The document is a comprehensive guide on raising initial capital from venture capitalists (VCs) by Jeffrey Bussgang, a general partner at Flybridge Capital Partners. It outlines important considerations for entrepreneurs, including the differences between VCs and angel investors, effective pitching strategies, and key investment criteria. The emphasis is on preparing to stand out, maintaining a professional demeanor, and understanding the rigorous due diligence process that follows initial pitches.

1. Mastering the VC Game:
How to Raise Your First Round of Capital
Jeffrey Bussgang
Flybridge Capital Partners, General Partner
Harvard Business School, Senior Lecturer
April 10, 2013

2. Context For My Perspective
 General Partner at Flybridge Capital Partners, early-
stage VC firm based in Boston and NYC
40+ active portfolio companies, Fund III: $280M
 Senior Lecturer at HBS – Launching Tech Ventures
 Former entrepreneur
Cofounder Upromise (acq‟d by SallieMae),
VP at Open Market (IPO „96)
 Author: Mastering the VC Game
 Blog: SeeingBothSides.com
 HBS ‟95, Harvard „91

3. Why Raise Money from VC?
Experience Matters:
Deep Pockets: VCs have “seen the
High risk tolerance movie” over and over
and additional again and can help
funding for follow- avoid pitfalls to find
on rounds the path to success
Value-Add: Swing Big:
VCs provide domain VCs don’t invest in
experience, industry niches, they invest in
contacts, and transformative ideas
strategic planning that can build large
companies
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4. VCs vs. Angels
 Will want some control (voting,  Will want no control (“send me
board, veto) an annual email”)
 Will want to own 20-30%  Will want to own 1-10%
 Very actively engaged (they  Maybe engaged or not (often a
get paid to do this!) hobby, sometimes a personal
 Can add tremendous value mission)
and be great business partners  Can add tremendous value and
 Can be total disasters be great business partners
 Typically rational actors,  Can be total disasters
commercially-driven, but if
inexperienced…  Typically rational, but if
unsophisticated: naïve
irrational, emotional

5. Raising $ from VCs: Find the Sweet Spot
 Scope out the firm –
size matters, as does
the individual
 Arrange for a warm
introduction
 Prepare, be brief
(VCs Blink)
 Don‟t downplay risk
 Mutual due diligence
is fair play
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6. Context About VCs and Angels
 Most VCs and Angels have ADD – operate on
“BLINK” instincts
 Want to SEE everything, but DO very, very few
deals
 Make their decision within the first 10-15 minutes
 Typical VC and angel will invest in one out of every
300-500 deals they see
 Long odds – you need to really stand out
 Like college applicants – triage quickly

7. The Right People: an Unfair Advantage
 Ideas are a dime a dozen
 Having a world-class team is golden
 Laser focus of the young entrepreneur is very
powerful
 E.g., Bill Gates, Michael Dell, and Mark
Zuckerberg
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10

8. Investor‟s Decision Tree
Worth 3 minutes
(email, phone)?
No
Ignore Worth 30 minutes
(phone, in person)?
No
Pass
gracefully Worth 60-90 minutes
(in person)?
No
Pass but stay
In touch Worth 2nd mtg
(in person)?
No
Pass but be helpful Serious due diligence

9. Elements of the Pitch
 Intro  who are you, why are you here and why are you special?
 Problem  what is the customer pain?
 Solution  what‟s your disruptive, breakthrough compelling
solution? Is the “Gain vs. Pain” ratio 10x?
 Opportunity / market size  top down and bottoms up
 Competitive advantage  what is your unique differentiation?
what‟s your “competitive moat”?
 Go to market plan  how are you going to reach the customer?
 Business model  how are you going to make money?
 Financials  what‟s the bottom line, what are your key
assumptions? How are you going to make ME money?
 The ask  how much do you want, how long will it last you and how
much will you achieve?
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10. Top 3 Things To Do
 Be gracious and personable
 Say something that makes you smile…authentically
 Tell your personal history, tell a story
 Be crisp and on point
 Personal intro should take < 5 minutes
 Team introduction 5-10 minutes
 Make it relevant – don‟t go off on tangents
 If you can‟t show good summarization skills,
how will you handle a board room?
 Know your stuff
 They will push you to test you
 John Doerr/Upromise case study

11. Top 3 Things To Avoid
 Do not exaggerate
 Assume everything you say will be verified in due diligence
 Assume the listener is a cynic and a professional BS detector
 There‟s no “I” in team
 If you are self-aggrandizing, investors will assume you can‟t build
teams
 Do not name drop
 No one is going to be impressed
with who you know unless
the relationships are both real
and relevant.

12. Typical Investment Criteria
 Tangible things investors like to see:
 Very big market (> $500m)
 Unfair advantage (why you? why now?)
 Attractive business model (recurring, high gross margin)
 Unique technology or business model approach
 Intangible things investors like to see:
 “Pied Piper” – an ability to recruit and retain a great team,
partners
 Interpersonal chemistry
 Movie, not a snapshot

13. So You‟ve Had a Good Meeting…
Then What?
 Treat fundraising like a sales process – build a pipeline,
work people through the pipeline, build up to crescendo
 VCs get distracted – typically only pursue 2-3 high
priority new investment opportunities at any given time
 Stay connected, top of mind, build a sense of momentum
 Need to sell the individual “champion”, then the help
them sell the partnership
 Address objections with specific data
 Make the investment case for them
 Give them tools/materials to share with their partners
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14. Then, Expect More Due Diligence
 Customers / partners
 Team
 Technology
 Business model
 Market size / analysts
As with sales, package up the information, make it easy
on the VC – provide reference list, financial models,
detailed market size analysis – all in readable form
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15. The Vote
A B JB D E Average
Market 4 4 4 4 4 4.0
Team 4 4 4 4 5 4.2
Product/Tech 2 3 4 4 2 3.0
Business Model 5 4 5 3 3 4.0
Competitive
Landscape 4 3 3 3 4 3.4
Finance/Cap Markets 4 3 4 3 3 3.4
Disruption 4 4 4 4 4 4.0
Network Effects 2 4 3 4 4 3.4
Total 29 29 31 29 29 29.4
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16. Term Sheet Time
Frequently Asked Questions…
 Should I include VCs in my first round or just angels?
 How big should the option pool be?
 How should I think about valuation?
 “Promote” definition
 Should I do a convertible note with a cap, no cap or a
priced round?
 How should I think about control?
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17. Expectations and Milestones
 Have well-documented milestones that represent what
you expect to achieve during the initial funding period
 Team building
 Technical progress/product development
 Customers, revenue
 Budget
 Talk to the investor about the next round before you
close this round
 Expectations, amount, price
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18. Who‟s Ready to Raise Money?

19. Mastering the VC Game:
How to Raise Your First Round of Capital
Jeffrey Bussgang
Flybridge Capital Partners, General Partner
Harvard Business School, Senior Lecturer
April 10, 2013
Jeff@flybridge.com @bussgang