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Andrew Ackerman, Managing Directorandrew@dreamit.com
+1.917.478.5838 @andrewackerman @dreamit
How to Close Your First Round
Step 1: Prospecting
3
Key Insight:
You generally want to have a list of 50-100 relevant investors before kicking off your round.
Master the customer meeting❏ When to meet❏ Who to meet❏ Where to
meet❏ What to
show & ask❏ How to run the
discussion
4
What Do Fishing and Fundraising Have in Common?
Master the customer meeting❏ When to meet❏ Who to meet❏ Where to
meet❏ What to
show & ask❏ How to run the
discussion
5
Absolutely Nothing
❏ If you think you can just put your company out there and wait for investors to nibble, you will catch nothing
❏ If you think waiting patiently will bring results, you will be waiting a long time
❏ If you think it's a one person job, you are nuts
Master the customer meeting❏ When to meet❏ Who to meet❏ Where to
meet❏ What to
show & ask❏ How to run the
discussion
6
A Better Analogy: Hunting
Master the customer meeting❏ When to meet❏ Who to meet❏ Where to
meet❏ What to
show & ask❏ How to run the
discussion
7
You need to track your prey…
Master the customer meeting❏ When to meet❏ Who to meet❏ Where to
meet❏ What to
show & ask❏ How to run the
discussion
8
… with as much help as possible…
Master the customer meeting❏ When to meet❏ Who to meet❏ Where to
meet❏ What to
show & ask❏ How to run the
discussion
9
… and be aggressive
Master the customer meeting❏ When to meet❏ Who to meet❏ Where to
meet❏ What to
show & ask❏ How to run the
discussion
10
How to Prospect for Investors like a Big Game Hunter
❏ Find a comparable company❏ Make note of all their investors❏ Check out each of those investors❏ Make note of all their other❏ Investments❏ Iterate, iterate, iterate
Build Your Prospect List
Meet Your New Best Friend
Tip: is nice too
Master the customer meeting❏ When to meet❏ Who to meet❏ Where to
meet❏ What to
show & ask❏ How to run the
discussion
16
You probably want to avoid talking to investors who are investing in your direct competitors
Do Not Stop Until You Have 50-100+ Prospects
❏ A = Most active investors in relevant startups. Your hottest prospects.
❏ B = Moderately active. Still pretty good prospects.
❏ C = 1 or 2 investments in your space. Not so hot.
Pitch the B list first
Meet Your Next Best Friend
❏ Type each investor's name into LinkedIn to find mutual connections who you can ask for warm introductions.
❏ Only count people who know you well enough to make a credible introduction.
Use LinkedIn to Build Your Connector List
Unlimited Introductions
There are Three Kinds of Connectors
Use Sparingly Do Not Use
Add Them to Your Prospect Spreadsheet
Use the "Unlimiteds" first. Then turn to "As Needed" … … and try to spread the burden evenly
Reaching Out To Connectors
❏ Sprint, not a marathon❏ Get a quick Yes or No❏ Follow up within 4-7
days❏ No response? Reach
out to another connector
❏ Have a clear, killer subject line❏ Make it short, forwardable, & scannable❏ Give them an easy out (viz., get a quick
no)❏ Use tools like Boomerang to keep track
of outstanding requests
Be an Email Ninja
Step 2: Pitching
(The much-abbreviated, how-not-to-trip version)
26
Key Insight:
Most pitches fail because the founders don’t have a believable and exciting story.
Tell a story
Share Your Vision
❏ What’s your BHAG?❏ What makes your company
compelling?
Why Should I Believe You?
Every doctorwill want one!
2 - 3 Key Assumptions
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The risks are not always obvious
@dreamit #FundRaising
Step 3: Crossing the Finish Line
34
Key Insight:
Getting to “yes” is not enough. If you do not understand, own, and drive the process forward, you will fail to close your round.
They like you! Now what?
❏ Will name a specific amount they are willing to invest
❏ Will lead the round OR❏ Sets specific criteria for secure their investment❏ Lets you use his name with potential lead investors❏ Will actively help you network for other investors
Soft-Circle That Investor If...
❏ Not before the term sheet is signed❏ Prospective Lead Investors may team up to drive less friendly terms❏ You want multiple, competing term sheets to choose from
When To Name Drop?
❏ Definitely after the term sheet is signed❏ Adds credibility and encourages
other investors to join syndicate
You Got a Term Sheet!
Your round isn’t their top priority
Don’t Be This Guy!
42
It may be your first time at the rodeo......but it certainly isn’t theirs
❏ Don’t agree to anything before reviewing with your lawyer and advisors
❏ Give your lawyer advance notice when you are expecting a term sheet
❏ Provide timeframe for response to investors when asking lawyers to review
Managing Term Sheet Negotiations
Your Lawyer Advises...
❏ Explains term sheets❏ Explains financial ramifications of terms❏ Protects you from legal issues❏ Reviews all documents
… but you drive the process
Economics❏ Price❏ Liquidation Preference❏ Option Pools❏ Founder Vesting
Control❏ Board of Directors❏ Protective Provisions❏ Participation Rights❏ Drag-Along❏ Conversion❏ Exclusivity
Understand Your Term Sheet
❏ Establish a virtual data room (Google Drive, DropBox, Docusign)❏ Digitize all critical documents the day they are created and again
on the day they are signed.❏ Save with long, descriptive file names❏ Have a secure, organized system for filing critical paper copies❏ Ask investors for their standard due diligence checklist and
required documents❏ Do YOUR diligence on the investors by reference checking VC’s
with companies that have both been successful and that have failed
Be Prepared for Due Diligence
Typical Due Diligence ChecklistTeam❏ Reference checks & CVs❏ Compensation structures❏ Working environment❏ Involuntary terminations❏ Attrition (why?)❏ Pending lawsuits❏ Employment contracts❏ Key employees❏ Stock option plan
Operations❏ Financial statements &
projections❏ Business partners❏ IP, patents, applications❏ Board of directors❏ Insurance (liability, BOD, other)
Customers❏ Customer reference checks❏ Client list and pipeline report❏ Distribution model
Due Diligence Best Practices
❏ Ensure your team knows the vision presented in your investor pitch and their roles in achieving success
❏ Have your team accurately reflect their roles with your startup on social-media profiles and resumes
❏ Assign a point person for communications❏ Answer investor questions thoroughly❏ Prepare your lawyer to answer questions from investors and their
lawyers❏ Validate satisfaction of reference customers in advance
Why VCs Pull Term Sheets
Financial Negotiations
❏ Aggressive non-standard terms
❏ Stock option plan less than customary 15%
❏ Non-standard vesting❏ High founder salaries❏ Repayments of founder
“debts” from proceeds❏ Investor syndicate unlikely to
invest in future rounds
Due Diligence Findings
❏ Story does not hold up ❏ Customer issues❏ Management issues ❏ No clear leader/CEO❏ Unexplained discrepancies in
materials❏ Not hitting financial plan
Do not lie. You will get caught.
Long Form Documents
❏ After term sheet is signed, typically investor will supply you with long form documents:❏ Share purchase agreement (SPA) and more if an equity round❏ Promissory note and more (for convertible note)❏ Representations (Reps) & Warranties❏ … and a whole lot more
❏ Your attorney on point but make sure you understand and are driving to close
❏ Typically you pay for both parties’ legal work
Remember: The round is done when the money is in the bank!
VC vs. Angel Money: http://www.entrepreneur.com/article/199604
Term Sheets: http://blog.thesecretofraisingmoney.com/termsheet/
Term Sheet Payout Calculator: http://gizmo.startupfreak.com/termsheet1.1/
Convertible Debt: https://www.startups.co/articles/convertible-debt-what-you-need-to-know
SAFEs (Convertible Securities): https://www.ycombinator.com/documents/
http://shockwaveinnovations.com/2013/12/21/reviewing-the-new-safe-investment-instrument/
For more information on:
Due Diligence Process: http://www.marsdd.com/mars-library/the-due-diligence-process-in-venture-capital/
Due Diligence Checklist: https://www.asme.org/getmedia/86b994d9-2faf-43b5-9b57-4cb6e727a3a2/Due_diligence_checklist.aspx
https://www.cooleygo.com/documents/sample-vc-due-diligence-request-list/
For more information on:
Andrew Ackerman, Managing Directorandrew@dreamit.com
+1.917.478.5838 @andrewackerman @dreamit
How to Close Your First Round
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