Fundraising Essentials for Every Entrepreneur
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Speaker: Mike Wilner, Startup Business Development, Amazon Web Services Is raising venture capital right for you? Join this session to learn about the process that serial founders execute with fundraising. Discover how to prospect the right investors, make contact and frame a fundraising narrative, and generate a sense of urgency with investors to close your round as quickly as possible. Make sure you can fundraise like the most experienced founders to avoid dragging it out.
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Fundraising Essentials for Every Entrepreneur
- 1. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. FundraisingEssentials: RaisingaSeed Round Efficiently Mike Wilner Startup Business Development Amazon Web Services
- 2. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Mobile Q&A | Submit Your Questions Online Open a browser on any laptop, tablet, or smartphone Go to slido.com Enter the event code: STARTUP Don’t have a question? View the submitted questions and upvote your favorites.
- 3. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved.
- 4. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. It’smorethanjustVentureCapital Non-VC • Non-dilutive grants • Friends and Family • Angels • Angel Funds and Groups • Accelerators • Crowdfunding VC • Pre-seed VCs • Seed VCs • Multi-stage VCs • Corporate VCs
- 5. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. How longshouldfundraisingtake?
- 6. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Experiencedfounderscan put aseed roundtogetherin as quicklyas a month
- 7. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. TheSecret Generate authentic competition for your round, giving investors FOMO (fear of missing out) and a sense of urgency
- 8. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Whatwe’llcover 1. Establishing ground rules 2. Drafting your round composition 3. Crafting your fundraising narrative 4. Prospecting your initial funnel 5. Initiating fundraising mode and stacking meetings 6. Pitching and closing
- 9. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved.
- 10. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Rule #1: Fundraisingwillchangeyourrelationshipwithyour businessandtherangeofacceptableoutcomes
- 11. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved.
- 12. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Rule #2: You’reeitherin fullfundraisingmode oryou’renotfundraising
- 13. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Rule#3: Fundraisingshouldbe oneperson’sfull-timejob
- 14. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Rule#4: Bedirectandconfident, but notarrogant
- 15. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved.
- 16. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Rule #5: Fundraisein parallel(notin sequence)andput yourselfin apositionto say“no”
- 17. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. 3:1
- 18. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Rule #6: Don’ttryto manufactureInvestorurgencywith madeup closedates
- 19. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Rule #7: Timekillsalldeals
- 20. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved.
- 21. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Createscarcityby workingbackwardsfrom youridealcap table
- 22. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Createscarcityby workingbackwardsfrom youridealcap table $2M Seed round 1 Lead VC: $800k 2 Follow VCs: $600K 5 Angels: $600K
- 23. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. UnderstandingVCs
- 24. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Beinga successfulVCishard $10M Fund size 33 # of investments
- 25. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Beinga successfulVCishard 10 Startups fail 11 1x 6 3x 3 5x 2 20x 1 50x
- 26. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. TheSeedVC RuleofThumb: Everyinvestmentneedsto havethe potentialto returntheentirefund(~50x)
- 27. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. SeedVCswillwant youto keepclimbingtheVC path
- 28. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. “Venture capital is not even a home run business. It’s a grand slam business.” – Bill Gurley
- 29. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. UnderstandingAngelInvestors
- 30. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. AngelInvestorshavemore diversemotivations
- 31. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. AngelInvestorshavealower barfor a“good”outcome
- 32. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. AngelInvestorsmaybe morepassivelyinvolved
- 33. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved.
- 34. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Roundcompositiontakeaways • Understand how the investor’s business works • Make sure your goals are aligned with investors’ • Be deliberate about the types of investors you want in your round • Draft your round composition before you start talking to investors
- 35. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved.
- 36. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Whatisa fundraisingnarrative? A concise explanation of what you do, what’s most compelling about your business, why you’re raising money, and your long-term vision.
- 37. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Agoodnarrativecandothe followingin20seconds
- 38. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Agoodnarrativecandothe followingin20seconds First 10 seconds 1. Simply explain what you do 2. Communicate the single thing that’s most compelling
- 39. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Agoodnarrativecandothe followingin20seconds First 10 seconds 1. Simply explain what you do 2. Communicate the single thing that’s most compelling Second 10 seconds 3. Outline your progress-to-date, future milestones, and long-term vision
- 40. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. 1.Simplyexplainwhat youdo
- 41. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Badexample “We provide data and analytics in a comprehensive project management suite, enabling audio content creators to glean insights that inform decisions throughout the production cycle.”
- 42. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. “We’re an analytics tool for podcasters” Goodexample
- 43. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. 2.Communicatethesinglething that’smostcompelling What is the one reason that an investor should invest? (Choose one) • Traction • Team • Market size/trends
- 44. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Goodexample “We’re an analytics tool for podcasters, and we’re a team of former podcast producers who produced 5 of the 20 most downloaded podcasts of all time.”
- 45. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. 3.Usemilestonesofde-riskingthebusinesstooutlineyour progressandfutureplans 1. Progress to date 2. Next milestone 3. The future
- 46. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. BadExample “We have 20 customers and we’re raising $2M to continue building out our product and hire a sales team.”
- 47. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Goodexample “We have 20 independent podcasters paying for our product and loving it. Now, we’re raising $2M to find a repeatable customer acquisition strategy so we start dominating the independent podcaster market. Once we do that, we can go upmarket to podcast studios which will give us the most advanced podcast dataset in the world.”
- 48. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Supportyournarrative witha financialmodel Goal #1: Verify the story you’re telling Goal #2: Show the assumptions you’re making
- 49. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Fundraisingnarrativetakeaways • Keep it simple and concise • Frame progress and future milestones in terms of de-risking • Back up your narrative with math
- 50. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved.
- 51. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Createscarcityby workingbackwardsfrom youridealcap table $2M Seed round 1 Lead VC: $800k 2 Follow VCs: $600K 5 Angels: $600K
- 52. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Workbackwardsfromthe3:1rule Lead VC: $800k Follow VC #1: $300k Follow VC #2: $300k Angel #1: $100k Angel #2: $100k Angel #3: $100k Angel #4: $100k Angel #5: $100k Cap table
- 53. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Workbackwardsfromthe3:1rule Lead VC’s (3) Follow VC’s (6) Angels (15) Lead VC: $800k Follow VC #1: $300k Follow VC #2: $300k Angel #1: $100k Angel #2: $100k Angel #3: $100k Angel #4: $100k Angel #5: $100k Cap tableFinal Diligence (3:1) Closed (1:1)
- 54. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Workbackwardsfromthe3:1rule Lead VC’s (10) Follow VC’s (20) Angels (50) Lead VC: $800k Follow VC #1: $300k Follow VC #2: $300k Angel #1: $100k Angel #2: $100k Angel #3: $100k Angel #4: $100k Angel #5: $100k Cap tableInitial Meeting (10:1) Final Diligence (3:1) Closed (1:1)
- 55. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Workbackwardsfromthe3:1rule Lead VC’s (20) Follow VC’s (40) Angels (100) Lead VC: $800k Follow VC #1: $300k Follow VC #2: $300k Angel #1: $100k Angel #2: $100k Angel #3: $100k Angel #4: $100k Angel #5: $100k Cap tableProspect (20:1) Initial Meeting (10:1) Final Diligence (3:1) Closed (1:1)
- 56. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. People>Firms • Fundraising is about relationships • Focusing on people is more effective than firm-hunting • People have different investment autonomy and investment focuses
- 57. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. ProspectingTactic#1: Research
- 58. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. ProspectingTactic#2: OtherFounders
- 59. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. ProspectingTactic#3: VCAssociates
- 60. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Prospectingtakeaways • 20 prospects for every spot available • Focus your prospecting on people – not just firms • Get prospects through research and relationships
- 61. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved.
- 62. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. 1.Buildrelationshipsbefore turningon fundraisingmode
- 63. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. 2.Makesureyouhave yourmaterials • Teaser deck • Full Presentation deck and Readable deck • Supporting financial model • Safe/Convertible note
- 64. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. 3.Quietlycloseatleastoneinvestor, thenturnon fundraisingmode
- 65. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. 4.Keepfillingthetop of thefunnel
- 66. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved.
- 67. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Goals forthefirstmeeting 1. Discover if there’s goal alignment 2. Learn about their decision-making process 3. Get them excited about the opportunity
- 68. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. FirstMeetingRule#1: Meetin person
- 69. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. FirstMeetingRule#2: Askquestionsbeforeyou startpitching
- 70. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. FirstMeetingRule#3: Don’tdiscussvaluation
- 71. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. FirstMeetingRule#4: Keepitconversational
- 72. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Questionsyoushouldaskin thefirstmeeting • What is a good outcome for you? • What is your typical check size and/or ownership target? • What is your investment process?
- 73. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. TypicalVC Process
- 74. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. “No”isbetterthan “maybe”
- 75. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Summary • You’re giving up scarce equity in your company, not asking for money • Create a sense of urgency by cultivating authentic competition • Startup <> Investor fit goes both ways • Put yourself in a position where you’ll have to say “no” to investors • This is a full-time process that should be done as quickly as possible • Remember the 3:1 rule • Every interaction can be net positive for your business and career
- 76. © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Experiencedfounderscan put aseed roundtogetherin as quicklyas a month
- 77. Thank you! © 2019, Amazon Web Services, Inc. or its affiliates. All rights reserved. Mike Wilner @mwil20
Editor's Notes
- [introduce yourself] Slides will be available after the talk This is advice on fundraising from founders. There’s a lot of fundraising advice from VCs, and it’s usually pretty self-serving. We’re going to talk about some fundraising best practices today that VCs are very unlikely to share
- NOTE
- [talk about the different types of fundraising and how deciding on funding sources depends on your goals for the business]
- Today, we’re going to talk about fundraising as efficiently as possible, which raises the question, “how long should fundraising take?”
- …now personally, my first round took around 6 months – which is more aligned with the experience of first-time founders. So today, we’re going to talk about to go about how to fundraise like a serial founder. So what’s the secret of serial founders?
- ….and today we’re going to talk about how to do that.
- If you’re bootstrapping, you have true autonomy over your business. Other than customers and teammates, you don’t have anyone to answer to. When you fundraise, you then have a fiscal responsibility to your investors and have an entirely new group of people to answer to. When you’re bootstrapping, a $2M exit or slowly growing a passive, profitable business can be great outcomes. If you raise outside money, those are not good outcomes. As we’ll discuss today, depending on who you take money from, the bar for good outcomes is a lot higher.
- [Tell bootstarp story of convertkit] For example, Fanduel, the category leader of daily fantasy sports, was acquired for $465M. Sounds like an amazing victory, right? Well, the company had raised $416M across seven funding rounds, at one point valuing the company at over $1B.
- - Avoid the gray area of “kind of” fundraising. It’s easy to say yes when someone offers to introduce you to an investor, and the next thing you know, you’re “kind of fundraising” – this is no way to successfully raise money, so avoid it. Keep it black and white. - Investors are incentivized to help when you’re not fundraising; they want to wait as long as possible when you are fundraising - When you’re “not fundraising” you can stack the deck in your favor by building relationships with investors who you may be able to go to once you do fundraise.
- - One person owning fundraising prevents it from distracting others - The fundraiser needs to spend 80% of their time fundraising. This is easier said than done, but is one of the ways that fundraises fail before they begin. You’ll need to delegate most of your operational responsibilities before diving into a fundraise. - You should have a single person handling all meetings and communications with investors. If you show up to a meeting with your entire founding team, investors are going to wonder who is steering the ship!
- - You’re selling the precious, scarce equity in your company, not asking for money - There’s a fine line between confidence and arrogance, [share personal anecdote] - Every interaction during a fundraise can positively impact your business and career [share personal anecdote]
- Bob Moore from crossbeam pitched first round capital twice. They passed on two of his past companies. On his third company, they ended up investing because he was respectful throughout the process.
- One of the biggest mistakes founders make it they try to get one investor at a time and await an answer. Today we’re going to talk a lot about the 3x1 rule – the idea that you should be in final diligence with three investors simultaneously for every spot you have available in your round. One way to understand this rule: if you run a fundraise effectively, you will absolutely need to say no to at least one investor who wants to invest. A lot of what we’ll talk about today is about putting you in that position.
- Another common mistake founders make is trying to artificially create urgency by telling an investor that “the round is going to close in the next two weeks.” This rarely creates any FOMO, but it frequently backfires. Investors hear this all the time so they can usually see through it. And if two weeks go by and you haven’t closed your round, that’s a negative signal and you’ll lose credibility with the investor. Instead, investor urgency comes from authentically having more investors deeply interested in your deal than spots available.
- When fundraising, you want to be “in market” for as little time as possible. If you’re fundraising for a long time, it becomes a negative signal for investors. At the same time, if you give investors an unlimited amount of time to evaluate your deal, they will usually find reasons to say no. An investor I worked with once told me a story about a founder he wanted to invest in who gave him unlimited time for diligence. While he liked the company at first, the more he dug, the more he found reasons to say no and eventually. In retrospect, he wished that he would have invested and said he probably would have if he was pressed to act faster.
- ….if you want to raise $2M, the idea of just hitting the fundraising trail and scrapping together 2M in checks is daunting and paralyzing. Therefore, one of the first things you need to do before fundraising is draft how you want your round to be composed.
- …This is just one example, in order to draft how you want your round to be composed, we need to better understand the different types of investors and their motivations.
- …This is just one example, in order to draft how you want your round to be composed, we need to better understand the different types of investors and their motivations.
- One of the best things you can do as a founder is have empathy for investors and see things from their perspective
- Being a successful VC is hard. Imagine a VC who makes 33 $300K investments from a $10M fund, and has these outcomes…. [run through outcomes]
- That VC is doing just ok!
- ….which means they’re looking for founders to 50x their company.
- [talk about how newer VCs are incentivized for you to continue raising capital]
- [talk about my personal anecdotes with some of the motivations of my angel investors]
- [talk about how 3x can be a “great” outcome for an angel, contrast to how that’s a write-off for a VC]
- This is both good and bad – they’re not going to have voting rights and can’t force you to do anything, but also may not be that helpful.
- [Talk about Sparktoro raising a $1.3M seed round from 35 angels and why they did it]
- If you share your fundraising narrative with an investor, they should be able to recite it to others verbatim even after talking to ten other startups
- …..an investors should be able to go hear 10 other pitches, and then repeat these things to
- …..an investors should be able to go hear 10 other pitches, and then repeat these things to
- …..an investors should be able to go hear 10 other pitches, and then repeat these things to
- This is why on Y Combinator’s application the first two questions are to explain your company in 50 characters or less and to simply describe what you’re going to make. The quickest way to get disqualified here is to use buzzwords
- [read aloud] First of all, when I read this I still don’t really know what you do. Second of all, there’s no way an investor can remember this.
- This is great. I know what you do (though I don’t know the gritty details yet), and I can easily remember this.
- Other examples I’ve seen: “A new regulation forces universities to send us customers, and the universities pay us too.” “We have $20K in MRR with 3 straight months of 40% MoM growth”
- At the seed stage, it’s less about vanity metrics – it’s about the derisking you’ve done. This is how some startups are able to raise money with less traction. Progress to date: What have you already figured out? Next Milestone: What are you going to figure out with this round? The Future: How will achieving the next milestone put you on the path to your long-term vision?
- Ask the audience to answer some of these questions
- …This is just one example, in order to draft how you want your round to be composed, we need to better understand the different types of investors and their motivations.
- 3x1: Be in final diligence with 3 investors at the same time for every spot available 10x1: Have initial conversations with 10 investors at the same time for every spot available 20x1: Start with 20 prospects for every spot available …when we look at this, we can see why fundraising becomes a full-time job. This means that if we have 8 total spots available in the round, we should start with 160 prospects.
- 3x1: Be in final diligence with 3 investors at the same time for every spot available 10x1: Have initial conversations with 10 investors at the same time for every spot available 20x1: Start with 20 prospects for every spot available …when we look at this, we can see why fundraising becomes a full-time job. This means that if we have 8 total spots available in the round, we should start with 160 prospects.
- 3x1: Be in final diligence with 3 investors at the same time for every spot available 10x1: Have initial conversations with 10 investors at the same time for every spot available 20x1: Start with 20 prospects for every spot available …when we look at this, we can see why fundraising becomes a full-time job. This means that if we have 8 total spots available in the round, we should start with 160 prospects.
- 3x1: Be in final diligence with 3 investors at the same time for every spot available 10x1: Have initial conversations with 10 investors at the same time for every spot available 20x1: Start with 20 prospects for every spot available …when we look at this, we can see why fundraising becomes a full-time job. This means that if we have 8 total spots available in the round, we should start with 160 prospects.
- Talk about how you should think about the people you have access to in addition to the firms you want to work with. Note that people have different focuses. For example, two different partners at the same VC firm may invest in entirely different areas.
- [talk about how you can use Crunchbase to find investors]
- [talk about how founders who are a year ahead of you have already done a lot of this work and can refer you to investors they know] [talk about how founders like being scouts for investors (even those who didn’t invest in them). Use Erik Torenberg as an example] [talk about how I still refer companies to my previous investors]
- [talk about how associates thrive on referring deals to each other. Share my anecdote of an associate friend referring me to other investors who were a good fit]
- …we’ll talk about this in a 4-step process
- [talk about building relationships with investors before you turn fundraising mode on. Talk about how your can be working on fundraising in this way even though you’re not messaging that you’re “in fundraising mode”]
- …Not having these things when you start will slow down the process.
- There’s a big difference between turning fundraising mode on and having no investors and turning fundraising mode on with at least one investor. Talk to some of the people who you already have close relationships with (it could even be small angels) to get some commitments before you turn fundraising mode on – that way, your fundraise will feel more real from the start. When turning fundraising mode on, you should be leveraging your network and existing connections to get introductions to your prospects as quickly as possible. If you can’t find an introduction to the person you want to meet, then note that…(next slide)
- [talk about how you’ll get referred to new people during this process, and you need to take advantage of those introductions and add new people to the funnel]
- …With these goals in mind, there are a few rules for initial meetings
- [talk about the typical investment process]
- [Talk about how you only have so much energy. If an investor is out, then it’s better to know that so you can spend your energy elsewhere. ]
- …now personally, my first round took around 6 months – which is more aligned with the experience of first-time founders. So today, we’re going to talk about to go about how to fundraise like a serial founder. So what’s the secret of serial founders?