Andrew Ackerman, Managing Directorandrew@dreamit.com

+1.917.478.5838 @andrewackerman @dreamit

How to Close Your First Round

Step 1: Prospecting

3

Key Insight:

You generally want to have a list of 50-100 relevant investors before kicking off your round.

Master the customer meeting❏ When to meet❏ Who to meet❏ Where to

meet❏ What to

show & ask❏ How to run the

discussion

4

What Do Fishing and Fundraising Have in Common?

Master the customer meeting❏ When to meet❏ Who to meet❏ Where to

meet❏ What to

show & ask❏ How to run the

discussion

5

Absolutely Nothing

❏ If you think you can just put your company out there and wait for investors to nibble, you will catch nothing

❏ If you think waiting patiently will bring results, you will be waiting a long time

❏ If you think it's a one person job, you are nuts

Master the customer meeting❏ When to meet❏ Who to meet❏ Where to

meet❏ What to

show & ask❏ How to run the

discussion

6

A Better Analogy: Hunting

Master the customer meeting❏ When to meet❏ Who to meet❏ Where to

meet❏ What to

show & ask❏ How to run the

discussion

7

You need to track your prey…

Master the customer meeting❏ When to meet❏ Who to meet❏ Where to

meet❏ What to

show & ask❏ How to run the

discussion

8

… with as much help as possible…

Master the customer meeting❏ When to meet❏ Who to meet❏ Where to

meet❏ What to

show & ask❏ How to run the

discussion

9

… and be aggressive

Master the customer meeting❏ When to meet❏ Who to meet❏ Where to

meet❏ What to

show & ask❏ How to run the

discussion

10

How to Prospect for Investors like a Big Game Hunter

❏ Find a comparable company❏ Make note of all their investors❏ Check out each of those investors❏ Make note of all their other❏ Investments❏ Iterate, iterate, iterate

Build Your Prospect List

Meet Your New Best Friend

Tip: is nice too

Master the customer meeting❏ When to meet❏ Who to meet❏ Where to

meet❏ What to

show & ask❏ How to run the

discussion

16

You probably want to avoid talking to investors who are investing in your direct competitors

Do Not Stop Until You Have 50-100+ Prospects

❏ A = Most active investors in relevant startups. Your hottest prospects.

❏ B = Moderately active. Still pretty good prospects.

❏ C = 1 or 2 investments in your space. Not so hot.

Pitch the B list first

Meet Your Next Best Friend

❏ Type each investor's name into LinkedIn to find mutual connections who you can ask for warm introductions.

❏ Only count people who know you well enough to make a credible introduction.

Use LinkedIn to Build Your Connector List

Unlimited Introductions

There are Three Kinds of Connectors

Use Sparingly Do Not Use

Add Them to Your Prospect Spreadsheet

Use the "Unlimiteds" first. Then turn to "As Needed" … … and try to spread the burden evenly

Reaching Out To Connectors

❏ Sprint, not a marathon❏ Get a quick Yes or No❏ Follow up within 4-7

days❏ No response? Reach

out to another connector

❏ Have a clear, killer subject line❏ Make it short, forwardable, & scannable❏ Give them an easy out (viz., get a quick

no)❏ Use tools like Boomerang to keep track

of outstanding requests

Be an Email Ninja

Step 2: Pitching

(The much-abbreviated, how-not-to-trip version)

26

Key Insight:

Most pitches fail because the founders don’t have a believable and exciting story.

Tell a story

Share Your Vision

❏ What’s your BHAG?❏ What makes your company

compelling?

Why Should I Believe You?

Every doctorwill want one!

2 - 3 Key Assumptions

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The risks are not always obvious

@dreamit #FundRaising

Step 3: Crossing the Finish Line

34

Key Insight:

Getting to “yes” is not enough. If you do not understand, own, and drive the process forward, you will fail to close your round.

They like you! Now what?

❏ Will name a specific amount they are willing to invest

❏ Will lead the round OR❏ Sets specific criteria for secure their investment❏ Lets you use his name with potential lead investors❏ Will actively help you network for other investors

Soft-Circle That Investor If...

❏ Not before the term sheet is signed❏ Prospective Lead Investors may team up to drive less friendly terms❏ You want multiple, competing term sheets to choose from

When To Name Drop?

❏ Definitely after the term sheet is signed❏ Adds credibility and encourages

other investors to join syndicate

You Got a Term Sheet!

Your round isn’t their top priority

Don’t Be This Guy!

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It may be your first time at the rodeo......but it certainly isn’t theirs

❏ Don’t agree to anything before reviewing with your lawyer and advisors

❏ Give your lawyer advance notice when you are expecting a term sheet

❏ Provide timeframe for response to investors when asking lawyers to review

Managing Term Sheet Negotiations

Your Lawyer Advises...

❏ Explains term sheets❏ Explains financial ramifications of terms❏ Protects you from legal issues❏ Reviews all documents

… but you drive the process

Economics❏ Price❏ Liquidation Preference❏ Option Pools❏ Founder Vesting

Control❏ Board of Directors❏ Protective Provisions❏ Participation Rights❏ Drag-Along❏ Conversion❏ Exclusivity

Understand Your Term Sheet

❏ Establish a virtual data room (Google Drive, DropBox, Docusign)❏ Digitize all critical documents the day they are created and again

on the day they are signed.❏ Save with long, descriptive file names❏ Have a secure, organized system for filing critical paper copies❏ Ask investors for their standard due diligence checklist and

required documents❏ Do YOUR diligence on the investors by reference checking VC’s

with companies that have both been successful and that have failed

Be Prepared for Due Diligence

Typical Due Diligence ChecklistTeam❏ Reference checks & CVs❏ Compensation structures❏ Working environment❏ Involuntary terminations❏ Attrition (why?)❏ Pending lawsuits❏ Employment contracts❏ Key employees❏ Stock option plan

Operations❏ Financial statements &

projections❏ Business partners❏ IP, patents, applications❏ Board of directors❏ Insurance (liability, BOD, other)

Customers❏ Customer reference checks❏ Client list and pipeline report❏ Distribution model

Due Diligence Best Practices

❏ Ensure your team knows the vision presented in your investor pitch and their roles in achieving success

❏ Have your team accurately reflect their roles with your startup on social-media profiles and resumes

❏ Assign a point person for communications❏ Answer investor questions thoroughly❏ Prepare your lawyer to answer questions from investors and their

lawyers❏ Validate satisfaction of reference customers in advance

Why VCs Pull Term Sheets

Financial Negotiations

❏ Aggressive non-standard terms

❏ Stock option plan less than customary 15%

❏ Non-standard vesting❏ High founder salaries❏ Repayments of founder

“debts” from proceeds❏ Investor syndicate unlikely to

invest in future rounds

Due Diligence Findings

❏ Story does not hold up ❏ Customer issues❏ Management issues ❏ No clear leader/CEO❏ Unexplained discrepancies in

materials❏ Not hitting financial plan

Do not lie. You will get caught.

Long Form Documents

❏ After term sheet is signed, typically investor will supply you with long form documents:❏ Share purchase agreement (SPA) and more if an equity round❏ Promissory note and more (for convertible note)❏ Representations (Reps) & Warranties❏ … and a whole lot more

❏ Your attorney on point but make sure you understand and are driving to close

❏ Typically you pay for both parties’ legal work

Remember: The round is done when the money is in the bank!

VC vs. Angel Money: http://www.entrepreneur.com/article/199604

Term Sheets: http://blog.thesecretofraisingmoney.com/termsheet/

Term Sheet Payout Calculator: http://gizmo.startupfreak.com/termsheet1.1/

Convertible Debt: https://www.startups.co/articles/convertible-debt-what-you-need-to-know

SAFEs (Convertible Securities): https://www.ycombinator.com/documents/

http://shockwaveinnovations.com/2013/12/21/reviewing-the-new-safe-investment-instrument/

For more information on:

Due Diligence Process: http://www.marsdd.com/mars-library/the-due-diligence-process-in-venture-capital/

Due Diligence Checklist: https://www.asme.org/getmedia/86b994d9-2faf-43b5-9b57-4cb6e727a3a2/Due_diligence_checklist.aspx

https://www.cooleygo.com/documents/sample-vc-due-diligence-request-list/

For more information on:

Andrew Ackerman, Managing Directorandrew@dreamit.com

+1.917.478.5838 @andrewackerman @dreamit

How to Close Your First Round