Closing the Deal 2011

Raising Capital:Closing the Deal

Joe BeninatoApril 14, 2011

joe |at| beninato |dot| comTwitter: @beninato

© Joe Beninato 2011

Topics• Preparation

• Should I Raise Money?

• Angels vs. VCs

• Convertible Note vs. Priced Round

• Finding the Right Investor

• The Approach

• The Meeting

• The Follow-Up

• Closing the Deal


Who Is This Guy?• Joe Beninato

• Founder/CEO of Tello

• 500 Startups investee

• 500 Startups mentor

• MIT aerospace engineer

• 22 years in Silicon Valley

• 6 startups full-time2 IPOs, 2 acquisitions, 2 TBD

• 15+ startups advisor/board

• $200+ million capital raised

• >$1 billion in exits


“Be prepared.”


Preparation• Raising money is not formulaic

• Present company in best light

• Demo Day is the beginning, not the end

• “Show a little leg”

• Get to first base

• Long process -- get mentally prepared

• You will hear “no” WAY morethan you will hear “yes”

• Some of you will not get funded


Q: Should I Raise Money?

A: Only if you have to• Professional investors change your life &

company

• What’s your goal?

• Can you wait?

• Breakeven now or soon?

• Credibility

• Rainy day fund

• Competition


Angels vs. VCs - circa 2009

Angel Groups

Band of AngelsSand Hill AngelsAngels Forum

Golden Gate AngelsKeiretsu Forum

PAPA

Angels

Ron ConwayReid Hoffman

Russ SiegelmanAydin SenkutXG VenturesAriel Poler

Brett BullingtonMitch KaporChris SaccaBill Harris

Joi ItoEsther Dyson

Michael DearingNaval Ravikant

Seed Incubators

fbFund REVY Combinator

TechStarsSeedcamp

Launchbox Digital

Seed Funds

fbFundFirst Round Capital

TrueSoftTechBaselineMaples

MHS (Sugarman)Amidzad

Alsop-LouieCRV Quickstart

TugboatNuevaAgile

AmicusO’Reilly AlphaTechFounders Collective

VCs

SequoiaBenchmark

AccelSutter Hill

Union SquareFoundryShastaAugust

GreylockFounders Fund

DFJCRV

TrinityMatrix

VenrockAndreessen-

Horowitz...

*My apologies to anyone omitted on this slide...no offense intended


Angels vs. VCs - circa 2011

Angel Groups

Band of AngelsSand Hill AngelsAngels Forum

Golden Gate AngelsKeiretsu Forum

PAPA

Angels

AngelListRuss SiegelmanMark GoinesXG VenturesAriel Poler

Brett BullingtonOpen Angel Forum

Seed Incubators

500 StartupsY Combinator

TechStarsFounder Institute

Seed Funds

500 StartupsSV Angel

FelicisLowercaseFirst Round

True VenturesSoftTechBaseline

FLOODGATEO’Reilly AlphaTechFounder Collective

Harrison MetalFreestyle

Kapor Capital

VCs

SequoiaBenchmark

AccelSutter Hill

Union SquareFoundryAugust

GreylockFounders Fund

DFJCRV

TrinityMatrix

VenrockAndreessen-

Horowitz...

*My apologies to anyone omitted on this slide...no offense intended


Finding the Right Investor is Hard“I’m on

too many boards”

“it’s a small market”

“I don’t like sports”

“not enough traction”

“weak team”

“no revenue model”

“too expensive”

“my partners don’t like it”


Finding the Right Investor is Hard


Convertible Note vs. Priced Round

• Convertible Note

• Loan that gets added to next round with perks (discount, warrant coverage, cap)

• Cap = essentially a priced round

• Nocap = delayed valuation

• Significantly lower legal fees ($5k)

• Priced Round

• Investors generally prefer

• You know where you stand

• Higher legal fees ($40-50k for both sides)


Maximizing Your Chances• Be honest

• Credibility

• 500 Startups Accelerator

• Team accomplishments

• Advisors

• Lawyer

• Other investors

• Cool demos

• Users

• Page views

• Partnerships

• Revenue!

• Profit!!!!!


The Approach• Identify relevant targets and make a spreadsheet

• You need a warm intro

• Don’t approach competitors

• Don’t waste time on associatesif you can avoid it

• Send intro paragraph & 1 pageexec summary and/or link to site

• Be clear on your “ask”

• NEVER COMMUNICATEA VALUATION!

• Be persistent, but once declined,back down

• Lather, rinse, repeat

• NOTE: Be really friendly to assistants


AngelList

• It works and is changing the game

• Highly efficient introductions

• Social proof

• Be careful about broadcasting to competitors

• Doesn’t change the hard work after the intro

• Know your investors


The Meeting• Do your homework

• Confirm the night before via email

• Don’t be late

• Don’t meet for lunch

• Find out how much time you have

• Have a great deck - concise, clear

• Be confident, smile, show passion

• Know your business• Know your pitch inside and out• Teach them something

• Don’t argue

• If you don’t know an answer, say“I don’t know, let me follow up”

• Be clear on your “ask” - NEVER COMMUNICATE A VALUATION!

• If you don’t suck, and you feel there’s interest, ask about next steps


The Follow-Up• A game of patience and persistence

• The next morning, send follow-up email

• Thank them for their time

• Make sure they know you heard their issues

• Follow-up on any open issues

• Confirm next steps (if any)

• A day after they miss the next step (and they will), email again

• 5 days after they miss the next step (and they will), call them

• Pay close attention to the feedback

• Don’t be insulted with a “no” -- embrace it!

• Keep reviewing your spreadsheet and following up


How VCs Say “No”

• “No” “Nein” “Non” “Nyet”

• They don’t return your calls or emails

• “We love what you’re doing but would like to see more progress”

• “We’d like to see what your new beta looks like”

• “Have you thought about hiring a _______ ”

• “Have you thought about approaching _______ ”

• “We’re interested, but we don’t want to lead”


Closing the Deal:Angels

• Angels invest in people/concepts they like

• They don’t need to own 20% like VCs

• Get an angel to commit and leverage that

• You need a lead investor to provide term sheet

• Sometimes you can provide term sheet

• Make sure your angels aren’t wannabe CEOs

• No board seats for angels

• Rely upon your lawyer and advisors for advice


Closing the Deal:VCs

• VCs typically want 20% minimum

• Get angel(s) to commit and leverage that

• Ideal: get multiple VCs to compete

• Never rush an investor

• Don’t lie about a fictitious term sheet, etc.

• Rely upon your lawyer and advisors for advice

• Due diligence takes time

• Check references on your investors

• Board composition REALLY matters


Blatant ad:Go download Tello now!


Best of luck!

Business

Closing the Deal 2011