Fundraising debugged: When, Why & Who to Raise (and not raise) Money From
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Fundraising Fundraising DebuDebuggggededWhen, Why & Who to Raise(and not raise) Money From
Roy Rodenstein@royrod
BarCamp Boston 5, 4/17/2010
You
Should
Starting
a
Kompanny!
• OG[H] (Original Gangsta Hacker): Georgia Tech, MIT Media Lab• UI/UX Research: Xerox Palo Alto Research Labs, AT& Labs• PM/Mktg/BizDev/CEO etc: iPhrase (NLP startup), IBM, Going, AOL
My Company: User-Gen Local Events + Ticketing (originally HeyLetsGo)
2005 2006 2007 2008 2009
About Me - Roy Rodensteinhttp://how2startup.com @royrod royrod@gmail
Co-found Going.com
Rejected by YC
Quit Day Job
$500k Seed
$3M Series A
Additional Funding Acquired
$20M+$5M+$5M+AnyAnyExit
$10k - $50k+$2k - $10k$500 - $5k$500 - $5k$0 - $1kCost
MonthsWeeks - MonthsWeeksWeeksDaysTime
20-70%5-20%5-10%5-10%0%Dilution
EquityConvertible
Debt,Equity
EquityConvertible Debt,
Equity Debt,
Convertible DebtForm
$500k - $10M+$50k - $1M+$5k - $20k+$5k - 200k+Amount
“Traction”Idea / PrototypeIdea /PrototypeIdea / PrototypeIdeaStage
VCAngelsIndividuals, Groups
Incubators /Seed Funds
Friends & FamilyBootstrapaka yourself /co-founders
Source
Fundraising Decoder Ring
$20M+$5M+$5M+AnyAnyExit
$10k - $50k+$2k - $10k$500 - $5k$500 - $5k$0 - $1kCost
MonthsWeeks - MonthsWeeksWeeksDaysTime
20-70%5-20%5-10%5-10%0%Dilution
EquityConvertible
Debt,Equity
EquityConvertible Debt,
Equity Debt,
Convertible DebtForm
$500k - $10M+$50k - $1M+$5k - $20k+$5k - 200k+Amount
“Traction”Idea / PrototypeIdea /PrototypeIdea / PrototypeIdeaStage
VCAngelsIndividuals, Groups
Incubators /Seed Funds
Friends & FamilyBootstrapaka yourself /co-founders
Source
Fundraising Decoder Ring
Source:Bootstrap
Pros• No dilution• Simple, cheap, quick
Cons• It ain’t OPM (Other People’s Money)• Morale impact if funds run low
Bottom Line• Good to get some skin in the game• But don’t overdo it- fundraising is better than giving up
$20M+$5M+$5M+AnyAnyExit
$10k - $50k+$2k - $10k$500 - $5k$500 - $5k$0 - $1kCost
MonthsWeeks - MonthsWeeksWeeksDaysTime
20-70%5-20%5-10%5-10%0%Dilution
EquityConvertible
Debt,Equity
EquityConvertible Debt,
Equity Debt,
Convertible DebtForm
$500k - $10M+$50k - $1M+$5k - $20k+$5k - 200k+Amount
“Traction”Idea / PrototypeIdea /PrototypeIdea / PrototypeIdeaStage
VCAngelsIndividuals, Groups
Incubators /Seed Funds
Friends & FamilyBootstrapaka yourself /co-founders
Source
Fundraising Decoder Ring
Source:Friends & Family
Pros• Low dilution• Simple, cheap, quick• Feels great if make them money!
Cons• Feels horrible if lose their money!• Can complicate later rounds• “Only money” / no further help
Bottom Line• Keep terms very basic, no board seats, no blocking rights...• Make sure it’s money they can afford to lose
$20M+$5M+$5M+AnyAnyExit
$10k - $50k+$2k - $10k$500 - $5k$500 - $5k$0 - $1kCost
MonthsWeeks - MonthsWeeksWeeksDaysTime
20-70%5-20%5-10%5-10%0%Dilution
EquityConvertible
Debt,Equity
EquityConvertible Debt,
Equity Debt,
Convertible DebtForm
$500k - $10M+$50k - $1M+$5k - $20k+$5k - 200k+Amount
“Traction”Idea / PrototypeIdea /PrototypeIdea / PrototypeIdeaStage
VCAngelsIndividuals, Groups
Incubators /Seed Funds
Friends & FamilyBootstrapaka yourself /co-founders
Source
Fundraising Decoder Ring
Source:Incubators / Seed Funds
Pros• Moderate dilution• Help with Legal, IT, PR, etc.• Mentors & peers• Leg up on fundraising
Cons• $12k is not a lot of money• Usually have to move temporarily
Bottom Line• Great for first-timers• Post-program support differs, YMMV• Dilution is dilution
$20M+$5M+$5M+AnyAnyExit
$10k - $50k+$2k - $10k$500 - $5k$500 - $5k$0 - $1kCost
MonthsWeeks - MonthsWeeksWeeksDaysTime
20-70%5-20%5-10%5-10%0%Dilution
EquityConvertible
Debt,Equity
EquityConvertible Debt,
Equity Debt,
Convertible DebtForm
$500k - $10M+$50k - $1M+$5k - $20k+$5k - 200k+Amount
“Traction”Idea / PrototypeIdea /PrototypeIdea / PrototypeIdeaStage
VCAngelsIndividuals, Groups
Incubators /Seed Funds
Friends & FamilyBootstrapaka yourself /co-founders
Source
Fundraising Decoder Ring
Source:Angels
Pros• Good middle ground, if pick right ones• Serious money w/o board seat• Manageable dilution e.g. convertible debt• Long-term morale, PR, etc. benefits
Cons• Their money == wrong angel is trouble• Can require herding cats
Bottom Line• Right angel can be hugely valuable• Beware of getting bogged down• Best or worst of both worlds
West: Ron Conway, Dave McClure…
East: Dharmesh Shah, John Landry…
Groups: Founder Collective, eCoast, Founders Fund…
$20M+$5M+$5M+AnyAnyExit
$10k - $50k+$2k - $10k$500 - $5k$500 - $5k$0 - $1kCost
MonthsWeeks - MonthsWeeksWeeksDaysTime
20-70%5-20%5-10%5-10%0%Dilution
EquityConvertible
Debt,Equity
EquityConvertible Debt,
Equity Debt,
Convertible DebtForm
$500k - $10M+$50k - $1M+$5k - $20k+$5k - 200k+Amount
“Traction”Idea / PrototypeIdea /PrototypeIdea / PrototypeIdeaStage
VCAngelsIndividuals, Groups
Incubators /Seed Funds
Friends & FamilyBootstrapaka yourself /co-founders
Source
Fundraising Decoder Ring
Source:VC
Pros• Real money for scale, can pay yourself• Right VCs have strategic relationship
Cons• Closing VC rounds is major time sink• Board management is major time sink• Major dilution == big exit needed• Can come with strings e.g. CEO/team
Bottom Line• Commitment level == getting engaged• Complex deal terms, have to know which to fight for• Key for building a big company, from FB to Xobni
VC Fundraising Myth-Bustin’
Myth: Higher Valuation is Always Better• You can price yourself out of future rounds• “Down” rounds (valuation falls) are really, really painful
Myth: Angel First, Then VC Reduces Dilution• Reality is Angel and VC valuations are not that different• Is $200k for 10% dilution better than $1M for 25% dilution?• Is 10% dilution and then 50% dilution better than 50% dilution?
Myth: Control is About Board Votes and % Ownership• Good VCs will never force founders to do something• In reality, nothing ever comes down to a “vote”• “50% ownership” is a red herring, VC controls are really about dilution and sale
blocking rights
Myth: I Shouldn’t Talk to VCs Until I Need that Mill• Yes, you should have your story together before talking to VCs• But much of “traction” == “I’ve been talking with them for a few months and see growth”
Q&A Time!
Advanced Topics• Convertible rounds: discounts, caps, warrants• Valuation• Fostering deal competition• Deal terms e.g. pro-rata (& super), anti-dilution, etc.• Inside rounds, follow-on rounds, leading a round etc.• Managing the lawyers• Managing the board• Term sheets: comparing, exploding• Compensation across funding stages• Pitch decks• Financial modeling• Business plans (do plan, don’t do a 50-page document)• VC seed rounds• Signaling• VC fund size, fund life stages, LPs, etc.
Further Resources
Angel, Incubator, VC Lists• Xconomy: http://www.xconomy.com/boston/resources/• Jon Pierce Boston Angels List: http://twitter.com/jonpierce/boston-angels
Relevant Blogs• VentureHacks: http://www.venturehacks.com• Mark Suster: http://www.bothsidesofthetable.com• Brad Feld: http://www.feld.com• Chris Dixon: http://cdixon.org• Fred Wilson: http://www.avc.com• Paul Graham: http://www.paulgraham.com/articles.html• (me): http://how2startup.com
Documents• YC Series AA Funding Docs: http://ycombinator.com/seriesaa.html• AVC Seed Docs: http://avc.com/a_vc/2010/03/standardized-venture-funding-docs.html• Wilson Sonsini Term Sheet Generator: https://dealbuilder.wsgr.com
Image Creditshttp://www.whyy.org/blogs/itsourcity/files/2008/11/bag_of_money.pnghttp://www.istockphoto.com/file_thumbview_approve/6907003/2/istockphoto_6907003-cartoon-bugs.jpghttp://blogs.nyu.edu/blogs/mj11/businessofart/money.jpghttp://upload.wikimedia.org/wikipedia/commons/b/b2/Coins.jpghttp://eroidays.com/files/2009/05/guy-bootstrapping-400x300.jpghttp://futureofmoney.com/moneyconference/wp-content/uploads/2010/02/McClure.pnghttp://www-math.cudenver.edu/~wcherowi/sdr.gifhttp://i31.photobucket.com/albums/c372/ryanmediocre2/BabyChick1.jpghttp://www.vcwear.com/fuck-id-fund-that/http://kk.org/ct2/calvinhobbes_friends.jpghttp://www.complete80s.com/media/ghostbusters.jpg
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