Path to Value Playbook - Need to Raise Early Stage Capital and Financials

Company Confidential. DO NOT DISTRIBUTEM O R G A N H I L L P A R T N E R S C O P Y R I G H T 2 0 1 8 - 2 0 1 9
+
Need to Raise Early Stage Capital
PATH TO VALUE
PLAYBOOK TRAINING

INTERVENTION NEED:
Raise Early Stage Capital
2

Why Raise Capital?
3

FUNDRAISING: THE WHY?
Because bootstrapping is not an option
for many startups, companies at the Early
Stage raise money to:
- Gain additional traction
- Further develop their product
- Accelerate sales and marketing
- Hire key team members
- Expand into new markets
4

Company Confidential. DO NOT DISTRIBUTEM O R G A N H I L L P A R T N E R S C O P Y R I G H T 2 0 1 8 - 2 0 1 9 5
Good News
Sophisticated investors that provide
credibility and bigger checks are now
interested in funding growth.
FUNDRAISING: GOOD / BAD NEWS
Bad News
With sophisticated investors comes
increased scrutiny. Founders need:
- A tight and compelling story
- A polished business strategy
- A complete due diligence package
- Periodic investor updates
- A detailed budget and burn

Good News
Sophisticated investors that provide
credibility and bigger checks are now
interested in funding growth.
Bad News
With sophisticated investors comes
increased scrutiny. Founders need:
- A tight and compelling story
- A polished business strategy
- A complete due diligence package
- Periodic investor updates
- A detailed budget and burn
FUNDRAISING: GOOD / BAD NEWS

Fundraising:
Discovery vs Validation
7

FUNDRAISING: DISCOVERY VS VALIDATION
Discovery: Concept and Seed stage
companies often lack evidence of a product
market fit. They often use funds for
development of an MVP (minimum viable
product).
Validation: Companies at this stage have
some level of traction and proof of their
thesis. They are typically using funds for
additional development or growth.
8

Investment Strategy 2:
Raising Early Stage Capital
9

INVESTMENT 2: STAGES
Early Stage: Following Seed Stage is the “Early
Stage.”
Characteristics:
- Aspects of the company remain incomplete
- Evidence of progress in the company’s
development
- Filing gaps in the team
- Product or service is still in development or
in the testing stage
- Demonstration of some traction
10

Strategy: Investment Strategy at this stage
is about showing to investors what you
have accomplished thus far:
- Assembled a great founding team
- Created an MVP
- Received some initial traction
- Validated the business model
11

Late-Seed: Late-Seed funding rounds often
have more traction than traditional seed
rounds, but lack enough evidence to warrant
a full sized Series A round.
Series A: Series A rounds are the first and
most risky growth round. Companies at this
stage have proven their thesis and are
looking to fuel growth.
12

Late-Seed: Questions can remain for investors, but
the company should be making tangible progress
and experiencing some growth. It should have one
or more referenceable clients and a roadmap to
acquiring more.
Series A: The company should be ready to put fuel
to the fire. The company should be generating
meaningful revenue and should have a firm
understanding of unit economics, KPIs, and a
roadmap for growth.
INVESTMENT 2: TRACTION
13

Late-Seed:
- Angels – High Net Worth Individuals.
- Angel groups – A group of high net worth Individuals that invest together.
- Early-Stage VCs – Venture capital firms with smaller funds that invest in early stage companies.
Series A:
- Angel groups – Groups that write larger checks may still be involved.
- Super Angels – Very active angels that write checks the size of small VCs.
- VCs – A more traditional venture capital firm that writes larger checks than late-seed VCs.
- PE Groups – Private equity firms that occasionally can write checks for early-stage companies.
INVESTMENT 2: INVESTORS
14

INVESTMENT 2 (EARLY STAGE): REQUIREMENTS
Investment Strategy 2 (Early Stage): Inputs -> Workshops -> Outputs…
but at the end of the day we need:
q Great deck & pitch
q Investment thesis & exec summary
q Customer testimonials
q Revised data room & cap table
q Meat behind the bones (e.g., market research, strategic plan)
q Executive investment vehicle (Equity, SAFE, or other)
q Pro forma package, including key metrics (e.g., CAC, churn, LTV)
q Investor update for current investors

INVESTMENT 2 (EARLY STAGE): INPUTS
Baseline & Alignment 2 - Validation
- Renewed understanding of SWOT
- Renewed understanding of Team and Capabilities
Market 2 - Market Assessment & Opportunity
- Deep understanding of Market Size, Trends, & Segments
- Competitors, Positioning & Comparable Companies
- Validation of Product-Market Fit
- Relevant Capital Sources
Investment Strategy 1 - Concept/Seed Stage Funding
- Seed Stage Pitch Deck
- Investor List
- Deal Room
Strategy 2 - Company Strategy
- Mission, Vision, Values
- Strategic Plan and Strategic Recommendations
- Functional Business Model (Pro-Forma)
- 30 Day, 90 Day, 360 Day, 3 Year, 10 Year Plan

STOP!
Do You Have All Inputs?
If so, continue on…
(if not, gather before we proceed)
17

Workshops / Outputs
18

INVESTMENT 2 (EARLY STAGE): WORKSHOPS / OUTPUTS
Workshops
1) How to Nail the Elevator Pitch
2) How to Present to Investors
3) Executive Summary Fundamentals
4) Investment Process: Early Stage
5) Launch Equity Simulator
6) Deal Room Preparation
7) How to Write a Powerful Investor Update
8) Basics of Financial Modeling
Outputs
1) Pitch
2) Pitch Deck
3) Exec Summary
4) Funding Pipeline - Early Stage
5) Cap Table
6) Deal Room - Early Stage Funding
7) Investor Update
8) Pro Forma & Key Metrics (Financial Model)

Workshops
Outputs
1) Pitch
2) Pitch Deck
3) Exec Summary
5) Cap Table
7) Investor Update
INVESTMENT 2 (EARLY STAGE): PITCH & MATERIALS

INVESTMENT 2 (EARLY STAGE): PITCH MATERIALS
What are the typical pitch materials you need at this stage?
Pitch Deck: The deck becomes more detailed and
thought out. The deck should demonstrate
traction and investors should believe in the path to
value.
Executive Summary: A one or two page document
that is the pitch deck consolidated into a narrative
form.
21

INVESTMENT 2 (EARLY STAGE): THE PITCH
The framework of the story is the same as
Discovery, but the pitch should focus on traction
and provide confidence to investors that the
company is moving in the right direction.
The pitch needs to quickly lay out what has
changed in the market (why now), what the
company does (how are you taking advantage of
the change), and the key metrics for your business
(where is the company today).

INVESTMENT 2 (EARLY STAGE): THE PITCH
https://drive.google.com/file/d/1CtzDtOruiB-rFNc53QLi-RptYP-4_APn/view

Workshops
Outputs
1) Pitch
2) Pitch Deck
3) Exec Summary
5) Cap Table
7) Investor Update
INVESTMENT 2 (EARLY STAGE): THE PROCESS & PIPELINE

https://www.notion.so/morganhillpartners/Investment-Process-Early-Stage-ab3a56e71ce545b4b239d78559741a09

https://www.notion.so/morganhillpartners/3ae615d626ad494cb80092b97016bcd8?v=490727548e154426881bad884f85cbdf

Workshops
Outputs
1) Pitch
2) Pitch Deck
3) Exec Summary
5) Cap Table
7) Investor Update
INVESTMENT 2 (EARLY STAGE): CAP TABLE

INVESTMENT 2 (EARLY STAGE): CAP TABLE
Companies must have a clear and concise
ownership structure. A fundamental due
diligence item for investors is a cap table.
When preparing for a raise, the equity
simulator can help founders understand
the impact of subsequent funding round.

Workshops
Outputs
1) Pitch
2) Pitch Deck
3) Exec Summary
5) Cap Table
7) Investor Update
INVESTMENT 2 (EARLY STAGE): DEAL ROOM

The deal room at this stage should be robust
and provide a comprehensive picture to
investors of the company's status and needs.
https://www.notion.so/morganhillpartners/Deal-Room-Early-Stage-Funding-e16188b9f99c4378b2ec479614c01db7

https://www.notion.so/morganhillpartners/Deal-Room-Early-Stage-Funding-e16188b9f99c4378b2ec479614c01db7

INVESTMENT 2 (EARLY STAGE): WORKSHOPS / OUTPUTS
Workshops
Outputs
1) Pitch
2) Pitch Deck
3) Exec Summary
5) Cap Table
7) Investor Update

INVESTMENT 2 (EARLY STAGE): INVESTOR UPDATE
At this stage of the company, it’s important
to begin providing investors with updates.
Being proactive in communication can save
awkward calls and anxious investors.
It’s important to cover the following:
- Summary of the Last Period
- Product Launches
- Key Hires
- Milestones Achieved
- Pending Milestones
- Items You Need Help With
- Runway
- Summary of Metrics

INVESTMENT 2 (EARLY STAGE): FINANCIAL MODEL
Workshops
Outputs
1) Pitch
2) Pitch Deck
3) Exec Summary
5) Cap Table
7) Investor Update

INTERVENTION NEED:
Create a Financial Model
35

THE IMPORTANCE OF THE FINANCIAL MODEL
A financial model, when done correctly,
demonstrates critical thinking about
internal operations and the plan to get
funding.
A financial model is the numerical
culmination of a business strategy for
sales, talent, cost structure, and
investment.
36
https://drive.google.com/file/d/177sXLOsfEMG5NSq5I2EniT6yezbSdTKq/view

THE IMPORTANCE OF THE FINANCIAL MODEL
Nobody expects the numbers in a
financial model to be accurate, they
rarely are.
Rather, it is about showing that a
company has contemplated why it is
asking for funding, and where it
expects that money to go over time.
37

The Financial Model:
Getting Started
38

BEFORE PUTTING A MODEL IN FRONT OF INVESTORS…
Before putting a financial model in front
of investors, make sure you can back up
the information.
Spending some time in the other
workstreams will make sure the model
reflects your overall strategy.
Financial
Model
Sales
Pipeline/
Marketing
Team
Growth
Expected
Product
Needs
Cost
Structure/
Revenue
Model
39

FINANCIAL MODEL: WORKSTREAM INPUTS
Founders should know how their sales
pipeline converts into financials.
A company should know how its
consumers interact with the product.
Customer acquisition cost and churn
are key metrics to know as well.
Financial
Model
Sales
Pipeline/
Marketing
Team
Growth
Expected
Product
Needs
Cost
Structure/
Revenue
Model
REVENUE – SALES AND MARKETING
40

A model is forward looking, so staffing
needs should be too.
Understanding how staff needs will
develop influences future labor costs.
A discrete timeline for a dev plan with a
strategy to execute is key.
Financial
Model
Sales
Pipeline/
Marketing
Team
Growth
Expected
Product
Needs
Cost
Structure/
Revenue
Model
TALENT – TEAM AND EXECUTION
41

A company looking to raise capital is
likely trying to develop its product.
Understanding the time and materials
for development creates a budget.
Having a detailed development plan
projects the monthly cash burn.
Financial
Model
Sales
Pipeline/
Marketing
Team
Growth
Expected
Product
Needs
Cost
Structure/
Revenue
Model
PRODUCT – TECHNOLOGY AND OFFERING
42

A company can’t organize a financial
model without knowing its finances.
How customers flow through the
revenue model transforms the top line.
Investors care about the cost structure,
its critical to have this mapped out.
Financial
Model
Sales
Pipeline/
Marketing
Team
Growth
Expected
Product
Needs
Cost
Structure/
Revenue
Model
OPERATIONS – FINANCE AND OPS
43

MAKE SURE YOU KNOW HOW TO MODEL!
Having all the information to create a
financial model is useless without being
efficient in building it.
This workshop walks through the basics
of modeling and teaches some helpful
organizational tips.
44

The Financial Model
Walkthrough
45

MODEL WALKTHROUGH: DASHBOARD
The dashboard is typically the first page
in a model.
The dashboard should be all formulas.
Avoid any hardcoded numbers.
Level Set: This is an example of a
software company with a two revenue
streams – a revenue share contract with
a counterparty and a traditional SaaS
revenue stream.
46

MODEL WALKTHROUGH: CASE GENERATOR
The case generator is the control panel of a model.
Founders should think about why each case should
exist before creating it.
Based on the assumptions created, this is the one
slide needed to make changes in the model.
Summary stats, while not needed, help
demonstrate how outputs changed.
47

MODEL WALKTHROUGH: ASSUMPTIONS
Assumptions tabs establish any variables that
are decided or calculated outside of the model.
These tabs should be the only ones with
hardcoded information.
By keeping assumptions all in one place,
tweaking the model is easy.
Make sure to use a different color to highlight
hardcoded numbers.
48

MODEL WALKTHROUGH: CALCULATIONS
Calculations tabs are the model’s
engine, taking all of the assumptions
and cases and creating outputs.
These tabs should have no hardcoded
numbers – models are only dynamic if
linked to assumptions.
Some models require iterations of
calculations that further synthesize and
simplify information.
49

MODEL WALKTHROUGH: OUTPUTS
The output tabs are the intermediary
step between calculations tabs and the
dashboard slide.
These slides collect and organize the
calculations tabs into data that, while
dense, can be interpreted easily.
The detail on the output tabs is often
valuable information to show in charts
on the dashboard.
50

FINANCIAL MODEL OUTCOMES
The financial model is one of the last
outputs in the Validation stage.
Time and effort is needed in other
workstreams to create model inputs.
When constructed properly, a financial
model is customizable and dynamic.
It is a big lift to get it done right, but it
is a strong signal to investors.
51

Summary
52

Investment Strategy 2 (Early Stage): Inputs -> Workshops -> Outputs…
q Great deck & pitch
q Investment thesis & exec summary
q Customer testimonials
q Meat behind the bones (e.g., market research, strategic plan)
q Revised data room & cap table
q Executive investment vehicle (Equity, SAFE, or other)
q Pro forma package, including key metrics (e.g., CAC, churn, LTV)
q Investor update for current investors
INVESTMENT 2 (EARLY STAGE): CHECKLIST / OUTCOMES
53

Questions?
Contact us at:
MorganHillPartners.com
54

Path to Value Playbook - Need to Raise Early Stage Capital and Financials

Recommended

Recommended

More Related Content

Similar to Path to Value Playbook - Need to Raise Early Stage Capital and Financials

Similar to Path to Value Playbook - Need to Raise Early Stage Capital and Financials (20)

Recently uploaded

Recently uploaded (20)

Path to Value Playbook - Need to Raise Early Stage Capital and Financials