I had the pleasure of mentoring the 2013 Founder Institute class in Chicago on fundraising for startups. Here was my presentation. This presentation addresses the following topics. When is it realistic to raise capital for a brand new company? How should you calculate the amount of money to raise? How should you define the use of proceeds? What materials are required to fundraise? How do you identify and qualify target angel and seed stage investors? How do you find a lead investor? What do investors expect from the company? What are typical investment structures and deal terms for seed-stage financing? How do you negotiate terms? For future lessons, please read my 101 Startup Lessons online book at the Red Rocket Blog (http://redrocketvc.blogspot.com). And, please follow me at www.twitter.com/georgedeeb.

1. Fund Raising

2. About George Deeb
• Managing Partner (2010 to date)
• Chairman & CEO(2009-2010)
• Founder & CEO (1999-2008)
• Investment Banker (1991-1999)
• BBA-Finance (1987-1991)

3. Agenda
• When is it realistic to raise capital?
• How do you calculate the amount to raise?
• How should you define use of proceeds?
• What materials are required for fund raising?
• How to identify & qualify target angel investors?
• How do you find a lead investor?
• What do investors expect from the company?
• What are typical investment terms?
• How do you negotiate terms?

4. When Should You Raise?
• Professional Investors Typically Require . . .
o Product built
o Proof of concept behind the business
- Growing user base
- Growing revenues
- Profitable unit economics, high margins
- Marketing tested and profitable COA
- Credible Roadmap to a 10x ROI
• Which Means Bootstrapping Until Then
o Your cash, home equity, credit cards, etc.
o Co-founders with cash or willing to work for equity
o Vendors willing to provide discounts for equity
o Angels, friends, family or other seed stage investors

5. How Much to Raise?
• Model What You Will Need to Fund 12-18 Mos.
o Technology
o Marketing
o Operations
o Staff & Professionals
• Ask for Double The Need
o Nothing ever goes perfectly to plan
o Leaves you a cushion for a rainy day fund
o Harder to raise money later if you miss plan
• Don’t Ask for Too Much
o At seed stage, $250K to $750K is reasonable
o Set clear milestones to hit, for next round

6. What Use of Proceeds?
• Proceeds Must Fund Future Growth
o Investors do not like paying off old debts
• Improvements to Product or Technology
o Not original build, but additional features from beta
• Additions to the Team
o Needed mgmt or staff for next phase of growth
• Sales and Marketing Plans
o Salespeople if B2B business
o Consumer marketing budget for B2C business
o To scale proven initiatives to date (no experiments)

7. What Materials Needed?
• High Level Investor Presentation
o 10-15 page Powerpoint presentation
o Company, model, team, industry, financials, needs
o A large problem in industry, and your scalable
solution
• Backup Supporting Materials
o Research done on industry & competition
o Data from past marketing tests
o Pipeline of sales prospects to justify first year plan
• Credible References from Happy Customers
• Financial Model
o Two years of history plus five years of growth
o Credible roadmap to 10x ROI for investors

8. How to Target Investors?
• Work Your Network
o Much higher odds if a trusted person introduces you
• Partners at VC Firms or Angel Networks
o Individuals typically used to seed stage deals
• Angel Investing Networks (online or offline)
o AngelList, Gust, Hyde Park Angels
• Crowd Funding & Crowd Donations Sites
o Kickstarter, IndieGogo, Rocket Hub, Early Shares
• Strategic Investors in Your Space
o Companies that would most benefit from your product
• Key Individuals in Your Space
o People that understand your industry—recent exits

9. Picking a Lead Investor?
• Pick the Right Firm
o Clear expertise with seed stage companies
o Clear expertise in your industry
o Big pool of fresh funds, can grow with you
o Cache of brand association with that firm
• Pick the Right Person
o Right personality fit
o Executive experience preferred to financial guy
o Big rolodex to bring to the table
o Happy portfolio company references
• Pick the Right Terms
o Best valuation and least onerous terms

10. Investor Expectations?
• Large Industry, Limited Competition
• A Credible and Complete Mgmt Team
• Well-Thought Business & Revenue Model
• Product Built and Used by Customers
• Tested & Profitable Go To Market Plan
• Happy Customer References
• Credible Roadmap to 10x ROI
• Passionate, Flexible Entrepreneurs Who
Understand Their Goals
• Established Relationship—Don’t Start with
Money Raise, Groom Over Time

11. Investment Terms?
• Decide on What Structure
o Don’t believe early stage companies should take on
debt, given uncertainties
o Equity or Convertible Debt are good options
o Convertibles are most flexible for future investors
• Typical Equity Deal for Seed Stage
o Investors to get 25-50% stake, in total
o Preferred security—paid in front of others
o Anti-dilution protection
o Board seat and control provisions
• Typical Convertible Debt Deal
o Valuation 20% discount to next round--$2-$4MM cap
o Pre-payment premium of 1.5x-2.0x of principal
o Interest rate of 5%-8% (paid in kind)
o 18-24 month term

12. How to Negotiate Terms?
• Create High Demand, Sense of Scarcity
o Get multiple investors interested
o Let them know other term sheets coming in
o Play “hard to get”, like they need you more
• Be Smart of What Points are Negotiable
o Certain terms are set in stone, others not
• Be Smart on What are Market Rate Terms
o Investors can be flexible within reason
• Nothing is Better Than Fast Growth Biz
o Investors want to jump aboard next rocket ship

13. Further Reading
http://www.RedRocketVC.com
• Lesson #4: How to Raise Capital for Your Startup
• Lesson #5: How to Find Angel Investors
• Lesson #10: How to Best Approach VC’s and Angels
• Lesson #32: How to Value Your Startup
• Lesson #109: Equity vs. Debt vs. Convertibles
• Lesson #116: Seed Investment Terms & Trends
• Lesson #119: How to Screen VC’s
• Lesson #125: How to Bootstrap Finance Your Startup
www.twitter.com/georgedeeb