Inside Venture: How to Package Your Startup for Fundraising
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Raising angel and venture capital startup funding isn't easy but you can gain a distinctive advantage through research, preparation and taking appropriate steps in advance. These are real world tips that helped me raise over $350M.
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Inside Venture: How to Package Your Startup for Fundraising
- 3. The Basics: Venture Level • Create a C corporation, not an S corporation, or LLC • Killer Team & Operating Agreement • Big Market: • Product Market Fit • Scalable Business Model • Operating Leverage • Secure Your IP: Patent’s, C’s & T’s, Trade Secrets • Equity: Agree beforehand; based on experience or contribution • Finances: Friends & Family, Convertible Notes, Crowdfunding, Loans • Clean Up Messes
- 4. Newbies vs. Proven Entities • If you’re not Mark Suster….. • Core Skills • Previous Successes • Understand your weaknesses • Be Honest • Lean & Mean • Chemistry • Board & Advisors
- 5. Capital Requirements: Choices • Micro-seed • $100k or less - Accelerators, Grants, Angels, Crowdfunding • Seed • $100k - $2M - Angels, Angel Funds, Seed Funds, Crowdfunding • Convertible Debt • Promissory Note: Converts at Series A, 8-10% + warrants • Series A • $2M -$10M sometimes up to $25M • Consider alternative sources • Industrial Investors, Potential Acquirers, Philanthropic funds Ideally you want smart money, but passive investors are second best.
- 6. Are You Ready? What Investors Want to See • Pre-Seed & Angel: The New Seed • Founders, Vision, Story • Seed: Seed Investors Resetting & Impacting Valuations • Founders, Early Traction, Vision, Market • Series A: Less than 30% of Seed Companies Secure Series A • Real Traction, Product Market Fit, Unit Economics • Ready to Scale, Demonstrated Viability of Growth • Series B, C, etc…. • Numbers, Growth, Billion Dollar Potential
- 8. Momentum – The Necessary Proof Points • People • Team • Key Hires • Board of Directors • Advisory Board • Strategic Partners and/or Blue Chip Customers • Revenue • Type, Cost, Scalability • Freemium/Adoption Models must eventually produce $$$ • Competition • Your Story: Documented • Executive Summary, One Pager, Pitch Deck, Financials
- 9. Picking the Right VC - Do Your Homework • What is their investment strategy? • Look for established firms with success in your target market • Are you at their Ideal stage • Review their portfolio; past and present and track record • Best case/worst case scenarios • Competitors/potential partners in their portfolio • Future rounds • Who partners with them on deals • Do you share philosophies and growth strategy? • Resources gained: • Operating experience, network, support, services • Get to know the lead partner in the deal • This is a marriage – ‘til death do us part
- 10. Increasing Your Valuation • Startup valuation is an art rather than science • VC’s have ranges based on company stage • The Pool • Expect a 20% set aside or the stock option pool during your Series A • Know who you need to to hire and push back if 20% isn’t needed • Moving forward dilution should be equal • Increase your valuation by creating dog race • REALLY KNOW your Competition. • If not you better have a real live Unicorn
- 11. VC Math & Timelines • Project your spend for one year • Add 30% - 50% • Fundraising takes 6-12 months • How will you use the money VC’s Target 3x Fund Return Over 7-10 Years & 20% + Annual Return
- 12. Pre & Post Money • Pre-money valuation = share price x pre-money shares • Post-money valuation = pre-money valuation + investment • Percentage of ownership = shares issued/post-money shares
- 13. Pitching Your Startup The Pitch Deck and Backup Executive Summary, One Pager, Financials, and Backup
- 14. Be Prepared • Your Story: Convey Confidence Not Arrogance • Strategic: Vision, Team, Market • Tactics: Business Model, COCA, CLTV • Be Honest & Authentic • The VC Side • Do You Listen? Are You Coachable? • Will it Work – What are the Proof Points? • The 2X Rule • Rehearse, Rehearse, Rehearse
- 15. Closing Thoughts • Choosing the right Investor will make or break your startup • Once engaged follow up and follow through • Every round accelerates the race to profitability & impacts future valuation • Raise as much as possible • Run like your bootstrapping • Write an actual business plan • Hire only “A” players • Stay focused