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Venture Capital 101 - I'm a VC, Who Are You?


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"Venture Capital 101 - I'm a VC, Who Are You?" walks you through the essentials of venture capital, early stage funding alternatives, and the difference between good and bad VC to an audience new to fundraising. I first gave this talk to Interactive Communication students at Berghs School of Communications in Stockholm, Sweden, March 2013.
March 2016: Updated version to reflect the changes and trends in venture capital markets incl. additional pitch advice, recommended reading, and founder resources.

Published in: Investor Relations
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Venture Capital 101 - I'm a VC, Who Are You?

  1. 1. I’m A VC - Who Are You? Venture Capital 101 @paulamarttila
  2. 2. VENTURE CAPITAL - HUH? Business Model, Investment Stages And Criteria, Value Proposition EARLY STAGE FUNDING Angel Funding, Seed Funding, Accelerators, Equity Crowdfunding THE DATING GAME i.e. How To Get Married, The Good vs Bad VC, Due Diligence, The Pitch Agenda @paulamarttila
  3. 3. Invest Other People’s $$$ ( = LPs = Limited Partners, e.g. Pension Funds, Schools) Bet On Few Home Runs:10% Of Investments Expected To Drive Fund’s Entire Returns (Average 10-20X ROI per Investment) Average Investment Fund Life Time: 8 -10 Years => Raise New Funds To Invest With. Trend: Fund Life Times Are Getting Shorter. Invest During A Company’s Different Growth Stages: Seed, Series A, B, C, D... => IPO / M&A Defined Investment Stages Or Stage Agnostic VC Defined Investment Thesis Or Follow Current Tech Trends Herd Mentality And FOMO On A Deal: “We’re in if other big names are.” Venture Capital - Huh? @paulamarttila
  4. 4. Venture Capital Continued: Firm Structure: Partner = Funding Decisions / Board Seats, Associate = Deal Sourcing / Due Diligence Often Co-Invest In Syndicates, As Lead Investor Or Follower. Lead Investor Sets The Investment Terms. Tip: Have Lead Investor When Fundraising. Equity Stakes And Company Valuation Vary Depending On Stage & Growth Trajectory Expected Time To ROI: 5-8 Years YES: High Growth Markets NO: Lifestyle, Consulting Businesses Additional Value Propositions: Hiring, Network, Follow-On Funding, Platform Offering Incl. Back Office Expertise, e.g. http:// @paulamarttila
  5. 5. Early Stage Funding @paulamarttila
  6. 6. “I Have An Idea” Minimum Viable Product (MVP) With Early Traction (Without Previous Track Record) - Bootstrapping - FFF: F(riends) F(amily) F(ools) - Accelerator Programs, Corporate Accelerator Programs - Equity Crowdfunding - Angel Investors & Early Stage VC @paulamarttila
  7. 7. PRO: Market Validation CON: No Lead Investor E.g. FundedByMe, Seedrs Obs! Make Sure VC Compatible Terms - Primary Task: Function As Filter For Investor Deal Flow - Offering: Visibility, Mentoring, Network, Validation (Follow-on Funding) - Individual Terms, Transparency Is Key. Talk To Alumni Companies! - E.g. TechStars (6% / $20K + $100K Convertible Note Option), Seedcamp (7% / €75K) - Corporate Accelerators Differ By Having Varying Offerings And Program Formats - Check: Track Record, Mentor List, If Program Format Follows Best Practise @paulamarttila Accelerator Programs Equity Crowdfunding
  8. 8. - Invest Private $$$. Usually Co-invest With Small Ticket Sizes - Preferably On AngelList And Well Connected. E.g. AngelList Syndicates - Primary Function: Smart $, i.e. Add Entrepreneurial Value. Help Raise Follow-on Funding - Terms & Equity Stake Must Support Follow-on Funding Terms - Rarely Follow-on Invest, But Can Do So With Discounted Price - Primary Function: Secure Funds To Validate Product/Market Fit, Approx. With 12-18 Months Runway - Often Co-invest, Don’t Usually Follow-on Invest Early Stage VCs Angel Investors @paulamarttila
  9. 9. What Do Investors Look For? @paulamarttila
  10. 10. #1 Stellar Team @paulamarttila “Do you have the right Team/Market fit, i.e. are you the right team to execute?” “Do you want to change the world, or just cash out?”
  11. 11. #2 Great Product With Traction @paulamarttila
  12. 12. @paulamarttila
  13. 13. Copyright: @gapingvoid. Go buy his art! “Startups’ biggest hurdle is to overcome indifference” @paulamarttila
  14. 14. #3 Growth Markets Unit Economics & Scale! @paulamarttila
  15. 15. The Dating Game @paulamarttila
  16. 16. “I usually know within 3 min if I want to fund you, within 10 min if I want to fund your business.”- @paulamarttila Fred Destin, Accel Partners
  17. 17. Storytelling Introductions Create Relationships @paulamarttila Required:
  18. 18. “After 10X on The Tonight Show people start to recognize you as someone who might have been on TV, but they have no idea who the hell you are.”- Steve Martin @paulamarttila
  19. 19. “Ask For $, You Get Advice - Ask For Advice, You Get $” - Jason Nazar, Docstoc @paulamarttila Great way to build trust and relationships.
  20. 20. Don’t Fall For Vanity Metrics Keep Good Investors Updated Show Progress Startup To-do List @paulamarttila
  21. 21. You’re being tracked: Stick to your story and metrics! @paulamarttila “Our CRM allows us to instantly see the number of employees, social traction, and progress in multiple distribution channels before speaking to a company, allowing us to be much more proactive in our approach.” James Wise, Balderton Capital
  22. 22. The Good vs Bad VC @paulamarttila
  23. 23. @paulamarttila
  24. 24. Tests & Uses Services Gets Fast To NO Not Your “Best” Buddy Available Helps Execute by Challenging You Doesn’t Micromanage: Founder Calls The Shots Doesn’t Get Sour During Hard Times The Good VC #MUSTLISTEN how a good VC works and resonates. Fred Destin: 2016/01/18/accels-fred- destin-on-why-startups- fail-and-founders-get-fired/ @paulamarttila
  25. 25. @paulamarttila
  26. 26. The Bad VC The banker The name dropper The dude on 20 boards The guy with a yacht club membership The generalist The celebrity The ‘non seed’ VC The outsider The penniless VC The opaque VC The blabbermouth Douchebags List by @Startupcfo: Only Lead To: Never-ending Follow Up Meetings Asshat Moves @paulamarttila
  27. 27. When an investor suggests ways to become more viral, I’m like... @paulamarttila
  28. 28. @paulamarttila
  29. 29. Due Diligence Goes both ways. Things To Check Regarding Investors: - Relevant to your business and market - Investor portfolio for competitors, synergies - Capital left to invest in current fund - Track record of the firm and partners - Transparency in communications and terms - Talk to portfolio companies! @paulamarttila
  30. 30. The Pitch or "The Killer SaaS Pitch" #1 Alignment - Do your homework and select investors that are likely to be aligned with your product and vision. - See slides 23 - 29. #2 Be prepared - Pitch practise in the wild makes you perfect, and helps fine-tune your message. Not only practise your pitch, but have answers to every possible question asked. Do your due diligence, slide 29. #3 Ask for Advice (not money) - One of the keys to building trust and relationships See slides 17-20. #4 Backdoor - Find a trusted source to make an introduction, or find an original way to catch an investor’s attention. - Don’t send cold emails, see: #5 Wow - Make yourself memorable: Find the element in your product and story, that emotionally connects with your audience. by Philippe Botteri, Accel Partners @paulamarttila
  31. 31. The Pitch or "The Killer SaaS Pitch" #6 Passion - WHY are you doing this? Good VCs are attracted to passion, excitement, tenacity, resilience, and resourcefulness. #7 Story - Make it personal and relatable in order to be memorable and trustworthy. Investors need to believe and trust your story. #8 Engine - Know your sales and marketing model! Do you have a working growth model, i.e. will the investment fuel growth? #9 Numbers Know your metrics! (See slide 21) The 8 Cs of SaaS: Customer Monthly Recurring Revenue (CMRR); CustomerAcquisition Cost (CAC); Churn; Customer Lifetime Value (CLTV); Cash, Cohorts, Concentration of Customer Revenues, Country Breakdown of customers and revenues to determine scalability. #10 Listen - Prepare questions in order to get to know an investor and the value it can provide in the long term. #Bonus, especially for SaaS companies: Up your game by telling investors you’ll be spending a week in Silicon Valley. Investors live and breath FOMO (slide 3) and are likely to respond quicker. REMEMBER - IT ALL COMES DOWN TO BUILDING TRUST AND RELATIONSHIPS! by Philippe Botteri, Accel Partners @paulamarttila
  32. 32. Recommended Reading & Resources STEALTH MODE #mustread VENTURE CAPITAL friends/ FUNDRAISING HACKS video: DUE DILIGENCE DILUTION CALCULATOR FOUNDER & ACCELERATOR RESOURCES THE PITCH Philippe Botteri, Accel Partners: #Goodreads @paulamarttila
  33. 33. R E M E M B E R , S TA RT U P S A R E H A R D @paulamarttila
  34. 34. @paulamarttila Thank You
  35. 35. I M A G E C R E D I T S @paulamarttila (Nobody cares) (Good-bye Eyeball) (World's biggest hockey stick) (Friends) (You're Awesome) (My problem) (Hamilton Fans) (Wild horses) (Ducks) (Call me maybe) (Bs free) (Yes - ¥€$) (Good Advice for Hard Times) (Training Day) (Born Standing Up)