harvard business school field x
TRANSCRIPT
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Fundraising 101:How to land your seed round
David Chang
Harvard Business School, Entrepreneur-in-Residence
@changds
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MyJourney
Raising a Seed Round
Lessons Learned
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$80
$4
$42
$7$17
$110
$210
$270
$1
$135
Funding Exit
Venture Returns
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Direct Via Syndicate/Fund
My Angel Investments
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Raising a Seed Round
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What Obstacles Stand in Your Way?
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Capital Sources
You hear a lot about…
• Venture Capital• Angel Groups
• Crowdfunding• Friends and Family• Customers• Accelerators
• Competitions
Not much about…
• SBA Loans and Personal Debt
• Grants• Corporate Venture• Vendors or
Equipment Finance• Bootstrapping
(creatively)
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Growth trajectory of your business?
Lifestyle business –no plans for big hiring
Personal raise –loans
Growth oriented business
Crowdfunding and personal raise
High growth scalable business Venture capital
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Venture Capital Stages
Friends and
Family
Angel
Early Stage
Growth Equity
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Venture Capital Dynamics
• Skewed return distribution
• VCs must swing for the fences
Source: @DawnUmlah
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Amount to RaiseHow much funding do you need?
• Basic financial modeling of cost drivers and revenue streams
• Forecast monthly for 18 months
• Fundraise rule of thumb: 12-18 months’ cash
How Much
For What
To Prove
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Use of ProceedsWhat will you use the money for?
• Build out the product
• Grow the team
•Marketing
• Customer acquisition
•Working capital
How Much
For What
To Prove
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MilestonesWhat will be proven that de-risks the business?
• Product development
•Market demand
• Product / market fit
• Business model
• Execution
How Much
For What
To Prove
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Fundraising Campaign
Prep Target Socialize Raise Close
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Basic Prepü Legal representation
ü Founders agreements
ü Financials and budget
ü Teaser (1 page)
ü Pitch deck (10 pages)
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Target List of Investors
Stage Location Industry Vertical
Business Model
Investment Thesis
Social / Trust Filter
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Socialize
• Get warm intros• Find strongest mutual connections to 30+ potential investors• Network over 2-3 months
• Ask for referrals, not money
• Refine pitch• Incorporate feedback, but avoid whiplash changes
“I’m not ready to raise”
“Who would be helpful?”
“Who else should I talk to?”
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Raise: Go for the Ask
• Talk to your top candidates at the same time• Run conversations in parallel• Decide whether / when to tell investors about each other
• Create urgency• Anchor investor acts as the first domino• “Triggering events” to get a (or better) term sheet
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Closing the Deal
• Rolling close vs. set close
• Reference check investors
• Not done until money is in the bank
Key termsq Board compositionq Option poolq Voting rightsq Founder vestingq Change of controlq Redemption rightsq Information rightsq Anti-dilution
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Structure
Preferred Stock
• Preferences over common
• Board seat or 2
• Option pool
• Liquidation preference- they get their $ first
• Control over sale, new options
Convertible Debt
• Debt that becomes preferred equity when you raise it
• No valuation, but the “cap” is a valuation ceiling
• Interest accrues, rate <10%
• Conversion discount
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Negotiating Valuation
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Valuation & Dilution
? $12
$30 $6
$15
Seed A B
Valuation ($M) Dilution: what’s your end stake?
$1M raise $6M raise $15M raise
?
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Valuation & Dilution
? $12
$30 $6
$15
Seed A B
Valuation ($M) Dilution: what’s your end stake?
$1M raise $6M raise $15M raise
37%
See www.ownyourventure.com
Raise $1M on $5M pre
33% Raise $1M on $3M pre
34% Raise $1.5M on $5M pre
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How Long Does it Take?
• Longer than you expect• 3-6 months
• Speed limited by access to investors• Your ability to find them• Their calendar availability (surprisingly hard)• Bigger raises = more diligence (up to 30 days)
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Resources• Pitch
• www.pitchenvy.com• www.bestpitchdecks.com• Guy Kawasaki: 10 slides / 20 minutes / 30 point font• NextView www.nextviewventures.com/blog/free-startup-pitch-decks-template/• www.mjskok.com/resource/getting-behind-perfect-pitch
• Legal• Foley & Lardner https://www.foley.com• Goodwin Proctor www.foundersworkbench.com• Techstars www.techstars.com/docs• www.seriesseed.com
• General• www.soulmix.com/remix/619• www.robkornblum.com