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Beginner's Guide: How to raise Seed and Series A Funding for Your Tech Startups

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This is a short beginners' guide to learn about startup fundraising particularly Seed and Series A round. CONTENT: Introduction Startup Funding 101: What is funding and why do you need it? Types of funding When to raise and how much to raise Understanding exit Key players in fundraising What matters to founders? Understanding dilution How to determine the valuation Understanding controlling terms How do VCs work? Seed and Series A Funding: Are you ready for funding? Preparation How to raise: processes, tips & tricks Recommended Reading Q&A

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Startup Fundraising.How to raise Seed and Series A funding! Rakesh Soni CEO & Co-founder of LoginRadius
Introduction Funding 101 • Fundraising meaning & why you need it? • Types of funding? • When to raise, How much to raise? • Understanding exit • Key players in fundraising? • What matters to founders? • Understanding dilution • How to determine Valuation? • Understanding controlling terms • How VC’s work? Seed and Series A Funding • Are you funding ready? • Preparation • How to raise – Process, Tips, Tricks Recommended Readings Q&A Content.
Introduction Learning about the Speaker and his entrepreneurial background
About me. • Engineering – IIT Dhanbad • MS – University of Alberta (Canada) • 4 Years work experience • CEO/Co-founder, LoginRadius • HQ in Vancouver, Canada
Other Offices: San Francisco (USA), Toronto (Canada), London (UK) & Jaipur (India) HQ - Vancouver, Canada Founded in 2013 Industry Leader Our Investors
Media & Publication We also work with a wide variety of industries: Travel & Hospitalities Public Sector Music & Entertainment Consumer Brands & Services The Proven Partner for Your Success Trusted by over 3,000 companies
Startup Funding 101 We’re gonna learn basics of Startup funding
Funding meaning & why you need it? Your company gets money in return for the equity i.e. you sell piece of your company to investors. Why you need it?  To create a new business  To sustain your business  To grow your business bigger and faster  To sell some of your shares (secondary funding)
Funding Types. Primary Funding Secondary Funding Investors buy a piece of your company from your company i.e. they get equity for the money the invested Investors buy a piece of your company from you i.e. you sell some of your shares to investors. You get the money, not the company • Most of the funding news are Primary Funding • Various stages of funding • Pre-seed • Seed • Series A • Series B • Etc. • Most of the companies do not announce this • There is no specific stage • This is more like a mini-liquidation event i.e. exit
Is it for you? When to raise? How much to raise? • Are you venture-type of business? • Are you willing to partner with someone? • Do you want to chase a big vision? • Are you willing to increase the risk? • Always be raising? • Have at least 6-month runway • Are you ready as a company? • Are you all prepared? • Balance between your dilution vs control • Seed: 20% - 30% dilution • Series A: 25% dilution • Series B: 15% dilution
Understanding Exit. When you sell your whole company to some other firm. It’s also called “liquidation event”.  Everyone sells their shares  Everyone gets their return i.e. investors, founders, and employees  You may also go for an IPO but it is very rare
Key Players. • Investors • Friends, Family & Fools • Angel Investors • Venture Capitalists • Strategic Investors • Existing board • Founders • Your executive team • Lawyers • Advisors/mentors You, as a CEO, are the leader of all of them
What matters to the Founders? DilutionControlFuture of Your Company • That the reason you’re raising • Is this right partner? • Is this round amount? • Will it help chase the dream? • Board seats • Can they replace you? • Do not give control in Pre-seed, Seed, and Series A. • You must stay at driver’s seat! • Try to own as much as possible • Hard negotiate on all terms including financial terms • Dilution is not bad but remember – it’s better to have a small piece of bigger pie and bigger piece of small pie.
Understanding Dilution. $10M Company $100M Company Own: 75% Worth: $7.5M Own: 25% Worth: $25M
How to determine the valuation. There is not formula! It’s all about your sales skills and story telling skills Some tips: • B2B SaaS Companies, valuation = 5 – 15 times their revenue • B2C companies, valuation depends upon revenue per user, market size, etc. • Reverse calculate the valuation i.e. Valuation = Money you want to raise / % of equity you want to give away • Make sure you negotiate very hard.
Key Terms. Controlling Terms • Board Seats • Voting rights • Vesting of your stocks • Termination conditions • Liquidation rights • Etc. Financing Terms • Valuation • Preferred shares • Warrants • Etc.
How VCs work? Limited Partners General Partners Associates Operations Team They put the money in the Fund They manage the money and make investment decisions They assistants to General Partners They help portfolio companies, post investment VC Fund 8 – 10 years fund life
Seed & Series A Funding Readiness, Preparation, How-tos, Tips, Tricks
Understanding Funding Stages? Pre-seed Seed Series A  Money invested on an idea  No team except founders  MVP or no product  $50K - $250K  Friends, Family & Fools  Have a prototype  Some customers  Trending upward metrics  Small team  Need money to build full product  $250K - $2M  Angels and seed VCs  Fully functional product  Already have customers or users  Revenue or large user base  Have leadership team who can handle large money to grow  $3M- $10M  Early growth VCs
Are you ready to raise? Pre-seed Seed Series A  Idea  Have co-founder(s)  Have savings  Have Family, friends and fools who may invest  Everything needed for pre-seed +  Prototype product  Have early adopter  Have some metrics  Understand market  Clarity on vision & future  Have a small team  Need money to prove product- market fit  Everything needed for Seed +  Leadership team  Anchor customers or significant user base  Product-market fit  Need money to grow faster  Revenue or clarity on revenue generation  Clear market differentiation
Process. Preparation • The most difficult part is “preparation” • It takes 6-months to typically raise a round • Seed and Series A process is same • Series A stages are more complicated, requires extensive work • Work involved in each stage may vary depending upon the VC Early Diligence Pitching Term Sheet ClosedMeetings Due Diligence
Preparation. Preparing Yourself • It is very time consuming • You need to work full-time fundraising • You may not close the round • Closing may take longer than 6-months • Can business run without you? • Fundraising is extremely stressful Pitch Deck • Build your story • Practice • Beautiful design Preparing Diligence Items • Data Room: All metrics • Financial model • Product demo • Team is ready to talk to VCs
Booking Meetings. Build the List • Identify target investors – Angels, VCs • Do research, identify General Partners • Follow them on Social Media, read their articles, understand how they make investment decisions • Get warm introductions through your professional networks • Meet them in events • Reach out to them – emails, cold calls, Twitter, Linkedin Booking in-person Meetings • Pitch your business and vision • Build relationship • Excite them • Qualify, unqualify • Book follow up meetings During the Meetings 5-7 meetings a week for 6 weeks = 42 – 56 investor meetings.
Term Sheet. What it is? • Informal proposal to invest in your startup • Includes key terms • Few days to 2 weeks to negotiate and sign • Ensure you line up VCs in a way to that you get maximum no. of term sheets within a week or two • This will help you boost your valuation and negotiate easily • Immediately consult with your Board, Lawyer, and Advisors What to do? • Once everything is negotiated, Investors and Founders will sign term sheet with closing the deal in 30 – 45 days • You enter into formal due diligence Signing Term Sheet Get at least two term sheets, so you can pick the best one and negotiate easily.
Due Diligence. What it is? • Investors will verify everything you said before the term sheet signing • Finance • Legal • Technology • Team • Market • Customers • You should be well prepared with all the material • Ensure you do not fake anything to get the term sheet • Be transparent and helpful • Keep pushing to the closing deadline What to do? • Run the legal paperwork in parallel • Get a really good lawyer • Make sure you read and understand all the legal terms Legal Try to close the deal in 30 days and do not drag it beyond 45 days.
Closing. What it is? • All papers signed by all the involved parties • Money is in your company’s bank account • Once all the paperwork is ready and the diligence is done. It takes 3-4 days to get everyone sign and wire transfer the money How long does it take? • Celebration dinners with investors • Party with your teams • Take a few days break! Party time! Until you have money in the bank account, nothing is guaranteed i.e. you may lose the deal even at the closing stage!
Recommended Books I highly recommend to reach them before you kick of your funding campaign
Books. This book covers everything you need to know about VCs and how VC deals happen. This books covers the methodology of pitching and how to carrying on meetings to win. Not a sales or psychology book but pretty close.
Thank you. Feel free to reach out if you have any questions, need advise! Twitter: @OyeSoni Linkedin: linkedin.com/rakeshsonii

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Beginner's Guide: How to raise Seed and Series A Funding for Your Tech Startups

  • 1. Startup Fundraising.How to raise Seed and Series A funding! Rakesh Soni CEO & Co-founder of LoginRadius
  • 2. Introduction Funding 101 • Fundraising meaning & why you need it? • Types of funding? • When to raise, How much to raise? • Understanding exit • Key players in fundraising? • What matters to founders? • Understanding dilution • How to determine Valuation? • Understanding controlling terms • How VC’s work? Seed and Series A Funding • Are you funding ready? • Preparation • How to raise – Process, Tips, Tricks Recommended Readings Q&A Content.
  • 3. Introduction Learning about the Speaker and his entrepreneurial background
  • 4. About me. • Engineering – IIT Dhanbad • MS – University of Alberta (Canada) • 4 Years work experience • CEO/Co-founder, LoginRadius • HQ in Vancouver, Canada
  • 5. Other Offices: San Francisco (USA), Toronto (Canada), London (UK) & Jaipur (India) HQ - Vancouver, Canada Founded in 2013 Industry Leader Our Investors
  • 6. Media & Publication We also work with a wide variety of industries: Travel & Hospitalities Public Sector Music & Entertainment Consumer Brands & Services The Proven Partner for Your Success Trusted by over 3,000 companies
  • 7. Startup Funding 101 We’re gonna learn basics of Startup funding
  • 8. Funding meaning & why you need it? Your company gets money in return for the equity i.e. you sell piece of your company to investors. Why you need it?  To create a new business  To sustain your business  To grow your business bigger and faster  To sell some of your shares (secondary funding)
  • 9. Funding Types. Primary Funding Secondary Funding Investors buy a piece of your company from your company i.e. they get equity for the money the invested Investors buy a piece of your company from you i.e. you sell some of your shares to investors. You get the money, not the company • Most of the funding news are Primary Funding • Various stages of funding • Pre-seed • Seed • Series A • Series B • Etc. • Most of the companies do not announce this • There is no specific stage • This is more like a mini-liquidation event i.e. exit
  • 10. Is it for you? When to raise? How much to raise? • Are you venture-type of business? • Are you willing to partner with someone? • Do you want to chase a big vision? • Are you willing to increase the risk? • Always be raising? • Have at least 6-month runway • Are you ready as a company? • Are you all prepared? • Balance between your dilution vs control • Seed: 20% - 30% dilution • Series A: 25% dilution • Series B: 15% dilution
  • 11. Understanding Exit. When you sell your whole company to some other firm. It’s also called “liquidation event”.  Everyone sells their shares  Everyone gets their return i.e. investors, founders, and employees  You may also go for an IPO but it is very rare
  • 12. Key Players. • Investors • Friends, Family & Fools • Angel Investors • Venture Capitalists • Strategic Investors • Existing board • Founders • Your executive team • Lawyers • Advisors/mentors You, as a CEO, are the leader of all of them
  • 13. What matters to the Founders? DilutionControlFuture of Your Company • That the reason you’re raising • Is this right partner? • Is this round amount? • Will it help chase the dream? • Board seats • Can they replace you? • Do not give control in Pre-seed, Seed, and Series A. • You must stay at driver’s seat! • Try to own as much as possible • Hard negotiate on all terms including financial terms • Dilution is not bad but remember – it’s better to have a small piece of bigger pie and bigger piece of small pie.
  • 14. Understanding Dilution. $10M Company $100M Company Own: 75% Worth: $7.5M Own: 25% Worth: $25M
  • 15. How to determine the valuation. There is not formula! It’s all about your sales skills and story telling skills Some tips: • B2B SaaS Companies, valuation = 5 – 15 times their revenue • B2C companies, valuation depends upon revenue per user, market size, etc. • Reverse calculate the valuation i.e. Valuation = Money you want to raise / % of equity you want to give away • Make sure you negotiate very hard.
  • 16. Key Terms. Controlling Terms • Board Seats • Voting rights • Vesting of your stocks • Termination conditions • Liquidation rights • Etc. Financing Terms • Valuation • Preferred shares • Warrants • Etc.
  • 17. How VCs work? Limited Partners General Partners Associates Operations Team They put the money in the Fund They manage the money and make investment decisions They assistants to General Partners They help portfolio companies, post investment VC Fund 8 – 10 years fund life
  • 18. Seed & Series A Funding Readiness, Preparation, How-tos, Tips, Tricks
  • 19. Understanding Funding Stages? Pre-seed Seed Series A  Money invested on an idea  No team except founders  MVP or no product  $50K - $250K  Friends, Family & Fools  Have a prototype  Some customers  Trending upward metrics  Small team  Need money to build full product  $250K - $2M  Angels and seed VCs  Fully functional product  Already have customers or users  Revenue or large user base  Have leadership team who can handle large money to grow  $3M- $10M  Early growth VCs
  • 20. Are you ready to raise? Pre-seed Seed Series A  Idea  Have co-founder(s)  Have savings  Have Family, friends and fools who may invest  Everything needed for pre-seed +  Prototype product  Have early adopter  Have some metrics  Understand market  Clarity on vision & future  Have a small team  Need money to prove product- market fit  Everything needed for Seed +  Leadership team  Anchor customers or significant user base  Product-market fit  Need money to grow faster  Revenue or clarity on revenue generation  Clear market differentiation
  • 21. Process. Preparation • The most difficult part is “preparation” • It takes 6-months to typically raise a round • Seed and Series A process is same • Series A stages are more complicated, requires extensive work • Work involved in each stage may vary depending upon the VC Early Diligence Pitching Term Sheet ClosedMeetings Due Diligence
  • 22. Preparation. Preparing Yourself • It is very time consuming • You need to work full-time fundraising • You may not close the round • Closing may take longer than 6-months • Can business run without you? • Fundraising is extremely stressful Pitch Deck • Build your story • Practice • Beautiful design Preparing Diligence Items • Data Room: All metrics • Financial model • Product demo • Team is ready to talk to VCs
  • 23. Booking Meetings. Build the List • Identify target investors – Angels, VCs • Do research, identify General Partners • Follow them on Social Media, read their articles, understand how they make investment decisions • Get warm introductions through your professional networks • Meet them in events • Reach out to them – emails, cold calls, Twitter, Linkedin Booking in-person Meetings • Pitch your business and vision • Build relationship • Excite them • Qualify, unqualify • Book follow up meetings During the Meetings 5-7 meetings a week for 6 weeks = 42 – 56 investor meetings.
  • 24. Term Sheet. What it is? • Informal proposal to invest in your startup • Includes key terms • Few days to 2 weeks to negotiate and sign • Ensure you line up VCs in a way to that you get maximum no. of term sheets within a week or two • This will help you boost your valuation and negotiate easily • Immediately consult with your Board, Lawyer, and Advisors What to do? • Once everything is negotiated, Investors and Founders will sign term sheet with closing the deal in 30 – 45 days • You enter into formal due diligence Signing Term Sheet Get at least two term sheets, so you can pick the best one and negotiate easily.
  • 25. Due Diligence. What it is? • Investors will verify everything you said before the term sheet signing • Finance • Legal • Technology • Team • Market • Customers • You should be well prepared with all the material • Ensure you do not fake anything to get the term sheet • Be transparent and helpful • Keep pushing to the closing deadline What to do? • Run the legal paperwork in parallel • Get a really good lawyer • Make sure you read and understand all the legal terms Legal Try to close the deal in 30 days and do not drag it beyond 45 days.
  • 26. Closing. What it is? • All papers signed by all the involved parties • Money is in your company’s bank account • Once all the paperwork is ready and the diligence is done. It takes 3-4 days to get everyone sign and wire transfer the money How long does it take? • Celebration dinners with investors • Party with your teams • Take a few days break! Party time! Until you have money in the bank account, nothing is guaranteed i.e. you may lose the deal even at the closing stage!
  • 27. Recommended Books I highly recommend to reach them before you kick of your funding campaign
  • 28. Books. This book covers everything you need to know about VCs and how VC deals happen. This books covers the methodology of pitching and how to carrying on meetings to win. Not a sales or psychology book but pretty close.
  • 29. Thank you. Feel free to reach out if you have any questions, need advise! Twitter: @OyeSoni Linkedin: linkedin.com/rakeshsonii