A step by step guide to raising your first round of capital -- from angels or venture capitalists (VCs) -- from a VC veteran and Harvard Business School (HBS) professor

1. How to Raise Your First Round of Capital
Jeffrey Bussgang
Flybridge Capital Partners, General Partner
Harvard Business School, Senior Lecturer
January 2020

2.  General Partner at Flybridge Capital Partners, early-
stage VC firm based in Boston and NYC
$700m raised across 5 funds & 2 pre-seed funds over 18 years
100+ portfolio companies (e.g., MongoDB, Codecademy, Splice)
 Senior Lecturer at HBS – Launching Tech Ventures, RVP
 Former entrepreneur
Cofounder Upromise (acq’d by SallieMae),
Exec team at Open Market (IPO ‘96)
 Author: Mastering the VC Game
 Author: Entering StartUpLand
 Blog: SeeingBothSides.com
Context For My Perspective

3. 3
Fundraising Patterns and Players
• $250-500k pre-seed
• Convertible note / SAFE @ $2-4m cap
• If your friends, family and ex-colleagues
won’t back you – why should I?
• $1-3m seed @ $4-8m pre-money
• Either note, SAFE/SAFT or priced round
• Micro-seed funds, seed funds, super angels
• $5-10m Series A @ $10-20m pre-money
• Priced round, board, control structure
• Seed funds, Series A funds, Series B funds
• $20-40m Series B @ $40-100m pre-money
• Priced round, board, control structure
• Series B funds, growth funds, crossover PE

4. VCs vs. Angels
 Will want some control (voting,
board, veto)
 Will want to own 10-20%
 Very actively engaged (they
get paid to do this), leveraging
the power of the firm’s network
 Can add tremendous value
and be great business partners
 Can be total disasters
 Typically rational actors,
commercially-driven, but if
inexperienced can do great
harm
 Will want no control (“send me
an annual email”)
 Will want to own 1-10%
 Maybe engaged or not (often a
hobby, sometimes a personal
mission)
 Can add tremendous value and
be great business partners
 Can be total disasters
 Typically rational, but if
unsophisticated: naïve
irrational, emotional

5. VC Is Not The Only Option!
5
Source: Founder Collective

6. 6
Ridiculously large returns (> 10x)
are very, very rare (4%) – but are always the goal
A Game of Outliers

7. 7
VC Fund Math 101
To achieve target of 3x the fund, need to see
multiple big exits (10x+) after years 9-12
Prototypical, $100M Early Stage Fund
Source: Industry Ventures

8.  Most VCs and Angels have ADD – operate on
“BLINK” instincts
 Want to SEE everything, but actually INVEST in
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
Investor Decision Making

9.  Never too early to build a relationship
(and get advice) – especially when
you’re not asking for money.
 That said, there is no such thing as a
casual meeting – every meeting with
an investor is a pitch / presentation
 Leave them with your next
milestones…and achieve them!
 Only when you’ve established a
relationship and operational credibility
should you ask for money
9
“Ask for money, get advice.
Ask for advice, get money twice.”
When Do You Talk To Investors?

10. 9
 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
9
Find the Sweet Spot

11. 11
Kiss Many Frogs
Source: Docsend

12. VC Introduction Algorithm
1. Entrepreneurs who have made them money
2. Entrepreneurs in their portfolio
3. Entrepreneurs they respect
4. Customers/Partners they respect
5. Service providers they respect
6. Existing investors
…
 Cold emails/social networks
…
 Investors who are not investing
12

13. 13
Investor’s Decision Tree

14. 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?
14

15. Top 3 Things To Do
 Set context
 Tell your narrative to prove founder-market fit – i.e., why you?
 Tell industry context to prove why now?
 Be crisp and on point
 Personal intro should take < 5 minutes
 Team introduction < 5 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
 Know competition, show domain expertise
 They will push you to test you
 John Doerr/Upromise case study

16. 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, attract great talent
 Do not name drop
 No one is going to be impressed
with who you know unless
the relationships are both real
and relevant.
 Assume everyone does their
due diligence

17. Typical Investment Criteria
 Tangible things investors like to see:
 Very big market (> $500M? $1B? – support $100+M revenue)
 Unfair advantage (why you? why now?)
 Attractive business model (recurring, high margins, network effects)
 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
 X-Factor / Super power

18. 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
 Create a sense of urgency (run a competitive process)
18

19. Then, Expect More Due Diligence
 Customers / partners
 Team
 Technology
 Business model
 Market size / analysts
As you would do in a sales process, package up the
information, make it easy on the VC – provide reference
list, financial models, detailed market size analysis – all
in readable, compelling, digestible form
19

20. Partners Meeting
 Ask your champion for the main
objections in advance
 Customize your pitch to address
them
 Command the room
 Be open about risks – and your
plan to mitigate
20
 Ask your champion where they’re at (strong positive? slight
positive? still questioning?)

21. The Vote
21
Partner A Partner B Partner C Partner D Average
Market 4 4 4 4 4.0
Team 4 4 3 5 4.0
Product/Tech 2 4 4 2 3.0
Business Model 5 5 3 3 4.0
Competition 4 3 3 4 3.5
Deal/Cap Markets 4 4 3 3 3.5
Disruption 4 4 4 4 4.0
Network Effects 2 3 4 4 3.3
Total 29 31 28 29 29.3
Two most
important critera
Debate and disparity can be a good thing

22. Term Sheet Time - FAQs
 Should I include VCs in my seed round or just angels?
 Should I do a convertible note/SAFE with a cap, no cap
or a priced round?
 How big should the option pool be?
 How much do I set aside for team, advisors, board?
 How should I think about valuation?
 “Promote” definition
 How should I think about control?
22

23. 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
 What experiments are you going to run and what results
do you expect from those experiments?
23

24. Who’s Ready to Raise Money?

25. Mastering the VC Game:
How to Raise Your First Round of Capital
Jeffrey Bussgang
Flybridge Capital Partners, General Partner
Harvard Business School, Senior Lecturer
jeff@flybridge.com @bussgang
January 2020