The document provides information to help entrepreneurs raise their first round of capital from angel investors or venture capitalists (VCs). It discusses evaluating whether a business is a good fit for investors, preparing thoroughly, and getting a first meeting with potential investors. The document outlines tips for pitching to investors in 3 minutes or less and securing a follow-up meeting. It also covers negotiating term sheets and valuations, including typical market valuations and option pool sizes. The overall goal is to demystify the VC and angel investment world and process to help entrepreneurs successfully raise their first round of funding.

1. @iainmcdtweet
Iain McDougall
Raising Your First
Round of Capital
December 11, 2012

3. CONTEXT
Tech & Biotech

4. OK YOU’VE GOT A BIG IDEA
Gloves translate sign
language into speech

5. BUT HOW TO GET FUNDED
DECEMBER 11th 2012

6. 3-OPTIONS
Bootstrap + Customers = Raise $$

7. GOAL FOR TODAY
Angel or VC
Finding Investors
How to Pitch Them
Valuation Math
Negotiating Deal Terms
Demystify the VC Angel World

8. VC’S vs ANGELS
May want some control (“send me an annual
email”)
Will want some control (voting, board, veto)
Will want to own 1-10%
Will want to own 20-30%
Maybe engaged or not (often a hobby, sometimes
Actively engaged (they get paid to do this!) a personal mission)
Can add tremendous value and be great Can add tremendous value and be great business
business partners partners
Can be total disasters Can be total disasters
Typically rational actors, commercially- Typically rational, but if unsophisticated: naïve
driven, but if inexperienced… irrational, emotional

9. WHY RAISE VC
Deep Pockets: Experience Matters:
High risk tolerance and VCs have “seen the
additional funding for movie” over and over
follow-on rounds again and can help avoid
pitfalls to find the path to
success
Value-Add: Swing Big:
VCs provide domain VCs don’t invest in niches,
experience, industry they invest in
contacts, and strategic transformative ideas that
planning can build large companies

10. 1
Does my business fit?

11. Typical Investment Criteria
 Tangible things investors like to see:
 Very big market (> $500m)
 Unfair advantage (why you? why now?)
 Attractive business model (recurring, high gross margin)
 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

12. PEOPLE MATTERS
Great Idea
Huge Markets
Massive Gross Margin
Unique & Protectable
But People Trumps Everything

13. PEOPLE MATTERS
Ideas are a dime a dozen
Having a world-class team
is golden
Laser focus of the young
entrepreneur is very
powerful

14. 2
Am I Prepared?

15. Raising Money is
Really, Really, Really Tough

16. LONG ODDS
300 : 1

17. 12months - 2 years..!

18. Investor Deck
Prospect List
Business Plan
Executive Summary
Financial Model

19. 3
Getting the 1st Meeting

21. FIND THE SWEET SPOT
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

22. Context About VCs and Angels
 Most VCs and Angels have ADD – operate on
“BLINK” instincts
 Want to SEE everything, but DO 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

23. Investor’s Decision Tree
Worth 3 minutes
(email, phone)?
No
Ignore Worth 30 minutes
(phone, in person)?
No
Pass
gracefully Worth 60-90 minutes
(in person)?
No
Pass but stay
In touch Worth 2nd mtg
(in person)?
No
Pass but be helpful Serious due diligence

24. 4
The Pitch

25. 3 MUST DO’S
1 2 3
Be gracious, Be crisp & on Know your
personable point stuff
Personal intro should take You will be pushed and
< 5 minutes. Team tested
introduction 10 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?

26. DO NOT...
1 2 3
Exaggerate This is about Name Drop
Team not You
No one is going to be
Everything you say will be There is no I.
impressed with who you
verified in due diligence know unless the
If you are self-
relationships are both real
Assume the listener is a aggrandizing, investors will
and relevant.
cynic and a professional assume you can’t build
Bull-shit detector teams

28. 5
Another Meeting

29. 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
13#

30. 6
Full Partner Meeting

32. 7
Term Sheet - Finally

33. Term Sheet Time
Frequently Asked Questions…
 Should I include VCs in my first round or just angels?
 How big should the option pool be?
 How should I think about valuation?
 “Promote” definition - http://bit.ly/8NpdM
 Should I do a convertible note with a cap, no cap or a
priced round?
 How should I think about control?
15#

34. Aligning Interests

35. ECONOMICS CONTROL

36. PRICE
A+B=C
Pre-Money Post-Money
Investment
Valuation Valuation

37. PRICE
£400k + £100k = £500k
Pre-Money Post-Money
Valuation Investment Valuation

38. EQUITY
%age Equity
= C Post-Money
Valuation
B
Investment

39. EQUITY
Looking
to Raise
£500k
£100k = 20%
For X% of my
business
You Value your
business as
£400k + £100k = £500k
Pre-Money Post-Money
Investment Valuation
Valuation

40. What Is Market?
Rough Numbers (vary slightly by coast and sector):
 Seed: $500k-$2m raise on $3-5m pre-money (or cap)
 Series A: $3-6m raise on $6-10m pre-money
 Series B: $8-12m raise on $15-20m pre-money
Option pool: 10-20%
 The smaller the pool, the more confidence in the
founding team
 Do an “option pool budget” to determine the right pool
17#

41. 8
MONEY IN THE BANK

42. MUST READS

43. Who’s Ready to Raise
Money?

44. THANK YOU
Feel free to ask questions
or
Follow-up @iainmcdtweet