Venture Capitalists look at a bunch of different things before making an investment, and there are definitely red flags investors are hoping not to see. What are those? How to avoid them? Learn ways to have some form of control in the relationship with a potential investor. For further information, visit our website at ma2017.mymagic.my. Facebook - Facebook.com/magic.cyberjaya Twitter - Twitter.com/MagicCyberjaya Instagram - Instagram.com/magic_cyberjaya/ LinkedIn - my.linkedin.com/in/magiccyberjaya YouTube - https://www.youtube.com/channel/UCIT_ihmWh5f3MCobvEwWMaA

1. Confessions of an Investor
Red Flags and Pitfalls when Raising Capital
Chris Habachy
General Partner, Charge Ventures

2. About Charge Ventures
- NYC based early stage VC firm (Why?)
- Founded in 2015
- Great partners, team, investors & co-investors (Kleiner
Perkins, First Round, NEA, and others)
- 21 primary investments (28 total)
- High follow - on rate on portfolio companies
- Sectors: VR, Marketplaces, AI, Healthcare/Genomics,
Fintech, Logistics, Cybersecurity, and Wearables
- Charge I deployed / Currently closing Charge II

3. Portfolio Companies

4. by Chris Habachy
Feel free to reach me at chris@charge.vc
What turns off an investor
Keep in mind though that:
1. These are personal views. I’m not speaking on behalf of my partners or on behalf of Charge Ventures
2. Early stage investing is more Art than Science

5. What turns off an Investor Re:
Team Market FundraiseProduct

6. What turns off an Investor Re:
MarketTeam FundraiseProduct

7. What turns off an Investor Re:
ProductTeam FundraiseMarket

8. What turns off an Investor Re:
FundraiseTeam ProductMarket

9. Re: the Team
can they do it1
Team Market FundraiseProduct

10. No Team in Place
- Find your co-founders
- VCs want to see raw horsepower
- Complementary skillset
- Vision/Strategy
- Execution
- Administration
- Tech/Engineering
- Recruiting
- Fundraise
- You can’t scale fast enough
- You want to see someone pulling the weight, when
someone else can’t
- Burnout risk
- No-one made it on their own

11. BUT...Too Many Founders = not Good either
- Slow decision-making process
- Higher risk of Key person jumping from the ship
- Separate Roles
- Equity Split that makes everyone happy
- Checks and Balances
- Burn rate is too high
There’s no right or wrong in this

12. No Technical Founders
- A technical founder can be business savvy. A
business founder though - chances are - he can’t
write code
- It’s expensive to acquire later down the road...and
risky
- This is a hard cost, the company cannot survive
without
- Vast majority (if not all) of tech companies you’ve
heard of were founded by tech entrepreneurs

13. Not Owning your Domain
- Know your sector (Good Uncle, Transfix)
- Do you understand the market dynamics?
- Do you have a competitive advantage - sales
channels, economies of scale, data, etc.
- Show you’re better in this than the next guy

14. No Track Record
- Have you built a business before? (incl. failures...we
embrace failures)
- Have you worked with people? (are you a team player)
- Have you ever fundraised?
- Have you kept close with previous investors? Would they
invest in you again?
- Have you had any exits? (not that it’s a must)

15. Part-Time Founders
- Most startups (those we don’t even hear about) fail
because their founders have day jobs
- Those who don’t quit their jobs know deep down
that their startup is doomed to fail
- It’s like cheating on your spouse
Commitment - Dedication - Determination

16. LBNL, avoid investing in...
- People you don’t respect
- People that don’t respect you
- People that don’t respect your investors’ $
- People you wouldn’t hang out with
- People that aren’t genuinely nice
*It’s more than just writing a check*

17. Re: the Market
how many people want/need it2
MarketTeam FundraiseProduct

18. Small Market (OR Marginal Niche)
- Investors are in this for the upside
- VCs want to help you grow - Big markets support
growth, small markets don’t
- 100x - billion $ company
- Usually, your market size is a fraction of what you
think
- What’s your TAM? (top down / bottom up)
- Can you get to $100MM ARR in 5 years?
- VC investing is a number’s play. Numbers need to
make sense

19. The Market is $XYZ Trillion
- On the other hand, you want your TAM measured,
while being credible
- Inflating your market size shows
- You don’t know your market
- You don’t understand your business model
- Both
- Don’t invent numbers
- Truth is, it’s hard being pre - revenue / pre - paying
customers, and still know your TAM size

20. No Competition
- Whether directly or indirectly, most probably
you’re competing against someone else
- Now, if you really don’t have any, chances are,
there’s a reason for it
No Competition = No Customers
- Instead focus on value proposition and business
model. Show them why you’re different and
therefore, better

21. Unrealistic Projections
- The market is $Xbn
- We target 3% of the market
- Therefore, we will make $X*3% in
revenues in year 3

22. Bad Location to Launch OR Operate
- There’s a reason most successful companies
started in the Valley
- An Ecosystem can boost a startup’s performance
- Hard to attract talent
- Hard to gain and retain users
- Hard to attract follow-on financing
Keep in mind that:
1. Not being on the epicenter of a tech hub, only
means you need to try harder
2. Each continent has its own hubsSource: CodingVC.com

23. 3
ProductTeam FundraiseMarket
Re: the Product
why this

24. It’s the simple things...
- Are you solving a real problem
- Are you able to explain it to an investor in <2 mins
- Even the most complicated ideas solve an inherent
human need, for it to be addressable to a big
market
- People tend to believe complexity sells better
“Complexity is your enemy. Any fool can make something
complicated. It is hard to make something simple”
― Richard Branson Tweet

25. No Barriers to Entry
Some being...
- Anyone can copy
- No IP
- No product differentiation
- No customer loyalty
- No Tech differentiation
- No use of economies of scale
- No access to sales channels / suppliers

26. No Traction
- Do people like your product/service?
- How many users do you have?
- Are they paying for it?
- Are they coming back to pay some more?
- Are they bringing their friends in?
Finally, are you capitalizing on the retention?

27. Too Many Monetization Streams
- Ad-based revs
- Subscriptions
- Enterprise version s/w
- License fees
- Commissions
- Database
VS
- I take X% of every transaction and/or charge
subscription fee and this is how we get to i.e.
$50m in rev (i.e AirBnB)

28. Business Model Gone Bad
- Overestimating how easy it is to acquire users
- CAC>LTV - bad!
- Can you scale fast enough?
- Can you monetize your users at a $>CAC?

29. Very High Overhead
- Profit margins will be small
- Shows poor use of funds
- Your overhead is always higher than it should be;
just make sure it doesn’t get out of hand
- Investors want to see you appreciate their $
value and that their money is greener than the
next’s

30. No Marketing Plan
- No content marketing
- No network effects
- No strategic partnerships
- No brand development
- Only paid ads
Chances are it’s not going to get viral

31. 4
FundraiseTeam ProductMarket
Re: the Fundraise
what is the risk on the capital

32. Unjustified High Valuations
- Remember that a VC is looking for 10x - 100x
multiples on the investment. In some cases,
more
- At high valuations, one of the two might happen:
- Risk of a “down round”
- Unable to raise more money
- In general, you want to:
- Raise enough $ to not lose your company
- Make it attractive to investors

33. “
Don’t be too optimistic. The light
at the end of the tunnel may be
another train
- Exaggerating your company’s potential
might work with your buddies, but will
not work with investors
- In early stage investing, I’m more
interested in evaluating you, not your
idea
Blind Optimism

34. Raising Too Much / Raising Too Little
- Know how much $$ you need and why
- Know where that money will take you
- Calculate your runway (before & after)
- Know your burn rate
Remember: you can always raise more later

35. Poor Use of Previous Funds
- Burn lots of cash in:
- Marketing
- Acquiring customers
- Hiring expensive engineering teams
- Being aggressive with growth is fine, but
you have to adjust when environment
changes

36. Early Investors Not Participating in the
Follow-Ons
Usually, it comes down to one of these:
- They don’t think you can do it
- They’re not happy with the relationship so
far
- They think it’s too soon
OR
- Their fund is out of capital/deployed
- You are killing it, the round is
oversubscribed, and you’re bringing in the
big guys (bravo)

37. “
When you have skin in the game
you behave differently
- Investors want to know you care
- They want to share some of the risk
- It doesn’t always come in the form of
currency
a. Time
b. Opportunity Cost
c. Social capital
d. Human capital
e. All of the above + $
- I prefer (e)
No Skin in the Game

38. Sources: Statistic Brain & Go-Globe
No Managerial
Experience
42%
Failed because they
offered product with
no market need
90%
Of all startups fail
Failed due to
premature
scaling
Successful
startups
with 2
founders
74%
Run out
of cash
29%
46%
20%
Of founders who
failed on their 1st co,
succeeded on their
2nd
Incompetence
47.5%
Some Stats Never Hurt...
30%

39. Team with track record in a...
...big market that,
...solves a real problem,
...having a clear strategy/vision,
...that can scale really fast,
...with an obvious bus/rev model,
...and a path to exit.
Inexperienced team…
...in a small market,
...that doesn’t really solve a problem,
...without a clear identity,
...that don’t know how to gain market share,
...with multiple monetization streams (or none),
...and a market indifferent of their offering.

40. Terima Kasih
Feel free to email me any questions chris@charge.vc
OR follow me on Twitter @CHabachy for news on Charge.vc