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Funding Strategies to Go the Distance

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Startup Secrets workshop on Funding Strategies to Go the Distance

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Funding Strategies to Go the Distance

  1. Startup Secrets: Funding Strategies to Go the Distance 6.19.19
  2. Confidential & Proprietary @underscorevc Startup Secrets Workshops 2 1. What’s Your Roadmap to Success? 2. Building a Compelling Value Proposition 3. Turning Products into Companies 4. Culture, Mission and Vision 5. Hiring A+ Talent 6. Game-Changing Business Models 7. Go to Market Strategies 8. Getting Behind the Perfect Investor Pitch 9. Funding Strategies to go the Distance 10. Have You Got What It Takes? 11. Mastering Mutual Mentorship
  3. Confidential & Proprietary @underscorevc Agenda ● Many ways to fund your startup ● Develop a funding strategy ● Remove the mystique of VC 3
  4. Confidential & Proprietary @underscorevc 4 Raising money is like sex. Everyone wants to know about it. Few people talk about it openly.
  5. Confidential & Proprietary @underscorevc Should you even raise money? ● If you don’t know, the answer is no! ● Do the work first Example reasons for a NO: ● No need! ● Personal: risk aversion, lifestyle, control ● Business: small potential ● Other: not for profit, or research Funding Strategy 5
  6. Confidential & Proprietary @underscorevc Ideation Confirmation Creation Validation Repeatability Scalability Profitability Predictability Overview: 6
  7. Confidential & Proprietary @underscorevc Ideation Confirmation Creation Validation Repeatability Scalability Profitability Predictability Increasing VALUE DecreasingRISK Overview 7
  8. Confidential & Proprietary @underscorevc Ideation Confirmation Creation Validation Repeatability Scalability Profitability Predictability Increasing VALUE DecreasingRISK Overview 8
  9. Confidential & Proprietary @underscorevc Increasing VALUE DecreasingRISK Product Market Fit Prototype Problem Fit Value Prop Idea Fit MVP & MVS Customer Fit Company Execution Fit Company Public Market Fit Company Business Model Fit Ideation Confirmation Creation Validation Repeatability Scalability Profitability Predictability Overview 9
  10. Confidential & Proprietary @underscorevc Ideation Confirmation Creation Validation Repeatability Scalability Profitability Predictability Increasing VALUE DecreasingRISK Startup Secret! The Best Times to Raise Capital 10 The two best times to raise capital: With all the potential or Plenty of proof
  11. Confidential & Proprietary @underscorevc Funding Vectors: Matching Expectations & Outcomes 11
  12. Confidential & Proprietary @underscorevc Equity ● Angel ● Accelerators ● Seed, Venture Capital (including Strategic / Corporate investors) ● Growth, Private Equity ● Public Markets Other ● Bootstrap ● Friends and Family ● Debt ● Grants, subsidies, off balance sheet Alternatives ● Business Crowdfunding (e.g., AngelList), Products / Services (e.g., Kickstarter) Typical Sources 12
  13. Confidential & Proprietary @underscorevc LargeSmall Capital Potential Intense Efficient What’s Right for You? 13
  14. Confidential & Proprietary @underscorevc This could get complicated, but it doesn’t have to! simplified. Sex, Relationships and Money 14
  15. Confidential & Proprietary @underscorevc LargeSmall Capital Potential Intense Efficient What’s Right for You? 15 VC
  16. Confidential & Proprietary @underscorevc Seed: ~ $100K to $1-3m ● See later A to IPO ● $Millions, multiple rounds Stage development participation, involvement ● Active (board seat) ● Passive (follow “lead” investors) Venture Capital 16
  17. Confidential & Proprietary @underscorevc VCs receive thousands of plans 17
  18. Confidential & Proprietary @underscorevc This is what happens to most! 18
  19. Confidential & Proprietary @underscorevc ❑ Fit: Geography, Sector, Stage ❑ Portfolio: Complementary, competitive? ❑ Partner(s) ❑ Track Record ❑ Capital, free capital, reserves Research 19
  20. Confidential & Proprietary @underscorevc ❑ Fit: Geography, Sector, Stage ❑ Portfolio: Complementary, competitive? ❑ Partner(s) ❑ Track Record ❑ Capital, free capital, reserves Target. Be Selective. Focus. 20
  21. Confidential & Proprietary @underscorevc 21 Build a Relationship. You could be partners for several years.
  22. Confidential & Proprietary @underscorevc ● Find someone who knows the VC ● Get a warm introduction ● Interact online ● Use your initiative! Triangulate Ways to Connect 22
  23. Process?
  24. Confidential & Proprietary @underscorevc You ● Research ● Connect ● Meet ● Motivate ● Diligence ● Fit check ● Pitch ● Legal ● Celebrate (briefly!) The VC ● Thesis ● Qualify ● Meet ● Prioritize ● Engage ● Socialize ● Partner meeting ● Final diligence ● Fund Process: Framework 24
  25. Confidential & Proprietary @underscorevc Make a connection Establish ● Who are you (relevant experience) ● What do you do (uniquely well for who) ● Why does it matter (market opportunity) Investors often have ADD ● Not value add – A.D.D. ! ● Limit the agenda, control the discussion, get the first meeting! First Connection: Who? What? Why? 25
  26. Confidential & Proprietary @underscorevc Tell your story … See “Getting Behind the Perfect Pitch” First Meeting 26
  27. Confidential & Proprietary @underscorevc You ● Research ● Connect ● Meet ● Motivate ● Diligence ● Fit check ● Pitch ● Legal ● Celebrate (briefly!) The VC ● Thesis ● Qualify ● Meet ● Prioritize ● Engage ● Socialize ● Partner meeting ● Final diligence ● Fund Process: Build Momentum 27
  28. Confidential & Proprietary @underscorevc Startup Secret! Incomplete Stand Outs Are Better Than Complete Stand Ups! 28 ● Investors are looking for outstanding: ○ People ○ Technology or other disruption ○ Market opportunity ● One outstanding of the above stands out versus all good, but none great ● Investors don’t expect complete: ○ Team ○ Product ○ Value prop ○ GTM plan ○ Business Model ● Entrepreneurs don’t need all the answers! ○ They just need to be self aware, listening, leaders!
  29. Dating and Validating Why Diligence is so Important to YOU too
  30. Confidential & Proprietary @underscorevc Everyone’s money is the same color Get to know the partnership and their portfolio This is NOT an arranged marriage! Pick your partner. ● Level of insight and experience ● Track record is great but it’s history ● Talk to others who have worked with them ○ Will they be a balance for you? ○ Good self-aware mentor? ● Find someone who is genuinely motivated to set you up for success. ● If you don’t have comfort and personal chemistry… KEEP LOOKING! Dating: Evaluating Investors 30
  31. Confidential & Proprietary @underscorevc Operating experience? Investment experience? Hands on/off? Thoughts: ● Team and board building ● Remove roadblocks ● Reveal opportunities to accelerate ● Strategic insight ● Access to resources, network Expectations of your VC? 31
  32. Confidential & Proprietary @underscorevc Get to know the team ● Time, References, etc. Understand the business ● Value proposition, business model Check under the hood ● e.g., Expert opinion on tech Validate assumptions ● GTM Strategy, speak to customers, partners Validating the VC’s work 32
  33. Confidential & Proprietary @underscorevc You ● Research ● Connect ● Meet ● Motivate ● Diligence ● Fit check ● Pitch ● Legal ● Celebrate (briefly!) The VC ● Thesis ● Qualify ● Meet ● Prioritize ● Engage ● Socialize ● Partner meeting ● Final diligence ● Fund Process: Term Sheet Timing 33 Term sheet? Term sheet?
  34. Confidential & Proprietary @underscorevc First Question ● How much do you need? Funding Strategy Questions 34
  35. Confidential & Proprietary @underscorevc Run the numbers Build the assumptions Assess the dependencies Define the milestones Enough to build real value ● 18 months of runway typically How Much Do You Need? 35
  36. Confidential & Proprietary @underscorevc Assumptions Things to test Minimally: cash flow projection Optimally: Financial forecast More Important Than the Spreadsheet 36
  37. Confidential & Proprietary @underscorevc P&L Cash Flow ● 6 quarters for cash flow, requirement For sizing the business, overall capital requirement (informs investor for their reserves) ● Annual P&L, CF up to 5 years thereafter; ○ Highlighting if applicable ■ Cash flow positive ■ Breakeven Suggested information / detail as needed for the above ● Headcount ● Bookings ● Revenue ○ May need to break out things like Services depending on your business ● Gross Margin ● Expenses ○ Major categories like R&D, Sales, Marketing, G&A shown as needed ● Profit / Loss ● Cash Financials 37
  38. Confidential & Proprietary @underscorevc Realistic Optimists 38
  39. Confidential & Proprietary @underscorevc First Question ● How much do you need? Second Question ● How much do you want? Funding Strategy Questions 39
  40. Confidential & Proprietary @underscorevc Enough to build real value Define the milestones ● Key hires ● Product beta, ship ● First customers ● Channel Partners ● Etc. 18 months of runway typically How Much Do You Want? 40
  41. Confidential & Proprietary @underscorevc First Question ● How much do you need? Second Question ● How much do you want? Third Question ● What should you raise? Funding Strategy Questions 41
  42. Confidential & Proprietary @underscorevc One strategy (dilution sensitive, risk tolerant) ● Raise just what you need ● Just before you need it? Another strategy (dilution insensitive, risk intolerant) ● Raise more than you need ● Well before you need it Either way ● Timing is everything, so plan! ● Assume the unexpected What Should You Raise? 42
  43. Confidential & Proprietary @underscorevc Predictability of your business ● Your execution ● Market adoption ● Cash flows (business model) ● Potential outcome (risk / return) Competitors’ balance sheets Valuation… Factors 43
  44. Confidential & Proprietary @underscorevc The sixty-four-million- dollar question… Valuation 44
  45. Confidential & Proprietary @underscorevc Valuation Vectors 45
  46. Confidential & Proprietary @underscorevc Always be one round ahead in your thinking. ● Proof (Metrics, Milestones per earlier) ○ Customers, Partners, GTM Strategy, Business Model, Product ● Allow for ○ Unknowns ○ Time to fundraise ● Capital to capitalize! Startup Secret! Don’t Just Value…Evaluate! 46
  47. Confidential & Proprietary @underscorevc Potential acquirers ● Their motivations ● Recent transactions in the space ○ - $ paid and valuations basis Independent beyond IPO ● Comparable valuations ○ Data for these like revenues, growth rates, market cap Ultimate Exit Potential (if you must) 47
  48. Confidential & Proprietary @underscorevc ● Build relationships between financing rounds ● Always ready to close ABC: Always Be Closing 48
  49. Confidential & Proprietary @underscorevc Human capital Invest in it with your option pool! Startup Secret! The Most Important Capital You’ll Raise 49
  50. Confidential & Proprietary @underscorevc ● Investor fit ● Amount of capital raised ● Human Capital (option pool) ● Timing (To clear the bar: Clean Terms) What Really Matters 50
  51. Startup Secrets: Funding Strategies to Go the Distance 6.19.19

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