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AN ENTREPRENEUR’S GUIDE TO FUNDRAISING
- Russ Armstrong
An Entrepreneur’s Guide to Fundraising
RUSS ARMSTRONG• Head of Sales - Eastern Canada, Boast.AI • Cofounder, Limelight (>$10M raised) • 11 years @ RBC Capital Markets
An Entrepreneur’s Guide to Fundraising
FUNDRAISING 101
ACCELERATOR (SELL 5% FOR $50-100K)
SEED (SELL 20% - $3MM @ $15MM)
SERIES A (SELL 20% - $10MM @ 50MM)
Here’s what everyone thinks it’s like
An Entrepreneur’s Guide to FundraisingAn Entrepreneur’s Guide to Fundraising
Convertible debt, venture debt, revenue financing, govt grants?
Friends and family,
accelerators, incubators, angels?
REALITY IS MORE LIKE…
An Entrepreneur’s Guide to FundraisingAn Entrepreneur’s Guide to Fundraising
DATE TYPE INSTRUMENT PRE MONEY VAL RAISE MULTIPLE MRR
Aug 2014Friends & Family
- Equity Common $1,500,000 $150,000 12.50 $10,000
Oct 2014 Angel - Equity Common $3,000,000 $150,000 7.58 $33,000
Feb 2015Accelerator -
Convert Note
Convert
Common $3,000,000 $50,000 7.14 $35,000
May 2015Convert
Debenture
Convert
Common $5,000,000 $250,000 7.58 $55,000
Aug 2015Convert
Debenture Convert Pref $8,000,000 $300,000 7.84 $85,000
Oct 2015SR&ED
Financing S-T Debt 9% $350,000 $85,000
Nov 2016 Seed Equity Preferred $10,000,000 $1,700,000 7.94 $105,000
July 2017SR&ED
Financing S-T Debt 9% $300,000 $110,000
July 2017
Seed Bridge
Equity +
Warrants Convert Pref $11,700,000 $600,000 8.13 $120,000
Aug 2017 Gov't Debt Debt 13% $500,000 $120,000
Dec 2017 Series A - Equity Preferred $15,000,000 $4,700,000 6.94 $180,000
Feb 2018Venture Debt +
Warrants Debt 7% $1,300,000 $180,000
Mar 2018Royalty
Financing Debt 3% Sales $1,000,000 $230,000
An Entrepreneur’s Guide to Fundraising
FUNDRAISING IS HARD
An Entrepreneur’s Guide to Fundraising
An Entrepreneur’s Guide to Fundraising
VC INVESTMENTS IN CANADA
39%
An Entrepreneur’s Guide to Fundraising
STARTUP GROWTH
2015 2016 2017 2018
Number of active startups in Canada
0
2,000
4,000
6,000
8,000
An Entrepreneur’s Guide to Fundraising
VC ACTIVITY BY DEAL SIZE
$100-500K $500K-$1M $1-5M $5-20M $20-50M
81
210
120
18%
CVCA: 7 out of every 10 deals in 2018 were under $5 million ⅓ of the deals were under $1mm
<$100K $50M+
109
20 23 15
An Entrepreneur’s Guide to Fundraising
TOP 20% HAVE AN EASY TIME FUNDRAISING
(42)
210 DEALS > $1 Million
MIDDLE 60% HAVE TO WORK VERY HARD
(126)
BOTTOM 20% HAVE JUST GOT FUNDED
(42)
An Entrepreneur’s Guide to Fundraising
FUNDRAISING STRATEGY
An Entrepreneur’s Guide to Fundraising
An Entrepreneur’s Guide to Fundraising
• How do I put a valuation on my company?
An Entrepreneur’s Guide to Fundraising
• How do I put a valuation on my company?
• What are the key drivers of my valuation?
An Entrepreneur’s Guide to Fundraising
• How do I put a valuation on my company?
• What are the key drivers of my valuation?
• How will certain milestones impact my valuation?
An Entrepreneur’s Guide to Fundraising
• How do I put a valuation on my company?
• What are the key drivers of my valuation?
• How will certain milestones impact my valuation?
• Adjust milestones to match cash on hand
An Entrepreneur’s Guide to Fundraising
• How do I put a valuation on my company?
• What are the key drivers of my valuation?
• How will certain milestones impact my valuation?
• Adjust milestones to match cash on hand
• Raise additional cash to hit milestones
An Entrepreneur’s Guide to Fundraising
BE STRATEGIC TO AVOID “CASH OUT” DATE
$ in bank
Cash Out Date
Milestone: Product shipped
Milestone: Capital raised
Time
Post-money val
Pre-money val
Valuation
An Entrepreneur’s Guide to Fundraising
VALUATIONS
An Entrepreneur’s Guide to Fundraising
An Entrepreneur’s Guide to Fundraising
• Monthly Recurring Revenue. Rule of thumb: 6-9X
An Entrepreneur’s Guide to Fundraising
• Monthly Recurring Revenue. Rule of thumb: 6-9X
• Total Addressable Market
An Entrepreneur’s Guide to Fundraising
• Monthly Recurring Revenue. Rule of thumb: 6-9X
• Total Addressable Market
• Team
An Entrepreneur’s Guide to Fundraising
• Monthly Recurring Revenue. Rule of thumb: 6-9X
• Total Addressable Market
• Team
• Timing
An Entrepreneur’s Guide to Fundraising
• Monthly Recurring Revenue. Rule of thumb: 6-9X
• Total Addressable Market
• Team
• Timing
• Sector
An Entrepreneur’s Guide to Fundraising
• Monthly Recurring Revenue. Rule of thumb: 6-9X
• Total Addressable Market
• Team
• Timing
• Sector
• Growth Rate
An Entrepreneur’s Guide to Fundraising
• Monthly Recurring Revenue. Rule of thumb: 6-9X
• Total Addressable Market
• Team
• Timing
• Sector
• Growth Rate
• Logos
An Entrepreneur’s Guide to Fundraising
VALUATION IS NOT LINEAR
18%Ex
citin
g liq
uidi
ty o
ptio
ns
Time (7-10 years)
An Entrepreneur’s Guide to Fundraising
FUNDRAISING PROCESS
An Entrepreneur’s Guide to Fundraising
An Entrepreneur’s Guide to Fundraising
RUN A TIGHT PROCESS
• 100+ investors in the funnel
• Setup a drip
• Always be prospecting
• Work backwards from metrics
• Have your FOMO story
• Term sheets get term sheets
• Plan B
An Entrepreneur’s Guide to Fundraising
SETUP A FUNDRAISING FUNNEL
100
5
1
20
AWARENESS
INTEREST
DECISION
ACTION
• 100+ investors in the funnel
• Investors make intros
• Keep records - Gsheet
• Manage your growth over
your raise timeline
• Ask VCs the right Questions
An Entrepreneur’s Guide to Fundraising
FUNDRAISING JOURNEY
An Entrepreneur’s Guide to Fundraising
An Entrepreneur’s Guide to Fundraising
DATE TYPE INSTRUMENT PRE MONEY VAL RAISE MULTIPLE MRR
Aug 2014Friends & Family
- Equity Common $1,500,000 $150,000 12.50 $10,000
Oct 2014 Angel - Equity Common $3,000,000 $150,000 7.58 $33,000
Feb 2015Accelerator -
Convert Note
Convert
Common $3,000,000 $50,000 7.14 $35,000
May 2015Convert
Debenture
Convert
Common $5,000,000 $250,000 7.58 $55,000
Aug 2015Convert
Debenture Convert Pref $8,000,000 $300,000 7.84 $85,000
Oct 2015SR&ED
Financing S-T Debt 9% $350,000 $85,000
Nov 2016 Seed Equity Preferred $10,000,000 $1,700,000 7.94 $105,000
July 2017SR&ED
Financing S-T Debt 9% $300,000 $110,000
July 2017
Seed Bridge
Equity +
Warrants Convert Pref $11,700,000 $600,000 8.13 $120,000
Aug 2017 Gov't Debt Debt 13% $500,000 $120,000
Dec 2017 Series A - Equity Preferred $15,000,000 $4,700,000 6.94 $180,000
Feb 2018Venture Debt +
Warrants Debt 7% $1,300,000 $180,000
Mar 2018Revenue
Financing Debt 0.5% Sales $1,000,000 $230,000
An Entrepreneur’s Guide to Fundraising
1. Clean up your Cap Table - It needs to reflect those that are going to carry the company into the future. I.e. ESOP, Founders, Vesting, Restricted Shares.
• issue additional shares
• issue new class of shares
An Entrepreneur’s Guide to Fundraising
1. Clean up your Cap Table - it needs to reflect those who will carry the company into the future. I.e. ESOP, Founders, Vesting, Restricted Shares.
• issue additional shares
• issue new class of shares
2. Get your IP in order - think facebook
An Entrepreneur’s Guide to Fundraising
DATE TYPE INSTRUMENT PRE MONEY VAL RAISE MULTIPLE MRR
Aug 2014Friends & Family
- Equity Common $1,500,000 $150,000 12.50 $10,000
Oct 2014 Angel - Equity Common $3,000,000 $150,000 7.58 $33,000
Feb 2015Accelerator -
Convert Note
Convert
Common $3,000,000 $50,000 7.14 $35,000
May 2015Convert
Debenture
Convert
Common $5,000,000 $250,000 7.58 $55,000
Aug 2015Convert
Debenture Convert Pref $8,000,000 $300,000 7.84 $85,000
Oct 2015SR&ED
Financing S-T Debt 9% $350,000 $85,000
Nov 2016 Seed Equity Preferred $10,000,000 $1,700,000 7.94 $105,000
July 2017SR&ED
Financing S-T Debt 9% $300,000 $110,000
July 2017
Seed Bridge
Equity +
Warrants Convert Pref $11,700,000 $600,000 8.13 $120,000
Aug 2017 Gov't Debt Debt 13% $500,000 $120,000
Dec 2017 Series A - Equity Preferred $15,000,000 $4,700,000 6.94 $180,000
Feb 2018Venture Debt +
Warrants Debt 7% $1,300,000 $180,000
Mar 2018Revenue
Financing Debt 0.5% Sales $1,000,000 $230,000
An Entrepreneur’s Guide to Fundraising
PROS CONS
• Easy, Cost Effective
• Maintain control for longer
• Less Due Diligence
• Ownership not defined
• Raise what you want, when you want
• Can use caps/discounts as incentives
• Investors are less “invested”
• Bad corporate governance
• No “Lead” Investor
CONVERTS/ SAFES
An Entrepreneur’s Guide to Fundraising
Tranche Convertible Debt offering approach
An Entrepreneur’s Guide to Fundraising
Tranche Convertible Debt offering approach
Link MRR and Convert Cap $50k MRR = $5mm Cap, Raising $250K $80k MRR = $8mm Cap, Raising $250K
An Entrepreneur’s Guide to Fundraising
Tranche Convertible Debt offering approach
Link MRR and Convert Cap $50k MRR = $5mm Cap, Raising $250K $80k MRR = $8mm Cap, Raising $250K
RULE OF THUMB: <$1MM RAISE, USE CONVERTS/SAFES
An Entrepreneur’s Guide to Fundraising
DATE TYPE INSTRUMENT PRE MONEY VAL RAISE MULTIPLE MRR
Aug 2014Friends & Family
- Equity Common $1,500,000 $150,000 12.50 $10,000
Oct 2014 Angel - Equity Common $3,000,000 $150,000 7.58 $33,000
Feb 2015Accelerator -
Convert Note
Convert
Common $3,000,000 $50,000 7.14 $35,000
May 2015Convert
Debenture
Convert
Common $5,000,000 $250,000 7.58 $55,000
Aug 2015Convert
Debenture Convert Pref $8,000,000 $300,000 7.84 $85,000
Oct 2015SR&ED
Financing S-T Debt 9% $350,000 $85,000
Nov 2016 Seed Equity Preferred $10,000,000 $1,700,000 7.94 $105,000
July 2017SR&ED
Financing S-T Debt 9% $300,000 $110,000
July 2017
Seed Bridge
Equity +
Warrants Convert Pref $11,700,000 $600,000 8.13 $120,000
Aug 2017 Gov't Debt Debt 13% $500,000 $120,000
Dec 2017 Series A - Equity Preferred $15,000,000 $4,700,000 6.94 $180,000
Feb 2018Venture Debt +
Warrants Debt 7% $1,300,000 $180,000
Mar 2018Revenue
Financing Debt 0.5% Sales $1,000,000 $230,000
An Entrepreneur’s Guide to Fundraising
SR&ED FINANCING
210
Over $4 Billion returned to 27k companies in 2017 under the Scientific Research & Experiment Development program
An Entrepreneur’s Guide to Fundraising
HOW SR&ED
FINANCING WORKS?
• Operating Line (trailing quarterly
drawdowns)
• 9-15% interest rates
• Claims as small as $50k
• 75%+ advance rate
• 1-2 week turnaround
• Short form legal docs
• Claim prepared by a reputable firm
• Interest capitalized and paid upon
refund
An Entrepreneur’s Guide to Fundraising
DATE TYPE INSTRUMENT PRE MONEY VAL RAISE MULTIPLE MRR
Aug 2014Friends & Family
- Equity Common $1,500,000 $150,000 12.50 $10,000
Oct 2014 Angel - Equity Common $3,000,000 $150,000 7.58 $33,000
Feb 2015Accelerator -
Convert Note
Convert
Common $3,000,000 $50,000 7.14 $35,000
May 2015Convert
Debenture
Convert
Common $5,000,000 $250,000 7.58 $55,000
Aug 2015Convert
Debenture Convert Pref $8,000,000 $300,000 7.84 $85,000
Oct 2015SR&ED
Financing S-T Debt 9% $350,000 $85,000
Nov 2016 Seed Equity Preferred $10,000,000 $1,700,000 7.94 $105,000
July 2017SR&ED
Financing S-T Debt 9% $300,000 $110,000
July 2017
Seed Bridge
Equity +
Warrants Convert Pref $11,700,000 $600,000 8.13 $120,000
Aug 2017 Gov't Debt Debt 13% $500,000 $120,000
Dec 2017 Series A - Equity Preferred $15,000,000 $4,700,000 6.94 $180,000
Feb 2018Venture Debt +
Warrants Debt 7% $1,300,000 $180,000
Mar 2018Revenue
Financing Debt 0.5% Sales $1,000,000 $230,000
An Entrepreneur’s Guide to Fundraising
PROS CONS
• Valuation and Ownership Defined
(VCs like that)
• Investors likely to provide more
guidance
• Time consuming and high legal
expenses
• Control given up (Board Seats)
• Lengthy DD process
• Lots to negotiate
EQUITY
An Entrepreneur’s Guide to Fundraising
DATE TYPE INSTRUMENT PRE MONEY VAL RAISE MULTIPLE MRR
Aug 2014Friends & Family
- Equity Common $1,500,000 $150,000 12.50 $10,000
Oct 2014 Angel - Equity Common $3,000,000 $150,000 7.58 $33,000
Feb 2015Accelerator -
Convert Note
Convert
Common $3,000,000 $50,000 7.14 $35,000
May 2015Convert
Debenture
Convert
Common $5,000,000 $250,000 7.58 $55,000
Aug 2015Convert
Debenture Convert Pref $8,000,000 $300,000 7.84 $85,000
Oct 2015SR&ED
Financing S-T Debt 9% $350,000 $85,000
Nov 2016 Seed Equity Preferred $10,000,000 $1,700,000 7.94 $105,000
July 2017SR&ED
Financing S-T Debt 9% $300,000 $110,000
July 2017
Seed Bridge
Equity +
Warrants Convert Pref $11,700,000 $600,000 8.13 $120,000
Aug 2017 Gov't Debt Debt 13% $500,000 $120,000
Dec 2017 Series A - Equity Preferred $15,000,000 $4,700,000 6.94 $180,000
Feb 2018Venture Debt +
Warrants Debt 7% $1,300,000 $180,000
Mar 2018Revenue
Financing Debt 0.5% Sales $1,000,000 $230,000
An Entrepreneur’s Guide to Fundraising
OPTIONS WARRANTS
• Usually in the form of an ESOP
• Employee Stock Option Plan
• Negotiating chip used to New Hires/
Advisors
• Generally 15% of Fully Diluted Float
set aside for ESOP
• VC will ask to top it up upon new
financing rounds
• Terms - 10 yr expiry, 3 yr vest, 1y cliff,
expire upon termination
• L-T Options that are generally used as
sweeteners on rounds
• Can be used with an equity or debt
deal
• Share in upside of company growth
• Typically <.5% Float
OPTIONS & WARRANTS
An Entrepreneur’s Guide to Fundraising
DATE TYPE INSTRUMENT PRE MONEY VAL RAISE MULTIPLE MRR
Aug 2014Friends & Family
- Equity Common $1,500,000 $150,000 12.50 $10,000
Oct 2014 Angel - Equity Common $3,000,000 $150,000 7.58 $33,000
Feb 2015Accelerator -
Convert Note
Convert
Common $3,000,000 $50,000 7.14 $35,000
May 2015Convert
Debenture
Convert
Common $5,000,000 $250,000 7.58 $55,000
Aug 2015Convert
Debenture Convert Pref $8,000,000 $300,000 7.84 $85,000
Oct 2015SR&ED
Financing S-T Debt 9% $350,000 $85,000
Nov 2016 Seed Equity Preferred $10,000,000 $1,700,000 7.94 $105,000
July 2017SR&ED
Financing S-T Debt 9% $300,000 $110,000
July 2017
Seed Bridge
Equity +
Warrants Convert Pref $11,700,000 $600,000 8.13 $120,000
Aug 2017 Gov't Debt Debt 13% $500,000 $120,000
Dec 2017 Series A - Equity Preferred $15,000,000 $4,700,000 6.94 $180,000
Feb 2018Venture Debt +
Warrants Debt 7% $1,300,000 $180,000
Mar 2019Revenue
Financing Debt 0.5% Sales $1,000,000 $230,000
An Entrepreneur’s Guide to Fundraising
NON-DILUTIVE
FINANCING BENEFITS
• No equity, no board seats, no
PGs
• Extend runway before an equity
round
• Bring forward cash-flow to hire
for growth
• Optimize capital structure
(minimizing cost of capital)
• Capital expenditures
• Secure financing options for
bargaining leverage
An Entrepreneur’s Guide to Fundraising
NON-DILUTIVE
FINANCING OPTIONS
•Secured Debt (Bank Debt)
•Venture Debt
•Revenue Financing
•SR&ED Financing
•Govt Debt (SOFII, FedDev)
•Other Gov’t Grants
An Entrepreneur’s Guide to Fundraising
SECURED DEBT
• Operating Line
• Prime+ interest rates (5-9%)
• $100k MRR = 4-7x multiple LOC
($400k-$700k)
• GSA, ICA Required
• 2-4 week turnaround times
• No Personal Guarantees
• Red Flags: <50% B2B, <15%
Client Concentration, <65%
Gross Margins, Churn >15%
• Backed by Institutional Capital
An Entrepreneur’s Guide to Fundraising
VENTURE DEBT
• Operating Line (minimum
withdrawals)
• Interest rates (13-20%) + Warrants
• $100k MRR = 4-7x multiple LOC
($400k-$700k)
• Subordinate (2nd, 3rd)
• 2-3 week turnaround times
• Secured by IP, 20% YoY growth
• Red Flags: <50% B2B, <15% Client
Concentration, <65% Gross Margins,
Churn >15%
• Backed by Institutional Capital
An Entrepreneur’s Guide to Fundraising
REVENUE FINANCING
• $500k - $3mm
• Royalties up to 4% of Revenue
• >$100k MRR
• Close to operating break-even
• ~3x Cost of Capital
• 1x Principal, 1x buy-out, 1x
royalties
An Entrepreneur’s Guide to Fundraising
VENTURE CAPITAL
PRIVATE EQUITY
REVENUE FINANCING VENTURE DEBT SENIOR DEBT
Cost of Capital 40-80%, >10X 20-30%, >3X 15-25%, ~3X 15-25% 4-8%
Dilution High High Light Light No
Security Liquidation
preference
51% control Subordinated,
few covenants
Subordinated,
few covenants
Senior, no
covenants
Duration Permanent Permanent Entrepreneur
controlled
2-4 years 2-4 years
Control Board rights,
investor rights
Board rights,
investor rights
Few covenants,
no board rights
Substantial
covenants,
sometimes
board rights
Security,
substantial
covenants,
restrictions
Return Sales, IPO,
dividend, return
principal
Sales, IPO,
dividend, return
principal
Royalty,
buyouts,
warrants
Sales, IPO,
dividend, return
principal
Return principal
COMPARABLES
An Entrepreneur’s Guide to Fundraising
GOVT DEBT
• Fed Dev Ontario - $1b fund for
innovative and globally-oriented
businesses to accelerate their
growth. No-interest, repayable
contributions from $500,000 up to
$10 million per project.
• SOFII - loan program for high-
growth SMEs, $40m evergreen fund,
interest bearing loans of $150,000 to
$500,000, 7 year term loan, interest
rates 11-15%
An Entrepreneur’s Guide to Fundraising
GOVT GRANTS &
TAX CREDITS
• SR&ED - 63%+ of Canadian R&D
spend as a cash back
• IRAP - funds 50-80% of innovative
project costs upfront
• Top grant programs at boast.ai >>
resources
An Entrepreneur’s Guide to Fundraising
DEBT PROVIDERS
Venture debt
Revenue financing
SR&ED financing
Mezz/ Venture debt
Loan Guarantee
Senior Debt
An Entrepreneur’s Guide to Fundraising
DATE TYPE INSTRUMENT PRE MONEY VAL RAISE MULTIPLE MRR
Aug 2014Friends & Family
- Equity Common $1,500,000 $150,000 12.50 $10,000
Oct 2014 Angel - Equity Common $3,000,000 $150,000 7.58 $33,000
Feb 2015Accelerator -
Convert Note
Convert
Common $3,000,000 $50,000 7.14 $35,000
May 2015Convert
Debenture
Convert
Common $5,000,000 $250,000 7.58 $55,000
Aug 2015Convert
Debenture Convert Pref $8,000,000 $300,000 7.84 $85,000
Oct 2015SR&ED
Financing S-T Debt 9% $350,000 $85,000
Nov 2016 Seed Equity Preferred $10,000,000 $1,700,000 7.94 $105,000
July 2017SR&ED
Financing S-T Debt 9% $300,000 $110,000
July 2017
Seed Bridge
Equity +
Warrants Convert Pref $11,700,000 $600,000 8.13 $120,000
Aug 2017 Gov't Debt Debt 13% $500,000 $120,000
Dec 2017 Series A - Equity Preferred $15,000,000 $4,700,000 6.94 $180,000
Feb 2018Venture Debt +
Warrants Debt 7% $1,300,000 $180,000
Mar 2019Royalty
Financing Debt 3% Sales $1,000,000 $230,000
An Entrepreneur’s Guide to Fundraising
WHY LEVERAGE BOAST FOR SR&ED?
THE ONLY SR&ED AUTOMATION SOFTWARE AVAILABLE. JOIN OVER 300 OTHER COMPANIES THAT HAVE SWITCHED TO BOAST.AI TO INCREASE CLAIMS, INCREASE
REFUNDS, FOR LESS TIME AND MONEY.
An Entrepreneur’s Guide to Fundraising
Q&ARuss Armstrong 416-520-8551 rarmstrong@boastcapital.com
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