Brandeis & Babson - Fundraising 101: How to raise a seed round

Entrepreneur & Angel Investor à Hunt Club
14 Jul 2021

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Brandeis & Babson - Fundraising 101: How to raise a seed round

  1. Fundraising 101: How to raise a seed round D AV I D C H A N G @ C H A N G D S
  2. Background as a software guy at a big company
  3. Startup experiences as an accidental entrepreneur
  4. 70 angel investments / seen 1,000s of startups Direct Syndicate/Fund TBD Angels
  5. High potential of student entrepreneurs
  6. Fundraising Basics How to Raise a Round Tips
  7. What obstacles stand in your way?
  8. What’s the business trajectory? Lifestyle or social good Linear growth or revenue fueled High growth, scalable venture
  9. Where to get that first dollar? Revenue Equity Partners Grants Debt
  10. Where to get that first dollar? Revenue Prepaid product Crowdfunding Consulting service Equity Convertible notes SAFE Stock Partners Vendor services in advance Non-recoverable engineering Grants SBIR Pitch competitions Debt SBA loan Bank loan Personal note
  11. Capital sources have tradeoffs Equipment Financing Traditional VC Micro VC Angel Groups AngelList Angels Corporate / Strategic Venture Customers Jobs Bill Portal Crowdfunding Vendors Founder Friends & Family Crowdfunding Grants- Gov & Foundation Venture Debt Bank Loans Personal Loans Private Equity Competitions Accelerators & Contests Impact Angels & VCs Size Cost Source: Jean Hammond & MassChallenge
  12. Raising during a pandemic • Active investors are out there • Active VC List, DocSend • Investors meeting during COVID-19 • Plan for longer runway • Valuations hit 20-30%
  13. Rewards-based Equity Crowdfunding
  14. Venture capital stages Growth Equity Early Stage Angel Friends & Family
  15. How the VC game works Skewed return distribution VCs must swing for the fences
  16. Raising a Round
  17. How Much to Raise • Basic financial model of cost drivers and revenue • Forecast monthly for 2 years • Fundraise rule of thumb: 12-18 months’ cash
  18. Use of Proceeds • Build product • Grow team • Marketing • Customer acquisition • Working capital
  19. Milestones See Team Product Development Market Demand Product / Market Fit Business Model Execution
  20. Fundraising Basics How to Raise a Round Tips
  21. Prep Target Socialize Raise Close Run a 5-step fundraising campaign
  22. Basic Prep ✓ Legal representation ✓ Founders agreements ✓ Financials and budget ✓ Blurb (1 paragraph) / teaser (1 page) ✓ Pitch deck (10 slides)
  23. Hone in on target criteria Stage Location Industry Vertical Investment Thesis Business Model Social / Trust Filter
  24. Tools to build the pipeline
  25. University Focused Corporate VC Local Investors Angel Groups Seed Stage Growth Stage Early Stage VC Tech VC Healthcare, Biotech, Energy
  26. Socialize • Prioritize sequence • Find strongest connections to 30+ targets • Tactics: lead gen, cold calling, warm intros • Network over 2-3 months
  27. Don’t ask for money! Improves hit rate Creates data points Doesn’t start the clock “Who else should I talk to?” “I’m not ready to raise” “Who would be helpful?”
  28. Refine pitch • Incorporate feedback • Double down on consistent themes • Avoid whiplash changes
  29. Go for it! Create FOMO • Approach your top candidates at the same time • Decide whether to tell investors about each other • Land anchor investor as the first domino • Use triggering events to get or improve term sheets “I’m closing a round”
  30. Structure Equity Debt
  31. Structure • Preferences over common • Board seat or 2 • Option pool • Liquidation preference • Control over sale, new options • Debt that becomes preferred equity when you raise it • No valuation, but the “cap” is a ceiling • Interest accrues, rate <10% • Conversion discount Equity Preferred Stock Debt Convertible Notes, SAFEs
  32. Close the deal • Rolling close vs. set close • Not done until money is in the bank Key terms ❑ Board composition ❑ Option pool ❑ Voting rights ❑ Founder vesting ❑ Change of control ❑ Redemption rights ❑ Information rights ❑ Anti-dilution
  33. Seed A B $15 $6 $1 $30 $12 $5 Valuation & Dilution ? Dilution: what’s your end stake? Valuation ($M) ?
  34. Valuation & Dilution 37% See See Raise $1M on $5M pre 34% Raise $1.5M on $5M pre 33% Raise $1M on $3M pre Dilution: what’s your end stake? Valuation ($M) Seed A B $15 $6 $1 $30 $12 $5
  35. How long does it take? • Longer than you expect • 3-6 months • Speed limited by access to investors • Your ability to find them • Calendar availability (surprisingly hard) How soon to start, how long it takes, general timeline you can expect, how to reduce time between the initial outreach and closing a deal?
  36. Choose your investors carefully What characteristics to look for in a venture partner? How find someone who is properly aligned with your business? Board dynamics with the venture partner, what to expect, what to protect against, how to go about that board relationship?
  37. Fundraising Basics How to Raise a Round Tips
  38. Founders Tips
  39. Ideas alone are worthless
  40. Don’t go solo
  41. Find the right co-founders
  42. Function Size Location Industry Recruit team based on today’s fit
  43. Engineer Product Management Marketing Investor Corporate Development Business Development Make yourself obsolete
  44. Start or join a company
  45. Execution Tips
  46. Value builds in steps Team Product Development Market Demand Product / Market Fit Business Model Execution
  47. Focus your experiments
  48. 1.10^ 12 = 3.1 1.01^ 365 = 37.8 Shorten iteration cycles for big payoffs
  49. Focus vs. Pivot
  50. Stay true to the guiding north star
  51. Pitch Tips
  52. Anchor your summit & basecamp
  53. Know your audience
  54. Adjust for style
  55. Don’t share everything at once • 1 Sentence • 1 Paragraph • 1 Page • 1 Light Deck • 1 Follow-up Deck
  56. Articulate in 90 seconds Why you’re the right team Know numbers and business model cold 3 Key Tips from Kevin O’Leary
  57. 10 slides 20 minutes 30 point font Guy Kawasaki’s Rules-of-Thumb
  60. Typical Parts Overview Problem Solution Market Opportunity Go-to-Market Traction Revenue & Business Model Team Competition Differentiators Financials Ask & Use of Proceeds
  64. Resources • Legal • Goodwin Procter • Foley & Lardner • Pierce Atwood • Techstars • • General • •
  65. Fundraising 101: How to raise a seed round Q&A D AV I D C H A N G @ C H A N G D S