harvard law entrepreneurship project (hlep) - fundraising 101
TRANSCRIPT
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Harvard Law Entrepreneurship Project
Lunch Talk: Fundraising 101
Nov 11, 2016
David Chang
@changds
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MyJourney
Fundraising Basics
How to Raise a Round
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$80
$4
$42
$7$17
$110
$210
$270
$1
$135
Funding Exit
My Startups – Venture Returns
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Direct Via Syndicate/Fund
My Angel Investments
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Now
Building
Investing
Connecting
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Fundraising Basics
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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 Personal raise – loan, add folks to cap table
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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InvestorsSeed
EarlyGrowth
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Venture Capital Dynamics
•Skewed return distribution
•VCs must swing for the fencesSource: @DawnUmlah
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Amount to RaiseHow much funding do you need?
•Basic financial model 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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How to Raise a Round
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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• www.soulmix.com/remix/619
• Legal• Foley & Lardner https://www.foley.com• Goodwin Proctor www.foundersworkbench.com• Techstars www.techstars.com/docs• www.seriesseed.com
• General• www.jddavids.com• www.robkornblum.com
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Q&A
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Pitch Tips
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Share Your Summit & Basecamp
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Leverage Your Natural Presentation Style
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Adjust for Your Audience
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No Blind Spots
PricingCustomer
Collaborators
Funding
Promotion
Product / Service
Context
Place
Company
Concept
Competition
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Pitch Materials for Each Level
•1 Sentence•1 Paragraph•1 Page•1 Light Deck•1 Follow-up Deck
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Function
Size
Know YourselfLocation
Industry
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Start or Join a Company
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People Bonds > Company Bonds
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Find the Right Co-founders
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Choose Investors Carefully
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Amplify Your Network
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Doing Business in Boston
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http://bostontechguide.com
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Local Pillar Tech Companies
http://bostontechguide.com
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Big Tech Companies with Local Presence
http://bostontechguide.com
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Industry Clusters of Expertise
Marketing Tech e-commerce Cybersecurity Cloud
Travel Mobile Ed Tech Robotics
Life Sciences Health IT Energy
http://www.slideshare.net/bussgang/boston-startup-scene-fall-2015
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Accelerators / Incubators
Co-working
Corporate University Independent
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Development Shops
http://bostontechguide.com
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University Resources
http://bostontechguide.com
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Events & Networking
http://bostontechguide.com
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www.greenhornconnect.com/events/
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Media
http://bostontechguide.com
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Community Groups & Trade Organizations
http://bostontechguide.com
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@changds @scottbaileyBTV
www.AdClubBrandathon.com
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Talent
EcosystemCapital