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Fundraising for Entrepreneurs
Taylor Davidson
@tdavidson
taylordavidson.com
@tdavidson
I’m Taylor
VC at kbs+ Ventures
Entrepreneur
Previous professional experience includes: strategy consultant,
startup CFO an...
Fundraising
@tdavidson
Venture capital is
just one option.
@tdavidson
• Debt and credit cards
• Consulting and side jobs
• Crowdfunding
• Grants
• Customers
@tdavidson
For companies that exist in high
uncertainty with little past
results, in areas where high
capital outlays in advance of
r...
… that’s what VCs
do.
@tdavidson
VCs are
businesses too.
@tdavidson
http://www.slideshare.net/schlaf/raising-a-seed-round

@tdavidson
@tdavidson
VC sets you on a
path.
Including, you’ve hired
your boss.
@tdavidson
Average exit
takes 6 years, and
a lot of money.
http://info.crunchbase.com/2013/12/16/

@tdavidson
Average successful startup…

IPO: $162 MM (exit $467 MM)
Acquired: $41 MM (exit $243
MM)
http://info.crunchbase.com/2013/1...
There’s a model
for a venture
funded company.
@tdavidson
Venture returns
are driven by
power laws.
@tdavidson
97% of returns created
by 15 companies
created every year. *
* Even if the % is wrong, the skew is right.

Ben Horowitz, h...
VCs expect most
startups to fail.
+ Successes are
outsized.
= Aim for big wins.
@tdavidson
Big wins come
from big markets.
@tdavidson
“Bad market beats
great team.”
Marc Andreessen

@tdavidson
• 
• 
• 
• 
• 
• 
• 
• 
• 
• 
• 
• 

Defined problem
Large number of potential customers
Willingness to pay
Capacity to pa...
Find the right
partners.
@tdavidson
Understand their
incentives.
@tdavidson
Incentives differ
from angels, seed
VCs, growth VCs
@tdavidson
Research funds
and partners.
Crunchbase, Angelist,
LinkedIn… and people.
@tdavidson
Look for partners,
not just funds.
@tdavidson
Search in parallel,
devote more
resources to higher
expected value.
Paul Graham, http://paulgraham.com/fr.html

@tdavidson
Approach
fundraising as a
product.
@tdavidson
Absence of a yes
is a no.
@tdavidson
• 
• 
• 
• 
• 
• 
• 
• 
• 
• 
• 

Investment thesis
Too early
Too late
Founder
Team gaps
Immature product
Immature market
...
No means no, but
not for the reasons
you may think.
@tdavidson
Learn as much as
you can until you
have to say yes.
@tdavidson
More info, more
time, more traction,
less risk.
@tdavidson
VC is a lagging
indicator.
@tdavidson
What is traction?
Abstract word for
proof.
@tdavidson
i.e. do people want it, will
they pay for it, can it be
done, can the founders
execute, will a competitor
emerge…
@tdavids...
Create forces to
get a yes.
Competition, growth,
fear.
@tdavidson
Commitments are
extremely valuable
social proof.
@tdavidson
Commit to
fundraising
mode.
@tdavidson
VCs will want to talk,
catchup, and learn.
You have to execute.
@tdavidson
It’s a relationship
business.
@tdavidson
Ask for advice
before you have
to ask for money.
@tdavidson
Build relationships
with investors far
before you need
them.
@tdavidson
Intros.
Warm intros.
Be highly tactical.
@tdavidson
Determine what
you need.
@tdavidson
Funding
Network
Domain expertise
Past success
Brand name
(note: popular =! fit)
@tdavidson
Don’t optimize
for valuation.
Optimize for resources for
success.
@tdavidson
Round size is
more art than
science.
@tdavidson
Target: example raising $750K
Rationale
Runway: 18 months of runway
3-6 months to raise, 12-15 to execute enough to justif...
Round size impacts
valuation and
dilution
Sell 10-25% in each round
@tdavidson
What to pitch
@tdavidson
You control your
story.
@tdavidson
Story depends on
your stage.
@tdavidson
Why you (and your team)
is uniquely predisposed to
execute better than any
founder in the space.
@tdavidson
Why the market has
a problem and
needs a solution.
@tdavidson
Why an investor
needs to be a part
of what you’re
building.
@tdavidson
Pitch decks have a
flow that investors
expect to hear.
@tdavidson
VCs expect problem
and solution right at
beginning.
Then educate on market, etc.
@tdavidson
Don’t make a
pitch a pitch.
Tell the story as a
conversation.
@tdavidson
VCs don’t expect you to have
all the answers.
Expect honest, transparent,
grounded and well-thought
out rationales.
@tdavi...
Post meeting
follow-up is part of
the process.
@tdavidson
Term sheet is just the
first step toward
finish line.
Complete syndicate, diligence,
docs, sign and wire.
@tdavidson
Convertible Debt
Preferred Equity
Safe (Y Combinator, new)
@tdavidson
Convertible Debt
•  Cap
•  Discount
•  Conversion rate
@tdavidson
Preferred Equity
•  Price, valuation
•  Liquidation preference
•  Vesting, board, other terms
@tdavidson
SAFE
(Simple Agreement for Future Equity)

•  Convertible debt without debt
•  Created for events (equity
financing, liqui...
Leverage your
investors postfinancing.
@tdavidson
Once you’re done
fundraising… start
meeting your next
investors.
@tdavidson
@tdavidson
+ 2 unannounced
@tdavidson
kbsp.vc/book.html
@tdavidson
buildforesight.com
@tdavidson
More resources:
About the fundraising process psychology and incentives:
http://www.paulgraham.com/fr.html
For statistics ...
@tdavidson
taylordavidson.com
@tdavidson
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Slides from a talk about fundraising for entrepreneurs at Tepper School of Business at Carnegie Mellon University, Feb 14, 2014

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Fundraising for Entrepreneurs

  1. 1. Fundraising for Entrepreneurs Taylor Davidson @tdavidson taylordavidson.com @tdavidson
  2. 2. I’m Taylor VC at kbs+ Ventures Entrepreneur Previous professional experience includes: strategy consultant, startup CFO and business development, private equity, innovation at big financial services company, finance consultant, photographer. Fluent in HTML and CSS. MBA Finance, Tepper School of Business at Carnegie Mellon BA Economics, University of Virginia @tdavidson
  3. 3. Fundraising @tdavidson
  4. 4. Venture capital is just one option. @tdavidson
  5. 5. • Debt and credit cards • Consulting and side jobs • Crowdfunding • Grants • Customers @tdavidson
  6. 6. For companies that exist in high uncertainty with little past results, in areas where high capital outlays in advance of revenue are a competitive advantage … @tdavidson
  7. 7. … that’s what VCs do. @tdavidson
  8. 8. VCs are businesses too. @tdavidson
  9. 9. http://www.slideshare.net/schlaf/raising-a-seed-round @tdavidson
  10. 10. @tdavidson
  11. 11. VC sets you on a path. Including, you’ve hired your boss. @tdavidson
  12. 12. Average exit takes 6 years, and a lot of money. http://info.crunchbase.com/2013/12/16/ @tdavidson
  13. 13. Average successful startup… IPO: $162 MM (exit $467 MM) Acquired: $41 MM (exit $243 MM) http://info.crunchbase.com/2013/12/16/ @tdavidson
  14. 14. There’s a model for a venture funded company. @tdavidson
  15. 15. Venture returns are driven by power laws. @tdavidson
  16. 16. 97% of returns created by 15 companies created every year. * * Even if the % is wrong, the skew is right. Ben Horowitz, http://qr.ae/tMui9 @tdavidson
  17. 17. VCs expect most startups to fail. + Successes are outsized. = Aim for big wins. @tdavidson
  18. 18. Big wins come from big markets. @tdavidson
  19. 19. “Bad market beats great team.” Marc Andreessen @tdavidson
  20. 20. •  •  •  •  •  •  •  •  •  •  •  •  Defined problem Large number of potential customers Willingness to pay Capacity to pay Easy to reach Easy to target Low friction Definable business model Low switching costs / high switching costs Network effects Competition Natural monopolies @tdavidson
  21. 21. Find the right partners. @tdavidson
  22. 22. Understand their incentives. @tdavidson
  23. 23. Incentives differ from angels, seed VCs, growth VCs @tdavidson
  24. 24. Research funds and partners. Crunchbase, Angelist, LinkedIn… and people. @tdavidson
  25. 25. Look for partners, not just funds. @tdavidson
  26. 26. Search in parallel, devote more resources to higher expected value. Paul Graham, http://paulgraham.com/fr.html @tdavidson
  27. 27. Approach fundraising as a product. @tdavidson
  28. 28. Absence of a yes is a no. @tdavidson
  29. 29. •  •  •  •  •  •  •  •  •  •  •  Investment thesis Too early Too late Founder Team gaps Immature product Immature market Product / market fit Competition / “Winners” already identified Conflict with portfolio investment Valuation or terms @tdavidson
  30. 30. No means no, but not for the reasons you may think. @tdavidson
  31. 31. Learn as much as you can until you have to say yes. @tdavidson
  32. 32. More info, more time, more traction, less risk. @tdavidson
  33. 33. VC is a lagging indicator. @tdavidson
  34. 34. What is traction? Abstract word for proof. @tdavidson
  35. 35. i.e. do people want it, will they pay for it, can it be done, can the founders execute, will a competitor emerge… @tdavidson
  36. 36. Create forces to get a yes. Competition, growth, fear. @tdavidson
  37. 37. Commitments are extremely valuable social proof. @tdavidson
  38. 38. Commit to fundraising mode. @tdavidson
  39. 39. VCs will want to talk, catchup, and learn. You have to execute. @tdavidson
  40. 40. It’s a relationship business. @tdavidson
  41. 41. Ask for advice before you have to ask for money. @tdavidson
  42. 42. Build relationships with investors far before you need them. @tdavidson
  43. 43. Intros. Warm intros. Be highly tactical. @tdavidson
  44. 44. Determine what you need. @tdavidson
  45. 45. Funding Network Domain expertise Past success Brand name (note: popular =! fit) @tdavidson
  46. 46. Don’t optimize for valuation. Optimize for resources for success. @tdavidson
  47. 47. Round size is more art than science. @tdavidson
  48. 48. Target: example raising $750K Rationale Runway: 18 months of runway 3-6 months to raise, 12-15 to execute enough to justify a next round Key milestones Key milestones to be accomplished in time period and runway, enough to justify success and traction for next raise @tdavidson
  49. 49. Round size impacts valuation and dilution Sell 10-25% in each round @tdavidson
  50. 50. What to pitch @tdavidson
  51. 51. You control your story. @tdavidson
  52. 52. Story depends on your stage. @tdavidson
  53. 53. Why you (and your team) is uniquely predisposed to execute better than any founder in the space. @tdavidson
  54. 54. Why the market has a problem and needs a solution. @tdavidson
  55. 55. Why an investor needs to be a part of what you’re building. @tdavidson
  56. 56. Pitch decks have a flow that investors expect to hear. @tdavidson
  57. 57. VCs expect problem and solution right at beginning. Then educate on market, etc. @tdavidson
  58. 58. Don’t make a pitch a pitch. Tell the story as a conversation. @tdavidson
  59. 59. VCs don’t expect you to have all the answers. Expect honest, transparent, grounded and well-thought out rationales. @tdavidson
  60. 60. Post meeting follow-up is part of the process. @tdavidson
  61. 61. Term sheet is just the first step toward finish line. Complete syndicate, diligence, docs, sign and wire. @tdavidson
  62. 62. Convertible Debt Preferred Equity Safe (Y Combinator, new) @tdavidson
  63. 63. Convertible Debt •  Cap •  Discount •  Conversion rate @tdavidson
  64. 64. Preferred Equity •  Price, valuation •  Liquidation preference •  Vesting, board, other terms @tdavidson
  65. 65. SAFE (Simple Agreement for Future Equity) •  Convertible debt without debt •  Created for events (equity financing, liquidity, dissolution) @tdavidson
  66. 66. Leverage your investors postfinancing. @tdavidson
  67. 67. Once you’re done fundraising… start meeting your next investors. @tdavidson
  68. 68. @tdavidson
  69. 69. + 2 unannounced @tdavidson
  70. 70. kbsp.vc/book.html @tdavidson
  71. 71. buildforesight.com @tdavidson
  72. 72. More resources: About the fundraising process psychology and incentives: http://www.paulgraham.com/fr.html For statistics and process around fundraising seed rounds: http://www.slideshare.net/schlaf/raising-a-seed-round For a good explanation of VC and fundraising: http:// www.amazon.com/Venture-Deals-Smarter-LawyerCapitalist/dp/0470929820 For resources on pitch decks, process, and financial models: http://buildforesight.com/build @tdavidson
  73. 73. @tdavidson taylordavidson.com @tdavidson
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Slides from a talk about fundraising for entrepreneurs at Tepper School of Business at Carnegie Mellon University, Feb 14, 2014

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