MassChallenge: How to Raise a Seed Round - Sept 2019
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Overview of tech/startup fundraising basics, a 5-step how-to tactics on raising a seed round, and general pitch tips/lessons learned
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MassChallenge: How to Raise a Seed Round - Sept 2019
- 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
- 2. Fundraising Basics How to Raise a Round Tips
- 3. BACKGROUND
- 5. Direct Via Syndicate/Fund ANGEL INVESTMENTS
- 6. PORTFOLIO LIFE Building Investing Connecting
- 7. Fundraising Basics How to Raise a Round Tips
- 8. WHAT OBSTACLES STAND IN YOUR WAY?
- 9. BUSINESS TRAJECTORY • Lifestyle or social good • Linear growth or revenue fueled • High growth, scalable venture
- 10. 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
- 11. VENTURE CAPITAL STAGES Growth Equity Early Stage Angel Friends & Family
- 12. VENTURE CAPITAL DYNAMICS Skewed return distribution VCs must swing for the fences
- 13. RAISING A ROUND
- 14. 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
- 15. USE OF PROCEEDS • Build out the product • Grow the team • Marketing • Customer acquisition • Working capital
- 16. 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. Fundraising Basics How to Raise a Round Tips
- 18. Prep Target Socialize Raise Close FUNDRAISING CAMPAIGN
- 19. BASIC PREP ✓ Legal representation ✓ Founders agreements ✓ Financials and budget ✓ Teaser (1 page) ✓ Pitch deck (10 pages)
- 20. Stage Location Industry Vertical Business Model Investment Thesis Social / Trust Filter TARGET CRITERIA
- 21. BUILD PIPELINE
- 22. SOCIALIZE • Prioritize sequence • Find strongest connections to 30+ targets • Tactics: lead gen, cold calling, warm intros • Network over 2-3 months
- 23. DON’T ASK FOR MONEY! “I’m not ready to raise” “Who would be helpful?” “Who else should I talk to?”
- 24. REFINE PITCH • Incorporate feedback • Double down on consistent themes • Avoid whiplash changes
- 25. 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
- 26. CREATE URGENCY • Anchor investor acts as the first domino • “Triggering events” to get a (or better) term sheet
- 28. 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
- 29. CLOSING THE DEAL
- 30. Seed A B $15 $6 $1 $30 $12 $5 VALUATION & DILUTION ? Dilution: what’s your end stake?Valuation ($M) ?
- 31. 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
- 32. 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
- 33. 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)
- 34. FIND THE RIGHT INVESTORS
- 35. FUNDRAISING 101: HOW TO RAISE A SEED ROUND D AV I D C H A N G @ C H A N G D S
- 36. Fundraising Basics How to Raise a Round Tips
- 39. ADJUST FOR STYLE
- 40. SHARE YOUR SUMMIT & BASECAMP
- 41. DON’T SHARE EVERYTHING AT ONCE • 1 Sentence • 1 Paragraph • 1 Page • 1 Light Deck • 1 Follow-up Deck
- 42. Articulate in 90 seconds Why you’re the right team Know numbers and business model cold KEVIN O’LEARY
- 43. pexels.com
- 45. 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
- 48. 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