This document provides guidance on how to raise a Seed/Series A round of funding without losing control of your company. It discusses the ideal relationship with investors where there is constant belief in the team and market, a good working dynamic with clear expectations, and support to help the company achieve growth milestones. It contrasts this with worse relationship scenarios and offers tips for fundraising presentations, financial expectations at different stages, and maintaining founder control. The overall message is that founders should only take the amount of capital needed and agree on clear expectations with investors to have a fair relationship and successful funding process.

1. How to raise your Seed/Series A
without losing your company

2. The Ideal VC Startup Relationship =
Rocket Fuel for your Super Rocket
• A constant belief in the team, value and market
• A good work dynamic and clear expectations =
capital, advice, connections and moral support
• Lift off as planned = User growth, revenue
growth, network effect, viral loop, etc…
• More rocket fuel = Series B, C, etc…
• Exiting our rocket = everyone becomes super rich

3. Steve and I get a lot of credit, but Mike Markkula was probably
more responsible for our early success. ~ Steve Wozniak
Steve Wozniak Interview Quote: http://failuremag.com/feature/article/steve_wozniak_interview/P2/

4. The Typical VC Startup Relationship =
Our Rocket launched, but isn’t going up
• An inconsistent belief in the team, value and market
• A limited work dynamic and clear expectations =
capital, limited advice, connections, limited support
• Lift off, but not as planned = iteration/pivoting for
X days, months, years, using X investor dollars
• Lift off as planned = User growth, revenue growth,
network effect, viral loop, etc…
• More rocket fuel = Series B, C, etc…
• We must sell my rocket = Someone makes money,
someone loses their hope for more

5. Will your investors support you long
enough to become the smartest guy?
Uniqueness
of your
product
That lone
“Crazy”
The smartest guy
in the room
Everyone's
“Wrong”
Time to compete
on price
Value to your customer
Adapted from Guy Kawasaki’s Lecture at Tie Con 2006, “The Art of the Start”

6. A Bad VC Startup Relationship =
Our Rocket isn’t working…
• Limited belief in the team, value or market
• A bad work dynamic and unclear expectations =
capital, no advice, no connections, no support
• Poor performance for X days =
– Change in Management
– Buyback of investor’s shares Eg: Twitter, Stumbleupon
– Selling the company cheaply as an “Acqui-hire”
– Close down the company and return remaining capital

7. The Worst VC Startup Relationship =
You $&#@@! me
• VC thinks he can easily replace management.
Management thinks they can easily replace VC
= Adversarial and detrimental work dynamic
• VC wins the long unproductive fight for
ownership = company dies in the meantime
• VC loses all capital in a half dead leaderless
company for which he has no management =
stops VC/Angel Investing in ~2 Years

8. How to raise, use and return capital fairly?

9. Taking Money =
Agreeing on expectations
Entrepreneurs
• Have the right to own over 51% of their
company after all fundraising is completed
• Should take only as much capital as they need
Investors
• Have the right to make large returns
• Should allocate their time to make the largest
possible returns for their investors/interests
Adapted from Lawrence Lenihan’s Funding Bill of Rights:
http://lawrencelenihan.wordpress.com/the-funding-bill-of-rights/

10. Different investors =
Different expectations
Angel Investors
• Invest their own personal capital
• Have not made promises to achieve specific
returns to anyone = can accept 2-3X returns
Venture Capitalists
• Invest other’s capital; their Limited Partners
• Have made promises to achieve 10X returns =
cannot accept 2-3X returns on capital

11. The Funding Life Cycle and
Your Ownership
Seed: Launches product, allows you to prove value
• Founders: 80-90% of the company
• Investors: 1 – 3; own 10-20% of the company
Series A: Scales a value proposition the market pays for
• Founders: 60-70% of the company
• Investors: 2 – 5; own 20-40% of the company
Series B: Accelerates growth for a scalable product
• Founders: 50-60% of the company
• Investors: 4 – 8+; own 40-50% of the company
Series C+: You can and will capture X of this market
• Founders: owns 30-50% of the company
• Investors: 4 – 8+; own 70-50% of the company

12. Using Money = Performing
Entrepreneurs
• Have the right to remain CEO if they perform
• Should meet the milestones they agreed upon
• Should share information about the company
Investors
• Have the right to protect their investment
• Should have measurable + reasonable milestones
• Should provide more than just capital
Adapted from Lawrence Lenihan’s Funding Bill of Rights:
http://lawrencelenihan.wordpress.com/the-funding-bill-of-rights/

13. Making/Returning Money =
Agreeing on when and how you exit
Entrepreneurs
• The right to go for the exit they set out for
• Should make the economic result they prefer
and will settle for clear eg: any exit over XMM
Investors
• The right to go for the exit they set out for
• Should make the economic result they prefer
and will settle for clear eg: any exit over XMM
Adapted from Lawrence Lenihan’s Funding Bill of Rights:
http://lawrencelenihan.wordpress.com/the-funding-bill-of-rights/

14. Local VS International Investors =
What is your target market?
Local Investors
• Know the local market = Consumer Web
• Proximity does matter = Mentorship
International Investors
• Know international markets = High Tech
• May have unique experience = BOD meetings

15. What Investors do not want to see =
that you will lose all of their money
• Lack of focus; we have 6 “ideas” for 4 markets
• We will take your money and pay consultants to
build our product for us, because we can’t do it
• We want much more money than we need
• We have no idea how to acquire customers and
plan to figure it out later once we have no money
• We know everything possible about a market we
have never worked/competed in 7500+ KM away
• We have no competitors and will not have any

16. How to make an investor
presentation that is convincing...

17. Logo
Site URL
Direct Contact Info

18. One sentence about your company’s
mission/purpose
Eg: [Company Name] is the X (cheapest,
fastest, easiest to use, etc…) source for Y
(buying shoes, forex trading, etc..) online

19. A Big Problem/Pain in the market
• Describe the problem you are solving and it’s size
– Eg: X customers don’t have access to Y
– Eg: 250MM people can’t easily learn a language online
• Describe the pain point you are solving
– Eg It is very hard to do A because of B right now
– Eg: It is dangerous and difficult for consumers to use
existing online banking applications
At the end of this slide we should believe: there is
a substantial unsolved problem people will pay for

20. A SIMPLE description of
how you solve the problem
• Describe in a few words what “value proposition”
you are offering users/customers
– Eg: we allow user to learn a language through our
easy to use online platform
• Explain in simple terms how you solve the
problem.
– Eg: we have unique language learning content
At the end of this slide we should: clearly and
easily understand what you are offering users

21. Why is your solution unique and
10X better than what already exists?
• Here you can briefly describe what makes your
product offering unique
– Eg: We have the best semantic analysis of social media
data because of X, Y and Z
– EG: Our patented semantic algorithim does X to attain
a previously unattainable result of Y
At the end of this slide we should believe: your
solution is unique and does something which
current solutions are not able to because of X

22. A competitive analysis of why your
product is clearly superior
Competitive
Matrix
Feature
Feature Feature Feature
Eg: Ease of use Eg: SaaS Eg: Cost Eg: Speed
Feature
Eg: Customer
Service
Your Company
Competitor #1
Competitor #2
Competitor #3
Competitor #4
Competitor #5
At the end of this slide we should believe that your
substantially better than existing competitors

23. Your current progress
• Describe what you have achieved up to this point
using clear data points
– Date of the company’s founding/launch = timeframe
– Number of Active Users, Unique Visitors, etc…
– Revenue, signed partnerships, etc…
At the end of this slide we should believe that your
previous claims of uniqueness and competitive
advantage are substantiated by the market’s
reaction to your offering thus far

24. Your plan for future growth
• Your customer acquisition plan which can include but is
not limited to:
–
–
–
–
Marketing Plan/Budget
Sales Plan and prospective pipeline/customers
Target user/customer acquisition numbers
Product roadmap in it’s relation to your value for users
At the end of this slide we should believe that you will
be able to scale your unique, competitively
advantageous product cost effectively and with
attractive unit economics

25. Your Financials
• Basic 3 -5 Year Income Statement, with basic cash
flow and a headcount at the bottom.
By this slide we should already believe that you;
are solving a large valuable problem, with a
unique product that has a clear competitive
advantage. All of which is validated by the
market’s current reaction and that you will be able
to scale that reaction to meet the above financials.

26. Briefly Describe Your Founding Team
• CEO
– Previous work experience in one sentence
– Education in one sentence
• CTO
– Previous work experience in one sentence
– Education in one sentence
• Other founding Team members
– Previous work experience in one sentence
– Education in one sentence

27. Exit Scenario Appendix
• Investors make returns/get paid/succeed
when your company/their equity is bought.
• Helping investors see the high likelihood of an
acquisition, shows a clear path to returns.
• If there are exit scenarios you believe in, that
are based on current acquisition trends in
your industry, make this point here.
• Making this point poorly might have the
opposite effect, so make sure it makes sense.

28. The source of your intro is important:
You are borrowing their reputation
Best Sources for Investor intros
• Someone who they coinvest with regularly
• A portfolio company CEO they like and trust
• A trusted source of good dealflow eg: Lawyer
Worst Sources for Investor intros
• Middle men who take money for intros
• Anyone the investor thinks has bad judgment

29. Fundraising Etiquette:
Initial Investor Responses
• No = I don’t understand, believe and/or have the
capital to take on what I think this will cost
• Not now/Maybe later = I want to wait to see if
your successful and then invest with less risk
• Lets have a partner meeting = we might be
interested but I need my partners approval
• Yes, here is a check = I am either spraying and
praying or I am very experienced but won’t have
the time to personally help build your company

30. How to close smart money investors
• Get oversubscribed = social validation
• Set a firm closing date = requires commitment
• The three types of seed/early stage investors
– Those who “build companies”; motivated by your
company’s ability to change the world
– Those who “do deals”; motivated by economics and
it’s underlying monetary gains or losses
– Those who waste your time; treat venture investing as
if it is a different business they already know well

31. Thank You. Good Luck. Any Questions?
S@QED.VC