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Proprietary and Confidential
START UP
SECRETS
An insider’s guide to unfair competitive advantage
Funding Strategies to Go ...
Proprietary and Confidential
Agenda
Many ways to fund your startup
Develop a funding strategy
Remove the mystique of VC
Proprietary and Confidential
Have a question? Tweet them!
@underscorevc
#startupsecrets
Proprietary and Confidential 4
Sex,
Relationships
& Money
This could get complicated, but it needn’t!
Funding Strategies t...
Proprietary and Confidential 5
Raising money is like sex.
Funding Strategies to Go the Distance @underscorevc startupsecre...
Proprietary and Confidential 6
Everyone wants to know about it.
Few people talk about it openly.
People are afraid to ask ...
Proprietary and Confidential 7
Everyone wants to know about it.
Few people talk about it openly.
People are afraid to ask ...
Proprietary and Confidential 8
Should you even raise money?
• If you don’t know, the answer is no!
• Do the work first
Exa...
Proprietary and Confidential 9
Ideation Confirmation Creation Validation Repeatability Scalability Profitability
Predictab...
Proprietary and Confidential 10
Ideation Confirmation Creation Validation Repeatability Scalability Profitability
Predicta...
Proprietary and Confidential 11
Ideation Confirmation Creation Validation Repeatability Scalability Profitability
Predicta...
Proprietary and Confidential 12
Ideation Confirmation Creation Validation Repeatability Scalability Profitability
Predicta...
Proprietary and Confidential 13
Ideation Confirmation Creation Validation Repeatability Scalability Profitability
Predicta...
Proprietary and Confidential
Funding vectors –
matching expectations & outcomes
Funding Strategies to Go the Distance @und...
Proprietary and Confidential 19
Equity
• Angel
• Accelerators
• Seed, Venture Capital (including Strategic / Corporate inv...
Proprietary and Confidential 20
What’s right for you?
LargeSmall
Capital
Potential
Intense
Efficient
Funding Strategies to...
Proprietary and Confidential 35
Sex, Relationships & Money
This could get complicated, but it needn’t!
simplified.
Funding...
Proprietary and Confidential 36
What’s right for you?
LargeSmall
Capital
Potential
Intense
Efficient
VC
Funding Strategies...
Proprietary and Confidential 37
Venture Capital
Seed: ~ $100K to $1-3m
• See later
A to IPO
• $Millions, multiple rounds
S...
Proprietary and Confidential 38
VCs receive ‘000s of plans
Funding Strategies to Go the Distance @underscorevc startupsecr...
Proprietary and Confidential 39
This is what happens to most
Funding Strategies to Go the Distance @underscorevc startupse...
Proprietary and Confidential 40
Research
 Fit: Geography, Sector, Stage
 Portfolio: Complementary, competitive?
 Partne...
Proprietary and Confidential 41
Target, be selective and focus
 Fit: Geography, Sector, Stage
 Portfolio: Complementary,...
Proprietary and Confidential 42
Build a relationship
You could be partners for several years …
Funding Strategies to Go th...
Proprietary and Confidential 43
Triangulate ways to connect
Find someone who knows the VC
Get a warm introduction
Interact...
Proprietary and Confidential 44
Process?
Funding Strategies to Go the Distance @underscorevc startupsecrets.com
Proprietary and Confidential 45
Process Framework
You
• Research
• Connect
• Meet
• Motivate
• Diligence
• Fit check
• Pit...
Proprietary and Confidential 46
First connection: Who, what, why?
Make a connection
Establish
• Who are you (relevant expe...
Proprietary and Confidential 47
First meeting
Tell your story …
See “Getting behind the perfect pitch”
Funding Strategies ...
Proprietary and Confidential 48
Process – build momentum
You
• Research
• Connect
• Meet
• Motivate
• Diligence
• Fit chec...
Proprietary and Confidential 49
Incomplete stand outs are better than complete stand ups.
We looking for outstanding:
• Pe...
Proprietary and Confidential 50
Dating and Validating
Why diligence is so important to YOU too!
Funding Strategies to Go t...
Proprietary and Confidential 51
Dating – evaluating investors:
Everyone’s money is the same color
Get to know the partners...
Proprietary and Confidential 52
Expectations of your VC?
Operating experience?
Investment experience?
Hands on/off?
Though...
Proprietary and Confidential 53
Validating the VC’s work
Get to know the team
• Time, References, etc.
Understand the busi...
Proprietary and Confidential 54
Process – term sheet timing …
You
• Research
• Connect
• Meet
• Motivate
• Diligence
• Fit...
Proprietary and Confidential 56
Funding strategy questions
First question
• How much do you need?
Funding Strategies to Go...
Proprietary and Confidential 57
How much do you need?
Run the numbers
Build the assumptions
Assess the dependencies
Define...
Proprietary and Confidential 58
More important than the spreadsheet
Assumptions
Things to test
Minimally: cash flow projec...
Proprietary and Confidential 59
Financials
P&L Cash Flow
• 6 quarters for cash flow, requirement
For sizing the business, ...
Proprietary and Confidential 60
Realistic optimists?
Funding Strategies to Go the Distance @underscorevc startupsecrets.com
Proprietary and Confidential 61
Funding strategy questions
First question
• How much do you need?
Second question
• How mu...
Proprietary and Confidential 62
How much do you want?
Enough to build real value
Define the milestones
• Key hires
• Produ...
Proprietary and Confidential 63
Funding strategy questions
First question
• How much do you need?
Second question
• How mu...
Proprietary and Confidential 64
What should you raise?
One strategy (dilution sensitive, risk tolerant)
• Raise just what ...
Proprietary and Confidential
 Predictability of your business
• Your execution
• Market adoption
• Cash flows (business m...
Proprietary and Confidential
The sixty four million
dollar question…
Valuation
Funding Strategies to Go the Distance @unde...
Proprietary and Confidential
Valuation vectors
Funding Strategies to Go the Distance @underscorevc startupsecrets.com 67
Proprietary and Confidential
Don’t just value – evaluate …
Always be one round ahead in your thinking
Proof (Metrics, Mile...
Proprietary and Confidential
Ultimate exit potential (if you must)
Potential acquirers
• Their motivations
• Recent transa...
Proprietary and Confidential
 Build relationships between financing rounds
 Always ready to close
“ABC: Always Be Closin...
Proprietary and Confidential
The most important capital you’ll raise
Human capital
Invest in it with your option pool!
Fun...
Proprietary and Confidential
 Investor fit
 Amount of capital raised
 Human Capital (option pool)
 Timing
(To clear th...
Proprietary and Confidential
Raising money is like sex
It needn’t be complicated
It’s fun when you get it!
So pick your pa...
Proprietary and Confidential
T 617.303.0064
@underscorevc
53 State Street, 10th Fl
Boston, MA 02109
Thank you!
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Startup Secrets - Funding Strategies to Go the Distance

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Having been a venture capitalist for the last decade, I have found that the topic of funding is one that everyone wants to know about but is openly discussed by few. Ironically, the more it is talked about, the more educated entrepreneurs will be, enabling them to make the right decisions as they seek funding for their startup.

Published in: Education
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Startup Secrets - Funding Strategies to Go the Distance

  1. Proprietary and Confidential START UP SECRETS An insider’s guide to unfair competitive advantage Funding Strategies to Go the Distance @underscorevc #startupsecrets startupsecrets.com
  2. Proprietary and Confidential Agenda Many ways to fund your startup Develop a funding strategy Remove the mystique of VC
  3. Proprietary and Confidential Have a question? Tweet them! @underscorevc #startupsecrets
  4. Proprietary and Confidential 4 Sex, Relationships & Money This could get complicated, but it needn’t! Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  5. Proprietary and Confidential 5 Raising money is like sex. Funding Strategies to Go the Distance @underscorevc startupsecrets.com Everyone wants to know about it. Few people talk about it openly.
  6. Proprietary and Confidential 6 Everyone wants to know about it. Few people talk about it openly. People are afraid to ask … Raising money is like sex. Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  7. Proprietary and Confidential 7 Everyone wants to know about it. Few people talk about it openly. People are afraid to ask … It’s fun once you get it! Raising money is like sex. Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  8. Proprietary and Confidential 8 Should you even raise money? • If you don’t know, the answer is no! • Do the work first Example reasons for a “no” • No need! • Personal: risk aversion, lifestyle, control • Business: small potential • Other: not for profit, or research Funding Strategy Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  9. Proprietary and Confidential 9 Ideation Confirmation Creation Validation Repeatability Scalability Profitability Predictability Overview Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  10. Proprietary and Confidential 10 Ideation Confirmation Creation Validation Repeatability Scalability Profitability Predictability Overview Increasing VALUE DecreasingRISK Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  11. Proprietary and Confidential 11 Ideation Confirmation Creation Validation Repeatability Scalability Profitability Predictability Overview Increasing VALUE DecreasingRISK Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  12. Proprietary and Confidential 12 Ideation Confirmation Creation Validation Repeatability Scalability Profitability Predictability Overview Increasing VALUE DecreasingRISK Product Market Fit Prototype Problem Fit Value Prop Idea Fit MVP & MVS Customer Fit Company Execution Fit Company Public Market Fit Company Business Model Fit Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  13. Proprietary and Confidential 13 Ideation Confirmation Creation Validation Repeatability Scalability Profitability Predictability Overview Increasing VALUE DecreasingRISK The two best times to raise capital With all the potential or Plenty of proof Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  14. Proprietary and Confidential Funding vectors – matching expectations & outcomes Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  15. Proprietary and Confidential 19 Equity • Angel • Accelerators • Seed, Venture Capital (including Strategic / Corporate investors) • Growth, Private Equity • Public Markets Other • Bootstrap • Friends & Family • Debt • Grants, subsidies, off balance sheet Alternatives • Business Crowdfunding (e.g. AngelList), Products/Services (e.g. Kickstarter) Typical Sources Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  16. Proprietary and Confidential 20 What’s right for you? LargeSmall Capital Potential Intense Efficient Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  17. Proprietary and Confidential 35 Sex, Relationships & Money This could get complicated, but it needn’t! simplified. Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  18. Proprietary and Confidential 36 What’s right for you? LargeSmall Capital Potential Intense Efficient VC Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  19. Proprietary and Confidential 37 Venture Capital Seed: ~ $100K to $1-3m • See later A to IPO • $Millions, multiple rounds Stage development participation, involvement • Active (board seat) • Passive (follow “lead” investors) Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  20. Proprietary and Confidential 38 VCs receive ‘000s of plans Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  21. Proprietary and Confidential 39 This is what happens to most Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  22. Proprietary and Confidential 40 Research  Fit: Geography, Sector, Stage  Portfolio: Complementary, competitive?  Partner(s)  Track Record  Capital, free capital, reserves Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  23. Proprietary and Confidential 41 Target, be selective and focus  Fit: Geography, Sector, Stage  Portfolio: Complementary, competitive?  Partner(s)  Track Record  Capital, free capital, reserves Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  24. Proprietary and Confidential 42 Build a relationship You could be partners for several years … Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  25. Proprietary and Confidential 43 Triangulate ways to connect Find someone who knows the VC Get a warm introduction Interact on line Use your initiative! Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  26. Proprietary and Confidential 44 Process? Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  27. Proprietary and Confidential 45 Process Framework You • Research • Connect • Meet • Motivate • Diligence • Fit check • Pitch • Legal • Celebrate (briefly!) The VC • Thesis • Qualify • Meet • Prioritize • Engage • Socialize • Partner meeting • Final diligence • Fund Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  28. Proprietary and Confidential 46 First connection: Who, what, why? Make a connection Establish • Who are you (relevant experience) • What do you do (uniquely well for who) • Why does it matter (market opportunity) Investors often have ADD • Not value add – A.D.D. ! • Limit the agenda, control the discussion, get the first meeting! Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  29. Proprietary and Confidential 47 First meeting Tell your story … See “Getting behind the perfect pitch” Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  30. Proprietary and Confidential 48 Process – build momentum You • Research • Connect • Meet • Motivate • Diligence • Fit check • Pitch • Legal • Celebrate (briefly!) The VC • Thesis • Qualify • Meet • Prioritize • Engage • Socialize • Partner meeting • Final diligence • Fund Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  31. Proprietary and Confidential 49 Incomplete stand outs are better than complete stand ups. We looking for outstanding: • People • Technology or other disruption • Market opportunity One outstanding of the above literally stands out vs. all good, but none great We don’t expect complete • Team • Product • Value prop • GTM plan • Business model Entrepreneurs don’t need all the answers! • Self aware, listening, leaders …. Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  32. Proprietary and Confidential 50 Dating and Validating Why diligence is so important to YOU too! Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  33. Proprietary and Confidential 51 Dating – evaluating investors: Everyone’s money is the same color Get to know the partnership and their portfolio This is NOT an arranged marriage! Pick your partner. • Level of insight and experience • Track record is great but it’s history • Talk to others who have worked with them Will they be a balance for you? Good self-aware mentor? • Find someone who is genuinely motivated to set you up for success. • If you don’t have comfort and personal chemistry … KEEP LOOKING! See LinkedIn article here. Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  34. Proprietary and Confidential 52 Expectations of your VC? Operating experience? Investment experience? Hands on/off? Thoughts: • Team and board building • Remove roadblocks • Reveal opportunities to accelerate • Strategic insight • Access to resources, network Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  35. Proprietary and Confidential 53 Validating the VC’s work Get to know the team • Time, References, etc. Understand the business • Value prop, biz model Check under the hood • e.g. Expert opinion on Tech Validate assumptions • GTM, speak to customers, partners Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  36. Proprietary and Confidential 54 Process – term sheet timing … You • Research • Connect • Meet • Motivate • Diligence • Fit check • Pitch • Legal • Celebrate (briefly!) The VC • Thesis • Qualify • Meet • Prioritize • Engage • Socialize • Partner meeting • Final diligence • Fund Term sheet? Term sheet? Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  37. Proprietary and Confidential 56 Funding strategy questions First question • How much do you need? Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  38. Proprietary and Confidential 57 How much do you need? Run the numbers Build the assumptions Assess the dependencies Define the milestones Enough to build real value • 18 months of runway typically Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  39. Proprietary and Confidential 58 More important than the spreadsheet Assumptions Things to test Minimally: cash flow projection Optimally: Financial forecast Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  40. Proprietary and Confidential 59 Financials P&L Cash Flow • 6 quarters for cash flow, requirement For sizing the business, overall capital requirement (informs investor for their reserves) • Annual P&L, CF up to 5 years thereafter; Highlighting if applicable Cash flow positive Breakeven Suggested information / detail as needed for the above • Headcount • Bookings • Revenue May need to break out things like Services depending on your business • Gross Margin • Expenses Major categories like R&D, Sales, Marketing, G&A shown as needed • Profit/Loss • Cash Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  41. Proprietary and Confidential 60 Realistic optimists? Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  42. Proprietary and Confidential 61 Funding strategy questions First question • How much do you need? Second question • How much do you want? Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  43. Proprietary and Confidential 62 How much do you want? Enough to build real value Define the milestones • Key hires • Product beta, ship • First customers • Channel Partners • Etc… 18 months of runway typically Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  44. Proprietary and Confidential 63 Funding strategy questions First question • How much do you need? Second question • How much do you want? Final question • What should you raise? Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  45. Proprietary and Confidential 64 What should you raise? One strategy (dilution sensitive, risk tolerant) • Raise just what you need • Just before you need it? Another strategy (dilution insensitive, risk intolerant) • Raise more than you need • Well before you need it Either way • Timing is everything so plan • Assume the unexpected Funding Strategies to Go the Distance @underscorevc startupsecrets.com
  46. Proprietary and Confidential  Predictability of your business • Your execution • Market adoption • Cash flows (business model) • Potential outcome (risk / return)  Competitors’ balance sheets  Valuation… Factors Funding Strategies to Go the Distance @underscorevc startupsecrets.com 65
  47. Proprietary and Confidential The sixty four million dollar question… Valuation Funding Strategies to Go the Distance @underscorevc startupsecrets.com 66
  48. Proprietary and Confidential Valuation vectors Funding Strategies to Go the Distance @underscorevc startupsecrets.com 67
  49. Proprietary and Confidential Don’t just value – evaluate … Always be one round ahead in your thinking Proof (Metrics, Milestones per earlier) Customers, Partners, GTM, BizModel, Product Allow for Unknowns Time to fundraise Capital to capitalize! Funding Strategies to Go the Distance @underscorevc startupsecrets.com 68
  50. Proprietary and Confidential Ultimate exit potential (if you must) Potential acquirers • Their motivations • Recent transactions in the space - $ paid and valuations basis Independent beyond IPO • Comparable valuations – Data for these like revenues, growth rates, market cap Funding Strategies to Go the Distance @underscorevc startupsecrets.com 69
  51. Proprietary and Confidential  Build relationships between financing rounds  Always ready to close “ABC: Always Be Closing” Funding Strategies to Go the Distance @underscorevc startupsecrets.com 70
  52. Proprietary and Confidential The most important capital you’ll raise Human capital Invest in it with your option pool! Funding Strategies to Go the Distance @underscorevc startupsecrets.com 71
  53. Proprietary and Confidential  Investor fit  Amount of capital raised  Human Capital (option pool)  Timing (To clear the bar: Clean Terms) What really matters Funding Strategies to Go the Distance @underscorevc startupsecrets.com 72
  54. Proprietary and Confidential Raising money is like sex It needn’t be complicated It’s fun when you get it! So pick your passion not your poison Funding Strategies to Go the Distance @underscorevc startupsecrets.com 73
  55. Proprietary and Confidential T 617.303.0064 @underscorevc 53 State Street, 10th Fl Boston, MA 02109 Thank you!

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