NYU Startup School - When & How to Raise Venture Capital
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At some point in time, nearly every startup will require outside capital to help it grow and scale. This workshop will introduce the different sources of financing for startups at each stage of growth, and will provide specific tactics you can use to successfully raise the funds your startup needs.
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NYU Startup School - When & How to Raise Venture Capital
- 1. @NYUEntrepreneur When & How to Raise Venture Capital Frank Rimalovski Executive Director, Entrepreneurial Institute Managing Director, Innovation Venture Fund Nov 1, 2016
- 2. @NYUEntrepreneur Topics u Types of venture investors u How does VC works? u VC math u When to look for VC? u Fundraising tips u Q&A 2
- 3. @NYUEntrepreneur Types of Venture Investors
- 4. @NYUEntrepreneur investor|in-ˈvestər| noun one who expends money with the expectation of achieving a profit or material result by putting it into financial schemes, shares, or property…
- 5. @NYUEntrepreneur Myth: Venture Capital funds are the primary source of startup funding
- 6. @NYUEntrepreneur Venture Funding Lifecycle 6 ① Discovery ② Validation ③ Customer Creation ④ Company Building Test assumptions about customer needs/problem & develop MVP Seek Validation that people are interested in your solution Begins to build demand & improve efficiency of customer acquisition Drive growth aggressively & execute business model Invention & ideation Grants, Competitions Founders + Credit cards Grants Crowdfounding Customers SBIR/STTR + Accelerators Friends & family Angels Seed funds Venture capital funds Leasing Factoring Vendor finance Private equity Public markets Valuation*
- 7. @NYUEntrepreneur Types of Venture Investors Stage Pre-Seed Seed/Startup Early Late Type Founder(s), friends & family Individual angels/groups & seed funds Venture Capital Funds Financial Investors Strategic/Corporate Typical Amount $5,000 to $250,000 $25,000 to $1,000,000 $2,000,000 and up Source of Funds Individuals Individuals Institutional Investors, Family Offices & Corporations Number of rounds Single Single Multi
- 9. @NYUEntrepreneur The Basics u VCs manage “OPM” o Pension funds, foundations, endowments, financial institutions, family offices, etc. u 10-year fund life u “2-and-20” Fund returns 5 10 15 Fund I Fund II Fund III Fund investments
- 10. @NYUEntrepreneur How do VCs Make Money? u Investing at low valuation (through multiple rounds at increasing valuations) and then…
- 11. @NYUEntrepreneur How do VCs Make Money? u Investing at low valuation (through multiple rounds at increasing valuations) and then… u Exit (a/k/a liquidity event) at a higher value o Initial Public Offering (IPO) o Merger into a Public Company o Merger into another private company o Return of capital from cash flow o Asset sale
- 12. @NYUEntrepreneur Myth: VCs make money on every deal
- 13. @NYUEntrepreneur 75% of startups fail to return investors capital Shikhar Ghosh Harvard Business School #nyuef
- 14. @NYUEntrepreneur VC Math NB: Figures and sequencing are intended to be illustrative. Your mileage will vary.
- 15. @NYUEntrepreneur From idea to incorporation Accepted to SLP!!! Define risky hypotheses Customer discovery Problem-Solution Fit! Design MVP Test MVP Retain McCarter & English Form SLE Split founders equity Open account at Silicon Valley Bank Founders 100% Fully Diluted Ownership
- 16. @NYUEntrepreneur In search of Product-Market-Fit Continue to test MVPs Customer discovery Customer validation Secure early adopters Product market fit! In TechCrunch! Begin to craft seed pitch Commence fund raise! Founders 100% Fully Diluted Ownership
- 17. @NYUEntrepreneur Raise seed round 3 months & 30 pitches later Greycroft Leads Series Seed Pre-$ $3.00m Raise 1.00 Post-$ $4.00m NYU Innovation Venture Fund & 3 angels complete round Founders 100% Fully Diluted Ownership
- 18. @NYUEntrepreneur Raise seed round 3 months & 30 pitches later Greycroft Leads Series Seed Pre-$ $3.00m Raise 1.00 Post-$ $4.00m Deposit $1.0m with SVB Pay McCarter & English Back to work Founders 75% Seed Investors 25% Fully Diluted Ownership
- 19. @NYUEntrepreneur Hire first employees Add 10% Option Pool Founders 75% Seed Investors 25% Fully Diluted Ownership
- 20. @NYUEntrepreneur Hire first employees Add 10% Option Pool Hire first employees Founders 67% Seed Investors 23% Options 10% Fully Diluted Ownership
- 21. @NYUEntrepreneur Hire first employees Add 10% Option Pool Hire first employees Identify repeatable & scalable business model Founders 67% Seed Investors 23% Options 10% Fully Diluted Ownership
- 22. @NYUEntrepreneur Hire first employees Add 10% Option Pool Hire first employees Identify repeatable & scalable business model In NY Times! Founders 67% Seed Investors 23% Options 10% Fully Diluted Ownership
- 23. @NYUEntrepreneur Hire first employees Add 10% Option Pool Hire first employees Identify repeatable & scalable business model In NY Times! Draft VC pitch Commence VC raise Founders 67% Seed Investors 23% Options 10% Fully Diluted Ownership
- 24. @NYUEntrepreneur 6 months & 40 pitches later Flybridge Capital Offers Pre-$ $7.50m Raise $2.50m Options 15% * Founders 67% Seed Investors 23% Options 10% Fully Diluted Ownership
- 25. @NYUEntrepreneur Make room for more options! Flybridge Capital Offers Pre-$ $7.50m Raise $2.50m Options 15% * Founders 60% Seed Investors 20% Options 20% Fully Diluted Ownership
- 26. @NYUEntrepreneur Smaller piece of a bigger pie! Post Money Value Founders $4.50m Seed 1.50 Options 1.50 Flybridge 2.50 Post-$ $10.00m u 50% step-up from Seed! u $2.5m in the bank u John Elton & David Aronoff on your board u Growing a team u Scaling a business u Life is good! Founders 45% Seed Investors 15% Options 15% Flybridge 25% $7.50m Pre-$ Fully Diluted Ownership
- 27. @NYUEntrepreneur VC Math Lessons Learned u If you raise $, you will be diluted u Options come out of your hide, not theirs u Timing of your raise will be key u Valuation nor your % ownership is everything u Focus on things that drive enterprise value, not just what maximizes your ownership
- 29. @NYUEntrepreneur On Lawyers… u Important to pick a very experienced one o Not the top Wall Street lawyer you can find o Not your cousin Murray o Not your patent attorney o Not the guy who did you will/mortgage refi o …someone who does venture financings daily u Doesn’t have to be local, but it helps u We are happy to recommend several 29
- 30. @NYUEntrepreneur When to Look for VC? 30
- 31. @NYUEntrepreneur When to Look for VC? 31 ① Discovery ② Validation ③ Customer Creation ④ Company Building Test assumptions about customer needs/problem & develop MVP Seek Validation that people are interested in your solution Begins to build demand & improve efficiency of customer acquisition Drive growth aggressively & execute business model Invention & ideation Grants Competitions Founders + Credit cards Angels Seed funds Venture capital funds Leasing Factoring Vendor finance Private equity Public markets Valuation* You are here Grants Crowdfounding Customers SBIR/STTR + Accelerators Friends & family
- 32. @NYUEntrepreneur Why defer raising money? u A time consuming, distracting process u Minimize dilution (when your valuation’s low) u Hard to stop spending once you start u You will spend it on the wrong things u 1st round raised on the promise… 2nd on the progress u If you’re wrong (and don’t hit your milestones), you’re dead u Many other non-dilutive sources of $$$ 32
- 34. @NYUEntrepreneur What do VCs look for? 34
- 36. @NYUEntrepreneur VCs invest in businesses. Not ideas. Not technologies. Your technology/IP is only one of the many critical pieces necessary to build a business. 36
- 37. @NYUEntrepreneur What do VCs look for? u Serve unmet need in large & growing market u Differentiated solution(s) + supporting data u Customer validation of pain & gain u Scalable & repeatable business model that generates high ROI u Focused teams with proven ability to execute 37
- 38. @NYUEntrepreneur VC Dealflow Funnel 1,000 150 25 5-10 Inbox Desk Meet Due Dili Deal Credenza Reject
- 39. @NYUEntrepreneur Your initial goal is to get a meeting! 39
- 40. @NYUEntrepreneur Myth: Raise money when you need it!
- 41. @NYUEntrepreneur Raise money when you can raise it! 41
- 42. @NYUEntrepreneur Running out of money is not a milestone! 42
- 43. @NYUEntrepreneur Myth: VCs are hard to meet!
- 44. @NYUEntrepreneur VCs are easy to meet! NYU Entrepreneurial Institute Respected VC or angel Present/ former portco exec Well- respected entrepreneur /exec Service providers Friend of VC partner
- 45. @NYUEntrepreneur Myth: Don’t approach VCs until you are ready to raise money 45
- 48. @NYUEntrepreneur Myth: VCs Invest in Teams with Strong Data
- 49. @NYUEntrepreneur VCs invest in the trend! 49
- 50. @NYUEntrepreneur Final Thoughts on Fundraising u Diligence investors like they diligence you u Be prepared, but less is more u You do not need a prospectus/biz plan u You want professional investors 50
- 51. @NYUEntrepreneur Final Thoughts on Fundraising u Diligence investors like they diligence you u Be prepared, but less is more u You do not need a prospectus/biz plan u You want professional investors 51
- 52. @NYUEntrepreneur Final Thoughts on Fundraising u Diligence investors like they diligence you u Be prepared, but less is more u You do not need a prospectus/biz plan u You want professional investors 52
- 53. @NYUEntrepreneur Final Thoughts on Fundraising u Diligence investors like they diligence you u Be prepared, but less is more u You do not need a prospectus/biz plan u You want professional investors u Never hire an agent/banker 53
- 54. @NYUEntrepreneur Final Thoughts on the Pitch u Investor pitch is a proxy…
- 55. @NYUEntrepreneur Final Thoughts on the Pitch u Investor pitch is a proxy…for your ability to: o Recruit talent & lead a team o Sell to customers o Attract partners u Tell a story & engage your audience u Cover the bases…not just your product/tech u But, remember it doesn’t stop with your pitch deck
- 56. @NYUEntrepreneur Lessons Learned u Many sources of capital…VC comes later u VCs are professional money managers u Focus on things that drive enterprise value u Investors fund businesses, not tech/ideas u Get to know investors early in the process u It’s a complicated process…arm yourself u You want professional investors u We are here to help! 56
- 58. @NYUEntrepreneur Startup Funding Lifecycle 58 ① Discovery ② Validation ③ Customer Creation ④ Company Building Test assumptions about customer needs/problem & develop MVP Seek Validation that people are interested in your solution Begins to build demand & improve efficiency of customer acquisition Drive growth aggressively & execute business model Invention & ideation Grants Competitions Founders + Credit cards Angels Seed funds Venture capital funds Leasing Factoring Vendor finance Private equity Public markets Valuation* You are here Grants Crowdfounding Customers SBIR/STTR + Accelerators Friends & family
- 60. @NYUEntrepreneur
- 67. @NYUEntrepreneur Critical Questions to Answer u When to raise/why now? u How much to raise? u What are you looking for in an investor? u What will you spend the money on? u How long will it last? u What will you accomplish with the money? u What are investors looking for in you? u Why should they invest in you? u How will they make money by investing? u Will you need to raise more? If so, how much & when? What are those investors looking for? 67
- 68. @NYUEntrepreneur If you can’t answer all those questions, you are not ready to raise! 68
- 69. @NYUEntrepreneur Tuesday 11/8, 4pm Metrics that Matter 69 1 Attend next week’s Startup School bit.ly/nyustartupschool
- 70. @NYUEntrepreneur70 2 Meet with a Blackstone Launchpad coach Say you went to Startup School! entrepreneur.nyu.edu
- 71. @NYUEntrepreneur71 3 Come to VC Pitchfest Hear classmates pitch their startups to a panel of Venture Capitalists entrepreneur.nyu.edu Thursday 11/3, 5:30pm
- 72. @NYUEntrepreneur72 4 Come to the Healthcare Makerthon Weekend Build the solutions that will revolutionize healthcare bit.ly/makerthon-2016 Friday-Sunday 11/18 - 11/20