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Raising equity funds
Preparing the Pitch
Gerry Barañano
Tech Futures Group
Discussion Points
• Introduction of Tech Futures Group
• Equity spectrum
• First understand this
• Know your audience: Family, Angels, Venture Capital
• Best funding source: Angels or VCs?
• Pitch itself— clear, compelling, credible
• Sample pitches – original!
• AirBnB
• Mint
2
Non-Profit - Providing 100% FREE Business Advice
Takes no equity
Accepts no cash
A program of the Small
Business Development Center
(SBDC)
3
What Is Tech Futures Group
Sponsored and funded by:
Funding Constraints Limits TFG To
Great Advisors Only 4
Office
spaceCash for
equity
Program
Training
Limited
Time Period
Just Great Advisors!✓
Capital Infusion:
Debt
Equity
Government Grants
Jobs
Revenue
3
How Is TFG Measured?
How Does It Work
Submit an application online1
Internal application review2
EIR pairing 3
Specialty advisors brought in by EIR to assist4
Client reports milestones and provide success story 5
4
TFG Advisors – Work as a Team
Client
Entrepreneurs In Residence
Patent
Attorneys
Financial Models Grants – SBIR
Manufacturing
5
Business Advisory Board8
Advising Expertise TFG Advisors
CEO Business Strategy ✓
Intellectual Property ✓
Fundraising and Pitch preparation ✓
Manufacturing ✓
Private Equity & Financing ✓
Financial Modeling ✓
Business Development ✓
Go-To-Market ✓
Government Grants ✓
Economic Impact
Since
6/2012
Capital
Funding
Clients
Advised Revenue Jobs
TOTAL $123.5M 376 $97.9M 1,376
Economic Impact: Since Inception (6/2012)
Year
Capital
Funding
Clients
Advised Revenue Jobs
2016 $39.39M 83 $43.1M 615
Economic Impact: Year 2016
6
BIO – Gerry Barañano
• Extensive operating experience
• GM, Sales and Marketing
• Broad technology industry experience
• Multiple start-up experiences
• Strategic Business Development Consultancy
• Yale Undergraduate; Stanford MBA
10
Equity Spectrum 11
Other Options (not covered here)
Corporate investment
Government grants
Client contracts – Engineering contracts
• Easier to obtain capital with
less documentation
• More negotiating power
• Less money
• More documentation
is required
• Less negotiating power
• More money
Friends & F
amily
Crowd-
fundingAngel
Investors
Venture Capitalist
Angel Group
Accelerator
<$100K $50-$100K $75-$125K $250-$1M+ $2M+
First, Understand the Audience
Purpose of pitch: Stimulate Interest, Get the next meeting
Communicate “enough”, not everything
Mind of an Investor
Greed Fear
Will this team make me $$
Big problem? Big market?
Can I trust them?
Spend lots of time with them?
What will my partners think?Can I make $$?
How much $$?
Acquirer?/IPO?
Investor Mind: Money
Unmeet need
Large growing market
We have the solution
13
What you pitch:
Is there $ to be made?
What investors hear:
Right team?
Know how to make $$
Financials look good
Are these the right
people to execute and
make me $$?
How much $$?
First, Understand This
Body language trumps words
What people hear:
Words – ⅓ or less
Body language – ⅔
Mechanics of the Actual Pitch
PAUSEand let the message sink in
The right word may be effective,
but no word was ever as effective as
as a rightly timed pause. Twain
Be confident, enthusiastic
Engage with audience
Tell a story
First, Understand This
THREE KINDS OF INVESTORS
• Friends, Family (and Fools)
• Angels – Individuals
• Venture capital and Angel groups
16
FRIENDS AND FAMILY (and FOOLS)
CHARACTERISTI
CS
FFF COMMENTS
Motivation Relationship Help a friend or family member
Difficulty to obtain Relationship based Does your rich uncle like you?
Can be easy and quick.
Size of investment Small
$5,000 +
Varies by pocketbook size – typically small
Stage / Maturity of
Company
Very early
Seed money
Willing to accept high risk
Risks: Team (execution), Tech, Product, Market
Due diligence
Contract
Minimal Little due diligence
Handshake deal – not recommended
Decision process Can be quick
Talk to spouse
Minimal
Excitement often seals the deal
Returns Varies Minimum: 3-5X over 3-5 years
Preferred: 10X over 3-5 years
Time to exit Patient Can be very patient money.
3-5 years is ideal
Control Typically little May not want any
May lack business knowhow
Valuation Set later Best to set at a later round
17
KNOW YOUR AUDIENCE: ANGELS
Accredited investor
• Must have $1M assets outside home + $200K income
Motivation –
• Keep active
• Use knowledge / expertise
• Help next generation
• Return on investment
Invest early where can play an active role
High comfort with risk
Work in formal and informal groups
• Increase knowledge and reduce risk
200,000 active investors in U.S.
Clustered geographically
Fund fewer than 1 out of 40 businesses that apply
18
ANGEL INVESTORS
CHARACTERISTI
CS
ANGEL COMMENTS
Motivation Personal interest Active / retired; tech interest; business
experience
Difficulty to obtain Medium Easier: Personal networks; Lawyers, Board, etc.
More difficult: Group of Angels
Size of investment $10,000 –
$100,000
Few higher
Individuals: $10,000 – $100,000 personal
money
Angel Groups: <$1,000,000
Stage / Maturity of
Company
Very early Willing to accept high risk
Attracted to unique innovations where are expert
Due diligence
Contract
Can be minimal
Simple or
Complete
Individual: Less thorough; simple contract
Angel Groups: Sophisticated; thorough contract
Decision process Can be quick Individual: Typically quick (talk to spouse)
Angel Groups: Prolonged
Returns Varies Desire 10X
But, total valuation at exit often lower
Time to exit Patient Preferred: 3-5 years (individuals longer)
Longer time frame if require follow on
investments
Control Typically little May want a board seat but not control
19
VENTURE CAPITLIST:
MANAGERS AND FUNDS
Managers of venture capital funds
• Professional – it’s a job
• Paid on return of investment
• Many are successful entrepreneurs
• Highly educated, very driven
• Technically knowledgeable
Venture Capital Funds
• Professionally managed investment funds
• Structured as limited partnerships
• Often take portfolio approach
• Paid from management fees and carried interest
• Thorough due diligence
$87 billion invested in 2014
Fund fewer than 1 in 100 plans
20
VENTURE CAPITAL / ANGEL GROUPS
CHARACTERISTI
CS
VC COMMENTS
Motivation Returns Professionally manage fund; Portfolio approach;
Focus is total return to investors
Difficulty to obtain High Receive 100s of pitches per year
Busy with finding next deal; helping portfolio
clients
Size of investment Varies by round Seed = $500K; A = $1.7M;
B = $8M; Later = $20M
Stage / Maturity of
Company
Varies by round Want to invest in later rounds
Due diligence
Contract
Thorough
Complex contract
Evaluate: Team, Tech, IP, Market, Scalability,
Exit
Very complex – check with experienced attorney
Decision process Slow and
deliberate
Buy-in from several partners
Knife edge between fear and greed
Returns 20% - 30%
annual (10X over
5 years)
20% of investments provide 80% of the return
Every investment must be a potential big winner
Time to exit Typical 10 years
Range: Broader
Earlier rounds have longer times to exit
Must exit at a high muttiple
Control Required Board seat is typical
21
BEST FUNDING SOURCE: ANGEL OR VC?
Angels are best for:
• Early stage
• Require <$1M to prove tech, business model, market and
customer discovery, gain traction
• Short term need
• Market potential <$500M, thus exit size is smaller
• Exit in 2 to 5 years
• Founder wants to maintain control of business
VCs are best for:
• Later stage with less risk in tech, team, market adoption
• Require >$3M to prove tech, business model, market
• Require follow on investments of $5+M
• Business scales to very large size
• Market potential is huge; large exit possible
• Exit in 10+ years
• Willing to be replaced by professional managers
22
THE PITCH ITSELF
Clear
Compelling
Credible
23
TRADITIONAL PITCH: DOZEN SLIDES
1. Company logo slide with tagline
2. Team
3. Problem or Unmet Need
4. Market Analysis
5. Your solution – product, technology, demo
6. Competitive differentiation – IP, timing, other
7. Barriers to Entry
8. Positioning
9. Business / revenue model
10.Go-To-Market strategy; customer traction
11.Financial Projections
12.Capital Request
13.Use of Proceeds
14.Contact Info and Close
24
Slide #1: COMPANY NAME and LOGO25
ABC Company Name
& Logo
Entrepreneur Name
President and CEO
Perhaps the most important slide!
Slide #1: COMPANY NAME and LOGO26
ABC Company Name
& Logo
Entrepreneur Name
President and CEO
Elevator Pitch
Explain what you do
In which compartment of their brain do you fit?
Slide #2: TEAM27
CEO – background and career highlights
CTO – Technologist extraordinaire
VP Sales and Marketing – Knows industry, lots of contacts
Board of Advisors – Big names believe in company
Makes your company look bigger and better
Purpose of Slide:
Why we are the team to succeed
Holes in the team are OK!Just let them know that you recognize there are holes in y
our team
Slide #3: UNMET NEED28
Succinct description of business opportunity
Problem statement – Connect with a story or use case
Everyone should be nodding their heads
Market trends leading to opportunity
Customer validation
How did you validate – customer stories (real names)
Purpose of Slide:
It’s a big problem with a big exit
Slide #4: MARKET ANALYSIS29
Forecast market size (bottoms up is better)
• TAM – Total Available Market
• SAM – Serviceable Available Market
Which sliver will you own and why
• Growth rates
Market dynamics
• Regulations, new technology, competition
Purpose of Slide:
We know the larger market and our (first) sliver
Slide #5: SOLUTION – TECH AND PRODUCT30
Describe product / technology
Unique attributes and features
Describe the value proposition – How do you know?
Benefits to users; How do you alleviate pain?
Stage of development
Prototype, testing completed
Market traction
Purpose of Slide:
Our solution solves the problem and works
Show Picture
s
Slide #6: WE BEAT THE COMPETITION31
NEVER say you have no competition
Name your competitors
• Who uses them – market share and growth
• Why you are better (not why they are bad)
Always include the current solutions customers are using
Summarize your competitive advantage
• Why you can maintain this advantage
Purpose of Slide:
We know the competition and we are much better
Slide #7: OUR UNFAIR ADVANTAGE32
Barriers to competition
• Intellectual Property – Patents
• Third party substantiation, credibility
• Trade secrets
• Special relationships
• Meet new regulations
Purpose of Slide:
We beat the competition today and tomorrow
Slide #8: POSITION AGAINST COMPETITION33
How are you different?
Compare against familiar players
Purpose of Slide:
We’ve thought of how to position our product
YOUThink about what to put
in the X and Y axis
(Should be what your
customers care about.
And, what makes you look goo
d!)
Slide #9: HOW WE MAKE MONEY34
How we will make money
• Who pays you
• What channels
• Gross margins
What do you sell
• Product
• License
• Subscription
• Freemium model
Purpose of Slide:
We know how to make money (lots of it)
Slide #10: GO-TO-MARKET STRATEGY35
First customers
• Who are they in some detail
Channels – How will reach customers
• Sales and distribution channels
• Direct sales, VAR, Distributors
Customer acquisition cost
Strategic partnerships and traction to date
Purpose of Slide:
We know how to find and sell to real customers
Prioritize
Slide #11: FINANCIAL OVERVIEW36
Purpose of Slide:
We understand our business model
$MM Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
Unit Sales 0 9 862 1679 2934
HeadCount 5 5 8 13 15
Revenue 0 0.03 2.9 6.0 10.7
Gross Profit 0 0.02 1.5 3.2 5.7
Gross Margin
%
49 49 49 50 51
Operating
Expenses
0.8 0.7 1.5 1.9 2.5
EBITDA -0.8 -0.7 0 1.2 3.2
Net Income -0.8 -0.7 0 0.9 2.2
If there is real investor interest,
this slide will be scrutinized in the room.
Be prepared!
Slide #12: REQUEST FOR CASH37
What we need today – based on the last slide
• And for how long
What we will need later to be profitable
• Perhaps in stages
What we will deliver for the investment
• Risk reduced – technological, market acceptance, etc.
Purpose of Slide:
We know what we need and we’ll deliver
Slide #13: USE OF PROCEEDS38
What we’ll use the money for
• Engineering, manufacturing, sales, marketing
• Headcount required
• Other expenses
Purpose of Slide:
We’ve thought through what we need
Slide #14: SUMMARY AND CONTACT39
Sell the team
Re-state market potential
Emphasize Competitive Advantage
Describe ROI
Add your contact information
Purpose of Slide:
Summary
EXAMPLES OF TWO GOOD PITCHES
AirBnB
Mint
40
AirBnB Original Pitch41
Mint Original Pitch56
FINAL WORDS
Know how much money you need today
And to profitability
Decide angel or VC
Research – know everything about the investor / company
Get to know and feel comfortable with principals
Cater pitch to particular investor or VC firm
Practice, practice, practice
73
