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@iainmcdtweet Iain McDougall December 11, 2012 Raising Your First Round of Capital

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eSpark presentation on raising Venture Capital.

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Page 1: Raising VC

@iainmcdtweet

Iain McDougall

December 11, 2012

Raising Your First Round of Capital

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Tech & Biotech

CONTEXT

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Gloves translate sign language into speech

OK YOU’VE GOT A BIG IDEA

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DECEMBER 11th 2012

BUT HOW TO GET FUNDED

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3-OPTIONS

Bootstrap Customers Raise $$+ =

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Angel or VC

Finding Investors

How to Pitch Them

Valuation Math

Negotiating Deal Terms

Demystify the VC Angel World

GOAL FOR TODAY

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VC’S vs ANGELS

Will want some control (voting, board, veto)

Will want to own 20-30%

Actively engaged (they get paid to do this!)

Can add tremendous value and be great business partners

Can be total disasters

Typically rational actors, commercially-driven, but if inexperienced…

May want some control (“send me an annual email”)

Will want to own 1-10%

Maybe engaged or not (often a hobby, sometimes a personal mission)

Can add tremendous value and be great business partners

Can be total disasters

Typically rational, but if unsophisticated: naïve irrational, emotional

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Deep Pockets:High risk tolerance and additional funding for

follow-on rounds

WHY RAISE VC

Value-Add:VCs provide domain experience, industry

contacts, and strategic planning

Experience Matters:VCs have “seen the

movie” over and over again and can help avoid

pitfalls to find the path to success

Swing Big:VCs don’t invest in niches,

they invest in transformative ideas that can build large companies

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1Does my business fit?

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Typical Investment Criteria

  Tangible things investors like to see:   Very big market (> $500m)   Unfair advantage (why you? why now?)   Attractive business model (recurring, high gross margin)   Unique technology or business model approach

  Intangible things investors like to see:   “Pied Piper” – an ability to recruit and retain a great team,

partners   Interpersonal chemistry   Movie, not a snapshot

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Great Idea

Huge Markets

Massive Gross Margin

Unique & Protectable

But People Trumps Everything

PEOPLE MATTERS

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PEOPLE MATTERS

Ideas are a dime a dozen

Having a world-class team is golden

Laser focus of the young entrepreneur is very powerful

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2Am I Prepared?

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Raising Money is Really, Really, Really Tough

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300 : 1LONG ODDS

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12months - 2 years..!

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Prospect List

Executive Summary

Investor Deck

Business Plan

Financial Model

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3Getting the 1st Meeting

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FIND THE SWEET SPOT

Scope out the firm – size matters, as does the individual

Arrange for a warm introduction

Prepare, be brief (VCs Blink)

Don’t downplay risk

Mutual due diligence is fair play

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  Most VCs and Angels have ADD – operate on “BLINK” instincts  Want to SEE everything, but DO very, very few

deals  Make their decision within the first 10-15 minutes

  Typical VC and angel will invest in one out of every 300-500 deals they see  Long odds – you need to really stand out  Like college applicants – triage quickly

Context About VCs and Angels

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Investor’s Decision Tree

Worth 3 minutes (email, phone)?

Worth 30 minutes (phone, in person)?

Worth 60-90 minutes (in person)?

Worth 2nd mtg (in person)?

Ignore

Pass gracefully

Pass but stay In touch

Serious due diligence Pass but be helpful

No

No

No

No

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4The Pitch

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3 MUST DO’S

1 2 3Be gracious, personable

Be crisp & on point

Personal intro should take < 5 minutes. Team introduction 10 minutes

Make it relevant – don’t go off on tangents

If you can’t show good summarization skills, how will you handle a board room?

Know your stuff

You will be pushed and tested

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DO NOT...

1 2 3Exaggerate

Everything you say will be verified in due diligence

Assume the listener is a cynic and a professional Bull-shit detector

This is about Team not You

There is no I.

If you are self-aggrandizing, investors will assume you can’t build teams

Name Drop

No one is going to be impressed with who you know unless the relationships are both realand relevant.

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5Another Meeting

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So You’ve Had a Good Meeting… Then What?

  Treat fundraising like a sales process – build a pipeline, work people through the pipeline, build up to crescendo

  VCs get distracted – typically only pursue 2-3 high priority new investment opportunities at any given time

  Stay connected, top of mind, build a sense of momentum   Need to sell the individual “champion”, then the help

them sell the partnership   Address objections with specific data

  Make the investment case for them   Give them tools/materials to share with their partners

13#

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6Full Partner Meeting

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7Term Sheet - Finally

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Term Sheet Time Frequently Asked Questions…

  Should I include VCs in my first round or just angels?   How big should the option pool be?   How should I think about valuation?

  “Promote” definition - http://bit.ly/8NpdM   Should I do a convertible note with a cap, no cap or a

priced round?   How should I think about control?

15#

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Aligning Interests

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ECONOMICS CONTROL

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PRICE

A + B = CPre-MoneyValuation

Investment Post-MoneyValuation

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PRICE

£400k + £100k = £500k

Pre-MoneyValuation Investment

Post-MoneyValuation

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EQUITY

C Post-MoneyValuation

Investment

%age Equity

B=

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EQUITY

£100k= 20%£500k

£400k + £100k = £500kPre-MoneyValuation

InvestmentPost-MoneyValuation

Looking to Raise For X% of my

business

You Value your business as

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What Is Market?

Rough Numbers (vary slightly by coast and sector):  Seed: $500k-$2m raise on $3-5m pre-money (or cap)  Series A: $3-6m raise on $6-10m pre-money  Series B: $8-12m raise on $15-20m pre-money

Option pool: 10-20%  The smaller the pool, the more confidence in the

founding team  Do an “option pool budget” to determine the right pool

17#

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8MONEY IN THE BANK

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MUST READS

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Who’s Ready to Raise Money?

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THANK YOUFeel free to ask questions

or

Follow-up @iainmcdtweet