Download - Fundraising for Entrepreneurs
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@tdavidson
Fundraising for Entrepreneurs
Taylor Davidson
@tdavidson taylordavidson.com
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@tdavidson
I’m Taylor
VC at kbs+ Ventures Entrepreneur Previous professional experience includes: strategy consultant, startup CFO and business development, private equity, innovation at big !nancial services company, !nance consultant, photographer. Fluent in HTML and CSS. MBA Finance, Tepper School of Business at Carnegie Mellon BA Economics, University of Virginia
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@tdavidson
Fundraising
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@tdavidson
Venture capital is just one option.
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@tdavidson
• Debt and credit cards • Consulting and side jobs • Crowdfunding • Grants • Customers
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@tdavidson
For companies that exist in high uncertainty with little past results, in areas where high capital outlays in advance of revenue are a competitive advantage …
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@tdavidson
… that’s what VCs do.
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@tdavidson
VCs are businesses too.
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@tdavidson http://www.slideshare.net/schlaf/raising-a-seed-round
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@tdavidson
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@tdavidson
VC sets you on a path. Including, you’ve hired your boss.
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@tdavidson
Average exit takes 6 years, and a lot of money. http://info.crunchbase.com/2013/12/16/
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@tdavidson http://info.crunchbase.com/2013/12/16/
Average successful startup…
IPO: $162 MM (exit $467 MM) Acquired: $41 MM (exit $243 MM)
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@tdavidson
There’s a model for a venture funded company.
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@tdavidson
Venture returns are driven by power laws.
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@tdavidson
97% of returns created by 15 companies created every year. *
* Even if the % is wrong, the skew is right. Ben Horowitz, http://qr.ae/tMui9
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@tdavidson
VCs expect most startups to fail. + Successes are outsized. = Aim for big wins.
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@tdavidson
Big wins come from big markets.
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@tdavidson
“Bad market beats great team.”
Marc Andreessen
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@tdavidson
• De!ned problem • Large number of potential customers • Willingness to pay • Capacity to pay • Easy to reach • Easy to target • Low friction • De!nable business model • Low switching costs / high switching costs • Network effects • Competition • Natural monopolies
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@tdavidson
Find the right partners.
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@tdavidson
Understand their incentives.
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@tdavidson
Incentives differ from angels, seed VCs, growth VCs
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@tdavidson
Research funds and partners. Crunchbase, Angelist, LinkedIn… and people.
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@tdavidson
Look for partners, not just funds.
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@tdavidson
Search in parallel, devote more resources to higher expected value.
Paul Graham, http://paulgraham.com/fr.html
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@tdavidson
Approach fundraising as a product.
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@tdavidson
Absence of a yes is a no.
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@tdavidson
• Investment thesis • Too early • Too late • Founder • Team gaps • Immature product • Immature market • Product / market !t • Competition / “Winners” already identi!ed • Con#ict with portfolio investment • Valuation or terms
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@tdavidson
No means no, but not for the reasons you may think.
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@tdavidson
Learn as much as you can until you have to say yes.
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@tdavidson
More info, more time, more traction, less risk.
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@tdavidson
VC is a lagging indicator.
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@tdavidson
What is traction? Abstract word for proof.
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@tdavidson
i.e. do people want it, will they pay for it, can it be done, can the founders execute, will a competitor emerge…
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@tdavidson
Create forces to get a yes. Competition, growth, fear.
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@tdavidson
Commitments are extremely valuable social proof.
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@tdavidson
Commit to fundraising mode.
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@tdavidson
VCs will want to talk, catchup, and learn. You have to execute.
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@tdavidson
It’s a relationship business.
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@tdavidson
Ask for advice before you have to ask for money.
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@tdavidson
Build relationships with investors far before you need them.
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@tdavidson
Intros. Warm intros. Be highly tactical.
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@tdavidson
Determine what you need.
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@tdavidson
Funding Network Domain expertise Past success Brand name (note: popular =! !t)
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@tdavidson
Don’t optimize for valuation. Optimize for resources for success.
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@tdavidson
Round size is more art than science.
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@tdavidson
Target: example raising $750K Rationale Runway: 18 months of runway 3-6 months to raise, 12-15 to execute enough to justify a next round Key milestones Key milestones to be accomplished in time period and runway, enough to justify success and traction for next raise
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@tdavidson
Round size impacts valuation and dilution Sell 10-25% in each round
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@tdavidson
What to pitch
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@tdavidson
You control your story.
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@tdavidson
Story depends on your stage.
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@tdavidson
Why you (and your team) is uniquely predisposed to execute better than any founder in the space.
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@tdavidson
Why the market has a problem and needs a solution.
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@tdavidson
Why an investor needs to be a part of what you’re building.
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@tdavidson
Pitch decks have a #ow that investors expect to hear.
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@tdavidson
VCs expect problem and solution right at beginning. Then educate on market, etc.
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@tdavidson
Don’t make a pitch a pitch. Tell the story as a conversation.
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@tdavidson
VCs don’t expect you to have all the answers. Expect honest, transparent, grounded and well-thought out rationales.
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@tdavidson
Post meeting follow-up is part of the process.
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@tdavidson
Term sheet is just the !rst step toward !nish line. Complete syndicate, diligence, docs, sign and wire.
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@tdavidson
Convertible Debt Preferred Equity Safe (Y Combinator, new)
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@tdavidson
Convertible Debt • Cap • Discount • Conversion rate
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@tdavidson
Preferred Equity • Price, valuation • Liquidation preference • Vesting, board, other terms
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@tdavidson
SAFE (Simple Agreement for Future Equity)
• Convertible debt without debt • Created for events (equity !nancing, liquidity, dissolution)
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@tdavidson
Leverage your investors post-!nancing.
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@tdavidson
Once you’re done fundraising… start meeting your next investors.
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@tdavidson
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@tdavidson
+ 2 unannounced
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@tdavidson
kbsp.vc/book.html
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@tdavidson
buildforesight.com
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@tdavidson
More resources: About the fundraising process psychology and incentives: http://www.paulgraham.com/fr.html For statistics and process around fundraising seed rounds: http://www.slideshare.net/schlaf/raising-a-seed-round For a good explanation of VC and fundraising: http://www.amazon.com/Venture-Deals-Smarter-Lawyer-Capitalist/dp/0470929820 For resources on pitch decks, process, and !nancial models: http://buildforesight.com/build
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@tdavidson
@tdavidson taylordavidson.com