Overview of Startup Fundraising

Introduction to Fundraising When, Why & Who to Raise (and not raise) Money From Roy Rodenstein Global Innovation Labs Moscow State University, 6/4/2011

Who can be a successful entrepreneur? I believe anyone can… if they want it enough and get the right support

Even Чебурашка и Гена

User-Generated Local Events Content + Ticketing (originally HeyLetsGo) My Entrepreneurial Journey 2005 2006 2007 2008 2009 Co-found Going.com Rejected by YC Quit Day Job $500k Seed $3M Series A Additional Funding Acquired

Companies Mentor Investor/Advisor UX researcher early employee acquired by co-founder acquired by About Me @royrod how2startup.com

5 Key Fundraising Topics Deciding Who to Raise From How Much to Raise Contacting Investors The Pitch Negotiating Valuation

Deciding Who to Raise From Bootstrap aka yourself / co-founders Friends & Family Incubators / Seed Funds Angels Individuals, Groups VC

Deciding Who to Raise From Higher chance of making $5M (~1%) Higher chance of making $0.00 (>50 %) Bootstrap aka yourself / co-founders Friends & Family Incubators / Seed Funds Angels Individuals, Groups VC

Fundraising Decoder Ring Source Bootstrap aka yourself / co-founders Friends & Family Incubators / Seed Funds Angels Individuals, Groups VC Stage Idea Idea / Prototype Idea / Prototype Idea / Prototype “ Traction” Amount $5k - 200k+ $5k - $20k+ $50k - $1M+ $500k - $10M+ Form Debt, Convertible Debt Convertible Debt, Equity Equity Convertible Debt, Equity Equity Dilution 0% 5-10% 5-10% 5-20% 20-70% Time Days Weeks Weeks Weeks - Months Months Cost $0 - $1k $500 - $5k $500 - $5k $2k - $10k $10k - $50k+ Exit Any Any $5M+ $5M+ $20M+

Source: Bootstrap Pros No dilution Simple, cheap, quick Cons It’s not OPM (Other People’s Money) Morale impact if funds run low Bottom Line Good to get some personal involvement But don’t overdo it- fundraising is better than giving up

Source: Friends & Family Pros Low dilution Simple, cheap, quick Feels great if make them money! Cons Feels horrible if lose their money! Can complicate later rounds “ Only money” / no further help Bottom Line Keep terms very basic, no board seats, no blocking rights... Make sure it’s money they can afford to lose

Source: Incubators / Seed Funds Pros Moderate dilution Help with Legal, IT, PR, etc. Mentors & peers Leg up on fundraising Cons $12k is not a lot of money Usually have to move temporarily Bottom Line Great for first-timers Post-program support differs, YMMV Dilution is dilution

Source: Angels Pros Good middle ground, if pick right ones Serious money w/o board seat Manageable dilution e.g. convertible debt Long-term morale, PR, etc. benefits Cons Their money == wrong angel is trouble Can require herding cats Bottom Line Right angel can be hugely valuable Beware of getting bogged down Best or worst of both worlds West: Ron Conway, Dave McClure… East: Dharmesh Shah, John Landry… Groups: Founder Collective, eCoast, Founders Fund…

There is No Going Back From VC So just be very sure 

Source: VC Pros Real money for scale, can pay yourself Right VCs have strategic relationship Cons Closing VC round s is major time sink Board management is major time sink Major dilution == big exit needed Can come with strings e.g. CEO/team Bottom Line Commitment level == getting engaged Complex deal terms, have to know which to fight for Key for building a big company, from FB to Xobni

VC Fundraising Myth-Bustin’ Myth: Higher Valuation is Always Better You can price yourself out of future rounds “ Down” rounds (valuation falls) are really, really painful Myth: Angel First, Then VC Reduces Dilution Reality is Angel and VC valuations are not that different Is $200k for 10% dilution better than $1M for 25% dilution? Is 10% dilution and then 50% dilution better than 50% dilution? Myth: Control is About Board Votes and % Ownership Good VCs will never force founders to do something In reality, nothing ever comes down to a “vote” “ 50% ownership” is a red herring, VC controls are really about dilution and sale blocking rights Myth: I Shouldn’t Talk to VCs Until I Need $1M Yes, you should have your story together before talking to VCs But much of “traction” == “I’ve been talking with them for a few months and see growth”

How Much to Raise Make a financial model add all expenses you can think of This is for you , not for investors Make it realistic. Make it pessimistic. Then double it. make an Expected Case, and a Worst Case You want 12-18 months of cash Fundraising is a big distraction, don’t do it too often And you need to start 3-6 months early Внимание: You will get what you ask for!

Contacting Investors Research the right investors Who is interested in your space? Who understands your space? Crunchbase, VC websites’ partner profiles Find an introduction Top investors get bombarded with pitches Someone recommending you makes a difference Or else just do it But, investors want to hear of good startups So you can also just contact them… but do it well!

The Pitch examples from bit.ly/fwgoA0 What problem are you addressing? (“is this compelling?”) How do you solve it? (“can you really fix this?”) Why are you the ones to solve it? (“who are you?”) Why is this a big problem? (“why should I care?”) How will you make money? (“do I believe you?”) How much money will you make? (“is it enough?”) How much money are you raising? (“what’s the deal?”) Who else is going after this opportunity? (“are you special?”) What are your milestones? (“are you meeting a plan?”)

What problem are you addressing?

Why are you the ones to solve it?

Negotiating Valuation Guidelines Angel deals: $700k - $5m+ VC deals: $2m - $10m+ It’s All About Traction Is your team solid? Is your product built? Is anyone buying it? Are they paying enough? But anything helps: press, partnerships, innovation

Q&A Time! Advanced Topics Convertible rounds: discounts, caps, warrants Valuation Fostering deal competition Deal terms e.g. pro-rata (& super), anti-dilution, etc. Inside rounds, follow-on rounds, leading a round etc. Managing the lawyers Managing the board Term sheets: comparing, exploding Compensation across funding stages Pitch decks Financial modeling Business plans (do plan, don’t do a 50-page document) VC seed rounds Signaling VC fund size, fund life stages, LPs, etc.

Further Resources VC & Angel Directories AngelList: http://angel.co Crunchbase: http://crunchbase.com Relevant Blogs VentureHacks: http://www.venturehacks.com Mark Suster: http://www.bothsidesofthetable.com Brad Feld: http://www.feld.com Chris Dixon: http://cdixon.org Fred Wilson: http://www.avc.com Paul Graham: http://www.paulgraham.com/articles.html Documents YC Series AA Funding Docs: http://ycombinator.com/seriesaa.html AVC Seed Docs: http://avc.com/a_vc/2010/03/standardized-venture-funding-docs.html Wilson Sonsini Term Sheet Generator: https://dealbuilder.wsgr.com

Overview of Startup Fundraising

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Overview of Startup Fundraising