How to Raise Your Seed Round
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Brandeis Innovation Speaker Series: Overview of tech/startup fundraising basics, some how-to tactics on raising a seed round, and general pitch tips/lessons learned for entrepreneurs who are current students and recent grads.
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How to Raise Your Seed Round
- 1. Fundraising 101: How to raise a seed round D AV I D C H A N G @ C H A N G D S www.davidchang.me/startup-tips
- 2. Background as a software guy at a big company
- 3. Startup experiences as an accidental entrepreneur
- 4. 70 angel investments / seen 1,000s of startups Direct Syndicate/Fund TBD Angels
- 5. High potential of student entrepreneurs
- 6. Fundraising Basics How to Raise a Round Tips
- 7. What obstacles stand in your way?
- 8. What’s the business trajectory? Lifestyle or social good Linear growth or revenue fueled High growth, scalable venture
- 9. Where to get that first dollar? Revenue Equity Partners Grants Debt
- 10. Where to get that first dollar? Revenue Prepaid product Crowdfunding Consulting service Equity Convertible notes SAFE Stock Partners Vendor services in advance Non-recoverable engineering Grants SBIR Pitch competitions Debt SBA loan Bank loan Personal note
- 11. Capital sources have tradeoffs Equipment Financing Traditional VC Micro VC Angel Groups AngelList Angels Corporate / Strategic Venture Customers Jobs Bill Portal Crowdfunding Vendors Founder Friends & Family Crowdfunding Grants- Gov & Foundation Venture Debt Bank Loans Personal Loans Private Equity Competitions Accelerators & Contests Impact Angels & VCs Size Cost Source: Jean Hammond & MassChallenge
- 12. Raising during a pandemic • Active investors are out there • Active VC List, DocSend • Investors meeting during COVID-19 • Plan for longer runway • Valuations hit 20-30%
- 14. Venture capital stages Growth Equity Early Stage Angel Friends & Family
- 15. How the VC game works Skewed return distribution VCs must swing for the fences
- 16. Raising a Round
- 17. How Much to Raise • Basic financial model of cost drivers and revenue • Forecast monthly for 2 years • Fundraise rule of thumb: 12-18 months’ cash
- 18. Use of Proceeds • Build product • Grow team • Marketing • Customer acquisition • Working capital
- 19. Milestones See www.techcrunch.com/2015/06/24/running-out-of-money-isnt-a-milestone Team Product Development Market Demand Product / Market Fit Business Model Execution
- 20. Fundraising Basics How to Raise a Round Tips
- 21. Prep Target Socialize Raise Close Run a 5-step fundraising campaign
- 22. Basic Prep ✓ Legal representation ✓ Founders agreements ✓ Financials and budget ✓ Blurb (1 paragraph) / teaser (1 page) ✓ Pitch deck (10 slides)
- 23. Hone in on target criteria Stage Location Industry Vertical Investment Thesis Business Model Social / Trust Filter
- 24. Tools to build the pipeline
- 25. University Focused Corporate VC bit.ly/boston-area-investors-firms Local Investors Angel Groups Seed Stage Growth Stage Early Stage VC Tech VC Healthcare, Biotech, Energy
- 26. Socialize • Prioritize sequence • Find strongest connections to 30+ targets • Tactics: lead gen, cold calling, warm intros • Network over 2-3 months
- 27. Don’t ask for money! Improves hit rate Creates data points Doesn’t start the clock “Who else should I talk to?” “I’m not ready to raise” “Who would be helpful?”
- 28. Refine pitch • Incorporate feedback • Double down on consistent themes • Avoid whiplash changes
- 29. Go for it! Create FOMO • Approach your top candidates at the same time • Decide whether to tell investors about each other • Land anchor investor as the first domino • Use triggering events to get or improve term sheets “I’m closing a round”
- 31. Structure • Preferences over common • Board seat or 2 • Option pool • Liquidation preference • Control over sale, new options • Debt that becomes preferred equity when you raise it • No valuation, but the “cap” is a ceiling • Interest accrues, rate <10% • Conversion discount Equity Preferred Stock Debt Convertible Notes, SAFEs
- 32. Close the deal • Rolling close vs. set close • Not done until money is in the bank Key terms ❑ Board composition ❑ Option pool ❑ Voting rights ❑ Founder vesting ❑ Change of control ❑ Redemption rights ❑ Information rights ❑ Anti-dilution
- 33. Seed A B $15 $6 $1 $30 $12 $5 Valuation & Dilution ? Dilution: what’s your end stake? Valuation ($M) ?
- 34. Valuation & Dilution 37% See ownyourventure.com See dlopuch.github.io/venture-dealr Raise $1M on $5M pre 34% Raise $1.5M on $5M pre 33% Raise $1M on $3M pre Dilution: what’s your end stake? Valuation ($M) Seed A B $15 $6 $1 $30 $12 $5
- 35. How long does it take? • Longer than you expect • 3-6 months • Speed limited by access to investors • Your ability to find them • Calendar availability (surprisingly hard) How soon to start, how long it takes, general timeline you can expect, how to reduce time between the initial outreach and closing a deal?
- 36. Choose your investors carefully What characteristics to look for in a venture partner? How find someone who is properly aligned with your business? Board dynamics with the venture partner, what to expect, what to protect against, how to go about that board relationship?
- 37. Fundraising Basics How to Raise a Round Tips
- 38. Founders Tips
- 39. Ideas alone are worthless
- 40. Don’t go solo
- 41. Find the right co-founders
- 42. Function Size Location Industry Recruit team based on today’s fit
- 44. Start or join a company
- 45. Execution Tips
- 46. Value builds in steps Team Product Development Market Demand Product / Market Fit Business Model Execution
- 48. 1.10^ 12 = 3.1 1.01^ 365 = 37.8 Shorten iteration cycles for big payoffs
- 49. Focus vs. Pivot
- 51. Stay true to the guiding north star
- 52. Pitch Tips
- 54. Anchor your summit & basecamp
- 56. Adjust for style
- 57. Don’t share everything at once • 1 Sentence • 1 Paragraph • 1 Page • 1 Light Deck • 1 Follow-up Deck
- 58. Articulate in 90 seconds Why you’re the right team Know numbers and business model cold 3 Key Tips from Kevin O’Leary
- 59. www.garage.com/resources/perfecting-your-pitch 10 slides 20 minutes 30 point font Guy Kawasaki’s Rules-of-Thumb
- 60. pexels.com
- 62. Typical Parts Overview Problem Solution Market Opportunity Go-to-Market Traction Revenue & Business Model Team Competition Differentiators Financials Ask & Use of Proceeds
- 66. Resources • Legal • Goodwin Procter www.foundersworkbench.com • Foley & Lardner www.foley.com • Pierce Atwood • Techstars www.techstars.com/docs • www.seriesseed.com • General • www.jddavids.com • www.robkornblum.com bit.ly/startresources
- 67. Fundraising 101: How to raise a seed round Q&A D AV I D C H A N G @ C H A N G D S www.davidchang.me/startup-tips