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