Roy Rodenstein presentation at BarCamp Boston 5 on Fundraising for startup founders, including pros and cons of several funding sources, best practices, resources for further reading.
3. About Me - Roy Rodenstein
http://how2startup.com @royrod royrod@gmail
⢠OG[H] (Original Gangsta Hacker): Georgia Tech, MIT Media Lab
⢠UI/UX Research: Xerox Palo Alto Research Labs, AT& Labs
⢠PM/Mktg/BizDev/CEO etc: iPhrase (NLP startup), IBM, Going, AOL
My Company: User-Gen Local Events + Ticketing (originally HeyLetsGo)
Co-found Going.com $500k Seed Additional Funding Acquired
Rejected by YC $3M Series A
Quit Day Job
2005 2006 2007 2008 2009
4. Fundraising Decoder Ring
Source Bootstrap Friends & Family Incubators / Angels VC
aka yourself / Seed Funds Individuals, Groups
co-founders
Idea /
Stage Idea Idea / Prototype
Prototype
Idea / Prototype âTractionâ
Amount $5k - 200k+ $5k - $20k+ $50k - $1M+ $500k - $10M+
Convertible
Debt, Convertible Debt,
Form Convertible Debt Equity
Equity Debt, Equity
Equity
Dilution 0% 5-10% 5-10% 5-20% 20-70%
Time Days Weeks Weeks Weeks - Months Months
Cost $0 - $1k $500 - $5k $500 - $5k $2k - $10k $10k - $50k+
Exit Any Any $5M+ $5M+ $20M+
5. Fundraising Decoder Ring
Source Bootstrap Friends & Family Incubators / Angels VC
aka yourself / Seed Funds Individuals, Groups
co-founders
Idea /
Stage Idea Idea / Prototype
Prototype
Idea / Prototype âTractionâ
Amount $5k - 200k+ $5k - $20k+ $50k - $1M+ $500k - $10M+
Convertible
Debt, Convertible Debt,
Form Convertible Debt Equity
Equity Debt, Equity
Equity
Dilution 0% 5-10% 5-10% 5-20% 20-70%
Time Days Weeks Weeks Weeks - Months Months
Cost $0 - $1k $500 - $5k $500 - $5k $2k - $10k $10k - $50k+
Exit Any Any $5M+ $5M+ $20M+
6. Source:
Bootstrap
Pros
⢠No dilution
⢠Simple, cheap, quick
Cons
⢠It ainât OPM (Other Peopleâs Money)
⢠Morale impact if funds run low
Bottom Line
⢠Good to get some skin in the game
⢠But donât overdo it- fundraising is better than giving up
7. Fundraising Decoder Ring
Source Bootstrap Friends & Family Incubators / Angels VC
aka yourself / Seed Funds Individuals, Groups
co-founders
Idea /
Stage Idea Idea / Prototype
Prototype
Idea / Prototype âTractionâ
Amount $5k - 200k+ $5k - $20k+ $50k - $1M+ $500k - $10M+
Convertible
Debt, Convertible Debt,
Form Convertible Debt Equity
Equity Debt, Equity
Equity
Dilution 0% 5-10% 5-10% 5-20% 20-70%
Time Days Weeks Weeks Weeks - Months Months
Cost $0 - $1k $500 - $5k $500 - $5k $2k - $10k $10k - $50k+
Exit Any Any $5M+ $5M+ $20M+
8. Source:
Friends & Family
Pros
⢠Low dilution
⢠Simple, cheap, quick
⢠Feels great if make them money!
Cons
⢠Feels horrible if lose their money!
⢠Can complicate later rounds
⢠âOnly moneyâ / no further help
Bottom Line
⢠Keep terms very basic, no board seats, no blocking rights...
⢠Make sure itâs money they can afford to lose
9. Fundraising Decoder Ring
Source Bootstrap Friends & Family Incubators / Angels VC
aka yourself / Seed Funds Individuals, Groups
co-founders
Idea /
Stage Idea Idea / Prototype
Prototype
Idea / Prototype âTractionâ
Amount $5k - 200k+ $5k - $20k+ $50k - $1M+ $500k - $10M+
Convertible
Debt, Convertible Debt,
Form Convertible Debt Equity
Equity Debt, Equity
Equity
Dilution 0% 5-10% 5-10% 5-20% 20-70%
Time Days Weeks Weeks Weeks - Months Months
Cost $0 - $1k $500 - $5k $500 - $5k $2k - $10k $10k - $50k+
Exit Any Any $5M+ $5M+ $20M+
10. Source:
Incubators / Seed Funds
Pros
⢠Moderate dilution
⢠Help with Legal, IT, PR, etc.
⢠Mentors & peers
⢠Leg up on fundraising
Cons
⢠$12k is not a lot of money
⢠Usually have to move temporarily
Bottom Line
⢠Great for first-timers
⢠Post-program support differs, YMMV
⢠Dilution is dilution
11. Fundraising Decoder Ring
Source Bootstrap Friends & Family Incubators / Angels VC
aka yourself / Seed Funds Individuals, Groups
co-founders
Idea /
Stage Idea Idea / Prototype
Prototype
Idea / Prototype âTractionâ
Amount $5k - 200k+ $5k - $20k+ $50k - $1M+ $500k - $10M+
Convertible
Debt, Convertible Debt,
Form Convertible Debt Equity
Equity Debt, Equity
Equity
Dilution 0% 5-10% 5-10% 5-20% 20-70%
Time Days Weeks Weeks Weeks - Months Months
Cost $0 - $1k $500 - $5k $500 - $5k $2k - $10k $10k - $50k+
Exit Any Any $5M+ $5M+ $20M+
12. Source:
Angels
Pros
⢠Good middle ground, if pick right ones
⢠Serious money w/o board seat
⢠Manageable dilution e.g. convertible debt
⢠Long-term morale, PR, etc. benefits
Cons
⢠Their money == wrong angel is trouble
⢠Can require herding cats
West: Ron Conway, Dave McClureâŚ
Bottom Line East: Dharmesh Shah, John LandryâŚ
⢠Right angel can be hugely valuable
Groups: Founder Collective, eCoast,
⢠Beware of getting bogged down Founders FundâŚ
⢠Best or worst of both worlds
13. Fundraising Decoder Ring
Source Bootstrap Friends & Family Incubators / Angels VC
aka yourself / Seed Funds Individuals, Groups
co-founders
Idea /
Stage Idea Idea / Prototype
Prototype
Idea / Prototype âTractionâ
Amount $5k - 200k+ $5k - $20k+ $50k - $1M+ $500k - $10M+
Convertible
Debt, Convertible Debt,
Form Convertible Debt Equity
Equity Debt, Equity
Equity
Dilution 0% 5-10% 5-10% 5-20% 20-70%
Time Days Weeks Weeks Weeks - Months Months
Cost $0 - $1k $500 - $5k $500 - $5k $2k - $10k $10k - $50k+
Exit Any Any $5M+ $5M+ $20M+
14. Source:
VC
Pros
⢠Real money for scale, can pay yourself
⢠Right VCs have strategic relationship
Cons
⢠Closing VC rounds is major time sink
⢠Board management is major time sink
⢠Major dilution == big exit needed
⢠Can come with strings e.g. CEO/team
Bottom Line
⢠Commitment level == getting engaged
⢠Complex deal terms, have to know which to fight for
⢠Key for building a big company, from FB to Xobni
15. VC Fundraising Myth-Bustinâ
Myth: Higher Valuation is Always Better
⢠You can price yourself out of future rounds
⢠âDownâ rounds (valuation falls) are really, really painful
Myth: Angel First, Then VC Reduces Dilution
⢠Reality is Angel and VC valuations are not that different
⢠Is $200k for 10% dilution better than $1M for 25% dilution?
⢠Is 10% dilution and then 50% dilution better than 50% dilution?
Myth: Control is About Board Votes and % Ownership
⢠Good VCs will never force founders to do something
⢠In reality, nothing ever comes down to a âvoteâ
⢠â50% ownershipâ is a red herring, VC controls are really about dilution and sale
blocking rights
Myth: I Shouldnât Talk to VCs Until I Need that Mill
⢠Yes, you should have your story together before talking to VCs
⢠But much of âtractionâ == âIâve been talking with them for a few months and see growthâ
16. Q&A Time!
Advanced Topics
⢠Convertible rounds: discounts, caps, warrants
⢠Valuation
⢠Fostering deal competition
⢠Deal terms e.g. pro-rata (& super), anti-dilution, etc.
⢠Inside rounds, follow-on rounds, leading a round etc.
⢠Managing the lawyers
⢠Managing the board
⢠Term sheets: comparing, exploding
⢠Compensation across funding stages
⢠Pitch decks
⢠Financial modeling
⢠Business plans (do plan, donât do a 50-page document)
⢠VC seed rounds
⢠Signaling
⢠VC fund size, fund life stages, LPs, etc.
17. Further Resources
Angel, Incubator, VC Lists
⢠Xconomy: http://www.xconomy.com/boston/resources/
⢠Jon Pierce Boston Angels List: http://twitter.com/jonpierce/boston-angels
Relevant Blogs
⢠VentureHacks: http://www.venturehacks.com
⢠Mark Suster: http://www.bothsidesofthetable.com
⢠Brad Feld: http://www.feld.com
⢠Chris Dixon: http://cdixon.org
⢠Fred Wilson: http://www.avc.com
⢠Paul Graham: http://www.paulgraham.com/articles.html
⢠(me): http://how2startup.com
Documents
⢠YC Series AA Funding Docs: http://ycombinator.com/seriesaa.html
⢠AVC Seed Docs: http://avc.com/a_vc/2010/03/standardized-venture-funding-docs.html
⢠Wilson Sonsini Term Sheet Generator: https://dealbuilder.wsgr.com