Fundraising 101:How to land your seed round

David Chang

Harvard Business School, Entrepreneur-in-Residence

@changds

MyJourney

Raising a Seed Round

Lessons Learned

$80

$4

$42

$7$17

$110

$210

$270

$1

$135

Funding Exit

Venture Returns

Direct Via Syndicate/Fund

My Angel Investments

Raising a Seed Round

What Obstacles Stand in Your Way?

Capital Sources

You hear a lot about…

• Venture Capital• Angel Groups

• Crowdfunding• Friends and Family• Customers• Accelerators

• Competitions

Not much about…

• SBA Loans and Personal Debt

• Grants• Corporate Venture• Vendors or

Equipment Finance• Bootstrapping

(creatively)

Growth trajectory of your business?

Lifestyle business –no plans for big hiring

Personal raise –loans

Growth oriented business

Crowdfunding and personal raise

High growth scalable business Venture capital

Venture Capital Stages

Friends and

Family

Angel

Early Stage

Growth Equity

Venture Capital Dynamics

• Skewed return distribution

• VCs must swing for the fences

Source: @DawnUmlah

Amount to RaiseHow much funding do you need?

• Basic financial modeling of cost drivers and revenue streams

• Forecast monthly for 18 months

• Fundraise rule of thumb: 12-18 months’ cash

How Much

For What

To Prove

Use of ProceedsWhat will you use the money for?

• Build out the product

• Grow the team

•Marketing

• Customer acquisition

•Working capital

How Much

For What

To Prove

MilestonesWhat will be proven that de-risks the business?

• Product development

•Market demand

• Product / market fit

• Business model

• Execution

How Much

For What

To Prove

Fundraising Campaign

Prep Target Socialize Raise Close

Basic Prepü Legal representation

ü Founders agreements

ü Financials and budget

ü Teaser (1 page)

ü Pitch deck (10 pages)

Target List of Investors

Stage Location Industry Vertical

Business Model

Investment Thesis

Social / Trust Filter

Socialize

• Get warm intros• Find strongest mutual connections to 30+ potential investors• Network over 2-3 months

• Ask for referrals, not money

• Refine pitch• Incorporate feedback, but avoid whiplash changes

“I’m not ready to raise”

“Who would be helpful?”

“Who else should I talk to?”

Raise: Go for the Ask

• Talk to your top candidates at the same time• Run conversations in parallel• Decide whether / when to tell investors about each other

• Create urgency• Anchor investor acts as the first domino• “Triggering events” to get a (or better) term sheet

Closing the Deal

• Rolling close vs. set close

• Reference check investors

• Not done until money is in the bank

Key termsq Board compositionq Option poolq Voting rightsq Founder vestingq Change of controlq Redemption rightsq Information rightsq Anti-dilution

Structure

Preferred Stock

• Preferences over common

• Board seat or 2

• Option pool

• Liquidation preference- they get their $ first

• Control over sale, new options

Convertible Debt

• Debt that becomes preferred equity when you raise it

• No valuation, but the “cap” is a valuation ceiling

• Interest accrues, rate <10%

• Conversion discount

Negotiating Valuation

Valuation & Dilution

? $12

$30 $6

$15

Seed A B

Valuation ($M) Dilution: what’s your end stake?

$1M raise $6M raise $15M raise

?

Valuation & Dilution

? $12

$30 $6

$15

Seed A B

Valuation ($M) Dilution: what’s your end stake?

$1M raise $6M raise $15M raise

37%

See www.ownyourventure.com

Raise $1M on $5M pre

33% Raise $1M on $3M pre

34% Raise $1.5M on $5M pre

How Long Does it Take?

• Longer than you expect• 3-6 months

• Speed limited by access to investors• Your ability to find them• Their calendar availability (surprisingly hard)• Bigger raises = more diligence (up to 30 days)

Resources• Pitch

• www.pitchenvy.com• www.bestpitchdecks.com• Guy Kawasaki: 10 slides / 20 minutes / 30 point font• NextView www.nextviewventures.com/blog/free-startup-pitch-decks-template/• www.mjskok.com/resource/getting-behind-perfect-pitch

• Legal• Foley & Lardner https://www.foley.com• Goodwin Proctor www.foundersworkbench.com• Techstars www.techstars.com/docs• www.seriesseed.com

• General• www.soulmix.com/remix/619• www.robkornblum.com