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Fundraising tips 2019

Presentation given by Elad Gil on raising a seed round.

Gil is an investor in Airbnb, Airtable Coinbase, Gusto, Instacart, Stripe, Square, Opendoor, Pinterest, Wish and other companies as well as author of High Growth Handbook.

Fundraising tips 2019

  1. 1. Putting the “fun” back in “fundraising” Elad Gil @eladgil
  2. 2. About me Investor: Operator, Entrepreneur: Author:
  3. 3. A quick word of warning The only good generic startup advice is: “There is no good generic startup advice”. All things are contextual.
  4. 4. A second word of warning Not every company should raise money, or is right for venture model
  5. 5. Fundraising topics 1. Round structures: party versus led 2. Your investor portfolio 3. Hierarchy of investor interest 4. Fundraise timelines & process 5. Things that should be in your deck 6. How to reply to intros 7. Signs a VC just isn’t that into you 8. Things to consider with a VC 9. Common mistakes 10. SAFEs, convertibles notes, equity: key terms and tradeoffs 11. Fancy stuff (note stacking, advisor discounts) 12. Making use of investors
  6. 6. Party Rounds Versus Led Rounds ● Terms set by founders ● Sensitivity to where investors start to drop out ● Roll in capital - no one dominant player ● Lack of lead may also imply no one on hook to help - can lead to orphaned company ● Terms set by lead investor ● Lead tends to write big enough check to anchor ● Lead on hook to help - this actually matters
  7. 7. Your investor “team” - a portfolio 1. Company builder / operator 2. Customers & network 3. Expert 4. Lifecycle helper (fundraises, M&A) 5. The Brand 6. Just money / filler 7. Destructive money See also:
  8. 8. Series A VCs investing in a seed? Pros: ● Quality signal to employees, customers ● Potential for pre-emption Cons: ● Negative signal if company doing “ok”. Modulated by: ○ Tier of firm ○ # of angel checks they write
  9. 9. Hierarchy of investor interest 1. Clear customer traction and compounding growth 2. Hot market or well known founder 3. Strong team with prototype 4. Strong team w idea, lessor team w prototype 5. Lessor team w idea
  10. 10. Timeline and process: Seed round 1. Should take 2 weeks to 4 months. Median around 2-3 months. 2. Can roll in small checks along the way. 3. Parallelize a large number of checks. 4. Different strategies for $250K to $1M versus $2M-4M seed. 5. Once enough people tips, rest of round tends to tip. 6. Easy terms / structure (usually SAFE, occasional equity)
  11. 11. Timeline and process: Series A, B, C 1. Should take 2 weeks to 6 months. Median around 3-4 months. 2. Need to find a lead. Small checks don’t matter. 3. Need to run a coordinated process with all investors in lock step. Try to get all term sheets in 1-2 week period. 4. Anchor $ raised low and auction up. Don’t ask for too much money (!) 5. More complex terms, almost always equity, board seat, protective provisions….
  12. 12. Your Deck See also: Notes: ● OK to put team first ● Biotech cos have additional slides
  13. 13. Replying to intros: terrible version "Thanks Ivan Introducer for the intro! Hiya Angela Angel, It is great to meet you! Love to connect! Let me know what works! Regards, Elizabeth Entrepreneur" See also:
  14. 14. Replying to intros: good version "[moving the person who made the intro to BCC] Hi Angela Angel, It is great to meet you. As introducer said, we are in the midst of a round led by brandname investor and other well known angel is also investing. We have seen really solid traction with user growth of X up Y%. Our team includes the tech lead from Gmail and the inventor of TensorFlow. Our round is coming together quickly so it would be great to talk in the next week. Are you free to chat at one of the following times? Monday 2pm-3pm; 5pm Tuesday 1:30pm-3pm, 6:30pm We can also try to move things around to accommodate you - we have heard great things about you as a SaaS investor (in particular your investments in Stripe, Front, Airtable, and Checkr, so would love to connect before we close the round. Thanks, Elizabeth Entrepreneur See also:
  15. 15. Signs a VC just isn’t that into you ● No clear path forward / next steps. Ask at end of each pitch ● Never ending data requests ● Has junior associate deal with you ● No reply to emails ● Does not try to sell you on firm and their helpfulness Quickly drop institutional investors who don’t follow up. Angels harder to tell as my just have a tough work week
  16. 16. Things to consider with a VC partner ● Number of board seats / business ● Seniority at firm ● Reputation / background checks (especially if co not working) ● Fund lifecycle and fund size ● Personality mesh ● Helpfulness ● “Conflicts” tend not to matter as much as first time founders think
  17. 17. Common mistakes ● Asking for too much money ● Pressure / rush tactics ● Getting too fancy ● Bad angel advice ● Legal “standard terms” ● Intro to “wrong” VC partner for you ● Too high valuation
  18. 18. Valuation: Too high vs too low vs just right ● Each round expect 2-3X from last round ● Dilution adds up - don’t raise too low ● Too high valuation can screw you (wrong investors, stuck company)
  19. 19. SAFE, convertible note, equity Item SAFE Convertible note Equity Frequency @ seed round ~60-80% ~5-10% ~10-30% Length of legal docs A few pages A few pages 100 pages Complexity Low Low High Key terms Valuation Discount Valuation Discount Payback & Interest rate Valuation Board Protective provisions Option pool Pro rata Additional considerations Option pool Board Pro rata Option pool Board Pro rata N/A Avoid piecemeal negotiation if you can
  20. 20. Fancy stuff ● FF or founder shares, super voting shares ● Advisory discounts & signaling ● Different cap ● Advisory shares ● Too fancy? Stacking notes or SAFEs
  21. 21. Using your investors ● Monthly update so everyone up to speed when you call ● Remind yourself to ping people & cycle through them quarterly ● Figure out what each person good at ● Mock board meetings or advisory sessions with regular group ● Quarterly or annual investor all hands ● Don’t forget to build peer networks See also:
  22. 22. Monthly updates See also: If make it a template, easy to fill out monthly or delegate to team ● Asks (put at top) ● TL; DR ● Key metrics (longitudinal) ● Team ● Product ● Partnerships ● Industry news ● Burn/cash/runway ● Misc/fun
  23. 23. Q&A