Funding Strategies to Go the Distance

Startup Secrets:
Funding Strategies to
Go the Distance
6.19.19

Confidential & Proprietary @underscorevc
Startup Secrets
Workshops
2
1. What’s Your Roadmap to Success?
2. Building a Compelling Value Proposition
3. Turning Products into Companies
4. Culture, Mission and Vision
5. Hiring A+ Talent
6. Game-Changing Business Models
7. Go to Market Strategies
8. Getting Behind the Perfect Investor Pitch
9. Funding Strategies to go the Distance
10. Have You Got What It Takes?
11. Mastering Mutual Mentorship

Agenda
● Many ways to fund your startup
● Develop a funding strategy
● Remove the mystique of VC
3

Confidential & Proprietary @underscorevc 4
Raising money is like sex.
Everyone wants to know about it.
Few people talk about it openly.

Should you even raise money?
● If you don’t know, the answer is no!
● Do the work first
Example reasons for a NO:
● No need!
● Personal: risk aversion, lifestyle, control
● Business: small potential
● Other: not for profit, or research
Funding
Strategy
5

Ideation Confirmation Creation Validation Repeatability Scalability Profitability Predictability
Overview:
6

Increasing VALUE
DecreasingRISK
Overview
7

Increasing VALUE
DecreasingRISK
Overview
8

Increasing VALUE
DecreasingRISK
Product
Market Fit
Prototype
Problem Fit
Value Prop
Idea Fit
MVP & MVS
Customer Fit
Company
Execution Fit
Company
Public Market Fit
Company
Business
Model Fit
Overview
9

Increasing VALUE
DecreasingRISK
Startup Secret! The Best Times to Raise Capital
10
The two best times to raise
capital:
With all the potential
or
Plenty of proof

Funding
Vectors:
Matching
Expectations
& Outcomes
11

Equity
● Angel
● Accelerators
● Seed, Venture Capital (including Strategic / Corporate investors)
● Growth, Private Equity
● Public Markets
Other
● Bootstrap
● Friends and Family
● Debt
● Grants, subsidies, off balance sheet
Alternatives
● Business Crowdfunding (e.g., AngelList), Products / Services (e.g.,
Kickstarter)
Typical
Sources
12

LargeSmall
Capital
Potential
Intense
Efficient
What’s
Right for
You?
13

This could get
complicated, but it
doesn’t have to!
simplified.
Sex,
Relationships
and Money
14

LargeSmall
Capital
Potential
Intense
Efficient
What’s
Right for
You?
15
VC

Seed: ~ $100K to $1-3m
● See later
A to IPO
● $Millions, multiple rounds
Stage development participation,
involvement
● Active (board seat)
● Passive (follow “lead” investors)
Venture
Capital
16

VCs receive
thousands of
plans
17

This is what
happens to
most!
18

❑ Fit: Geography, Sector, Stage
❑ Portfolio: Complementary, competitive?
❑ Partner(s)
❑ Track Record
❑ Capital, free capital, reserves
Research
19

❑ Fit: Geography, Sector, Stage
❑ Portfolio: Complementary, competitive?
❑ Partner(s)
❑ Track Record
❑ Capital, free capital, reserves
Target.
Be Selective.
Focus.
20

Confidential & Proprietary @underscorevc 21
Build a Relationship.
You could be partners for several years.

● Find someone who knows the VC
● Get a warm introduction
● Interact online
● Use your initiative!
Triangulate
Ways to
Connect
22

You
● Research
● Connect
● Meet
● Motivate
● Diligence
● Fit check
● Pitch
● Legal
● Celebrate (briefly!)
The VC
● Thesis
● Qualify
● Meet
● Prioritize
● Engage
● Socialize
● Partner meeting
● Final diligence
● Fund
Process: Framework
24

Make a connection
Establish
● Who are you (relevant experience)
● What do you do (uniquely well for who)
● Why does it matter (market opportunity)
Investors often have ADD
● Not value add – A.D.D. !
● Limit the agenda, control the discussion, get the
first meeting!
First
Connection:
Who?
What?
Why?
25

Tell your story …
See “Getting Behind the Perfect Pitch”
First
Meeting
26

You
● Research
● Connect
● Meet
● Motivate
● Diligence
● Fit check
● Pitch
● Legal
The VC
● Thesis
● Qualify
● Meet
● Prioritize
● Engage
● Socialize
● Partner meeting
● Final diligence
● Fund
Process: Build Momentum
27

Startup Secret!
Incomplete
Stand Outs Are
Better Than
Complete Stand
Ups!
28
● Investors are looking for outstanding:
○ People
○ Technology or other disruption
○ Market opportunity
● One outstanding of the above stands out versus all good,
but none great
● Investors don’t expect complete:
○ Team
○ Product
○ Value prop
○ GTM plan
○ Business Model
● Entrepreneurs don’t need all the answers!
○ They just need to be self aware, listening, leaders!

Dating and Validating
Why Diligence is so Important to YOU too

Everyone’s money is the same color
Get to know the partnership and their portfolio
This is NOT an arranged marriage! Pick your partner.
● Level of insight and experience
● Track record is great but it’s history
● Talk to others who have worked with them
○ Will they be a balance for you?
○ Good self-aware mentor?
● Find someone who is genuinely motivated to set you up for
success.
● If you don’t have comfort and personal chemistry… KEEP
LOOKING!
Dating:
Evaluating
Investors
30

Operating experience?
Investment experience?
Hands on/off?
Thoughts:
● Team and board building
● Remove roadblocks
● Reveal opportunities to accelerate
● Strategic insight
● Access to resources, network
Expectations
of your VC?
31

Get to know the team
● Time, References, etc.
Understand the business
● Value proposition, business model
Check under the hood
● e.g., Expert opinion on tech
Validate assumptions
● GTM Strategy, speak to customers, partners
Validating
the VC’s
work
32

You
● Research
● Connect
● Meet
● Motivate
● Diligence
● Fit check
● Pitch
● Legal
The VC
● Thesis
● Qualify
● Meet
● Prioritize
● Engage
● Socialize
● Partner meeting
● Final diligence
● Fund
Process: Term Sheet Timing
33
Term sheet?
Term sheet?

First Question
● How much do you need?
Funding
Strategy
Questions
34

Run the numbers
Build the assumptions
Assess the dependencies
Define the milestones
Enough to build real value
● 18 months of runway typically
How
Much Do
You
Need?
35

Assumptions
Things to test
Minimally: cash flow projection
Optimally: Financial forecast
More
Important
Than the
Spreadsheet
36

P&L Cash Flow
● 6 quarters for cash flow, requirement
For sizing the business, overall capital requirement (informs
investor for their reserves)
● Annual P&L, CF up to 5 years thereafter;
○ Highlighting if applicable
■ Cash flow positive
■ Breakeven
Suggested information / detail as needed for the above
● Headcount
● Bookings
● Revenue
○ May need to break out things like Services depending on your
business
● Gross Margin
● Expenses
○ Major categories like R&D, Sales, Marketing, G&A shown as
needed
● Profit / Loss
● Cash
Financials
37

Realistic
Optimists
38

First Question
Second Question
● How much do you want?
Funding
Strategy
Questions
39

Enough to build real value
Define the milestones
● Key hires
● Product beta, ship
● First customers
● Channel Partners
● Etc.
18 months of runway typically
How
Much Do
You
Want?
40

First Question
Second Question
● How much do you want?
Third Question
● What should you raise?
Funding
Strategy
Questions
41

One strategy (dilution sensitive, risk tolerant)
● Raise just what you need
● Just before you need it?
Another strategy (dilution insensitive, risk intolerant)
● Raise more than you need
● Well before you need it
Either way
● Timing is everything, so plan!
● Assume the unexpected
What
Should
You
Raise?
42

Predictability of your business
● Your execution
● Market adoption
● Cash flows (business model)
● Potential outcome (risk / return)
Competitors’ balance sheets
Valuation…
Factors
43

The sixty-four-million-
dollar question…
Valuation
44

Valuation
Vectors
45

Always be one round ahead in your
thinking.
● Proof (Metrics, Milestones per earlier)
○ Customers, Partners, GTM
Strategy, Business Model, Product
● Allow for
○ Unknowns
○ Time to fundraise
● Capital to capitalize!
Startup Secret!
Don’t Just
Value…Evaluate!
46

Potential acquirers
● Their motivations
● Recent transactions in the space
○ - $ paid and valuations basis
Independent beyond IPO
● Comparable valuations
○ Data for these like revenues, growth rates,
market cap
Ultimate
Exit
Potential
(if you must)
47

● Build relationships between financing rounds
● Always ready to close
ABC:
Always
Be
Closing
48

Human capital
Invest in it with your option pool!
Startup Secret!
The Most
Important
Capital You’ll
Raise
49

● Investor fit
● Amount of capital raised
● Human Capital (option pool)
● Timing
(To clear the bar: Clean Terms)
What
Really
Matters
50

Funding Strategies to Go the Distance

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