This document provides an overview of considerations for financing a startup, including sources of funds, goals, and types of financing. It discusses equity financing versus debt financing, noting that equity financing involves giving up ownership stake, control, and founder equity in exchange for investment, while convertible financing allows retaining full equity initially. The document recommends leveraging networks to find investors, educating oneself on industry trends, being prepared for a lengthy fundraising process, prioritizing good long-term partners over specific terms, and utilizing resources like blogs and books to learn about pitching investors.

1. Startup Law 101:
Financing Your Startup
October __, 2014

2. Considerations in Financing
• Sources of Funds
1. Family and Friends
2. Angels
3. Institutional Money
• What do you need to attract customers and grow?
– Money? Connections? Expertise?
– Do experience and expertise trump terms?
• Who do you need?
– Friends and family for cash
– Accelerators for the infrastructure and early stage assistance
– Angels and VCs for the execution/mentoring/introductions
– Corporate VCs for later stage technology and partnerships
• What are your goals
– Short, medium, and long term
– “A slice of a watermelon is still better than the whole grape”

3. Debt vs. Equity Financing
• Equity Financing
– You give up your equity right now at a specified price for
your company (“pre-money” valuations)
• You get $400k at a $3.6M “pre-money” and they own 10% of your
company “post-money”
– Your company often gives up:
• A board seat or seats
• A slice of founder equity for both the investor and for an option pool
• The ability for investors to veto certain actions
– Terms to review that can be overlooked:
• Control thresholds – who runs your company now?
• Liquidation preference, anti-dilution protection, veto rights

4. Debt vs. Equity Financing
• Convertible Financing
– You keep 100% of the equity in the company without putting a
price on your company
• They give you money now and will hopefully take equity later (but at a discount)
– Depending on the terms, you take the risk and the investors get
the upside
– Terms to ask your lawyer about:
• Liquidation preference, automatic conversion to equity
• The discount: how big of a discount do they get to later share price paid by later
investors?
• The cap: the limit on the value of your company the lender will have to pay to
participate later
– Early convertible debt can be good for smaller rounds and may
cost less

5. Tips for Early Startup Fundraising
• Use your network to make introductions for you
– Everyone has a rolodex (including your lawyer)
• Educate yourself on trends/terms; test the market
• Be prepared for a lengthy process; be patient
– Also, the process never ends. Once you raise a round, you can
prepare for the next.
• Do not get hung up on specific terms if it costs you
a good long term partner
– If an investor is fighting on a small term, are they a good partner for you?
– Once you have the investment, the clock is ticking to deliver
• Talk to multiple lawyers; prepare for the process

6. Resources for Fundraising
• Twitter and VC Blogs:
– Fred Wilson’s AVC blog (http://avc.com/)
– Steve Blank’s blog (http://steveblank.com/)
– Mark Suster’s Both Sides of the Table blog
(http://www.bothsidesofthetable.com/pitching-a-vc/)
– Reid Hoffman on pitching & LinkedIn’s Series B
(http://reidhoffman.org/linkedin-pitch-to-greylock/)
• Books (are good too):
– Venture Deals by Brad Feld and Jason Mendelson (MUST read)
• Get to know your audience:
– Angelist, and CrunchBase have lots of information so you don’t waste
your time or theirs

7. A Local Angel on Financing
“Start up financing is a contact sport. Your business
plan, team, and ROI potential are necessary but not
sufficient to secure start-up capital. You will also need
to know how to leverage your network. Think
strategically when choosing your business partners
(e.g., banker, attorney, accountant, etc.). The best
business partners are experienced in helping their
clients succeed in more ways than just providing basic
products and services.”