Harvard Business School FIELD X
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Fundraising 101: How to land your seed round
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Harvard Business School FIELD X
- 1. Fundraising 101: How to land your seed round David Chang Harvard Business School, Entrepreneur-in-Residence @changds
- 9. Direct Via Syndicate/Fund My Angel Investments
- 11. What Obstacles Stand in Your Way?
- 12. 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)
- 13. Growth trajectory of your business? Lifestyle business – no plans for big hiring Personal raise – loans Growth oriented business Crowdfunding and personal raise High growth scalable business Venture capital
- 15. Venture Capital Dynamics • Skewed return distribution • VCs must swing for the fences Source: @DawnUmlah
- 16. Amount to Raise How much funding do you need? • Basic financial modeling 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
- 17. Use of Proceeds What will you use the money for? • Build out the product • Grow the team • Marketing • Customer acquisition • Working capital How Much For What To Prove
- 18. Milestones What will be proven that de-risks the business? • Product development • Market demand • Product / market fit • Business model • Execution How Much For What To Prove
- 19. Fundraising Campaign Prep Target Socialize Raise Close
- 20. Basic Prep ü Legal representation ü Founders agreements ü Financials and budget ü Teaser (1 page) ü Pitch deck (10 pages)
- 21. Target List of Investors Stage Location Industry Vertical Business Model Investment Thesis Social / Trust Filter
- 22. 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?”
- 23. 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
- 24. Closing the Deal • Rolling close vs. set close • Reference check investors • Not done until money is in the bank Key terms q Board composition q Option pool q Voting rights q Founder vesting q Change of control q Redemption rights q Information rights q Anti-dilution
- 25. 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
- 27. Valuation & Dilution ? $12 $30$6 $15 Seed A B Valuation ($M) Dilution: what’s your end stake? $1M raise $6M raise $15M raise ?
- 28. 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
- 29. 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)
- 30. 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 • Legal • Foley & Lardner https://www.foley.com • Goodwin Proctor www.foundersworkbench.com • Techstars www.techstars.com/docs • www.seriesseed.com • General • www.soulmix.com/remix/619 • www.robkornblum.com