raising startup capital - fundraising as a process general assembly sf oct 4 2012

Nathan Beckord @startupventuresGeneral Assembly San FranciscoOctober 4, 2012

Raising Startup CapitalSession 3- The Fundraising Process

GENERAL ASSEMBLYOctober 4, 2012

Raising Startup Capital -- Fundraising ProcessNathan Beckord @startupventures2

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Hi. My name is...Nathan Beckord, CFA. Principal, www.VentureArchetypes.com

• My Job: Startup CFO, Advisor, and BD Guy

• 100+ Startup clients over the past eight years• E.g. Kickstarter, Clicker, Autonet, Zerply, GetHired, etc.

• Clients have raised over $98 million in seed capital and achieved 5 exits• Example: I ran financial modeling for Clicker.com, which raised 2 rounds of VC

and sold for $100m in 3 years.

• Previously: Technology ValuaYon | Investment Banking | Venture Capital

• Chartered Financial Analyst (CFA) and MBA



Do you really want to raise $$?

+ Plus + -‐ Minus -‐ •Fuel for Growth•Credibility•Hiring Boost•Advice, Network•Extended Runway•PR / PosiYve Signaling•Rainy Day Fund

•DiluYon•Misalignment of Goals•ReporYng DuYes / “Boss”•Exit ObligaYon•ProtecYve Provisions•Loss of Control•Founders Get Fired

Reality Check: less than 5% of companies successfully raise capital



Are you sure you want VC?

Idea Business Plan

Prototype Beta

Sales Profitability

Decreasing Risk

$ 1M

$ 50M

$ 100M

Dec

reas

ing

Ret

urn

Venture Capital Banks

Angels FFF Gov’t

IPO Strategic Partners



Funding Process

Let’s talk about the...



But first, how NOT to do itThis pretty much sums up what most do (wrong)...

Instead: treat the fundraising game as what it really is:

SALES 101: Lead-Gen, Qualification, and Closing

Itʼs very important to target the right investorsFinding (and qualifying) the right investors takes a tremendous amount of workThis is your job, not your advisors, friend, etc.



Sales process snapshotGenerate initial, broad database of potential investors

Screen by geography, stage, sector focus; Filter out those with direct competitors

Select appropriate partner or contact person within firm

Generate target list

Filter by best matches; seek “warm” introductions

Initiate investor outreach Arrange pitch meetings Present business plan

Follow-on meetings Due diligence Term sheets

Execute share purchase

agreement

YOUR JOB is to herd investors from the top of

the funnel (Leads) to the Close (Shares Sold)

Sales 101



Step 1: Pick a leader

Who’s the designated driver?

CEO CFO VP BD

is oden the “sales guy/gal” in early startups = skillset

match

as “finance guy” this fits job role; but few startups

have a CFO

is oden the ‘startup hustler’

and skillset crosses both categories

Supporting team: CTO / VP engineering.

Many engineers are now hustlers too.

Sales 101



Step 2: Build funnelFOCUS here on adding names to the top of the funnel...aim for 100 minimum

Sources for Leads: •Browsing Angel List•Friends / colleagues•PEHub, VentureWire•Conference speakers•TechCrunch arYcles•Cross-‐referencing funded deals on Crunchbase•Quora, CapLinked, etc.

Start to look, and you’ll start to “see” relevant investors everywhere...

We will filter down to 30 -‐ 50 later

UlYmately ending in 2-‐4 term sheets

Naval Ravikant sent me this tip for using AngelList: "Here's a killer feature for building a target list: http://angel.co/people. Choose stage, market, location. Sort by paths. It'll create a personalized list of investors for you to approach, sorted by how easy it is for you to get to them."

Sales 101



Step 3: Create tracking systemVC firm Investor Email Last contact Current status

To-Dos / Task List

Task Owner

Alerts / Due by Ref'd By

STRONG INTEREST

August Capital David Hornik [email protected]

June 16, 2006 - Reviewed presentation and provided positive feedback. Wants to be kept up-to-date. Send revised deck Ben 21-Sep Todd

Bay Partners Salil Deshpande, Entrepreneur-in-Residence [email protected]

July 21, 2006 - Email introduction to Blueprint Ventures.

Interested in further engagement with other partners at Bay; Referred to Blueprint Ventures.

Ping him next week to sched mtg Jake Todd

Blueprint Ventures

Richard Yen, Principal/David Frankel, Managing Director/George Hoyem, Managing Director

[email protected]

Aug. 18, 2006 - Meeting to review financials. ????

Intro him to our seed investor Jake 19-Sep Nate

INTERESTED

Cardinal Venture Capital Joyce Chung, General Partner (Founding) [email protected]

Aug. 15, 2006 - Email exchange on meeting to review technology.

Follow up meeting scheduled for Aug. 24 at Kiptronic HQ. Follow up meeting Ben Todd

Crescendo Ventures David Spreng, General Partner/Jason Hable, Associate

[email protected]/[email protected]

July 14, 2006 - Email of financial docs. Currently reviewing financial docs. N/A Todd Nate

Founders Fund Ken Howery, Partner [email protected] Aug. 16, 2006 - Sent intro email based on mutual friend. Waiting for response.

Stalk him outside his apartment Ellen 26-Sep Jim

IDG Ventures Abhijit Pradhu [email protected] July 24, 2006- Email of docs

Plans to review docs and schedule another session; Need to reschedule meeting. N/A Todd Todd

NOT DEAD YET Kayne Anderson Capital Advisors Healy Jones [email protected]

July 24, 2006 - Phone conversation Wants to be kept up-to-date.

Send Google Analytics report Ben Nate

North Bridge Venture Partners Paul Santinelli [email protected] Aug. 2, 2006 - Phone call

Aug. 22, 2006 - Update meeting scheduled Send new deck Jake 21-Sep Todd

Polaris Ventures Simeon Simeonov, General Partner

[email protected]

Aug. 10, 2006 - Phone conversation; Put him in touch with Kiptronic partners. Follow up next week.

Work back channels Ben Todd

NEW LEADS

Shasta Ventures Ravi Mohan/Jason Pressman [email protected]/[email protected] Met him years ago

Revise our Team slide Ellen 21-Sep Nate

Trinity Ventures Jim Tybur [email protected] Met him at Giant's game Ping him next week Jake Todd

(in google docs)

build it in docs.google.com

you can also build it in excel and upload it to google docs

Sales 101



Step 4: Filter down to direct hits

FOCUS here on filtering down to about 30 direct

targets.

Filtering Criteria: •Invested in compeYtors•No dry powder (funds)•Wrong sector focus•Wrong stage•Wrong geo. locaYon•Has bad reputaYon

Diligently cut down the list now for a beBer hit rate later.

For finding out about good / bad reputation, check out Thefunded.com

Also, ask founders of companies theyʼve funded for candid feedback.

Sales 101



Step 5: Organize your posse

Recruit from: •Startup friends•Anorney, accountant•Advisory Board•Professors•Startup ‘connectors’

Tips: •Play to their ego•Make it easy / low risk•Get everyone together for dinner / wine.

Sales 101



Step 6: Degrees of SeparationLinkedIn

Angel List

Really what we’re doing here is mapping our social graph on top of our target list to find the BEST WARM INTRO

Sales 101



Step 7: Polish your pitch & model

+ Angel List Profile Page (angel.co)

Get momentum story in placeBuild really slick, fricYonless pitchBuild Angel List at same Yme you build the deck (but keep stealth for a bit)



Step 7.5: Hacking Angel List

Excerpted from hBp://www.seedstagecapital.com/2011/07/hacking-‐angel-‐list.html

1.Get a lead investor first2.Build mulYple forms of social proof

3.Peacock your profile4.Hollywood soundbite5.Tweak profile + status6.Hustle to be “Trending”7.Create catalyst

Geqng lead takes 80% of the Yme / effort. A name brand lead is even bener.Social proof = Advisors, Board, Referrer, References, Incubator, Anorney. Angels rely on “who you know” as first filter. Get these people to follow, share, status updates, etc. Peacocking = great product slides, tracYon slides, team bios, etc. Soundbite-‐-‐ either X for Y or what you doUse catalyst to close



Step 8: Open ‘er up and let ‘em flyIntros: •Get introduced (v. cold)•Make it easy for your posse to make intros

Pitch:•A/B test your pitch•ConYnually refine it, improve it

Process: •Aim for concentrated ‘blitzkrieg’ approach•Compress meeYngs into short Yme frame

Key here is warm leads, plus conYnually improving pitch (like interviewing) and packing many meeYngs into compressed window, all to get your mojo on. Build momentum for the deal.



Step 8.5: Making it easy

“Hi Nathan, I see you are connected to Lewis at ACME Ventures. I would love it if you could introduce us.

As you know, we launched CatBnB to make life better for the 82m cat owners in the U.S. when they go on vacation. Since launching our closed beta 3 months ago, we have had nearly a million cat owners register, and 75k have already boarded a cat in their home. Weʼve recently introduced our subscription model and to our delight, 15% of our users have upgraded. It now costs us $3 to acquire a new paying customer, each of whom generates an average $12.50 ARPU.

We will soon be looking for funding to scale. I see that Lewis has a background in exotic cat breeding and has just raised a new fund. Iʼd love to show him what weʼre doing.”

“Lewis, Iʼd like to intro you to Scott Shepherd, founder of CatBnB. Scott was the engineer #3 at Facebook and his co-founder, Janet, was a top salesperson at Salesforce.

Iʼve been advising them since inception and they know how to execute; they are (selectively) starting to talk to investors. Take a look at their AngelList profile and their exec sum, attached. I will leave it to you to to connect; let me know what transpires. Best, Nathan”

You write this with the “ask”: ...and have your connector write this:



Step 9: Pitch hard + Go for the close

TIps:

•Expect 3-‐6 meeYngs per VC before geqng a term sheet

•More term sheets = more leverage, faster close

•Follow up frequently

•It can be very hard to get an actual “no”

Live pitch meeting is usually an hour. Goal is always to get to next step in process...always ask what that is at end of meetingThere will be progressively more people / partners in each successive meeting. Be rapid in your responses and follow up. Be ready for DD. If youʼre getting, “weʼd like to see... (traction / more team / deals / a lead ) thatʼs usually a “no”



Fundraising is just the beginning

Notes: •Geqng funded is just the start of what is (usually) a long journey

•Now you have an obligaYon to perform, so...

Go Get ‘Em! and Have Fun!

Cheeky monkey



MVP (minimal viable pitch) What you’re doing & why

Who are you

What’s going on

What you want

✓ Problem✓ Market size & Trends✓ SoluYon / Product✓ Clear & big Vision

More people than ever (78M!) have dogs. They spend $2bln/yr puqng dogs in kennels but it’s expensive & dogs hate it. We are “airbnb for dogs.”

Samir-‐ VP Engr, prev. @Adobe; Samantha-‐ Designer, prev. @Apple, NYU; Stewart-‐ Stanford MBA; Advisors: Steve Blank, Andrew Chen.

✓ Solid Team-‐-‐Hacker, Hustler, Designer✓ Pedigree, Experience✓Peer reference / “social proof”

POC in SF, NY, Atlanta (now); Adding 3k members & 120 boarders / week via events, AKC partnership, select GOOG ads. Avg. booking $55 x 7% = $3.85

✓ Thesis Validated✓ TracYon / Growth✓ MarkeYng Plan ✓ Bus. Model✓ Momentum

$4m Series A @$16m pre to hit 6 more geo. mktsBurning $75k/mo. Cash Flow B/E @ 2k bookings / week (2013). LTV > CAC ($145 vs. $33).

✓ Sensible UOF✓ Strong Future Vision✓ Economics Scale✓ Path to Profitability✓ RealisYc ValuaYon

Message:

each of these could easily be a slide, in 40 point font...add a title, add a clever image or a supporting chart or diagram, and youʼre done. Killer MVP.

To note, I intentionally did not include a competition slide, as that can be a rathole. Make them ask about it, make them bring it up. But def have a thoughtful analysis and appendix slide to answer.



Information progression

Elevator Pitch / Introductory Email Teaser

Investment Opportunity Summary

Investor Presentation and Pitch Book

Business Plan / Offering Memorandum

Due Diligence Documentation

Negotiations / Structuring / Close

Progressive Investor Interest!

Leve

l of I

nfor

mat

iona

l Det

ail!

Timeline and Progression!

this is a little outdated, but conveys the general idea that deeper information is transferred as you progress with series of meetings.

Sales 101

raising startup capital - fundraising as a process general assembly sf oct 4 2012

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sales process snapshot