Review of how to raise capital for a group of Tel Aviv - based entrepreneurs

1. Mastering the VC Game:
How to Raise Your First Round of Capital
Jeffrey Bussgang
Flybridge Capital Partners, General Partner
Harvard Business School, Senior Lecturer
October 1st, 2013

2.  General Partner at Flybridge Capital Partners, early-
stage VC firm based in Boston and NYC
40+ active portfolio companies, Fund III: $280M
 Senior Lecturer at HBS – Launching Tech Ventures
 Former entrepreneur
Cofounder Upromise (acq‟d by SallieMae),
VP at Open Market (IPO „96)
 Author: Mastering the VC Game
 Blog: SeeingBothSides.com
Context For My Perspective

3. 3
Personal Context

5. 9
 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
04/09/10 9
Raising $ from VCs: Find the Sweet Spot

6. 8
Why Raise Money from VC?
Deep Pockets:
High risk tolerance
and additional
funding for follow-
on rounds
Swing Big:
VCs don’t invest in
niches, they invest in
transformative ideas
that can build large
companies
Experience Matters:
VCs have “seen the
movie” over and over
again and can help
avoid pitfalls to find
the path to success
Value-Add:
VCs provide domain
experience, industry
contacts, and
strategic planning

7. VCs vs. Angels
 Will want some control (voting,
board, veto)
 Will want to own 20-30%
 Very actively engaged (they
get paid to do this!)
 Can add tremendous value
and be great business partners
 Can be total disasters
 Typically rational actors,
commercially-driven, but if
inexperienced…
 Will want no control (“send me
an annual email”)
 Will want to own 1-10%
 Maybe engaged or not (often a
hobby, sometimes a personal
mission)
 Can add tremendous value and
be great business partners
 Can be total disasters
 Typically rational, but if
unsophisticated: naïve
irrational, emotional

8.  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
Context About VCs and Angels

9.  Ideas are a dime a dozen
 Having a world-class team is golden
 Laser focus of the young entrepreneur is very
powerful
 E.g., Bill Gates, Michael Dell, and Mark
Zuckerberg
1004/09/10 10
The Right People: an Unfair Advantage

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

11. Elements of the Pitch
 Intro  who are you, why are you here and why are you special?
 Problem  what is the customer pain?
 Solution  what‟s your disruptive, breakthrough compelling
solution? Is the “Gain vs. Pain” ratio 10x?
 Opportunity / market size  top down and bottoms up
 Competitive advantage  what is your unique differentiation?
what‟s your “competitive moat”?
 Go to market plan  how are you going to reach the customer?
 Business model  how are you going to make money?
 Financials  what‟s the bottom line, what are your key
assumptions? How are you going to make ME money?
 The ask  how much do you want, how long will it last you and how
much will you achieve?
11

12. Top 3 Things To Do
 Be gracious and personable
 Say something that makes you smile…authentically
 Tell your personal history, tell a story
 Be crisp and on point
 Personal intro should take < 5 minutes
 Team introduction 5-10 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?
 Know your stuff
 They will push you to test you
 John Doerr/Upromise case study

13. Top 3 Things To Avoid
 Do not exaggerate
 Assume everything you say will be verified in due diligence
 Assume the listener is a cynic and a professional BS detector
 There‟s no “I” in team
 If you are self-aggrandizing, investors will assume you can‟t build
teams
 Do not name drop
 No one is going to be impressed
with who you know unless
the relationships are both real
and relevant.

14. 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

15. 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
15

16. Then, Expect More Due Diligence
 Customers / partners
 Team
 Technology
 Business model
 Market size / analysts
As with sales, package up the information, make it easy
on the VC – provide reference list, financial models,
detailed market size analysis – all in readable form
16

17. The Vote
17
A B JB D E Average
Market 4 4 4 4 4 4.0
Team 4 4 4 4 5 4.2
Product/Tech 2 3 4 4 2 3.0
Business Model 5 4 5 3 3 4.0
Competitive
Landscape 4 3 3 3 4 3.4
Finance/Cap Markets 4 3 4 3 3 3.4
Disruption 4 4 4 4 4 4.0
Network Effects 2 4 3 4 4 3.4
Total 29 29 31 29 29 29.4

18. Expectations and Milestones
 Have well-documented milestones that represent what
you expect to achieve during the initial funding period
 Team building
 Technical progress/product development
 Customers, revenue
 Budget
 Talk to the investor about the next round before you
close this round
 Expectations, amount, price
18

19. Who‟s Ready to Raise Money?

20. Mastering the VC Game:
How to Raise Your First Round of Capital
Jeffrey Bussgang
Flybridge Capital Partners, General Partner
Harvard Business School, Senior Lecturer
October 1st, 2013