Finding the Right Investor is Hard
“I’m on “not
“no revenue
too many enough
model”
boards” traction”

“it’s a small “too
market” expensive”

“I don’t like “my partners
“weak team”
sports” don’t like it”


Finding the Right Investor is Hard


Maximizing Your Chances
• Be honest
• Credibility
• fbFund REV winners
• Team accomplishments
• Advisors
• Lawyer
• Other investors
• Cool demos
• Users
• Page views
• Partnerships
• Revenue!
• Proﬁt!!!!!

The Approach
• Identify relevant targets and make a spreadsheet
• You need a warm intro
• Don’t approach competitors
• Don’t waste time on associates
if you can avoid it
• Send intro paragraph & 1 page
exec summary and/or link to site
• Be clear on your “ask”
• NEVER COMMUNICATE
A VALUATION!
• Be persistent, but once declined,
back down
• Lather, rinse, repeat
• NOTE: Be really friendly to assistants


The Meeting
• Do your homework
• Conﬁrm the night before via email
• Don’t be late
• Don’t meet for lunch
• Find out how much time you have
• Have a great deck - concise, clear
• Be conﬁdent, smile, show passion
• Know your business
• Know your pitch inside and out
• Teach them something
• Don’t argue
• If you don’t know an answer, say
“I don’t know, let me follow up”
• Be clear on your “ask” - NEVER COMMUNICATE A VALUATION!
• If you don’t suck, and you feel there’s interest, ask about next steps

The Follow-Up
• A game of patience and persistence
• A few hours after meeting, send follow-up email
• Thank them for their time
• Make sure they know you heard their issues
• Follow-up on any open issues
• Conﬁrm next steps (if any)
• A day after they miss the next step (and they will), email again
• 5 days after they miss the next step (and they will), call them
• Pay close attention to the feedback
• Don’t be insulted with a “no”
• Keep reviewing your spreadsheet and following up


How VCs Say “No”
• “No” “Nein” “Non” “Nyet”
• They don’t return your calls or emails
• “We love what you’re doing but would like to see
more progress”
• “We’d like to see what your beta looks like”
• “Have you thought about hiring a _______ ”
• “Have you thought about approaching _______ ”
• “We’re interested, but we don’t want to lead”


Closing the Deal:
Angels
• Angels don’t need to own 20% like VCs
• They invest in people/concepts they like
• Get an angel to commit and leverage that
• You need a lead investor to provide term sheet
• Sometimes you can provide term sheet
• Make sure your angels aren’t wannabe CEOs
• No board seats for angels
• Rely upon your lawyer and advisors for advice


Closing the Deal:
VCs
• VCs typically want 20% minimum
• Get angel(s) to commit and leverage that
• Ideal: get multiple VCs to compete
• Never rush an investor
• Don’t lie about a ﬁctitious term sheet
• Rely upon your lawyer and advisors for advice
• Due diligence takes time
• Check references on your investors
• Board composition REALLY matters

Best of luck!

Raising Capital: Closing The Deal

Raising Capital: Closing The Deal

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