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Raising capital (for startups)
This document provides guidance for first-time founders on raising capital from angels and venture capitalists (VCs). It emphasizes focusing the pitch on demonstrating a huge market size for the solution and convincing investors that the company can achieve over $100 million or $400 million in revenue. The process involves pitching to investors, answering diligence questions, negotiating terms, and closing the deal. It recommends working with several batches of VC firms simultaneously to improve chances of funding and terms.
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Raising capital (for startups)
- 1. A guide forFirst-Time Founders Raising Capital for Startups" Image: @TaxCredits
- 2. Hi. I am… BryanStarbuck Former CEO & Founder of TalentSpring (Acquired in 2010) Currently: CEO & Founder at SPARKON.com BryanStarbuck@hotmail.com
- 3. My talk 1st The Keyto Pitching 2nd Managing the process
- 4. Your pitch will coverthe common bases but…There is something critical to cover
- 5. Image: @5imon Investors start offpessimistic Interest Start Make this happen Low High
- 6. Image: @Theodore Scott Thisis what investors expect A company targeting a $40m to $80m year business model
- 7. Image: @Theodore Scott 95of 100 companies go after too small of a market
- 8. Image: @Theodore Scott Thisis what they want Able to reach > $100m rev for Angels. VCs want > $400m or > $800m
- 9. They don’t care aboutthe rest of your business Until they TRULY BELIEVE the market size is big enough
- 10. Focus on WOWingthese 4:" There is a REAL & significant problem for the customer"1" 2" 3" 4" This company has a real solution. " No other solution exists in the market" People will pay " (this company’s prices)" This is a HUGE market"
- 11. After that, demonstratethat the rest is rock solid
- 12. 2nd Part: Managing the fundraising process
- 13. Process with Angels" Pitch& Demo" They review Financials" Due Diligence (If angel group)"3 Get all of their questions answered"4 Rapport & trust"5 Sign legal docs & close, close, close"6 2 1
- 14. ! VCs: A singleVC firm" ! Pitch & demo! ! Meeting #2 to #4. ! ! Sometimes with others at the firm! ! Present to Monday partner meeting! ! Get term sheet! ! Negotiate & sign term sheet! ! Sheppard details until big stack of legal docs signed!
- 15. ! Important (1 of2)" ! Herd mentality:! ! If they see other investors moving and they might lose out, the investor will move! ! True for both Angels and VCs! ! You need to force enough demand from investors to get the deal closed! ! Have polished pitch deck, pitch and financials! ! Angel groups are good outside of the bay area! ! Quote from the bay area, “Pitching to a bay area angel group is a sign of a bad company”!
- 16. ! Important (2 of2)" ! Get a rent-a-CFO for Projected financials:! ! $150 to $270 per hour! ! 3 to 7 hours to create very detailed projected financials! ! Asked for a fixed price project! ! Get a very high quality one. They don’t cost very much more!
- 17. ! The “process” –aka many VC " ! Progress in batches of ~6 VC firms! ! Hold first meeting! ! See which progress! ! Start another batch as a smaller number progress to later stages! ! In 2 months, work to have several batches progress so more than one arrive to a term-sheet! ! More than one greatly improves chances of any funding and improving terms! ! After 4 months, VCs will have heard about you and likely think you are a “stale deal”. Then meeting with them will likely be ineffective!
- 18. ! Pre-Money Valuation" If raisingunder $2 million…! If raising over $2 million from VCs:! ! Often valuation above PLUS capital raised! ! Investors get ~33% to 48% of round!
- 19. ! Lessons about funding" $1mto $2 round is often better than a $500k round! Funding goes hot and cold! ! Startups are cheap to run early, but…! ! So it costs $50k to $70k per month! "Year 1! " " Fund raising is hard! Near impossible!" "Idea !Validate! !Alpha !Beta !Launch! !Traction Building! "Year 2! "Small traction !Medium Traction ! !Huge traction / Profitable! Raising your series A after your Seen round closes!
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- 22. Finding Angels" ! AngelList! !BEST: Great advisors and your network! ! Top big law firms can make some intros! ! It is hard to scale, but doable. (Lots of work)! ! Requires tons of networking! ! Often with CEOs who have raised capital before! ! Move to the bay area for 5 months! ! Linked-In! ! Tons of scouting for people who fit the profile!
- 23. Finding VCs" ! Researchto find WHICH ones you want to target first! ! Very important: Pitching VCs who don’t match will block raising capital! ! Find ones that work at your stage, industry, etc.! ! Easy to find the list of VCs. TheFunded, AngelList, etc.! ! Top startup law firms can make intro, as a backup! ! Intro from CEO they funded is the best! ! Target the right partner. ! ! Start with Partner and above. Not associates!
- 24. ! Pitch-Deck" ! The Allianceof Angels pitch deck may be the best template!
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