Startup Secrets - Funding Strategies to Go the Distance
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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.
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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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