Funding Your Startup 101 - M.A. Fashion Entrepreneurship & Innovation Lecture @ London College of Fashion
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Lecture on the basics of startup financing: Reasons why, investor types, how investors and specifically VC funds like ourselves think and how to prepare a pitch. Ending with a few slides on trends in Fashion Tech. www.thisisaday.com
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Funding Your Startup 101 - M.A. Fashion Entrepreneurship & Innovation Lecture @ London College of Fashion
- 1. Index Ventures! FUNDING YOUR STARTUP! LONDON COLLEGE OF FASHION! M.A. FASHION ENTREPRENEURSHIP & INNOVATION! Nina  Faulhaber  @ninafaulhaber Â
- 2. BITS ABOUT ME! Index Ventures! Previously Goldman Sachs! London Women in Venture Capital! European Venture Capital Network! Likeminded! Mentor at Seedcamp, BBCW labs, Front Row I/O! Speaker at hy! Berlin, Nacue, Start Up Sweden! Consumer internet, innovation, fashion, ďŹtness, foreign cultures! ! Index Ventures!
- 3. BITS ABOUT INDEX VENTURES! Founded in 1996 in Geneva! OfďŹces in London, Geneva And San Francisco! Currently three Funds: Technology Growth & Venture, Life Sciences >âŹ3bn Capital Raised.! Exits: Skype, Betfair, Net-a-porter, Moleskine, Supercell, Criteo! Investments: King.com, Dropbox, JustEat, Sonos, SoundCloud, Squarespace, Zendesk, Shapeways, Viagogo! Index Ventures!
- 4. INVESTMENTS IN FASHION! Index Ventures!
- 6. WHAT ARE POSSIBLE SOURCES OF CAPITAL?! FRIENDS & FAMILY CROWDFUNDING GRANTS SEED FUNDS BANK LOANS VENTURE CAPITAL ANGELS PRIVATE EQUITY ACCELERATORS STRATEGICS INCUBATORS PUBLIC MARKETS Index Ventures!
- 7. Does every startup have to raise?!
- 8. The answer is NO - not raising is a viable option !
- 9. BOOTSTRAP! â˘âŻ Pull yourself up up by your bootstraps! â˘âŻ Lots of advantages! Keep 100% of your equity! Report to no one but yourself! Building for proďŹtability! â˘âŻ Once bootstrapped doesnât mean forever bootstrapped! â˘âŻ Success stories: PlentyofďŹsh, Native Instruments, 37Signals (at ďŹrst), Thrillist (at ďŹrst), Matches (at ďŹrst), Github (at ďŹrst), âŚ! Index Ventures!
- 10. So, why the hell would I raise?!
- 11. WHY RAISE OUTSIDE FUNDING?! Ambition Global domination is easier with capital and global support! Growth! Faster growth enables you to conquer your market ahead of your competitors! Advice Building a business can be lonely â investors can act as mentors, sparring partners and helpers! â˘âŻ Success stories: Google, Ebay, Amazon, Skype, Facebook, Twitter, Net-a-Porter, âŚ! Index Ventures!
- 12. WHEN TO RAISE?! IDEA & PROTOTYPE Ăď⯠FRIENDS & FAMILY PRODUCT MARKET FIT Ăď⯠SEED GO TO MARKET Ăď⯠SERIES A ACCELERATE Ăď⯠SERIES B ROLL OUT Ăď⯠SERIES C ROLL OUT FURTHER Ăď⯠SERIES D, E, IPO HARVEST Ăď⯠IPO OR SALE Index Ventures! You can raise at any stage, really!!
- 13. VALUE CREATION WHAT DOES IT MEAN FOR YOU?! Index Ventures!
- 14. WHAT ARE POSSIBLE SOURCES OF CAPITAL?! FRIENDS & FAMILY CROWDFUNDING GRANTS SEED FUNDS BANK LOANS VENTURE CAPITAL ANGELS PRIVATE EQUITY ACCELERATORS STRATEGICS INCUBATORS PUBLIC MARKETS Index Ventures!
- 15. ANGELS! SEED â˘âŻ SEIS and EIS! â˘âŻ High net worth individuals! â˘âŻ Ex-entrepreneurs! â˘âŻ Company executives ! â˘âŻ Your immediate surrounding! â˘âŻ Go for people with expertise! â˘âŻ Find the fashion-savvy investors! Index Ventures!
- 16. ACCELERATORS! SEED â˘âŻ Foster entrepreneurship and fuel the ecosystem! â˘âŻ Helping entrepreneurs ! Operationally! Strategically! Product market ďŹt! Partnerships! Making them âInvestment-readyâ! â˘âŻ US: Y Combinator, Techstars, AngelPad, âŚ! â˘âŻ Europe: Seedcamp, Techstars, Entrepreneurs First, Startupbootcamp, Hub:raum, Startup Sauna, Wayra, Front Row I/O, BBCW Labs, âŚ! Index Ventures!
- 17. CROWDFUNDING! SEED, AT ANY STAGE â˘âŻ Advantages MONEY MARKETING â˘âŻ Equity crowdfunding:! Seedrs, Crowdcube, Angellist, âŚ! JOBS Acts! Advantages & disadvantages! â˘âŻ âPassionâ crowdfuding:! Kickstarter, Indiegogo, âŚ! Advantages & disadvantages! â˘âŻ Fashion-speciďŹc crowdfunding?! Index Ventures! MARKET RESEARCH
- 18. SEED FUNDS! SEED TO SERIES A â˘âŻ Invest almost exclusively in Seed rounds! â˘âŻ London: Connect Ventures, Episode 1, No 1 Seed, EC1 Capital, Hoxton Ventures, Initial Capital, Jam Jar, âŚ! â˘âŻ Germany: Point Nine Capital, Project A Ventures, Paua Ventures, âŚ! â˘âŻ Nordics: Creandum, Northzone, Sunstone, Open Ocean, âŚ! Index Ventures!
- 19. VENTURE CAPITAL FUNDS! SEED OR SERIES A TO SERIES D â˘âŻ Investment strategy! â˘âŻ Return expectations! â˘âŻ LPs! â˘âŻ London: Index Ventures, Accel, Balderton, DFJ Esprit, Atlas, Wellington, ProFounders, Octopus Ventures, Notion, âŚ! â˘âŻ US: Sequoia, Kleiner Perkins, Benchmark, Andressen Horowitz, USV, Index Ventures, Accel, DFJ, âŚ! Index Ventures!
- 20. FASHION SPECIFIC INVESTORS?! WHICH ONES CAN YOU THINK OF?! Index Ventures!
- 22. INVESTORâS PERSPECTIVE! â˘âŻ We have investors, too!! â˘âŻ High risk, hopefully high return for everyone! â˘âŻ IRR EXAMPLE! Invest ÂŁ15m over time, own 5% of ÂŁ1bn exit valuation = ÂŁ50m / ÂŁ15m = 3.3x return! â˘âŻ Trying to ďŹnd the top 1%! â˘âŻ We look for portfolio ďŹt! â˘âŻ Term sheet protections! â˘âŻ Trust trust trust! Index Ventures!
- 23. BEHIND THE CURTAINS! DEALFLOW INBOUND! CONTACTS! OUTBOUND! EVALUATION CALLS & MEETINGS! RESEARCH & ANALYSIS! CUSTOMER CONVERSATIONS! INVESTING TERM SHEET! DUE DILIGENCE! LEGALS! PORTFOLIO BOARD MEETINGS! REGULAR CATCHUPS! RECRUITING HELP! HELP WITH INTRODUCTIONS! FURTHER FUNDRAISING ROUNDS! AGREE BUDGETS! DISCUSS ROADMAP! SPARRING PARTNER! PORTFOLIO SYNERGIES! BRAINSTORM! MENTOR! HELP WITH EXIT! Index Ventures!
- 24. HOW TO APPROACH INVESTORS! â˘âŻ âDo or do not, there is no tryâ! - Brad Feld/Jason Mendelson quoting Yoda! â˘âŻ Make a list of suitable investors for you â look at their existing portfolio and expertise!! â˘âŻ Try to go via your own network â people who know you will be more conďŹdent to recommend you to others! â˘âŻ Positive references = increases trust! â˘âŻ If you canât ďŹnd a common contact, send highly customized email and attach a few slides! Index Ventures!
- 25. WHAT IMPRESSES AN INVESTOR! THE HIGH LEVEL STUFF â˘âŻ Passion! â˘âŻ Product / business model innovation! â˘âŻ Large market up for disruption! â˘âŻ Teams, who! Are best to win their respective market! Capability & drive to build large business! Get things done! Index Ventures!
- 26. WHAT IMPRESSES AN INVESTOR! THE REAL STUFF â˘âŻ Show your product! â˘âŻ Show you can be scrappy! â˘âŻ Know your customer inside out! â˘âŻ Know your market inside out! â˘âŻ Show youâre a team! Index Ventures!
- 27. DREAM Â TEAM Â OPERATOR HACKER DESIGNER HUSTLER SOURCE: DAVID E., HACKER DOJO
- 28. HOW TO DO A DEAL! â˘âŻ At any time: Think about the future! â˘âŻ Amount & valuation: Come up with something that makes sense + give investor the opportunity to get to 20-25%! Amount: How much cash makes sense for your business now! Valuation: Benchmark!! â˘âŻ Employee option pool: At least 10-15%, depending on your needs! â˘âŻ Vesting: Founder vesting and employee vesting for protection! â˘âŻ Ordinary shares (EIS investors) vs. preferred shares (VCs)! â˘âŻ Book recommendations:! - Raising Venture Capital by Rupert Pearce & Simon Barnes (recommended by our lawyer, so can only be great!)! - Venture Deals by Brad Feld and Jason Mendelson! ! Index Ventures! Presentation Title Date! Section Title! 28!
- 29. THE PITCH!
- 30. BUSINESS PLAN VS. PITCH DECK! + Visual and easy to ďŹick through! -⯠Takes ages to get through! -⯠Many irrelevant facts for initial evaluation! -⯠DifďŹcult to differentiate! Index Ventures! + Forces you to focus on key messages! + You can make use of design!
- 31. ANSWER THE RIGHT QUESTIONS! What are you doing?! What problem are you solving?! Who else is doing it?! Why are you going to win the market?! How are you going to make money?! KPIs / how do you track your progress?! Index Ventures! Presentation Title Date! Section Title! 31!
- 32. SUGGESTED STRUCTURE! TEAM!" SUMMARY" Ăď GET PEOPLE INTERESTED!! MARKET " Ăď TOP DOWN / BOTTOM UP! PROBLEM" SOLUTION = YOUR PRODUCT" BUSINESS MODEL" Ăď MAIN PART!!! Ăď 1-2 SOURCES OF REVENUES!! COMPETITION " !! ERE REH Eâ Ăď W BUSINESS PLAN AND ROADMAP" Ăď WHAT, WHEN, WHERE, HOW! FINANCIALS + METRICS" Ăď PAST METRICS > PROJECTIONS! FUNDRAISING" Ăď HOW MUCH $ + WHAT FOR! " Index Ventures!
- 33. THE DOâS! â˘âŻ Have one presentation to present and one to send! â˘âŻ Make sure the problem is clear! â˘âŻ Show what you have done!! Product demo e.g. screenshots, videos, live demos! Metrics e.g. users, KPIs, engagement! â˘âŻ Show how you will get users! â˘âŻ Show how you can get to positive unit economics! â˘âŻ Show how you can get to scale! Index Ventures!
- 34. THE MEETING! â˘âŻ Know who youâre pitching to! â˘âŻ Pitch your problem ďŹrst! â˘âŻ Bring your most important stuff ďŹrst! â˘âŻ Interactive session: React to your audience! â˘âŻ Make sure your demo works! â˘âŻ Have some questions! â˘âŻ Leave an impression!! Index Ventures! Presentation Title Date! Section Title! 34!
- 35. CASH IN THE BANK â AND NOW?!
- 36. NOW ITâS ALL ABOUT! VALUE CREATION â˘âŻ Increase users! â˘âŻ Increase engagement! â˘âŻ Increase productivity! â˘âŻ Increase revenues! â˘âŻ Increase margins!
- 37. AS SIMPLE AS THAT! REVENUES! BREAK EVEN! COST! CASH! Year 1! Year 2! CASH BURN PHASE! Year 3! Year 4! Year 5!
- 38. COMMON USES OF FUNDS! â˘âŻ Hiring hiring hiring! â˘âŻ Development = product!! â˘âŻ Building out sales functions = customers!! â˘âŻ Marketing = customers!! â˘âŻ Internationalization! â˘âŻ Potentially acquisitions! Index Ventures!
- 39. CONTROL YOUR FINANCES! â˘âŻ Set targets! â˘âŻ Track KPIs including unit economics! â˘âŻ Track P&L versus budget! â˘âŻ Keep an eye on cash burn and run rate â prepare for potential further fundraises! Index Ventures!
- 40. ALWAYS REMEMBER! Make sure you keep ďŹguring out! â˘âŻ Product market ďŹt â test iterate test! â˘âŻ Viable product â test iterate test! â˘âŻ Viable customer segment â test iterate test! â˘âŻ Unit economics â make them work before you scale! Index Ventures!
- 41. THEMES IN ONLINE FASHION TECH!
- 42. WAVES OF FASHION TECH! FIRST WAVE! STRAIGHT FORWARD E-COMMERCE! e.g. NET-A-PORTER, ASOS, AMAZON, ZALANDO! SECOND WAVE! FLASH SALES, LEAD GEN, CURATION, ONLINE-OFFLINE, âŚ! e.g. ZULILY, THE FANCY, BONOBOS, MATCHES.COM, âŚ! THIRD WAVE! PERSONALIZATION, DATA, PEER-TO-PEER, WEARABLE TECH, âŚ! e.g. TRUNK CLUB, EDITD, POSHMARK, JAWBONE, âŚ! Index Ventures!
- 43. MARKETPLACES! uďľâŻ Etsy! uďľâŻ Farfetch! uďľâŻ Not On The Highstreet! uďľâŻ Vestiare Collective! uďľâŻ Shapeways! uďľâŻ Joor! uďľâŻ Botticca! uďľâŻ StreetHub! Index Ventures! Presentation Title Date! Section Title! 43!
- 48. Index Ventures! THANKS!! ! email nina.faulhaber@indexventures.com! twitter @ninafaulhaber!