HBS Field Y: Fundraising 101 - Feb 2019

1. FUNDRAISING 101:  HOW TO PITCH AND LAND YOUR FIRST INVESTORS FINANCING YOUR STARTUP & YOURSELF DAVID CHANG @CHANGDS H B S F I E L D Y

2. Fundraising Basics How to Raise a Round Tips Student Entrepreneurs

3. BACKGROUND

4. STARTUP EXPERIENCES

5. Direct Via Syndicate/Fund ANGEL INVESTMENTS

7. WHAT OBSTACLES STAND IN YOUR WAY?

8. BUSINESS TRAJECTORY • Lifestyle or social good • Linear growth or revenue fueled • High growth, scalable venture

9. Source: Jean Hammond & MassChallenge Size Cost 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 CAPITAL SOURCES

10. VENTURE CAPITAL STAGES Growth Equity Early Stage Angel Friends & Family

11. VENTURE CAPITAL DYNAMICS Skewed return distribution VCs must swing for the fences

12. RAISING A ROUND

13. 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

14. USE OF PROCEEDS • Build out the product • Grow the team • Marketing • Customer acquisition • Working capital

15. 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

17. Prep Target Socialize Raise Close FUNDRAISING CAMPAIGN

18. BASIC PREP ✓ Legal representation ✓ Founders agreements ✓ Financials and budget ✓ Teaser (1 page) ✓ Pitch deck (10 pages)

19. Stage Location Industry Vertical Business Model Investment Thesis Social / Trust Filter TARGET CRITERIA

20. BUILD PIPELINE

21. SOCIALIZE • Prioritize sequence • Find strongest connections to 30+ targets • Tactics: lead gen, cold calling, warm intros • Network over 2-3 months

22. DON’T ASK FOR MONEY! “I’m not ready to raise” “Who would be helpful?” “Who else should I talk to?”

23. REFINE PITCH • Incorporate feedback • Double down on consistent themes • Avoid whiplash changes

24. GO FOR THE ASK • Approach your top candidates at the same time • Run conversations in parallel • Decide whether / when to tell investors about each other

25. CREATE URGENCY • Anchor investor acts as the first domino • “Triggering events” to get a (or better) term sheet

26. STRUCTURE Equity Debt

27. 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

28. CLOSING THE DEAL

29. Seed A B $15 $6 $1 $30 $12 $5 VALUATION & DILUTION ? Dilution: what’s your end stake?Valuation ($M) ?

30. VALUATION & DILUTION 37% See www.ownyourventure.com Raise $1M on $5M pre 33%Raise $1M on $3M pre 34%Raise $1.5M on $5M pre Dilution: what’s your end stake?Valuation ($M) Seed A B $15 $6 $1 $30 $12 $5

31. FINAL DEAL POINTS • 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

32. 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)

33. FIND THE RIGHT INVESTORS

35. 38 A bachelor’s or advanced degree is the cost of admission to the workforce, but the skyrocketing cost of education is putting that price out of reach. College Tuition vs Median Income $52,000 $53,500 $55,000 $56,500 $58,000 $0 $5,000 $10,000 $15,000 $20,000 2005 2006 2007 2008 2009 2010 2011 2012 Cost of College Median Income 1https://college-education.procon.org/view.resource.php?resourceID=005532

36. Feeling the Weight of Loans? $37,000 The average student debt for the 7 out of 10 graduates who leave college with student loans1. 1 million Parents each year who take out loans to send their children to college2. 55% Respondents who say that student loans have impacted their ability to buy a house3. 55% Parents who expect their child will have to rely on student loans to fund their college education4. 1Thttps://www.debt.org/students 2http://time.com/money/4846020/popular-college-loans-guide/ 3Life Delayed: The Impact of Student Debt on the Daily Lives of Young Americans 4 https://www.credible.com/blog/student-loans/parents-expect-kids-will-take-out-student-loans/

37. Good Time to Seek for Jobs Unemployment Rate 0.0% 2.5% 5.0% 7.5% 10.0% Jan-09 Aug-09 Mar-10 Oct-10 May-11 Dec-11 Jul-12 Feb-13Sept-13Apr-14 Nov-14 Jun-15 Jan-16 Aug-16 Mar-17 Oct-17 May-18 Unemployment Rate 1https://data.bls.gov/pdq/SurveyOutputServlet?request_action=wh&graph_name=LN_cpsbref3

38. Job Hopping 44% Millennials who intend to quit their jobs within the next two years1. 3 million Number of Americans who leave their jobs voluntarily each month2. 90%-200% Percentage of an employees’ annual salary that it costs to replace them3. 73% Employees are open to hearing about new job opportunities4. 1The Deloitte Millennial Survey 2017 2https://www.bls.gov/news.release/jolts.nr0.htm 3Retaining Talent: A Guide to Analyzing and Managing Employee Turnover; Society of Human Resources Management. 4https://blog.accessperks.com/2017-employee-engagement-loyalty-statistics#1

39. START OR JOIN A COMPANY

40. PEOPLE BONDS > COMPANY BOUNDARIES

41. Engineer Product Management MarketingInvestor Corporate Development Business Development EXPAND YOUR SKILLS

42. Function Size Location Industry WHAT ROLE FITS BEST?

44. 1:1 PITCH EXERCISE

45. SCENARIO 1: COFFEE SHOP Instructions for Audience You love everything the pitcher tells you. You get so excited that you repeatedly interrupt them, trying to finish their sentences.

46. SCENARIO 2: GROCERY STORE Instructions for Audience You ripped your pants 5 minutes ago. So you desperately want to leave and try to end the conversation with the pitcher ASAP.

47. KNOW YOUR AUDIENCE

48. ADJUST FOR STYLE

49. SHARE YOUR SUMMIT & BASECAMP

50. DON’T SHARE EVERYTHING AT ONCE • 1 Sentence • 1 Paragraph • 1 Page • 1 Light Deck • 1 Follow-up Deck

51. Articulate in 90 seconds Why you’re the right team Know numbers and business model cold KEVIN O’LEARY

52. pexels.com

53. thenounproject.com

54. TYPICAL PARTS Overview Problem Solution Market Traction Marketing Strategy Team Competition Conclusion Financial Projections  (high level) Money Being Raised and  Use of Funds Revenue Model & Business Model

55. www.nextviewventures.com/blog/free-startup-pitch-decks-template

56. www.bestpitchdecks.com

57. 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

58. FUNDRAISING 101: Q&A DAVID CHANG @CHANGDS H B S F I E L D X

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