The document provides an overview of funding strategies for startups. It discusses various funding options including equity from angels, accelerators, and venture capital at different stages. It emphasizes the importance of developing a funding strategy that matches expectations and outcomes. The document also discusses factors to consider when raising funds such as valuation, timing, investor fit, and amount of capital needed.
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
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Sex,
Relationships
& Money
This could get complicated, but it needn’t!
Funding Strategies to Go the Distance @underscorevc startupsecrets.com
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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.
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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
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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
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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
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Ideation Confirmation Creation Validation Repeatability Scalability Profitability
Predictability
Overview
Funding Strategies to Go the Distance @underscorevc startupsecrets.com
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Ideation Confirmation Creation Validation Repeatability Scalability Profitability
Predictability
Overview
Increasing VALUE
DecreasingRISK
Funding Strategies to Go the Distance @underscorevc startupsecrets.com
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Ideation Confirmation Creation Validation Repeatability Scalability Profitability
Predictability
Overview
Increasing VALUE
DecreasingRISK
Funding Strategies to Go the Distance @underscorevc startupsecrets.com
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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
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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
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Funding vectors –
matching expectations & outcomes
Funding Strategies to Go the Distance @underscorevc startupsecrets.com
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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
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What’s right for you?
LargeSmall
Capital
Potential
Intense
Efficient
Funding Strategies to Go the Distance @underscorevc startupsecrets.com
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Sex, Relationships & Money
This could get complicated, but it needn’t!
simplified.
Funding Strategies to Go the Distance @underscorevc startupsecrets.com
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What’s right for you?
LargeSmall
Capital
Potential
Intense
Efficient
VC
Funding Strategies to Go the Distance @underscorevc startupsecrets.com
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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)
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VCs receive ‘000s of plans
Funding Strategies to Go the Distance @underscorevc startupsecrets.com
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This is what happens to most
Funding Strategies to Go the Distance @underscorevc startupsecrets.com
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Research
Fit: Geography, Sector, Stage
Portfolio: Complementary, competitive?
Partner(s)
Track Record
Capital, free capital, reserves
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Target, be selective and focus
Fit: Geography, Sector, Stage
Portfolio: Complementary, competitive?
Partner(s)
Track Record
Capital, free capital, reserves
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Build a relationship
You could be partners for several years …
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Triangulate ways to connect
Find someone who knows the VC
Get a warm introduction
Interact on line
Use your initiative!
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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
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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!
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First meeting
Tell your story …
See “Getting behind the perfect pitch”
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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
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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 ….
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Dating and Validating
Why diligence is so important to YOU too!
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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.
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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
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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
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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?
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Funding strategy questions
First question
• How much do you need?
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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
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More important than the spreadsheet
Assumptions
Things to test
Minimally: cash flow projection
Optimally: Financial forecast
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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
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Realistic optimists?
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Funding strategy questions
First question
• How much do you need?
Second question
• How much do you want?
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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
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Funding strategy questions
First question
• How much do you need?
Second question
• How much do you want?
Final question
• What should you raise?
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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
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Predictability of your business
• Your execution
• Market adoption
• Cash flows (business model)
• Potential outcome (risk / return)
Competitors’ balance sheets
Valuation…
Factors
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The sixty four million
dollar question…
Valuation
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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!
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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
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Build relationships between financing rounds
Always ready to close
“ABC: Always Be Closing”
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The most important capital you’ll raise
Human capital
Invest in it with your option pool!
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Investor fit
Amount of capital raised
Human Capital (option pool)
Timing
(To clear the bar: Clean Terms)
What really matters
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Raising money is like sex
It needn’t be complicated
It’s fun when you get it!
So pick your passion not your poison
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