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Iain McDougall
December 11, 2012
Raising Your First Round of Capital
Tech & Biotech
CONTEXT
Gloves translate sign language into speech
OK YOU’VE GOT A BIG IDEA
DECEMBER 11th 2012
BUT HOW TO GET FUNDED
3-OPTIONS
Bootstrap Customers Raise $$+ =
Angel or VC
Finding Investors
How to Pitch Them
Valuation Math
Negotiating Deal Terms
Demystify the VC Angel World
GOAL FOR TODAY
VC’S vs ANGELS
Will want some control (voting, board, veto)
Will want to own 20-30%
Actively engaged (they get paid to do this!)
Can add tremendous value and be great business partners
Can be total disasters
Typically rational actors, commercially-driven, but if inexperienced…
May want some control (“send me an annual email”)
Will want to own 1-10%
Maybe engaged or not (often a hobby, sometimes a personal mission)
Can add tremendous value and be great business partners
Can be total disasters
Typically rational, but if unsophisticated: naïve irrational, emotional
Deep Pockets:High risk tolerance and additional funding for
follow-on rounds
WHY RAISE VC
Value-Add:VCs provide domain experience, industry
contacts, and strategic planning
Experience Matters:VCs have “seen the
movie” over and over again and can help avoid
pitfalls to find the path to success
Swing Big:VCs don’t invest in niches,
they invest in transformative ideas that can build large companies
1Does my business fit?
Typical Investment Criteria
Tangible things investors like to see: Very big market (> $500m) Unfair advantage (why you? why now?) Attractive business model (recurring, high gross margin) Unique technology or business model approach
Intangible things investors like to see: “Pied Piper” – an ability to recruit and retain a great team,
partners Interpersonal chemistry Movie, not a snapshot
Great Idea
Huge Markets
Massive Gross Margin
Unique & Protectable
But People Trumps Everything
PEOPLE MATTERS
PEOPLE MATTERS
Ideas are a dime a dozen
Having a world-class team is golden
Laser focus of the young entrepreneur is very powerful
2Am I Prepared?
Raising Money is Really, Really, Really Tough
300 : 1LONG ODDS
12months - 2 years..!
Prospect List
Executive Summary
Investor Deck
Business Plan
Financial Model
3Getting the 1st Meeting
FIND THE SWEET SPOT
Scope out the firm – size matters, as does the individual
Arrange for a warm introduction
Prepare, be brief (VCs Blink)
Don’t downplay risk
Mutual due diligence is fair play
Most VCs and Angels have ADD – operate on “BLINK” instincts Want to SEE everything, but DO very, very few
deals Make their decision within the first 10-15 minutes
Typical VC and angel will invest in one out of every 300-500 deals they see Long odds – you need to really stand out Like college applicants – triage quickly
Context About VCs and Angels
Investor’s Decision Tree
Worth 3 minutes (email, phone)?
Worth 30 minutes (phone, in person)?
Worth 60-90 minutes (in person)?
Worth 2nd mtg (in person)?
Ignore
Pass gracefully
Pass but stay In touch
Serious due diligence Pass but be helpful
No
No
No
No
4The Pitch
3 MUST DO’S
1 2 3Be gracious, personable
Be crisp & on point
Personal intro should take < 5 minutes. Team introduction 10 minutes
Make it relevant – don’t go off on tangents
If you can’t show good summarization skills, how will you handle a board room?
Know your stuff
You will be pushed and tested
DO NOT...
1 2 3Exaggerate
Everything you say will be verified in due diligence
Assume the listener is a cynic and a professional Bull-shit detector
This is about Team not You
There is no I.
If you are self-aggrandizing, investors will assume you can’t build teams
Name Drop
No one is going to be impressed with who you know unless the relationships are both realand relevant.
5Another Meeting
So You’ve Had a Good Meeting… Then What?
Treat fundraising like a sales process – build a pipeline, work people through the pipeline, build up to crescendo
VCs get distracted – typically only pursue 2-3 high priority new investment opportunities at any given time
Stay connected, top of mind, build a sense of momentum Need to sell the individual “champion”, then the help
them sell the partnership Address objections with specific data
Make the investment case for them Give them tools/materials to share with their partners
13#
6Full Partner Meeting
7Term Sheet - Finally
Term Sheet Time Frequently Asked Questions…
Should I include VCs in my first round or just angels? How big should the option pool be? How should I think about valuation?
“Promote” definition - http://bit.ly/8NpdM Should I do a convertible note with a cap, no cap or a
priced round? How should I think about control?
15#
Aligning Interests
ECONOMICS CONTROL
PRICE
A + B = CPre-MoneyValuation
Investment Post-MoneyValuation
PRICE
£400k + £100k = £500k
Pre-MoneyValuation Investment
Post-MoneyValuation
EQUITY
C Post-MoneyValuation
Investment
%age Equity
B=
EQUITY
£100k= 20%£500k
£400k + £100k = £500kPre-MoneyValuation
InvestmentPost-MoneyValuation
Looking to Raise For X% of my
business
You Value your business as
What Is Market?
Rough Numbers (vary slightly by coast and sector): Seed: $500k-$2m raise on $3-5m pre-money (or cap) Series A: $3-6m raise on $6-10m pre-money Series B: $8-12m raise on $15-20m pre-money
Option pool: 10-20% The smaller the pool, the more confidence in the
founding team Do an “option pool budget” to determine the right pool
17#
8MONEY IN THE BANK
MUST READS
Who’s Ready to Raise Money?
THANK YOUFeel free to ask questions
or
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