HBS Field Y: Fundraising 101 - Feb 2019
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This document provides an overview of fundraising for startups. It discusses preparing for fundraising by developing financial projections, business models, pitches, and target investor criteria. The fundraising process takes 3-6 months and involves socializing the opportunity with potential investors without asking for money initially. Once interest is generated, the founder would refine their pitch based on feedback and then formally ask investors for funding. Key deal points include valuation, preferred stock or convertible notes, vesting schedules, and board seats. Resources for legal support and pitch deck templates are also provided.
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HBS Field Y: Fundraising 101 - Feb 2019
- 1. FUNDRAISING 101: HOW TO PITCH AND LAND YOUR FIRST INVESTORS FINANCING YOUR STARTUP & YOURSELF DAVID CHANG @CHANGDS H B S F I E L D Y
- 2. Fundraising Basics How to Raise a Round Tips Student Entrepreneurs
- 3. BACKGROUND
- 5. Direct Via Syndicate/Fund ANGEL INVESTMENTS
- 6. Fundraising Basics How to Raise a Round Tips Student Entrepreneurs
- 7. WHAT OBSTACLES STAND IN YOUR WAY?
- 8. BUSINESS TRAJECTORY • Lifestyle or social good • Linear growth or revenue fueled • High growth, scalable venture
- 9. Source: Jean Hammond & MassChallenge Size Cost Equipment Financing Traditional VC Micro VC Angel Groups AngelList Angels Corporate / Strategic Venture Customers Jobs Bill Portal Crowdfunding Vendors Founder Friends & Family Crowdfunding Grants- Gov & Foundation Venture Debt Bank Loans Personal Loans Private Equity Competitions Accelerators & Contests Impact Angels & VCs CAPITAL SOURCES
- 10. VENTURE CAPITAL STAGES Growth Equity Early Stage Angel Friends & Family
- 11. VENTURE CAPITAL DYNAMICS Skewed return distribution VCs must swing for the fences
- 12. RAISING A ROUND
- 13. HOW MUCH TO RAISE • Basic financial model of cost drivers and revenue • Forecast monthly for 2 years • Fundraise rule of thumb: 12-18 months’ cash
- 14. USE OF PROCEEDS • Build out the product • Grow the team • Marketing • Customer acquisition • Working capital
- 15. MILESTONES See www.techcrunch.com/2015/06/24/running-out-of-money-isnt-a-milestone Team Product Development Market Demand Product / Market Fit Business Model Execution
- 16. Fundraising Basics How to Raise a Round Tips Student Entrepreneurs
- 17. Prep Target Socialize Raise Close FUNDRAISING CAMPAIGN
- 18. BASIC PREP ✓ Legal representation ✓ Founders agreements ✓ Financials and budget ✓ Teaser (1 page) ✓ Pitch deck (10 pages)
- 19. Stage Location Industry Vertical Business Model Investment Thesis Social / Trust Filter TARGET CRITERIA
- 20. BUILD PIPELINE
- 21. SOCIALIZE • Prioritize sequence • Find strongest connections to 30+ targets • Tactics: lead gen, cold calling, warm intros • Network over 2-3 months
- 22. DON’T ASK FOR MONEY! “I’m not ready to raise” “Who would be helpful?” “Who else should I talk to?”
- 23. REFINE PITCH • Incorporate feedback • Double down on consistent themes • Avoid whiplash changes
- 24. GO FOR THE ASK • Approach your top candidates at the same time • Run conversations in parallel • Decide whether / when to tell investors about each other
- 25. CREATE URGENCY • Anchor investor acts as the first domino • “Triggering events” to get a (or better) term sheet
- 27. STRUCTURE • Preferences over common • Board seat or 2 • Option pool • Liquidation preference • Control over sale, new options • Debt that becomes preferred equity when you raise it • No valuation, but the “cap” is a ceiling • Interest accrues, rate <10% • Conversion discount Equity Preferred Stock Debt Convertible Notes, SAFEs
- 28. CLOSING THE DEAL
- 29. Seed A B $15 $6 $1 $30 $12 $5 VALUATION & DILUTION ? Dilution: what’s your end stake?Valuation ($M) ?
- 30. VALUATION & DILUTION 37% See www.ownyourventure.com Raise $1M on $5M pre 33%Raise $1M on $3M pre 34%Raise $1.5M on $5M pre Dilution: what’s your end stake?Valuation ($M) Seed A B $15 $6 $1 $30 $12 $5
- 31. FINAL DEAL POINTS • Rolling close vs. set close • Not done until money is in the bank Key terms ❑ Board composition ❑ Option pool ❑ Voting rights ❑ Founder vesting ❑ Change of control ❑ Redemption rights ❑ Information rights ❑ Anti-dilution
- 32. HOW LONG DOES IT TAKE? • Longer than you expect • 3-6 months • Speed limited by access to investors • Your ability to find them • Calendar availability (surprisingly hard)
- 33. FIND THE RIGHT INVESTORS
- 34. Fundraising Basics How to Raise a Round Tips Student Entrepreneurs
- 35. 38 A bachelor’s or advanced degree is the cost of admission to the workforce, but the skyrocketing cost of education is putting that price out of reach. College Tuition vs Median Income $52,000 $53,500 $55,000 $56,500 $58,000 $0 $5,000 $10,000 $15,000 $20,000 2005 2006 2007 2008 2009 2010 2011 2012 Cost of College Median Income 1https://college-education.procon.org/view.resource.php?resourceID=005532
- 36. Feeling the Weight of Loans? $37,000 The average student debt for the 7 out of 10 graduates who leave college with student loans1. 1 million Parents each year who take out loans to send their children to college2. 55% Respondents who say that student loans have impacted their ability to buy a house3. 55% Parents who expect their child will have to rely on student loans to fund their college education4. 1Thttps://www.debt.org/students 2http://time.com/money/4846020/popular-college-loans-guide/ 3Life Delayed: The Impact of Student Debt on the Daily Lives of Young Americans 4 https://www.credible.com/blog/student-loans/parents-expect-kids-will-take-out-student-loans/
- 39. Good Time to Seek for Jobs Unemployment Rate 0.0% 2.5% 5.0% 7.5% 10.0% Jan-09 Aug-09 Mar-10 Oct-10 May-11 Dec-11 Jul-12 Feb-13Sept-13Apr-14 Nov-14 Jun-15 Jan-16 Aug-16 Mar-17 Oct-17 May-18 Unemployment Rate 1https://data.bls.gov/pdq/SurveyOutputServlet?request_action=wh&graph_name=LN_cpsbref3
- 40. Job Hopping 44% Millennials who intend to quit their jobs within the next two years1. 3 million Number of Americans who leave their jobs voluntarily each month2. 90%-200% Percentage of an employees’ annual salary that it costs to replace them3. 73% Employees are open to hearing about new job opportunities4. 1The Deloitte Millennial Survey 2017 2https://www.bls.gov/news.release/jolts.nr0.htm 3Retaining Talent: A Guide to Analyzing and Managing Employee Turnover; Society of Human Resources Management. 4https://blog.accessperks.com/2017-employee-engagement-loyalty-statistics#1
- 41. START OR JOIN A COMPANY
- 42. PEOPLE BONDS > COMPANY BOUNDARIES
- 45. Fundraising Basics How to Raise a Round Tips Student Entrepreneurs
- 48. SCENARIO 1: COFFEE SHOP Instructions for Audience You love everything the pitcher tells you. You get so excited that you repeatedly interrupt them, trying to finish their sentences.
- 49. SCENARIO 2: GROCERY STORE Instructions for Audience You ripped your pants 5 minutes ago. So you desperately want to leave and try to end the conversation with the pitcher ASAP.
- 51. ADJUST FOR STYLE
- 52. SHARE YOUR SUMMIT & BASECAMP
- 53. DON’T SHARE EVERYTHING AT ONCE • 1 Sentence • 1 Paragraph • 1 Page • 1 Light Deck • 1 Follow-up Deck
- 54. Articulate in 90 seconds Why you’re the right team Know numbers and business model cold KEVIN O’LEARY
- 55. pexels.com
- 57. TYPICAL PARTS Overview Problem Solution Market Traction Marketing Strategy Team Competition Conclusion Financial Projections (high level) Money Being Raised and Use of Funds Revenue Model & Business Model
- 60. RESOURCES • Legal • Goodwin Procter www.foundersworkbench.com • Foley & Lardner www.foley.com • Pierce Atwood • Techstars www.techstars.com/docs • www.seriesseed.com • General • www.jddavids.com • www.robkornblum.com bit.ly/startresources
- 61. FUNDRAISING 101: Q&A DAVID CHANG @CHANGDS H B S F I E L D X