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How to raise venture capital 
Demystifying the dark arts 
Planningness 9/11/14
Who am I? 
@jamiedavidson 
jdavidson [at] redpoint [dot] com 
www.correlatedcausation.com 
Background: 
– redpointvc – consumer tech 
– hoteltonight - product 
• acq primatable – founder 
– kpcb – digital investing 
– google 
• youtube – product (search) 
• adwords – eng / data 
– princeton – ORFE
“I’m a great believer in luck, and I find the harder I work, the more I have 
of it..” 
Thomas Jefferson
Raising venture capital 
• Who – shared context 
• What – details 
• When 
• Why 
• How – tactics
Raising venture capital 
• Who 
• What 
• When 
• Why 
• How
Who – the capital 
1. Angels 
2. Venture Capital
“Where you invest your love you invest your life.” 
Mumford & Sons
Who – angels 
• Friends and family 
• Independently wealthy 
• AngelList 
• Accredited investors!
“Prediction is very difficult, especially if it’s about the future.” 
Niels Bohr
Who – venture capital 
• Capital: Institution investors - Limited Partners 
(LPs) 
– based on past returns 
– anti-correlation with other asset classes 
• Economics: The typical model is “2 and 20” 
– 2% annual management fee of the fund 
– 20% of the gains beyond the investment (carry)
“Compound interest is the eighth wonder of the world. He who 
understands it, earns it… he who doesn’t … pays it.” 
Albert Einstein
Who - venture math 
• Power law of startup returns 
– 1/3, 1/3, 1/3 
• Targeting >3x the fund in 7 -10 years 
– 20% annual return 
1. http://blakemasters.com/post/21869934240/peter-thiels-cs183-startup-class-7-notes-essay
Who – venture math 
Fund Size $50 M $500 M 
Exit Multiple 3 3 
Implied Portfolio Value $150 M $1500 M 
Average Ownership 10% 25% 
Total Market Cap of Portfolio $1500 M $6000 M 
Avg Investment Size (inc. reserves) $2.5 M $10 M 
Number Investments 20 50 
Investment Failure Rate 50% 70% 
Successful Investments 10 15 
Avg Market Cap of Exit $150 M $400 M 
1. http://tomtunguz.com/how-to-align-founder-and-vc-incentives-why-fund-size-matters/
“You just have to pay attention to what people need and what has not 
been done.” 
Russell Simmons
Who – a startup 
“A startup is a company designed to grow fast.” 
- Paul Graham Y Combinator 
1. Targeting a big market 
2. Reach and serve that market - scalable 
• Relatively efficient market implies that a startup 
needs a novel idea or market change 
– startups create new ways of doing things 
– technology facilitates rapid change
Raising venture capital 
• Who 
• What 
• When 
• Why 
• How
“Price is what you pay. Value is what you get.” 
Warren Buffett
What 
1. Convertible Debt 
– Cap and discount 
2. Equity 
– Amount and valuation 
– Dilution 
Raise enough capital to hit milestones to mitigate 
risks to growth 
1. http://correlatedcausation.com/how-much-to-raise-using-crunchbase-data/
What – an example 
At Incorporation Ownership 
Founders 100% 
Seed Terms 
Pre Money $4 M 
Raising $1 M 
Option Pool 20% 
Post Seed Ownership 
Founders 60% 
Option Pool 20% 
Seed Investors 20%
Raising venture capital 
• Who 
• What 
• When 
• Why 
• How
“You've got to know when to hold 'em, know when to fold 'em” 
Kenny Rogers
When 
• Don’t need money! 
• Materially mitigate risk and can use capital 
1. Seed - product market fit 
2. Series A - build team and business 
3. Series B - scale the business 
4. Series C - profitability 
5. IPO - liquidity
Raising venture capital 
• Who 
• What 
• When 
• Why 
• How
“The reasonable man adapts himself to the world; the unreasonable one 
persists in trying to adapt the world to himself. Therefore, all progress 
depends on the unreasonable man.” 
George Bernard Shaw
Why 
Recall startups = growth 
Implies: 
1. Targeting a really large market 
2. Valuable markets will be competitive 
Funding is fuel for growth 
Raising VC means you target a big outcome
Raising venture capital 
• Who 
• What 
• When 
• Why 
• How
“A-B-C. A-Always, B-Be, C-Closing. Always be closing. ALWAYS BE 
CLOSING.” 
Glengarry Glen Ross
How 
• Warm intro 
• Relationship building 
• The pitch 
• Competitive process
How – venture process 
1. Screen 
2. Socialized 
3. Diligence 
4. Decision
How – tell a story 
Aristotle's mode of persuasion 
• Logos – facts and reason 
• Ethos – character 
• Pathos – emotion 
Reasoning by analogy vs. reasoning from first principles. 
• This for that. 
Consider Homejoy 
1. Uber for home services 
2. Home cleaning is a offline fragment market. We improve rates 
cleaners receive by XX% and make it cheaper and easier to 
customers by YY%. This is a $ZZB market.
“Well done is better than well said.” 
Benjamin Franklin
How – the pitch 
[Vision] What is the problem and is it worth solving? Why now? 
[Team] Does the team have the unique ability to build this company? 
[Traction] Who is the customer? Which customers have used the product and how 
have they received it? How much is each customer worth? 
[Distribution] How does the company acquire customers cost effectively? What are 
the unit economics (customer acquisition cost, contribution revenue, and churn 
rates)? 
[Business model] Does the company have the business model to build a big (>$100M 
annual revenue) business with good margins (gross ~ 50 to 60% / net ~15 to 25%) 
under reasonable assumptions? 
[Market] Can the market enable $100M revenue? Is the company in a quickly growing 
market or riding a disruptive wave? 
[Competition] What is the competitive angle (competitive barrier to entry and/or go-to- 
market) that will enable this company to succeed where others have tried and 
failed? 
[Ask] What do you need and how will you use it? 
1. http://tomtunguz.com/pitch-deck/
Questions?
“The best way to predict the future is to create it.” 
Abraham Lincoln
Breakout 
• Vision or “the uber” pitch 
Pitch either 
1. an idea / startup you know 
2. an existing company
Thanks 
@jamiedavidson 
jdavidson@redpoint.com 
www.correlatedcausation.com

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How to raise venture capital

  • 1. How to raise venture capital Demystifying the dark arts Planningness 9/11/14
  • 2. Who am I? @jamiedavidson jdavidson [at] redpoint [dot] com www.correlatedcausation.com Background: – redpointvc – consumer tech – hoteltonight - product • acq primatable – founder – kpcb – digital investing – google • youtube – product (search) • adwords – eng / data – princeton – ORFE
  • 3. “I’m a great believer in luck, and I find the harder I work, the more I have of it..” Thomas Jefferson
  • 4. Raising venture capital • Who – shared context • What – details • When • Why • How – tactics
  • 5. Raising venture capital • Who • What • When • Why • How
  • 6. Who – the capital 1. Angels 2. Venture Capital
  • 7. “Where you invest your love you invest your life.” Mumford & Sons
  • 8. Who – angels • Friends and family • Independently wealthy • AngelList • Accredited investors!
  • 9. “Prediction is very difficult, especially if it’s about the future.” Niels Bohr
  • 10. Who – venture capital • Capital: Institution investors - Limited Partners (LPs) – based on past returns – anti-correlation with other asset classes • Economics: The typical model is “2 and 20” – 2% annual management fee of the fund – 20% of the gains beyond the investment (carry)
  • 11. “Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t … pays it.” Albert Einstein
  • 12. Who - venture math • Power law of startup returns – 1/3, 1/3, 1/3 • Targeting >3x the fund in 7 -10 years – 20% annual return 1. http://blakemasters.com/post/21869934240/peter-thiels-cs183-startup-class-7-notes-essay
  • 13. Who – venture math Fund Size $50 M $500 M Exit Multiple 3 3 Implied Portfolio Value $150 M $1500 M Average Ownership 10% 25% Total Market Cap of Portfolio $1500 M $6000 M Avg Investment Size (inc. reserves) $2.5 M $10 M Number Investments 20 50 Investment Failure Rate 50% 70% Successful Investments 10 15 Avg Market Cap of Exit $150 M $400 M 1. http://tomtunguz.com/how-to-align-founder-and-vc-incentives-why-fund-size-matters/
  • 14. “You just have to pay attention to what people need and what has not been done.” Russell Simmons
  • 15. Who – a startup “A startup is a company designed to grow fast.” - Paul Graham Y Combinator 1. Targeting a big market 2. Reach and serve that market - scalable • Relatively efficient market implies that a startup needs a novel idea or market change – startups create new ways of doing things – technology facilitates rapid change
  • 16. Raising venture capital • Who • What • When • Why • How
  • 17. “Price is what you pay. Value is what you get.” Warren Buffett
  • 18. What 1. Convertible Debt – Cap and discount 2. Equity – Amount and valuation – Dilution Raise enough capital to hit milestones to mitigate risks to growth 1. http://correlatedcausation.com/how-much-to-raise-using-crunchbase-data/
  • 19. What – an example At Incorporation Ownership Founders 100% Seed Terms Pre Money $4 M Raising $1 M Option Pool 20% Post Seed Ownership Founders 60% Option Pool 20% Seed Investors 20%
  • 20. Raising venture capital • Who • What • When • Why • How
  • 21. “You've got to know when to hold 'em, know when to fold 'em” Kenny Rogers
  • 22. When • Don’t need money! • Materially mitigate risk and can use capital 1. Seed - product market fit 2. Series A - build team and business 3. Series B - scale the business 4. Series C - profitability 5. IPO - liquidity
  • 23. Raising venture capital • Who • What • When • Why • How
  • 24. “The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.” George Bernard Shaw
  • 25. Why Recall startups = growth Implies: 1. Targeting a really large market 2. Valuable markets will be competitive Funding is fuel for growth Raising VC means you target a big outcome
  • 26. Raising venture capital • Who • What • When • Why • How
  • 27. “A-B-C. A-Always, B-Be, C-Closing. Always be closing. ALWAYS BE CLOSING.” Glengarry Glen Ross
  • 28. How • Warm intro • Relationship building • The pitch • Competitive process
  • 29. How – venture process 1. Screen 2. Socialized 3. Diligence 4. Decision
  • 30.
  • 31. How – tell a story Aristotle's mode of persuasion • Logos – facts and reason • Ethos – character • Pathos – emotion Reasoning by analogy vs. reasoning from first principles. • This for that. Consider Homejoy 1. Uber for home services 2. Home cleaning is a offline fragment market. We improve rates cleaners receive by XX% and make it cheaper and easier to customers by YY%. This is a $ZZB market.
  • 32. “Well done is better than well said.” Benjamin Franklin
  • 33. How – the pitch [Vision] What is the problem and is it worth solving? Why now? [Team] Does the team have the unique ability to build this company? [Traction] Who is the customer? Which customers have used the product and how have they received it? How much is each customer worth? [Distribution] How does the company acquire customers cost effectively? What are the unit economics (customer acquisition cost, contribution revenue, and churn rates)? [Business model] Does the company have the business model to build a big (>$100M annual revenue) business with good margins (gross ~ 50 to 60% / net ~15 to 25%) under reasonable assumptions? [Market] Can the market enable $100M revenue? Is the company in a quickly growing market or riding a disruptive wave? [Competition] What is the competitive angle (competitive barrier to entry and/or go-to- market) that will enable this company to succeed where others have tried and failed? [Ask] What do you need and how will you use it? 1. http://tomtunguz.com/pitch-deck/
  • 35. “The best way to predict the future is to create it.” Abraham Lincoln
  • 36. Breakout • Vision or “the uber” pitch Pitch either 1. an idea / startup you know 2. an existing company
  • 37. Thanks @jamiedavidson jdavidson@redpoint.com www.correlatedcausation.com

Editor's Notes

  1. Companies level up Just like a RPG, the team, product and process improve.