nyu startup school - when & how to raise venture capital

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When & How to Raise Venture CapitalFrank RimalovskiExecutive Director, Entrepreneurial InstituteManaging Director, Innovation Venture FundNov 1, 2016

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Topics

u Types of venture investors

u How does VC works?

u VC math

u When to look for VC?

u Fundraising tips

u Q&A

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Types of Venture Investors

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investor|in-ˈvestər|nounone who expends money with the expectation of achieving a profit or material result by putting it into financial schemes, shares, or property…

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Myth: Venture Capital funds are the primary source of startup funding

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Venture Funding Lifecycle

6

①Discovery

②Validation

③Customer Creation

④Company Building

Test assumptions aboutcustomer needs/problem & develop MVP

SeekValidation that people are interested in your solution

Begins to builddemand & improve efficiency of customer acquisition

Drive growth aggressively & execute business model

Invention & ideation

Grants, Competitions Founders + Credit cards

GrantsCrowdfounding

CustomersSBIR/STTR + Accelerators

Friends & family

Angels Seed funds

Venturecapitalfunds

LeasingFactoring

Vendor financePrivate equityPublic markets

Valuation*

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Types of Venture InvestorsStage Pre-Seed Seed/Startup Early LateType Founder(s),

friends & family

Individualangels/groups &

seed funds

Venture Capital FundsFinancial Investors

Strategic/Corporate

Typical Amount $5,000

to$250,000

$25,000to

$1,000,000

$2,000,000and up

Source of Funds Individuals Individuals

Institutional Investors, Family Offices &

Corporations

Number of rounds Single Single Multi

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How VC works

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The Basicsu VCs manage “OPM”

o Pension funds, foundations, endowments, financial institutions, family offices, etc.

u 10-year fund lifeu “2-and-20”

Fund returns

5 10 15

Fund IFund II

Fund III

Fund investments

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How do VCs Make Money?u Investing at low valuation (through

multiple rounds at increasing valuations) and then…

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How do VCs Make Money?u Investing at low valuation (through

multiple rounds at increasing valuations) and then…

u Exit (a/k/a liquidity event) at a higher value

o Initial Public Offering (IPO)

o Merger into a Public Company

o Merger into another private company

o Return of capital from cash flow

o Asset sale

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Myth: VCs make money on every deal

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75% of startups fail to return investors capitalShikhar GhoshHarvard Business School

#nyuef

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VC MathNB: Figures and sequencing are intended to be illustrative. Your mileage will vary.

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From idea to incorporation

Accepted to SLP!!!Define risky hypothesesCustomer discoveryProblem-Solution Fit!Design MVPTest MVPRetain McCarter & EnglishForm SLESplit founders equityOpen account at Silicon Valley Bank

Founders100%

Fully Diluted Ownership

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In search of Product-Market-Fit

Continue to test MVPs

Customer discovery

Customer validation

Secure early adopters

Product market fit!

In TechCrunch!

Begin to craft seed pitch

Commence fund raise!

Founders100%


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Raise seed round3 months & 30 pitches later

Greycroft Leads Series SeedPre-$ $3.00mRaise 1.00Post-$ $4.00m

NYU Innovation Venture Fund & 3 angels complete round

Founders100%


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Raise seed round3 months & 30 pitches later

Greycroft LeadsSeries SeedPre-$ $3.00mRaise 1.00Post-$ $4.00m

Deposit $1.0m with SVBPay McCarter & EnglishBack to work

Founders75%

Seed Investors

25%


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Hire first employees

Add 10% Option Pool

Founders75%

Seed Investors

25%


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Add 10% Option Pool


Founders67%

Seed Investors

23%

Options10%


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Add 10% Option Pool

Hire first employeesIdentify repeatable & scalable business model

Founders67%

Seed Investors

23%

Options10%


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Add 10% Option Pool

Hire first employeesIdentify repeatable & scalable business modelIn NY Times! Founders

67%

Seed Investors

23%

Options10%


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Add 10% Option Pool

Hire first employeesIdentify repeatable & scalable business modelIn NY Times!Draft VC pitch Commence VC raise

Founders67%

Seed Investors

23%

Options10%


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6 months & 40 pitches later

Flybridge Capital OffersPre-$ $7.50mRaise $2.50mOptions 15% *

Founders67%

Seed Investors

23%

Options10%


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Make room for more options!

Flybridge Capital OffersPre-$ $7.50mRaise $2.50mOptions 15% *

Founders60%

Seed Investors

20%

Options20%


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Smaller piece of a bigger pie!

Post Money ValueFounders $4.50mSeed 1.50Options 1.50Flybridge 2.50Post-$ $10.00mu 50% step-up from Seed!u $2.5m in the banku John Elton & David Aronoff

on your boardu Growing a teamu Scaling a businessu Life is good!

Founders45%

Seed Investors

15%

Options15%

Flybridge25%

$7.50mPre-$


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VC Math Lessons Learnedu If you raise $, you will be diluted

u Options come out of your hide, not theirs

u Timing of your raise will be key

u Valuation nor your % ownership is everything

u Focus on things that drive enterprise value, not just what maximizes your ownership

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A Complex Process

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On Lawyers…u Important to pick a very experienced one

o Not the top Wall Street lawyer you can find

o Not your cousin Murray

o Not your patent attorney

o Not the guy who did you will/mortgage refi

o …someone who does venture financings daily

u Doesn’t have to be local, but it helps

u We are happy to recommend several

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When to Look for VC?

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When to Look for VC?

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①Discovery

②Validation


④Company Building






Grants Competitions Founders + Credit cards

Angels Seed funds

Venturecapitalfunds

LeasingFactoring


Valuation*

You are here

GrantsCrowdfounding


Friends & family

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Why defer raising money?u A time consuming, distracting process

u Minimize dilution (when your valuation’s low)

u Hard to stop spending once you start

u You will spend it on the wrong things

u 1st round raised on the promise…2nd on the progress

u If you’re wrong (and don’t hit your milestones), you’re dead

u Many other non-dilutive sources of $$$

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Getting Funded Tips

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What do VCs look for?

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Myth: VCs Invest in Technology

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VCs invest in businesses.Not ideas. Not technologies.Your technology/IP is only oneof the many critical pieces necessary to build a business.

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What do VCs look for?u Serve unmet need in large & growing market

u Differentiated solution(s) + supporting data

u Customer validation of pain & gain

u Scalable & repeatable business model that generates high ROI

u Focused teams with proven ability to execute

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VC Dealflow Funnel

1,000 150 25 5-10

Inbox

Desk

Meet

Due Dili Deal

Credenza

Reject

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Your initial goal is to get a meeting!

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Myth: Raise money when you need it!

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Raise money when you can raise it!

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Running out of money is not a milestone!

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Myth: VCs are hard to meet!

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VCs are easy to meet!

NYU Entrepreneurial

Institute

Respected VC or angel

Present/former

portco exec

Well-respected

entrepreneur/exec

Service providers

Friend of VC partner

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Myth:Don’t approach VCs until you are ready to raise money

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Lines not Dots

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Lines not Dots

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Myth: VCs Invest in Teams with Strong Data

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VCs invest in the trend!

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Final Thoughts on Fundraising

u Diligence investors like they diligence you

u Be prepared, but less is more

u You do not need a prospectus/biz plan

u You want professional investors

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u Never hire an agent/banker

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Final Thoughts on the Pitchu Investor pitch is a proxy…

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Final Thoughts on the Pitchu Investor pitch is a proxy…for your ability to:

o Recruit talent & lead a team

o Sell to customers

o Attract partners

u Tell a story & engage your audience

u Cover the bases…not just your product/tech

u But, remember it doesn’t stop with your pitch deck

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Lessons Learnedu Many sources of capital…VC comes later

u VCs are professional money managers

u Focus on things that drive enterprise value

u Investors fund businesses, not tech/ideas

u Get to know investors early in the process

u It’s a complicated process…arm yourself


u We are here to help!56

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Funding Resources at NYU

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Startup Funding Lifecycle

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①Discovery

②Validation


④Company Building






Grants Competitions Founders + Credit cards

Angels Seed funds

Venturecapitalfunds

LeasingFactoring


Valuation*

You are here

GrantsCrowdfounding


Friends & family

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Prototyping Fund

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NYU Green Grants

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Startup Competitions

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Summer Launchpad

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NYU Innovation Venture Fund

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Innovation Venture Fund

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Critical Questions to Answeru When to raise/why now?u How much to raise?u What are you looking for in an investor?u What will you spend the money on?u How long will it last?u What will you accomplish with the money?u What are investors looking for in you?u Why should they invest in you?u How will they make money by investing?u Will you need to raise more? If so, how much &

when? What are those investors looking for?

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If you can’t answer all those questions, you are not ready to raise!

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Tuesday 11/8, 4pmMetrics that Matter

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1 Attend next week’s Startup School

bit.ly/nyustartupschool

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2 Meet with a Blackstone Launchpad coach

Say you went to Startup School!

entrepreneur.nyu.edu

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3 Come to VC Pitchfest

Hear classmates pitch their startups to a panel of Venture Capitalists


Thursday 11/3, 5:30pm

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4 Come to the Healthcare Makerthon Weekend

Build the solutions that will revolutionize healthcare

bit.ly/makerthon-2016

Friday-Sunday 11/18 - 11/20

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Questions?

[email protected]

@nyuentrepreneur


16 Washington Place

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nyu startup school - when & how to raise venture capital

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