Guest lecture on startup fundraising by Herman Kienhuis at the Jheronimus Academy of Data Science for the course Data Entrepreneurship in Action.

1. Startup Fundraising
JADS, Data Entrepreneurship in Action III
Guest Lecture by Herman Kienhuis, November 4, 2020

2. Agenda
• Introduction
• Why raise capital
• How startup funding works
• Which sources of capital
• What investors look at
• Where to find investors
• The VC perspective
• Wrap-up and Q&A

3. MS Teams – preference for this lecture
• Keep video on
• Add your name please
• Mute when not speaking
• I love interaction; when you have a question/comment:
• Unmute and speak up
(feel free to interrupt, also without ‘Raise Hand’) or
• ‘Raise Hand’ or
• Put question in ‘Chat’
• Slides will be available online afterwards

4. Introduction

5. Herman Kienhuis
MSc Chemical Engineering and MBA (INSEAD)
8 years Finance & Strategy (McKinsey, Sanoma)
6 years Business/Product development in
Consumer Internet (Sanoma Digital)
9 yearsVenture Capital (SanomaVentures, KPN
Ventures, Newion, River Venture Partners)
Married, father of three teenagers
Loves live music, movies, vintage design
and slow food
Supporting sustainable development,
education, research journalism and
diversity
INNOVATION FUND
ABOSS
50+ (VC & angel) investments

6. Who are you?
• Nationality?
• Gender?
• Next step in Corporate, Science, Public Service or Startup?
• AI for Good or AI for Gain, or both?

7. Why raise capital?

8. Why raise capital?
• Fixed costs of starting-up
• R&D investments
• Financing early-stage losses
• Working capital investments
• Creating cash liquidity buffer
• Production/inventory investments
• Customer acquisition investments
• International expansion
• Accelerating growth
• Fighting competition

9. How startup funding works

10. How startup funding works
Idea-
stage
...more
rounds…
You
0
100% of 0
FFF stage
€50-100k
Family
€140k
28% of €500k
Seed round
€100k-€1m
Angel
investor
€500k
22% of €2.3m
Series A
round
€1-€10m
VC
investor
Employee
option pool
€2.5m
13% of €20m
Series B
round
€10-20m
2nd
VC
investor
€5m
10% of €50m
IPO
€50m+
Public
investors
€50m
9% of €575m
Co-founder
stage
<€50k
Co-founder
Co-
founder
€50k
33% of €150k
Your
stake’s
value

11. Which sources of capital?

12. supplier credit
bank loans
strategic (corporate)
investors
venture capital
angel investors
Sources of startup and scale-up funding
capital
need
(€
mln)
100
50
10
5
1
0.5
0.1
high risk low risk
stock exchange
(public equity)
private equity
start
development phase
friends & family
Pre-seed
(preparation)
Seed
(mvp)
Early-stage
(start-up)
Later-stage
(consolidation)
Growth-stage
(scale-up)
Maturity
(ICO’s)
innovation
loans
crowdfunding
subsidies

13. What investors look at

14. Investor Criteria
P
P
P
T
T
T

15. Investor Criteria: Product
Product
•Solving a real problem
•Sustainable competitive
advantage
•Attractive business
/revenue model
•Network/flywheel effects

16. Investor Criteria: Potential
Potential
•Addressable market size
& growth
•Market attractiveness/
profitability
•International scalability
•>20x Exit Potential
Product

17. Potential:VC Exit Math
Investments
(total fund size)
Required proceeds for fund
(3x in 8 year = ca. 15% IRR)
Options to get there:
• 20 investments
• €2.5m per
investment
• For avg. 20%
shareholding
(€12.5m post-
money valuation)
• Avg. share-
holding diluted
to 15% by new
rounds
• Total required
exits valuation:
€1B
20 exits (100% success)
at €50m (x4)
10 exits (50% success)
at €100m (x8)
5 exits (25% success)
at €200m (x16 )
2 exits (10% success)
at €500m (x40)
1 exit (5% success)
at €1B (x80)
€50m
€150m

18. Investor Criteria: Plan
Plan
• Complete (tech, commercial, hiring)
• Realistic (bottom-up, cash-based)
• Consistent
Potential
Product

19. Investor Criteria:Team
Team Plan
Potential
Product
•Ambition, dedication and stamina
•Complementary expertise/background
•Track-record; ability to execute
•Learning mindset

20. Investor Criteria:Traction
Traction
Team Plan
Potential
Product
•Customer reviews
•‘Pirate Metrics’ (AARRR)
•Sales & Growth metrics
•CAC vs CLV

21. Traction: Pirate Metrics (AARRR)
Acquisition
Activation
Retention
Revenue
Referral
How much prospects can you attract?
How much prospects sign-up?
How much customers come back?
How much customers pay?
How much customers tell others?

22. Investor Criteria:Terms
• Fair valuation
• Economic rights (preferences /
downside protection)
• Information rights
• Control rights
• Captable
Terms
Traction
Team Plan
Potential
Product

23. Assume a Company
with:
• Current Revenues of
€300,000
• EV is set at 6 times
revenues (based on
growth expectations)
• Current Debt of
€500,000
• Raises €1 mln equity
funding.
How much shareholding
(%) will the new
investor get?
Terms:Valuation Math
Enterprise valuation (EV):
discounted value of future free cashflows, often
estimated by ‘multiples’ of existing revenue or profit
(based on assumed growth)
Equity valuation (pre-money):
value of outstanding shares in the capital of the
company
= Enterprise valuation - outstanding debt (to be paid
back before shareholders get proceeds)
Equity valuation (post-money):
value of the outstanding shares after a capital investment
= Pre-money valuation + investment amount
Dilution:
how much shareholding does an investor get?
= Investment amount / post-money valution
300k x 6=
€1.8M
-€0.5M
debt=
€1.3M
+1M inv.=
€2.3M
1M / 2.3M
= 43%

24. • Lack of ambition
• Founders not dedicated
• Not enough skin in the game, too much
founder dilution
• Not open to feedback
• Tech solution looking for a problem
• ‘We have no competition’
• Bad unit economics
• Not sharing all information
• Inconsistent financial model
• Too much money raised too early
• Messed up captable
• Non-standard terms
Red flags for investors

25. Finding Investors

26. Where to find investors
• Your network: Linkedin, university alumni, former colleagues, other entrepreneurs
• Startup events: tech conferences, startup challenges, pitch events, demo days,
investor speeddating/.matchmaking events
• Startup support services:Techleap, university entrepreneurship support, regional
economic development organizations, chamber of commerce, financing & subsidy
advisors
• Industry associations: Nederlandse Vereniging van Participatiemaatschappijen
(NVP), Business Angel Netwerken NL, Dutch Startup Association
• Online databases/directories: Crunchbase, Dealroom.co, Index.co, nlfunding.co
• Online matching platforms: Angellist, FundsUp, AngelInvestmentNetwork,
VentureCapital.nl, StartupRoulette.nl
• Crowdfunding platforms: Leapfunder, OnePlanetCrowd, Seedrs, Symbid

27. DutchVenture Capital funds
(source: peak.capital/nltechvcmap)

28. When/how to approach investors
Research investors
• Right scope, right stage, right ticket size?
• Similar investments?
• What can they bring?
• Which person(s) do you want to work with?
Reach out >6 months before zero-date
• Preferably through personal intro
• Send clear teaser deck with ask
(feedback, intro’s, opportunity to pitch, funding)
• Propose 30 min. video call to start-off conversation
• Gentle reminder mail/call after 2 weeks
Ideally, start building relationships >12 months earlier
• Get connected
• Ask for feedback on scope/criteria/required milestones
• Send regular investor updates to keep them informed

29. The VC Perspective

30. The VC perspective
• Deal overflow: assessing 500+ startup to close 5 investments
• Thesis-driven: targeting investments in emerging high-growth fields, with
specific characteristics
• Founder focus: entrepreneurs should drive growth and have sufficient skin in
the game
• Unicorn focus: each individual investment should have 30x exit potential to
generate fund return, compensating 10x for all unsuccessful investments AND
3x to generate sufficient return for the fund’s investors
• Risk averse: taking time to get more information/validation; external urgency
needed (e.g. FOMO)
• Syndication: investing alongside existing and other new investors for
additional validation, value-add and shared risk
• Horizon: all companies should be exited when fund ends 8-10 years after start

31. Wrapping up

32. Best practices
1. Find personal intro’s to investors through your network or via other investors or
entrepreneurs
2. Research investors: point out why the approached investor is a good match
3. Build up relationships with investors early; e.g. send regular updates, meet-up at events,
also when you’re not fundraising
4. Use a CRM/sales tool for your fundraising process to keep track of contacts & progress
5. Get at the table: use simple decks and quick demo’s to get at the table and make the
personal connection; in the end investors invest in you
6. Maintain data room: set-up a dataroom right from the start of your company, and keep it
up-to-date, always ready to be opened (in parts) for interested investors
7. Prepare terms: Prepare a VC-type term sheet yourself to reduce workload for investors
(and gain some control over the terms J), see also templates at capitalwaters.nl
8. Create urgency: use planning and FOMO to create external urgency for investors
9. Do Investor Due Diligence: ask investors for founder references, also of failed cases
10. Stack funding: combine different sources of money, for validation, less dilution, more value
add: angels + crowdfunding + VC’s + grants + innovation loan + venture debt

33. Q&A

34. Thank you and
success with your enterprises!
© 2020 River Venture Partners BV
herman@rivervp.com| @kienhuis
rivervp.com | Singel 542, Amsterdam