harvard law entrepreneurship project (hlep) - fundraising 101

Harvard Law Entrepreneurship Project

Lunch Talk: Fundraising 101

Nov 11, 2016

David Chang

@changds

MyJourney

Fundraising Basics

How to Raise a Round

$80

$4

$42

$7$17

$110

$210

$270

$1

$135

Funding Exit

My Startups – Venture Returns

Direct Via Syndicate/Fund

My Angel Investments

Now

Building

Investing

Connecting

Fundraising Basics

What Obstacles Stand in Your Way?

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)

Growth trajectory of your business?

Lifestyle business Personal raise – loan, add folks to cap table

Growth oriented business

Crowdfunding and personal raise

High growth scalable business Venture capital

Venture Capital Stages

Friends and Family

Angel

Early Stage

Growth Equity

InvestorsSeed

EarlyGrowth

Venture Capital Dynamics

•Skewed return distribution

•VCs must swing for the fencesSource: @DawnUmlah

Amount to RaiseHow much funding do you need?

•Basic financial model 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

Use of ProceedsWhat will you use the money for?

•Build out the product

•Grow the team

•Marketing

•Customer acquisition

•Working capital

How Much

For What

To Prove

MilestonesWhat will be proven that de-risks the business?

•Product development

•Market demand

•Product / market fit

•Business model

•Execution

How Much

For What

To Prove

How to Raise a Round

Fundraising Campaign

Prep Target Socialize Raise Close

Basic Prepü Legal representation

ü Founders agreements

ü Financials and budget

ü Teaser (1 page)

ü Pitch deck (10 pages)

Target List of Investors

Stage Location

Industry Vertical

Business Model

Investment Thesis

Social / Trust Filter

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?”

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

Closing the Deal

•Rolling close vs. set close

•Reference check investors

•Not done until money is in the bank

Key termsq Board compositionq Option poolq Voting rightsq Founder vestingq Change of controlq Redemption rightsq Information rightsq Anti-dilution

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

Negotiating Valuation

Valuation & Dilution

? $12

$30 $6

$15

Seed A B

Valuation ($M) Dilution: what’s your end stake?

$1M raise $6M raise $15M raise

?

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

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)

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• www.soulmix.com/remix/619

• Legal• Foley & Lardner https://www.foley.com• Goodwin Proctor www.foundersworkbench.com• Techstars www.techstars.com/docs• www.seriesseed.com

• General• www.jddavids.com• www.robkornblum.com

Q&A

Pitch Tips

Share Your Summit & Basecamp

Leverage Your Natural Presentation Style

Adjust for Your Audience

No Blind Spots

PricingCustomer

Collaborators

Funding

Promotion

Product / Service

Context

Place

Company

Concept

Competition

Pitch Materials for Each Level

•1 Sentence•1 Paragraph•1 Page•1 Light Deck•1 Follow-up Deck

Function

Size

Know YourselfLocation

Industry

Start or Join a Company

People Bonds > Company Bonds

Find the Right Co-founders

Choose Investors Carefully

Amplify Your Network

Doing Business in Boston

http://bostontechguide.com

Local Pillar Tech Companies

http://bostontechguide.com

Big Tech Companies with Local Presence

http://bostontechguide.com

Industry Clusters of Expertise

Marketing Tech e-commerce Cybersecurity Cloud

Travel Mobile Ed Tech Robotics

Life Sciences Health IT Energy

http://www.slideshare.net/bussgang/boston-startup-scene-fall-2015

Accelerators / Incubators

Co-working

Corporate University Independent

Development Shops

http://bostontechguide.com

University Resources

http://bostontechguide.com

Events & Networking

http://bostontechguide.com

www.greenhornconnect.com/events/

Media

http://bostontechguide.com

Community Groups & Trade Organizations

http://bostontechguide.com

@changds @scottbaileyBTV

www.AdClubBrandathon.com

Talent

EcosystemCapital