vc fund raising & pitch deck outline

The Rudder Group

Venture Capital Fundraising

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The Rudder Group

Growth Strategies & Mentor Capital

www.theruddergroup.com

To Raise Venture Capital or Not

There are many businesses that are capable of becoming very large ($50-100+ million revenue) businesses. These businesses need cash to grow. In the right circumstances and in the right amounts, venture capital is the best way to scale the business. But raising venture capital is like adding rocket fuel to a business and for many early-stage companies it is not warranted and simply dilutes the founder’s/start-up team’s return significantly. There are a few rules-of-thumb that are recommended for most early-stage technology companies:

1. Raise a small round of capital – usually from angels or from the three F’s (friends, family & fools): $100-200k

2. Use the small round to get a product built, sign up pilot customers and get the initial team in place

3. Raise a round of angel money / seed capital: $250k-$750k

4. Keep burn rate really low for the first year. The goal is to prove to the investors and the start-up team that the business is scalable

5. Assess the situation in 1 year. Many businesses will find that within 15 months into operations they will know whether they can carve out a meaningful position in the market to build a small company.

6. VC Route - If the company has established itself and believes it can be a really big business ($50-100+ million in sales) then it is time to start thinking seriously about VC.

7. Angel Route – If the companies is in the more likely situation where the view is to grow the business from $1 million this year to $3 million within 3 years and maybe $8 million within 5 years, then VC may not be the best option. Generally, VCs aren’t looking for companies that are doing $15 million in sales in 8 years from their initial investment. This scenario will not interest most VCs. If this is the case, a combination of bank debt, venture debt, small equity raise ($1-2 million) from high net-worth individuals may be the more suitable option.

VCs want big outcomes. VCs want business to scale quickly and reach huge levels of revenue. This may be at odds with the economic interests or capabilities of the early-stage company. Many companies that try to grow too quickly and don’t gain quick

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adoption are left with an un-financeable company that will go bankrupt, sold in a fire sale, and/or require a bridge loan with unfavorable terms.

Preserve your options. If it is determined that raising capital through a venture capitalist is the best option, raise a small amount initially. If an early-stage company raises $2 million from a VC and then determines that the market won’t be as big as expected or suddenly a “Google-like” company decided to compete (making it harder to become the 800 pound gorilla), it will be easier to have a satisfactory outcome while still retaining value for the founder/start-up team. The smaller amount may enable the company to run for 3-4 years and find a way for a “Microsoft-like” company to buy it for $12 million to compete with the “Google-like” company. If the company raised more, like $5 million, it is unlikely that the VCs would settle for this outcome and would likely push the company for a much bigger outcome.

Once the business is really “taking off” the company can raise a larger round to accelerate the growth.

How To Approach A VC

Most VC firms receive thousands of business plans every year. It is for this reason that submitting a business plan through the VCs website is not an effective manner of gaining the attention of the VC. Most companies that are successful in their fundraising efforts had a warm introduction to a VC.

Early-Stage Consultants and Corporate Lawyers. VC’s deal with consultants and corporate lawyers all the time. They are often a good source of early-stage deal flow for VCs. The consultant should know who are the best VC firms; who is investing money; who is getting deals done; who is active on boards…

Start-Up Focused Recruiters. The best recruiters know the VCs.

Portfolio Companies. A warm introduction from a portfolio company is a great source of leads for VCs. Reach out to CEOs or Co-founders of portfolio companies. VCs list who their portfolio companies are so it is easy to figure out a few CEOs who know the VCs. Ask the CEO for a small amount of their time to learn a bit more about their experiences in fundraising. If all goes well, the CEO of the portfolio company may be willing to introduce the company to their VC.

Entrepreneurs. Another source of information comes from networking with other entrepreneurs who have recently completed a round of funding. They will


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provide information about the VCs and their experiences pitching them.

VC Funding Season

Experience has shown that there are black-out days in venture capital. It is difficult to raise venture capital between November 15th – January 7th. It is also more difficult to raise VC from July 15th – September 7th.

It’s true that some VCs will work a few days of Thanksgiving week and many will work the first 2 weeks of December, but it is difficult to get enough of the partners to be present at a full partners meeting during this time. Because many VCs know this, they are reluctant to even start the process with perspective portfolio companies.

The same thing happens in the middle of July. Many VC partners take 2-3 weeks off in August. Organizing full partner meetings proves difficult. Angels or small VCs (2-3 partners) tend to have less scheduling conflicts.

The VC process is almost universal in how it works across firms. You meet an initial person from a firm – an associate, a principal or a partner. If it’s an associate or principal, the company will most likely meet a single partner before coming into a full partner meeting where (by definition) all of the partners will be in attendance. Full partner meetings are usually held on Mondays.

Companies who are raising money from US venture capitalist are encouraged to focus on the following time periods to start the process:

January 6 – May 15th (green zone)

May 16th – June 30th (yellow zone)

July 1st – September 7th (red zone)

September 8th – October 15th (green zone)

October 16th – October 31st (yellow zone)

November 1st – January 7th (red zone)

NOTE: In Europe the funding season is longer into November but shorter in the summer.

VC Pitch Deck

The VC Pitch Deck should be crisp and complete, thorough enough that it conveys the


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big vision and current traction. Some VCs require the deck to follow a certain format and if so, they will generally indicate it on their websites. The presentation should be kept to 10-15 slides and expect that the deck will be shared with others for input/approval. That forces you, the writer, to be clear, specific and concise without relying on “I’ll talk to it”. The following outline has successfully been used to raise funds for numerous early-stage technology companies.

1. Cover Slide - Company Logo & Opening – When giving the pitch you will want to expand on the company tagline, if you have one, so that everyone you’re pitching to will have a general sense of what you do before going to the next slide.

2. Business Overview – Here you should state what unique benefit you provide to what set of customers to address what particular need? Here you need to address what problem are you solving? Then you can add three or four additional dot points to clarify your target markets, your unique technology/solution, and your status (current customers total, revenue rate, pipeline).

3. Team – Add in logos of the companies your team has worked for. They don’t need to be specific to any one person, but put them in a collage at the bottom. You want to convey that your team has experience. Key objective: Investors should be confident that there is a good credible core group of talent that believe in the company and can execute the next set of milestones. One of those milestones may be filling out the team, and so it is important to convey that the initial team knows how to attract great talent, as well as having great domain skills. If there is a gap in the team, address it explicitly, before investors have to ask about it.

4. Market Opportunity – The opportunity needs to be a “Bottom Up” analysis. Who will use the product? What is your target market? Then build up from there. How many of them are there? In what countries? How big can it be? Then you need to address “Why Now?”; why is it right for today/tomorrow? You need to make it clear that there is a big, important problem (current or emerging) that you are going to solve, or opportunity you are going to exploit, and that you understand the market dynamics surrounding the opportunity—why does this situation exist and persist, and why is it only now that it can be addressed? Show that you really understand the very particular market segment you are targeting, and frame your market analysis according to the specific problem and solution you are laying out.


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5. Product/Solution – Clearly state the name of the product/solution and use common terms to state concretely what you have, or what you do, that solves the problem you’ve identified. You might need an extra slide to show how your solution fits in the value chain or ecosystem of your target market. Do you complement commonly used technologies, or do you displace them? Do you change the way certain business processes get executed, or do you just do them the same way, but faster, better and cheaper? Do you disrupt the current value chain, or do you fit into established channels? Who exactly is the buyer, and is that person different than the user?

6. Business Model - How do you make money? What is your “Go To Market” Strategy? How will you reach customers? What channels or verticals? What traction do you have and how will you build momentum? Typically there are the only 3 things that a purchaser cares about: it makes them money, saves them money or lowers risk.

7. Strategic Relationships - The single most compelling slide in any pitch is a pipeline of customers and strategic partners that have already expressed some interest in your solution. Too often this slide is, instead, a bland laundry list of standard sales and marketing tactics. You should focus on articulating the non-obvious, potentially disruptive elements of your strategy. Even better, frame your comments in terms of the critical hurdles you need to get over and how you are going to jump them. If you don’t have a pipeline, and there is nothing unique or innovative about your strategy, then drop this slide and make the elements of your sales model clear in the discussion of your business model.

8. Competition – You HAVE to have this slide. Investors will want to know about them and they need to know you know about them. You may be good, but are you really better than everyone else? You don’t need to talk about your competitors and their deficiencies here. You need to convince the investor that lots of folks will buy your product, even though they have several alternatives. And don’t forget that the toughest competitor is often the status quo—most prospective customers can muddle on without buying your solution or your competitor’s solution. The best way to convince an investor that you really do have a better product is to have referenceable customers or prospects articulate in their own words why they bought or will buy your offering over the alternatives.

9. Barriers to Entry – What keeps others out? How defensible is your position? This is where you can talk about your IP but be careful. Just because you have a patent doesn’t mean you can defend it. Your barriers to entry are usually some combination of proprietary technology, unique team domain


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expertise, and unique partnership. Highlight your elements that give you unique potential for leverage and scale as you grow.

10. Financial Overview – Keep this simple and high level with a top line 3-5 year projection. You don’t even have to put in the years just label them as Year 1 , Year 2, etc., post-funding. You should show the two or three key metrics that drive revenues, expenses and growth (such as customers, unit sales, new products, expansion sales, new markets), as well as the revenue, expense, and profit. Identify when you expect to breakeven and when you expect to be profitable, if it’s in that time frame. Identify the investment made to date, especially your own investment. Investors want to know if the founder & management have put their own money into the company. The most important thing to convey on this slide is that you really understand the economics and evolution of a growing, dynamic company, and that your vision is grounded in an understanding of practical reality. Your financials should tell your story in numbers as clearly as you are telling your story in words. Investors are not focused on the precision of your numbers; they’re focused on the coherence and integrity of your thought process.

11. Capital Request/Use of Proceeds –This is the “Ask”. Why do you want to raise capital? What will you do with it? On this slide you should outline how you plan to take in funding—how big each round will be, and the timing of each—and map the funding against your key near-term and medium-term milestones. You should also include your key achievements to date. These milestones should tie to the key metrics in your financial projections, and they should provide a clear, crisp picture of your product introduction and market expansion roadmap. In essence, this is your operating plan for the funds you are raising. Do not spend time presenting a "use of funds" table. Investors want to see measures of accomplishment, not measures of activity. And they want to know that you are asking for the right amount of money to get the company to a meaningful milestone.

12. Summary Slide – This is where you put your contact information and summarize your pitch. But this slide is almost always wasted. Most entrepreneurs just put up three or four dot points about how wonderful their investment opportunity is. Generally the words are the same words that investors hear from scores of other entrepreneurs, such as, “We have a huge opportunity, and we will be the winners!” Your key objective on this slide is to solidify the core value proposition of your company in words that are memorable and unique to your company. If a potential investor looking at your deck has to give a short description of your company to his partners, these are the words you want used. This is a good place to reinforce your tagline, or mantra—the short phrase that captures the essence


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of your message to investors. The best solution to creating your summary slide is to imagine that this is the only slide you will ever be able to present. If you had to do your whole pitch in one slide (with 30 point font), this is that slide.

The Rudder Group Services For Raising Capital

The Rudder Group has a network of proven partners that are dedicated to helping early-stage companies navigate the myriad of issues that they face while raising capital. The Rudder Group’s seasoned network of highly trained professionals includes marketing and financial consultants, investment bankers, graphic artist, expert business writers and successful entrepreneurs.


vc fund raising & pitch deck outline

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