An overview of the types of qualities that investors want to see in a venture business, as well as some of the basic documents and homework that a startup seeking funding needs to prepare.
Stack invests in early-stage web tech companies • Prototype edition: 9 companies + follow on investments, typical check size of $150K • Lance Tracey & Boris Mann Boris Mann • @bmann
you building a venture business? • All businesses are not a candidate for venture investment • Big idea, big market, big growth, big outcomes • For the purposes of this presentation, I’ll be talking about venture businesses • …you’re probably not building a venture business Boris Mann • @bmann
companies are right for the venture funded path • Recurring revenue SaaS companies are a great fit to grow organically • Some angels are a good fit • Early bootstrapping can still lead to later venture funding Boris Mann • @bmann
• You need a BHAG • Vision and purpose that form core passion & “true north” for the company & team • You also need an execution plan: • What can you build and sell today? • Prove you can ship • Charge money so you don’t die in the short term Boris Mann • @bmann
Seed 1: < $500K • Working code & customers • Seed 2: > $500K to $1.x M • Paying customers or significant traction • Series A: $1M++ • At least one known, repeatable sales channel / distribution model Boris Mann • @bmann Day job F&F $30K prototype Cofounder Accelerators Futurpreneur Consulting
Investment Deck • Team / Market / Solution (+ Proprietary Tech or Distribution) • Use of Proceeds (aka Budget for 12 months) • Hiring plan, sales & marketing “hypotheses” • User Model • Bottom up growth model • Cap Table • including scenario for next round Boris Mann • @bmann
investment deck should be standalone and can be sent by email and make sense without you “live” talking about it • Pitching on stage doesn’t get cheques written • Market: who are the customers? what are their pains? • Solution: how are you solving the pain? have you developed novel technology or marketing channels? • Distribution: how do you think you will sell it to customers? • Team: why you, why now, why this? Boris Mann • @bmann
10 slides • No really, 10 slides • But I need to explain my idea more fully! • Then your idea is too complicated to execute on • Really, 10 slides is the answer • …but feel free to put an unlimited number of slides in your backup Boris Mann • @bmann
Budget • The 5 year proforma is not very useful • “A 12 month budget is fiction. A 5 year plan is science fiction” • Hiring: who will be working on it full time, who do you need to hire? • Marketing: what marketing experiments will you run? • How many customers? Which methods of marketing work better than others? • What are the end goals? Customer adoption, revenue, building out product features Boris Mann • @bmann
plan determines how much you need • If you ask for too little, investors won’t take you seriously • You’re saying this isn’t a BHAG, or you’re saying you don’t know how to budget • 5 people at $5K per month + some monthly expenses = ~$30K per month, $360K for 1 year • People are likely your main cost for any tech / software business Boris Mann • @bmann
bottom up model of how you add customers, lose customers, and bill customers • Self serve: we do marketing, drive traffic to our website, and users sign up / trial / pay us • Enterprise: we phone a lot of people, have a lot of meetings, and spend 1 - 3 months+ to sign up a customer • In reality: trying lots of things to beg anyone to use your product, so at least you can get feedback Boris Mann • @bmann
table? • aka “capitalization table” • Record of all the major shareholders of a company, percentage ownership, and what people paid for various shares over time Boris Mann • @bmann
a cap table? • You’ll have one as soon as you incorporate a business • It’s the official share ownership of your company • Your lawyer keeps an official version, you’ll want to have an easily updatable one for doing “what if” scenarios related to investment Boris Mann • @bmann
equity with cofounders? • http://foundrs.com/ is an interesting tool to walk through • Also: reverse vesting for founders • Founders shares are granted immediately, reverse vesting clauses in the Shareholders Agreement describe how founders keep / give back those shares over time • vs. when your company is valued, you give out options, which are granted (vest) over time Boris Mann • @bmann
• Equity is like sh*t – keep it piled in one place and it stinks, spread it around and good things grow • Reward advisors, early employees • Use your cap table to plan where you need to get to in terms of team, traction & timing • 20% - 30% dilution at each stage Boris Mann • @bmann
great team (BHAG and passion) that has done their homework (models & budgets) with a plan (deck) looking for the right investor partners to join them now and for future growth (cap table and funding plan) Boris Mann • @bmann
& Valuation Presentation • Link to some Excel spreadsheets + LaBarge Weinstein presentation • http://captable.io is the tool I currently use & recommend • Budgie • use of proceeds, budget planning, simple SaaS user model • http://app.budgetsheet.co Boris Mann • @bmann
Common Shares • If you can agree on valuation – do it! Aligns early investors & founders • Convertible Note • 20% discount, 8% interest, $3M cap, 18 - 24month term • Debt or Equity (e.g. Y-Combinator SAFE) • Pref Shares • Usually required by any “institutional” investors, including many Seed VCs • Liquidation Preferences, eg 1x means that that class of shares get their investment out first, and 1x their investment Boris Mann • @bmann
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