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Seed Fund Raising by Ash Rust - Coggle Diagram

- - - - Grab attention by immediately presenting a specific problem, they agree should be solved urgently
      - Dont begin with a personal story detailing the source of passion
      - Support your assertions with data and focus on customer pain :bulb:
      - Ex: Dont say "Travel industry software is bad" :red_cross:
        
        Say: " A TripAdvisor survey found travel agents waste 40% of their day on bad software workflows" :check:
    - - You want investor to agree with your proposed solution
      - Focus on communicating the highest level feature and benefit your customers experience
      - Dont go into details yet
      - Dont say: "Bringing 21st century software to legacy travel industry" :red_cross:
        
        Instead say: "A unified platform, removing repetition and increasing agent productivity by 30%" :check:
    - - After this slide, the investor should understand how your startup achieves the solution
      - Usually a 3-step process on one slide is more than enough. It can be helpful to contrast your process against what customers currently do, but only if you can explain it quickly
        
        Eg: What used to take agents 3 hours switching between platform, is now down to 30 minutes thanks to our simplified 3-step process
  - - - This slide should get an investor excited. Use one graph, charting one metric, over at least 6 months. Graph a meaningful metric like revenue or user engagement, not something easily influenced, like app downloads.
      - Even a good graph can be ruined by too many annotations or multiple graphs on the slide. Note: if you’re in the enterprise space, or very early, you may have to cut this slide due to lack of data.
    - - Let an investor know who uses your product and why. Specific examples will help them understand your product. Take this opportunity to display the logos of your most recognizable customers.
      - If your customers are not well known brands, explain the most valuable use case, with statistics on its prevalence. For example: “80% of paying customers are mid-size travel agents, each replacing 3 to 4 legacy software tools with our unified platform”.
    - - Investors want to know customers love using your product. Include 1–3 quotes from satisfied customers, from recognizable brands or within your most valuable use cases.
      - The best testimonials explain why the customer likes your product and the difficulties they suffered before using it, e.g. “It used to take hours to process each booking, with TravelFlash bookings take minutes and we can operate anywhere”.
  - - - You want the investor to believe your team is capable of building a billion dollar company. Use pictures of up to 5 people, with logos highlighting their experience.
      - Prioritize logos of well known companies, schools and publications, in that order. You’ll get a chance to provide details on each person during the pitch, so don’t clutter the slide. If your team is truly exceptional, move this slide to the beginning.
    - - Demonstrate the market is large but you’re taking a realistic approach.
      - Three sections is usually enough:
        
        the current niche, the broader mid-size sector and the overall potential if you dominate.
      - You should put the Vision and Roadmap slide next, to explain how you’ll be attacking these markets over the near and longer term. Don’t be afraid to dream big.
    - - You need to tell an investor what they’re getting for their investment, so briefly describe the big company your startup will grow into.
      - You need only project high level costs, quarterly for ~2 years at this stage. The hiring plan should start slow and accelerate over time. You’ll want your projections to show revenue increasing in line with headcount.
- - - - If burn is $20k/month and you are raising $1.5M, if you raise $250k from angels that give you 1 year runway. The focus on VCs and seed funds. Show you are not desperate
    - - Have your first conversations with 10+ Angels and existing investors. Give offer to early investors - e.g. $5M capped note for the first $100k invested, instead of your planned $6M cap.
    - - Boosts confidence and acts as a positive signal for other VCs
  - - - Plan for 9 months runway rather than longer runways to get first smaller fund yesses
    - - If your round looks full it creates a FOMO - Increase the round size eg: if you have raised $375k out of $500k then extend the round to $750k to be half full
    - - 50 % of your fund raise already got yes from an investor seems attractive
  - - - Reserve a spot for an investors if they say yes
    - - should include their potential investment in your progress reports to other investors
    - - FOMO; good news updates in your follow ups with investors who are still deciding
  - - - Hi Deepa,
        Wanted to quickly share some great news, the team closed Hooli today and the contract should be signed next week. Let me know if you have any questions or if you’ve come to a decision?
    - - Give them updates on the round filling up (reservations), new investors committing and sales or product wins every 2–3 days. Each time ask if they’ve made a decision and if you can provide anything to help. Eventually, you have to give a deadline to avoid dragging out the conversation too long. Even when that leads to a “no”, it’s still better than a maybe.
    - - expect at least ⅔ of your investor conversations to end in a “no”. You need to focus your time on the people who are actually interested. Leaving a potential investor for weeks as a ‘maybe’ will almost certainly result in a ‘no’. Pushing for a decision after answering all their questions is more likely to result in a yes.
- - - - Making use of a template ensures you cover the basic questions an investor expects to be answered, e.g. the problem, market size, team, etc.
    - - A template will force you to keep the deck short (under 15 slides). Instead of providing a multi-slide deep dive on your technology or the market — move those slides to the appendix.
    - - Most founders are tempted to put multiple points on a slide. A template helps you focus on one idea per slide and will encourage you to use a large font, and thus minimal text.
- - - - “We feel privileged to have a number of investors interested but we’re only concerned with finding the right partner. When we find that person, we imagine they will want to make an independent decision.”
    - - Given investors turn down 99% of the startups they meet, any name you mention is likely to be a ‘no’. Thus anyone you mention is essentially providing the current investor a negative reference. If you feel you have to give name, only provide existing investors rather than those currently in process.
  - - - “We don’t need money now, so not concerned about timing. We’re focused on finding the right partner to help build the business over the long term.”
    - - Fundraising almost always takes longer than you expect. If you provide a specific deadline and you’re still raising after it passes, investors may interpret this as a negative signal.
- - - - deck
      - Answers to any outstanding questions from the meeting
      - Any materials the investor
      - Example Email: Hi Nicky, Pleasure meeting you today. I appreciated your questions around engagement and went through our data to get an answer on daily active users — we currently have 5,233 up from 789 six months ago. I’ve also attached our monthly cohort analysis, and our deck from the meeting. I’d love to schedule another chat to review your questions. Would Oct 4 at 10am work for you?
  - - - Mention of the round is filling up (use the reservations system).
      - New investors in the round, who have signed and wired funds.
      - Product and Sales launches wins (traction, launches & new customers).
      - Example Email: Hi Ajay, Quick update here — we now have $700k spoken for out of the $1M target for this round with Sterling Road and Pear VC committing this week. We also just launched the MVP of our most requested feature: the iPhone app. I would love to continue our conversation before the round closes, would 2pm Oct 7 work for you?
  - - - A reminder of the original meeting.
      - Top company highlights (traction, team, investors).
      - Decision deadline.
- - - - Most VCs like to the know the founders of the company they’re investing in. This makes sense given it’s a potential 10 year commitment if the company does well. It’s very rare for a VC to invest in a startup they met within 2 weeks, even if those stories are frequently discussed in the press.
    - - Meet with 3 seed stage VCs at least 1 quarter before you’re planning to raise. Ask these VCs for feedback on the milestones your startup would need to hit for them to be interested. This starts your relationship with the VC before you need their money and you can use their feedback to help set your company’s goals.
    - - If you have to meet a VC for the first time while you’re raising, you should budget at least 4 weeks for the process. During that month you’ll need to spend a lot of time with them to ensure you like working together.
  - - - If your round is filling up, there’s a chance the potential lead VC may miss out. Raise enough and you won’t need a lead at all. VCs love a company that doesn’t need money and are less interested in those who are desperate.
    - - In general, raise $100k-$250k, from smaller sources before trying to close your lead VC. You can encourage smaller investors to join the round early by highlighting the limited space available, e.g. you can say “We expect a lead investor will take the rest of the round”. Be sure to talk to all kinds of investors, crowdfunding and venture debt interest can drive VCs to commit.
    - - If a smaller investor seems interested but won’t close, you can offer a slightly lower price for the first few yeses.
  - - - VC attention is limited, if they have to wait for an answer to their questions, they may find another deal that is moving faster. Often VCs lose interest because of partial responses, e.g. you sent the deck and projections but not your customer churn data. In addition, VCs love investing in founders who know their own business well, this is your chance to demonstrate that, while testing if you like working with the investor.
    - - Have common diligence items ready in advance such as: projections, hiring plans, contracts and demos. Once a VC is interested, ask what they specifically need to make their decision. Provide the responses within 24 hours and make any data’s conclusions explicit — don’t make them to hunt around for answers. Quick turnarounds on requests should be you and your team’s top priority.
    - - If you genuinely don’t have enough time to provide timely responses, delegate the process to another team member. However, being outside the diligence process can be dangerous; in-person meetings can go badly if you don’t have a strong grasp of the numbers.
- - - - These meetings are usually casual and sometimes scheduled outside of an office setting, such as a coffee shop or members club (e.g. Philz Coffee). Because investors like to talk, it’s up to you to focus their attention on your pitch; and always use your deck if you can. If the VC is interested, they will often follow up within one business day, but remember, no matter how positive they sound at this stage, a commitment is not imminent.
    - - At the seed stage, VCs are looking for a sensational team first. You must demonstrate how your team will beat the odds and dominate a massive market. If you’re looking for a $1M+ investment, most VCs will expect a minimum of $5K/month in revenue to start. Next, the expectation will be exciting growth of 10%+ per month on that revenue, or equivalents such as customers or daily active users.
  - - - Meetings are usually done at your office or the VC’s, and at least one other investor from the VC firm will join. Expect this meeting to be a much closer examination of your company’s strengths and weaknesses, as the attendees have typically reviewed your deck and discussed the opportunity amongst themselves in advance. If your product is publicly available, they will have tried it and you should expect questions on the experience.
    - - The VC is hoping you will get their colleagues just as excited as they are, connecting your recent growth to a long term vision. Strong answers to the core questions raised by the VC are imperative, e.g. market opportunity, customer acquisition, competitive advantage. They will also want to see that you are willing to answer probing questions, and debate thoughtfully if needed; resist any temptation to become defensive.
  - - - This will be the most formal meeting of the process and will include all available members of the investment team, which could be a group of up to 10 people. Expect a wide array of questions, often reviewing answers you’ve given previously. Remember that the group will have access to your materials and, for some, this will be their first time meeting you. You may also be asked about the round’s participants and where this VC fits in, i.e. how much capital could they invest? If things go well, the VC will ordinarily let you know the same day.
    - - The VC will need a high level of excitement from the investment team, with a majority in favor of investing to proceed at this point. Remember, your VC contact already wants to invest, but is not likely to dissent from their colleagues. Be sure to give clear and detailed responses to the firm’s core questions (usually repeated multiple times by this stage) and any newly raised issues, so a final decision can be made without further delay.
  - - - Be prepared to provide financial and legal documentation for your company. Many VCs will also want to validate your customer contracts and/or other major agreements. Some VCs (including myself) ask for a background check to verify founder credentials. If the round is priced (not a note or a SAFE), your lawyers will work with the VC’s lawyers on documentation where standard questions will arise on how to handle existing investors, employees, or the future equity option pool.
    - - The VC is expecting no surprises — ideally everything they understood from your pitch is exactly what they find during diligence. A rapidly growing company may have some room for variance but significant differences can kill the investment and be extremely negative for the company reputationally. The VC will want to see pragmatism and poise from you, to negotiate terms and get the investment closed ASAP.
- - - - 15%+ growth, month over month, is the goal; ideally sustained over the last 3 to 6 months. If you’re not growing that fast don’t try to present a rosier picture with lower numbers. Instead discuss your current distribution channels, how they will grow and the new ones you’re testing to hit your goals.
    - - Good schools aren’t enough to be your differentiator. Emphasize this if you’re a serial entrepreneur with previous exits or if you have international recognition for your expertise.
    - - Don’t present your app as a better experience without evidence. A demo and testimonials from key use cases is the minimum needed. If you have 50+ customers you can demonstrate customer satisfaction with a Net Promoter Score or engagement metrics like Daily Active Users.
    - - Don’t talk about this unless you have unique technology, for example: Skype’s voice technology allowed them to provide completely free international calls. Otherwise, when you’re winning on price, investors get concerned about competition suppressing your margins.
  - - - During demo day build up, I often recommend you practice 10 times a day. Film yourself doing the pitch end to end (your phone is enough); most people hate watching themselves so much they improve rapidly.
    - - Do not pitch casually. Stand up and deliver the concise version of the story, reinforcing your conclusions with data. Don’t put too much detail in the presentation, much better to get an investor excited and asking questions. Make sure you’re well prepared for common questions as weakness here will be a stark, negative contrast with your rehearsed performance.
- - - - a founder I recently coached was struggling to raise after ~40 phone meetings without a yes; once they began asking for in-person meetings, the round was closed in a couple of weeks.
    - - comb through LinkedIn, Angellist and Crunchbase, looking for potential warm introductions to investors
      - make sure the introducer only has to click ‘forward’ to do their part.
    - - No matter how much demand for your round, it never helps to be rude. Even if an investor doesn’t respond negatively at the time, they will almost certainly talk about their bad experience with others, reducing the opportunities available to you.
      - Instead, avoid being defensive and playing too much “hard to get”.
    - - If you don’t ask the investor “Are you interested in investing?”, you are wasting the meeting.
      - If you’re very early in the process you can ask “Where would we need to be for you to be interested?” but whatever happens: you must ask.
  - - - Don’t discuss other investors you’re talking to, even if a different investor asks. Given most investors will pass, you’re likely giving the investor a negative reference.
      - if both investors are interested, you risk them colluding on terms without your involvement.
    - - Keep a document of common and difficult questions you’re getting from investors. Prepare strong answers in advance, add appropriate slides to your deck’s appendix and create a small ‘data room’ of materials online.
      - 2016, I saw a founder change their pitch focus from a technology advantage to bookings revenue; they went from struggling to raise $250k from Angels to closing $3M from a top VC.
    - - Respond to investor emails within 1 business day and provide data or new materials to an investor in a timely manner.
      - Responding to investor questions may push them to a yes. Plus, investors will only have these interactions to judge how you work together.
  - - - Send regular follow-ups, every ~3 days, to undecided investors. Update them on round progress, new investors and product or sales wins.
      - This will drive ‘fear of missing out’ as the round’s availability dwindles. Ultimately, you have to accept that ‘maybe’ is worse than ‘no’ and push for a decision.
    - - A yes isn’t real until you’ve confirmed it in writing. Confirm the investment and high level terms over email immediately and then get straight into the document signing and funding process.
      - Once the money is in your bank, and not before, scour your new investor’s network as detailed in point 2.
    - - For most founders, fundraising is a marathon not a sprint. You need a healthy, sustainable routine to perform everyday for the ~90 days it usually takes to close a seed round.
      - Nobody pitches at their best when they’re exhausted and almost nobody can survive on 3 hours of sleep a night.