Fundraise 101 - What to know to deal with (the evil) investors

TK Chen @ Quest Venture Partners

What’s VC?

Parents/relatives Angels Banks VCs

Pros

Super fast moneyNot too much traction needed (I hope)

No shares needed Bigger check

No DD whatsoever good amount of moneyHardly impact company’s direction

Connections and expansion

probably no need to pay back

fast money Good for short term cash need

Can save you when things are bad

Connections benefitMight be easier to get loan than VC money

Provides professional management / governance to company.

Flexible amount

Cons

might destroy relationship if things go south

Difficult to find Debt has better liquidationHave a strong say in your company

have to pretend to be a good kid

Bad angels are the pain in the ass, can ruin your biusniess

Interest burden Usually take board seat

Personal credit / collateral Very hard to get rid of wrong VCs

Not tech-savvyLong long long process to get VC money

How VC make money?

How VC evaluate a deal ?

• Teams • Complete? • Relative background? • Why you? why not other competitors?

• Ideas / mkt size • start small is good, but is it a potential 1B valuation idea? • Is it at the right time? can it take advantage of current or future changes?

• Scalability • How to scale? • CAC v.s LTV • Margins

• Value proposition • Is it a real problem? • Will people pay for it? • How to sustain the value over time?

- Why you need money from VCs?

- Why this VC? - Stage - Lead or follow - Portfolio - Valuation - Value other than money

- How much you are looking for ? for what purpose?

- At what Valuation?

- Track record、Traction、Relationship (referral)

- Know the jargon

What to know BEFORE you talk to VC?

What to know During your talk with VC?

- DD your investors • Attitude • Current status of the fund : at what year? how much left for new deals? • Refer portfolio and partners to talk with

- Valuation - What to fight for and what you are afford to let go - Get their opinion on your pitch - Don’t be late / or drunk..

- Follow up !

- What if I got rejected ?

- Just because one VC doesn’t invest…..

- Probably not a good idea to ask for referral

- Don’t vent your emotion on facebook

- BATANA: Best Alternatives to a Negotiated

Agreement

What to know After you talk to VC?

• Preferred Stocks A. Liquidation Preference

B. Antidilution

C. Protective Provisions: Veto Right • Sell the Company • Issue more stocks • Change the terms • Change the size of board of directors

D. Dividends

E. Redemption Rights

F. Right of First Refusal (pro rata right)

G. Voting Right

H. No-Shop Agreement

Convertible Note

- Convert loan into equity - Fast, easy, and cheap - Extension: SAFE from YC and KISS from 500S

What to know for Convertible Note

Valuation Cap To protect investors from sky high valuation in next round

Discount Ditto

Interest Rate Cuz it’s a loan

Conversion Decide when to convert

Must read book

Venture Deals: Be Smarter Than Your Lawyer and Venture

Capitalist