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excel spreadsheet of female angels and VC’s

Hey guys, my team and I created a funding google sheet that we attained via a Twitter thread that helps people trying to raise capital.

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Equity crowdfunding is just one part of the Equitise picture. As long as you're 18 or over, you've got options for how to invest. The path you choose depends on what you're after and if you're a Retail or Wholesale Investor.

Equity Crowdfunding

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Anyone can invest in equity crowdfunds and buy a piece of a business they believe in.

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Highly vetted and highly accessible from $50

Wholesale

$13 million raised over 32 successful offers

To jump on a wholesale opportunity, you need to earn over $250,000 or have $2.5M in net assets.

Exclusive, highly vetted opportunities

Invest with venture funds and angels

IPO

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Anyone can take a stake in an initial public offering (IPO). Shares can be sold at any time on the ASX.

Invest in more established businesses

Shorter term investment

Join our newsletter to stay up to date on offers and news

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Equitise: The Leading Investment Platform in Australia & New Zealand

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Equity crowdfunding is just one part of the Equitise picture. As long as you're 18 or over, you've got options for how to invest. The path you choose depends on what you're after and if you're a Retail or Wholesale Investor.

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Introduction to Lighter Capital and Revenue-Based Finance

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Revenue-based financing, sometimes known as royalty-based financing, was used by oil investors in the early 20th century to finance oil and natural gas exploration, and later by the pharmaceutical industry, Hollywood, and energy companies. Investors began applying it to early-stage companies in the 1980s. Revenue-based financing blends the best of bank debt and venture capital, and a company should expect the cost of capital to fall within that range.

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Revenue-Based Financing | Lighter Capital

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Revenue-based financing, sometimes known as royalty-based financing, was used by oil investors in the early 20th century to finance oil and natural gas exploration, and later by the pharmaceutical industry, Hollywood, and energy companies. Investors began applying it to early-stage companies in the 1980s.

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As venture capital funding dries up due to Covid, many startups have found themselves looking for alternative financing opportunities that don't involve raising equity.

One option on the table is revenue-based financing (RBF), a type of revenue or profit-share investment structure that's gained traction in the last several years.

Unlike equity financing, revenue-based financing is a fixed sum that's repaid over time based on incoming revenue. Founders receive money from an investor to spend on marketing or inventory, and with every sale they make, they repay a percentage of that loan.

A company might receive €100k, and would then repay 5-20% of every future sale back to the investor until the amount is repaid in full - with a fixed fee on top. Typically there are no equities, personal guarantees or hidden fees involved.

While founders can typically raise less money than they could from a VC, Ariyan Seyed Nassir, founder of German revenue-based finance company Uplift1, calls it a type of "rocket fuel capital" that gives qualifying founders immediate cash for growth without them needing to sacrifice ownership.

"Many startups just need working capital to scale - whether it's for inventory, online marketing or operating expenses," Seyed Nassir told Sifted. "They're always in this dilemma of raising equity to enable faster growth. We enable them to do it, and they don't need to give away shares."

Already a growing trend (particularly for e-commerce companies), the buzz around RBF is increasing. That's in part because the instant cash structure allows founders to act on immediate growth opportunities instead of waiting around for equity capital that may or may not come through.

But even if RBF is potentially viable for startups, is it really ripe to take off? And who can take advantage of it?

A niche option

Berlin's Uplift1 has a simple investment process: founders fill out an online form and get invited to a first screening call for a discussion about metrics and requirements. If everything looks mutually beneficial, both sides sign an NDA and exchange further data. The decision-making process takes about a week.

This makes it especially beneficial for healthy startups who need cash quickly, particularly in the bootstrapping phase or in lieu of bridge financing.

"Maybe companies will raise rounds a little bit later because they use revenue-based funding to push until the next round, and go a little bit longer. It's very applicable in a situation where a company wants to push innovation or reach a milestone, and they would usually raise a bridge financing or convertible," Seyed Nassir of Uplift1 said.

Matteo Rizzi, Fintech investor and cofounder of FinTechStage, sees RBF as an interesting alternative that can cater to new ways in which startups are being founded and scaled.

"RBF is not only viable, but I believe that with the rise of the venture studio model, the opportunity for entrepreneurs to save equity in the bootstrapping phase is very attractive," Rizzi said.

But the nature of revenue-based financing also makes it limited.

Seyed Nassir said that startups can't use it for expanding into ten new markets or building a company from the ground up.

"If you're doing €100k of monthly revenue, a VC can give you €10m. A revenue-based funding company can give you maybe €500k, and only if the company is healthy and on the path to scaling."

Startups must also consider RBF's impact on the fundraising journey as a whole, particularly when it comes to venture debt. Will Gibbs, principal at Octopus Ventures , thinks it's important to model all possible scenarios.

"You should understand the broader impact on any other venture debt covenants and equity instruments. Much like when companies think about venture debt, sometimes there are surprising outcomes when you actually model the impact with all the fees. It's critical to have a reliable finance director run a number of scenarios to understand the upside and downside," Gibbs said.

Data-driven and digital

UK-based is another revenue-based financing company that emphasises a tech-driven approach to financing. Startups can apply in 15 minutes, and once they receive the go-ahead, they are able to connect the sales accounts they use to run their business (sales, marketing, finance, etc.) With that information, Uncapped makes a data-driven decision. It takes 24 hours for a startup to get funding.

Chief executive and cofounder of Uncapped, Piotr Pisarz, said the idea is to use available data to find deals in a new, unbiased way.

"I think VCs want to be much more data-driven, less biased and able to look at companies in a more structured way, but it's hard to do it without technology," he said. "As an ex-VC, I can say that often the most sophisticated technology they use is a CRM. Our decisions are based purely on the metrics and data, without these built-in biases."

That works out well for revenue-based financing in the wake of the Covid crisis. It's the ideal model for capitalising on e-commerce opportunities, as startups get funds to increase inventory and reach more customers via online ads.

"In Covid times, what we see is a growing demand in e-commerce, and at the same time, a declining cost of acquisition in online marketing," said Asher Ismail, cofounder of Uncapped. "We allow founders to very quickly unlock that growth potential with capital for inventory and advertising."

Shifting VC attitudes

Uplift1 's Seyed Nassir said that Covid has placed VCs in an even more favourable negotiation position.

"Some VCs are getting participation with low valuation, or favourable terms for them, liquidation preferences and so on," he said. "And even if you're a healthy business, you might not get funding because VCs need to pick the winner. They need to have 10x returns or know that you can go public in 10 years. So in this context, revenue-based funding makes a lot of sense."

With more conservative outlooks, VCs are pulling out and waiting for the situation to stabilise further. This puts founders in a tough spot, through no fault of their own.

"Venture capitalists are now thinking in triage mode about how to save certain companies within their portfolio. So that means there's less capital available to fund new deals," Ismail said.

Now is the time

The cofounders of Uncapped both stress that in Covid times and beyond, revenue-based financing is both a fast and fair option for startups who can benefit from funding repeatable parts of their business.

If revenues slow, so do the repayments. The technology behind it also makes it possible for founders to get funding quickly, and without needing to step out for yet another pitch or meeting.

It also assures that founders stay in control during times of uncertainty.

"Founders don't need to risk their house, especially in a time when things are less certain. We're really giving them an option to grow," Ismail of Uncapped said.

But even if Covid weren't in the picture, the tech landscape is finally ripe for something as data-driven as revenue-based finance.

"Five years ago, we wouldn't have had all the platforms available from which we could take the necessary data for our product, at least from a technical perspective," Pisarz said. "Behaviours have changed and more people are buying online. There's now a bigger demand for focusing on funding repeatable parts of a business."

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It's finally the moment for revenue-based startup financing | Sifted

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As venture capital funding dries up due to Covid, many startups have found themselves looking for alternative financing opportunities that don't involve raising equity. One option on the table is revenue-based financing (RBF), a type of revenue or profit-share investment structure that's gained traction in the last several years.

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Advisory Boards

After the Mentor Roulettes, the founders chose 3-5 mentors for an 'Advisory Team', who committed to meeting them on a regular basis throughout the program.

Among the MEL18 cohort, some teams locked in mentors whom they wanted to draw on for funding, others picked mentors with specific expertise they needed, some selected a mix of both.

John Barton, the founder of Hecate said:

"My advisory board was great. I got to take a small slice of the Startmate network and make a smaller Voltron suited to my company's needs. I had Jon Williams advising me on marketing, Matt Allen on fundraising and general cheerleading, Hollie King on enterprise sales, and Chris Hexton on running hybrid bootstrap/funded SAAS companies."

We've seen advisors develop into long-lasting friendships as well as angel investors.

Pitch Practice

Cookie cutter pitching is the antithesis of everything we believe at Startmate. We don't care about glossy exteriors and powerpoint presentations.

We do, however, believe in the power of storytelling. We want our founders to inspire their teams, their customers, their partners, and, their investors. We put a lot of effort into putting each businesses' unique story forward in its best way.

We also believe in helping founders overcome challenges. And pitch practice is the perfect challenge. Why? Because the teams HATE it. At first. Then they LOVE it.

Pitch practice starts in Week 8. We invite 2-3 mentors to drop by twice per week to help the teams refine their pitches. We also bring in a professional voice coach. We want every word to carry confidence. It's tough.

Kas, the founder of Shiftsimple said:

"I was, quite simply, terrified of pitching. [...] I had my own cheerleading squad - the Startmate team, mentors and my cohort - they were there for me, believing in me and offering their endless patience to see me practice over and over again."

You can read her blog post about it here.

But the results are amazing.

It's like a microcosm of the founding experience. Tackling something outside your comfort zone that is harrowing and difficult, then working hard and leveraging your community to achieve it.

"Startmate supports you by enabling you to leap higher and faster than you think possible."

If you've missed the MEL18 pitches - go here - they're worth it!

Decompression Sessions

Being a founder is almost always GO, GO, GO - but sometimes you just need to take a step back and relax.

During MEL18 we hosted a Decompression Session every three weeks.

Yoga, Qigong, Meditation - the stuff which is good for the soul.

We bring in mentors who are certified experts in these disciplines but also understand the struggles of entrepreneurs. People who know how hard it is to balance the founder life and can speak and teach from that experience.

During MEL18 we worked with:

Peter Huynh - Partner @ Qualgro VC and meditation expert

Michael Agar - Angel Investor and Qigong master

Demo Days

Our teams often find investment during the program. During SYD18 we had three teams raise $1m or near $1m rounds while the program was running. Our aim is that all teams have met the majority of Australian VCs and Angels by the time they graduate.

Demo Days showcase the incredible teams and businesses to extended investment networks and inspire family, friends and other founders, who can achieve the same.

We do two Demo Days to share the teams' progress in Sydney, as well as Melbourne in front of 450-600 people at each event.

We also host a private investor only session before each event where we link founders with the ~50 investors most likely to be interested in their startup. Some of the investors in the room for MEL18 included:

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After the Mentor Roulettes, the founders chose 3-5 mentors for an 'Advisory Team', who committed to meeting them on a regular basis throughout the program. Among the MEL18 cohort, some teams locked in mentors whom they wanted to draw on for funding, others picked mentors with specific expertise they needed, some selected a mix of both.

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At the end of a YC batch, the general consensus among the partners is that about 25% of the companies are on a trajectory that could lead to a multi-billion dollar company. Of course, only a handful of them do. Most go on to be decent or bad.

These companies have a beautifully exponential growth curve during YC, and then a few months after YC is over, it essentially flatlines. Because it would be so much better for us if this did not happen, we wonder a lot about why.

The main problem is that companies stop doing what they were doing during YC-instead of relentlessly focusing on building a great product and growing, they focus on everything else. They also work less hard and less effectively-the peer pressure during YC is a powerful force.

The startups justify this to themselves in all sorts of ways-"We're doing some longer-term strategic work. You wouldn't understand." "We're cleaning up our technical debt." "We're building out the organization." "We're focusing on PR for this month. I'm going to speak at 6 conferences and writing two thought leadership pieces." "We are different; growth isn't our most important thing." We've heard all of these from startups that have gone on to disappoint.

In general, startups get distracted by fake work. Fake work is both easier and more fun than real work for many founders. Two particularly bad cases are raising money and getting personal press; we've seen many promising founders fall in love with one or (usually) both of these, which nearly always ends badly. But the list of fake work is long.

I tell founders to consider how directly a task relates to growing. Obviously, building and selling are the best. Things like hiring are also very high on the list-you will need to hire to sustain your growth rate at some point. Interviewing lots of lawyers has got to be near the bottom.

During YC, we are ruthless about reminding startups that fake work does not count and will still get you a failed startup no matter how intensely you do it. We are also ruthless about asking for your progress, and being honest with you if things aren't working. After YC, we have less contact with startups-you can go dark on us if you want. This, by itself, is almost always a sign that a startup is doing badly.

Momentum is everything in a startup. If you have momentum, you can survive most other problems. If you do not have momentum, nothing except getting momentum will solve your problems. Founders internalize this during YC; many seem to forget in the few years after YC. Burnout seems to almost always affect founders whose startups are not doing well, and then becomes a downward spiral. In fact, one of my top few startup commandments is "never let the company lose momentum".

There are a few other common problems. One is a feeling of "we made it" that comes after a big financing round and a reduction in intensity. A related problem is that after you've raised a lot of money or become somewhat well-known, it's harder to admit that things aren't working and you need to change direction. Also, very small startups can grow by sheer force of will, even with a bad product. This stops working after a few months as the numbers get larger, and if you haven't built something people love, you will not be able to continue growing.

So how can startups avoid this slump? Work on real work. Stay focused on building a product your users love and hitting your growth targets. Try to have a board and peers who will make you hold yourself accountable-don't lose the urgency that you developed during YC. Keep sending updates on your traction to your investors and anyone else who will read them (in fact, we're building some new software at YC to automate this for our startups in the hope that it prevent some of them from going off the rails). Make the mistake of focusing too much on what matters most, not too little, and relentlessly protect your time from everything else. Don't ever let yourself feel like you've won before you have. I still don't think the Airbnb founders feel like they've won. You have to keep up a high level of intensity for many, many years.

Many YC startups learns these lessons after a year or two in the wilderness, but for some it's too late and for all it's a waste of time.

The best startups we fund keep on doing exactly what they did during YC. This sounds so simple and so obvious, but in practice so few founders do it.

The good news is it's doable with deliberate effort. If every founder (YC and otherwise) did it, the number of successful startups would probably double.

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At the end of a YC batch, the general consensus among the partners is that about 25% of the companies are on a trajectory that could lead to a multi-billion dollar company. Of course, only a handful of them do. Most go on to be decent or bad.

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How do angel investors and angel groups work? How do Australian entrepreneurs find and engage angel investors to help launch their business?

Angel investors are an attractive funding option available to businesses and startups seeking early-stage funding. In many cases, angel investing can help early-stage or pre-launch businesses capture startup funding when VC resources may not be available.

What is angel investing, though, and how does angel investing work in Australia?

If you're currently in the process of launching a startup or business, or are considering equity funding, reach out to Fullstack today for comprehensive guidance & capital raising support.

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Angel Investing: Getting Started | Fullstack

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How do angel investors and angel groups work? How do Australian entrepreneurs find and engage angel investors to help launch their business? Angel investors are an attractive funding option available to businesses and startups seeking early-stage funding. In many cases, angel investing can help early-stage or pre-launch businesses capture startup funding when VC resources may not be available.

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Dear founders of startups,

During this COVID crisis, we are doing our best to continue as usual. We are running our investment cycles and meetings virtually, and startups continue to receive investment from our members. So if you meet our usual startup investment criteria, you should submit your application to us as normal, using the "Apply for Funding" button on this web site.

Thank you!

The Management Committee of Sydney Angels Inc.

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Dear founders of startups, During this COVID crisis, we are doing our best to continue as usual. We are running our investment cycles and meetings virtually, and startups continue to receive investment from our members. So if you meet our usual startup investment criteria, you should submit your application to us as normal, using the "Apply for Funding" button on this web site.

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Crowdfunding Explained and Crowdfunding Tips from Indiegogo Founder and Chief Development Officer

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What is equity crowdfunding and why did Booktopia choose equity crowdfunding to raise money?

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Why Raise Money - When to Raise Money - How Much to Raise? - Financing Options - Convertible Debt - Safe - Equity - Valuation - Investors

Crowdfunding - Meeting Investors - Closing the Deal - Negotiations - Documents You Need - Next - Appendix - Glossary - Sources

Introduction

Startup companies need to purchase equipment, rent offices, and hire staff. More importantly, they need to grow. In almost every case they will require outside capital to do these things.

The initial capital raised by a company is typically called "seed" capital. This brief guide is a summary of what startup founders need to know about raising the seed funds critical to getting their company off the ground.

This is not intended to be a complete guide to fundraising. It includes only the basic knowledge most founders will need. The information comes from my experiences working at startups, investing in startups, and advising startups at Y Combinator and Imagine K12. YC partners naturally gain a lot of fundraising experience and YC founder Paul Graham (PG) has written extensively on the topic 1, 2, 3, 4. His essays cover in more detail much of what is contained in this guide and are highly recommended reading.

Why Raise Money?

Without startup funding the vast majority of startups will die. The amount of money needed to take a startup to profitability is usually well beyond the ability of founders and their friends and family to finance. A startup here means a company that is built to grow fast 12. High growth companies almost always need to burn capital to sustain their growth prior to achieving profitability. A few startup companies do successfully bootstrap (self-fund) themselves, but they are the exception. Of course, there are lots of great companies that aren't startups. Managing capital needs for such companies is not covered herein.

Cash not only allows startups to live and grow, a war chest is also almost always a competitive advantage in all ways that matter: hiring key staff, public relations, marketing, and sales. Thus, most startups will almost certainly want to raise money. The good news is that there are lots of investors hoping to give the right startup money. The bad news is, "Fundraising is brutal" 1. The process of raising that money is often long, arduous, complex, and ego deflating. Nevertheless, it is a path almost all companies and founders must walk, but when is the time right to raise?

When to Raise Money

Investors write checks when the idea they hear is compelling, when they are persuaded that the team of founders can realize its vision, and that the opportunity described is real and sufficiently large. When founders are ready to tell this story, they can raise money. And usually when you can raise money, you should.

For some founders it is enough to have a story and a reputation. However, for most it will require an idea, a product, and some amount of customer adoption, a.k.a. traction. Luckily, the software development ecosystem today is such that a sophisticated web or mobile product can be built and delivered in a remarkably short period of time at very low cost. Even hardware can be rapidly prototyped and tested.

But investors also need persuading. Usually a product they can see, use, or touch will not be enough. They will want to know that there is product market fit and that the product is experiencing actual growth.

Therefore, founders should raise money when they have figured out what the market opportunity is and who the customer is, and when they have delivered a product that matches their needs and is being adopted at an interestingly rapid rate. How rapid is interesting? This depends, but a rate of 10% per week for several weeks is impressive. And to raise money founders need to impress. For founders who can convince investors without these things, congratulations. For everyone else, work on your product and talk to your users.

How Much to Raise?

Ideally, you should raise as much money as you need to reach profitability, so that you'll never have to raise money again. If you succeed in this, not only will you find it easier to raise money in the future, you'll be able to survive without new funding if the funding environment gets tight. That said, certain kinds of startups will need a follow-on round, such as those building hardware. Their goal should be to raise as much money as needed to get to their next "fundable" milestone, which will usually be 12 to 18 months later.

In choosing how much to raise you are trading off several variables, including how much progress that amount of money will purchase, credibility with investors, and dilution. If you can manage to give up as little as 10% of your company in your seed round, that is wonderful, but most rounds will require up to 20% dilution and you should try to avoid more than 25%. In any event, the amount you are asking for must be tied to a believable plan. That plan will buy you the credibility necessary to persuade investors that their money will have a chance to grow. It is usually a good idea to create multiple plans assuming different amounts raised and to carefully articulate your belief that the company will be successful whether you raise the full or some lesser amount. The difference will be how fast you can grow.

One way to look at the optimal amount to raise in your first round is to decide how many months of operation you want to fund. A rule of thumb is that an engineer (the most common early employee for Silicon Valley startups) costs all-in about $15k per month. So, if you would like to be funded for 18 months of operations with an average of five engineers, then you will need about 15k x 5 x 18 = $1.35mm. What if you are planning to hire for other positions as well? Don't worry about it! This is just an estimate and will be accurate enough for whatever mix you hire. And here you have a great answer to the question: "How much are you raising?" Simply answer that you are raising for N months (usually 12-18) and will thus need $X, where X will usually be between $500k and $1.5 million. As noted above, you should give multiple versions of N and a range for X, giving different possible growth scenarios based on how much you successfully raise.

There is enormous variation in the amount of money raised by companies. Here we are concerned with early raises, which usually range from a few hundreds of thousands of dollars up to two million dollars. Most first rounds seem to cluster around six hundred thousand dollars, but largely thanks to increased interest from investors in seed, these rounds have been increasing in size over the last several years.

Financing Options

Startup founders must understand the basic concepts behind venture financing. It would be nice if this was all very simple and could be explained in a single paragraph. Unfortunately, as with most legal matters, that's not possible. Here is a very high level summary, but it is worth your time to read more about the details and pros and cons of various types of financing and, importantly, the key terms of such deals that you need to be aware of, from preferences to option pools. The articles below are a decent start.

Venture Hacks / Babk Nivi: Should I Raise Debt or Equity

Fred Wilson: Financing Options

Mark Suster on Convertible Debt

Announcing the Safe
Venture financing usually takes place in "rounds," which have traditionally had names and a specific order. First comes a seed round, then a Series A, then a Series B, then a Series C, and so on to acquisition or IPO. None of these rounds are required and, for example, sometimes companies will start with a Series A financing (almost always an "equity round" as defined below). Recall that we are focusing here exclusively on seed, that very first venture round.

Most seed rounds, at least in Silicon Valley, are now structured as either convertible debt or simple agreements for future equity (safes) 17. Some early rounds are still done with equity, but in Silicon Valley they are now the exception.

Convertible Debt

Convertible debt is a loan an investor makes to a company using an instrument called a convertible note. That loan will have a principal amount (the amount of the investment), an interest rate (usually a minimum rate of 2% or so), and a maturity date (when the principal and interest must be repaid). The intention of this note is that it converts to equity (thus, "convertible") when the company does an equity financing. These notes will also usually have a "Cap" or "Target Valuation" and / or a discount. A Cap is the maximum effective valuation that the owner of the note will pay, regardless of the valuation of the round in which the note converts. The effect of the cap is that convertible note investors usually pay a lower price per share compared to other investors in the equity round. Similarly, a discount defines a lower effective valuation via a percentage off the round valuation. Investors see these as their seed "premium" and both of these terms are negotiable. Convertible debt may be called at maturity, at which time it must be repaid with earned interest, although investors are often willing to extend the maturity dates on notes.

Safe

Convertible debt has been almost completely replaced by the safe at YC and Imagine K12. A safe acts like convertible debt without the interest rate, maturity, and repayment requirement. The negotiable terms of a safe will almost always be simply the amount, the cap, and the discount, if any. There is a bit more complexity to any convertible security, and much of that is driven by what happens when conversion occurs. I strongly encourage you to read the safe primer 18, which is available on YC's site. The primer has several examples of what happens when a safe converts, which go a long way toward explaining how both convertible debt and safes work in practice.

Equity

An equity round means setting a valuation for your company (generally, the cap on the safes or notes is considered as a company's notional valuation, although notes and safes can also be uncapped) and thus a per-share price, and then issuing and selling new shares of the company to investors. This is always more complicated, expensive, and time consuming than a safe or convertible note and explains their popularity for early rounds. It is also why you will always want to hire a lawyer when planning to issue equity.

To understand what happens when new equity is issued, a simple example helps. Say you raise $1,000,000 on a $5,000,000 pre-money valuation. If you also have 10,000,000 shares outstanding then you are selling the shares at:

1. $5,000,000 / 10,000,000 = 50 cents per share
and you will thus sell...

2. 2,000,000 shares
resulting in a new share total of...

3. 10,000,000 + 2,000,000 = 12,000,000 shares
and a post-money valuation of...

4. $0.50 * 12,000,000 = $6,000,000
and dilution of...

5. 2,000,000 / 12,000,000 = 16.7%
Not 20%!

There are several important components of an equity round with which you must become familiar when your company does a priced round, including equity incentive plans (option pools), liquidation preferences, anti-dilution rights, protective provisions, and more. These components are all negotiable, but it is usually the case that if you have agreed upon a valuation with your investors (next section), then you are not too far apart, and there is a deal to be done. I won't say more about equity rounds, since they are so uncommon for seed rounds.

One final note: whatever form of financing you do, it is always best to use well-known financing documents like YC's safe. These documents are well understood by the investor community, and have been drafted to be fair, yet founder friendly.

Valuation: What is my company worth?

You are two hackers with an idea, a few months of hacking's worth of software, and several thousand users. What is your company worth? It should be obvious that no formula will give you an answer. There can only be the most notional sort of justification for any value at all. So, how do you set a value when talking to a potential investor? Why do some companies seem to be worth $20mm and some $4mm? Because investors were convinced that was what they were (or will be in the near future) worth. It is that simple. Therefore, it is best to let the market set your price and to find an investor to set the price or cap. The more investor interest your company generates, the higher your value will trend.

Still, it can be difficult in some circumstances to find an investor to tell you what you are worth. In this case you can choose a valuation, usually by looking at comparable companies who have valuations. Please remember that the important thing in choosing your valuation is not to over-optimize. The objective is to find a valuation with which you are comfortable, that will allow you to raise the amount you need to achieve your goals with acceptable dilution, and that investors will find reasonable and attractive enough to write you a check. Seed valuations tend to range from $2mm-$10mm, but keep in mind that the goal is not to achieve the best valuation, nor does a high valuation increase your likelihood of success.

Investors: Angels & Venture Capitalists

The difference between an angel and a VC is that angels are amateurs and VCs are pros. VCs invest other people's money and angels invest their own on their own terms. Although some angels are quite rigorous and act very much like the pros, for the most part they are much more like hobbyists. Their decision making process is usually much faster--they can make the call all on their own--and there is almost always a much larger component of emotion that goes into that decision.

VCs will usually require more time, more meetings, and will have multiple partners involved in the final decision. And remember, VCs see LOTS of deals and invest in very few, so you will have to stand out from a crowd.

The ecosystem for seed (early) financing is far more complex now than it was even five years ago. There are many new VC firms, sometimes called "super-angels," or "micro-VC's", which explicitly target brand new, very early stage companies. There are also several traditional VCs that will invest in seed rounds. And there are a large number of independent angels who will invest anywhere from $25k to $100k or more in individual companies. New fundraising options have also arisen. For example, AngelList Syndicates lets angels pool their resources and follow a single lead angel. FundersClub invests selectively like a traditional VC, but lets angels become LPs in their VC funds to expand connections available to its founders.

How does one meet and encourage the interest of investors? If you are about to present at a demo day, you are going to meet lots of investors. There are few such opportunities to meet a concentrated and motivated group of seed investors. Besides a demo day, by far the best way to meet a venture capitalist or an angel is via a warm introduction. Angels will also often introduce interesting companies to their own networks. Otherwise, find someone in your network to make an introduction to an angel or VC. If you have no other options, do research on VCs and angels and send as many as you can a brief, but compelling summary of your business and opportunity (see Documents You Need below).

Crowdfunding

There are a growing number of new vehicles to raise money, such as AngelList, Kickstarter, and Wefunder. These crowdfunding sites can be used to launch a product, run a pre-sales campaign, or find venture funding. In exceptional cases, founders have used these sites as their dominant fundraising source, or as clear evidence of demand. They usually are used to fill in rounds that are largely complete or, at times, to reanimate a round that is having difficulty getting off the ground. The ecosystem around investing is changing rapidly, but when and how to use these new sources of funds will usually be determined by your success raising through more traditional means.

Meeting Investors

If you are meeting investors at an investor day, remember that your goal is not to close--it is to get the next meeting. Investors will seldom choose to commit the first day they hear your pitch, regardless of how brilliant it is. So book lots of meetings. Keep in mind that the hardest part is to get the first money in the company. In other words, meet as many investors as possible but focus on those most likely to close. Always optimize for getting money soonest (in other words, be greedy) 2.

There are a few simple rules to follow when preparing to meet with investors. First, make sure you know your audience--do research on what they like to invest in and try to figure out why. Second, simplify your pitch to the essential--why this is a great product (demos are almost a requirement nowadays), why you are precisely the right team to build it, and why together you should all dream about creating the next gigantic company. Next make sure you listen carefully to what the investor has to say. If you can get the investor to talk more than you, your probability of a deal skyrockets. In the same vein, do what you can to connect with the investor. This is one of the main reasons to do research. An investment in a company is a long term commitment and most investors see lots of deals. Unless they like you and feel connected to your outcome, they will most certainly not write a check.

Who you are and how well you tell your story are most important when trying to convince investors to write that check. Investors are looking for compelling founders who have a believable dream and as much evidence as possible documenting the reality of that dream. Find a style that works for you, and then work as hard as necessary to get the pitch perfect. Pitching is difficult and often unnatural for founders, especially technical founders who are more comfortable in front of a screen than a crowd. But anyone will improve with practice, and there is no substitute for an extraordinary amount of practice. Incidentally, this is true whether you are preparing for a demo day or an investor meeting.

During your meeting, try to strike a balance between confidence and humility. Never cross over into arrogance, avoid defensiveness, but also don't be a pushover. Be open to intelligent counterpoints, but stand up for what you believe and whether or not you persuade the investor just then, you'll have made a good impression and will probably get another shot.

Lastly, make sure you don't leave an investor meeting without an attempted close or at very minimum absolute clarity on next steps. Do not just walk out leaving things ambiguous.

Negotiating and Closing the Deal

A seed investment can usually be closed rapidly. As noted above, it is an advantage to use standard documents with consistent terms, such as YC's safe. Negotiation, and often there is none at all, can then proceed on one or two variables, such as the valuation/cap and possibly a discount.

Deals have momentum and there is no recipe towards building momentum behind your deal other than by telling a great story, persistence, and legwork. You may have to meet with dozens of investors before you get that close. But to get started you just need to convince 5 one of them. Once the first money is in, each subsequent close will get faster and easier 6.

Once an investor says that they are in, you are almost done. This is where you should rapidly close using a handshake protocol 19. If you fail at negotiating from this point on, it is probably your fault.

Negotiations

When you enter into a negotiation with a VC or an angel, remember that they are usually more experienced at it than you are, so it is almost always better not to try to negotiate in real-time. Take requests away with you, and get help from YC or Imagine K12 partners, advisors, or legal counsel. But also remember that although certain requested terms can be egregious, the majority of things credible VCs and angels will ask for tend to be reasonable. Do not hesitate to ask them to explain precisely what they are asking for and why. If the negotiation is around valuation (or cap) there are, naturally, plenty of considerations, e.g. other deals you have already closed. However, it is important to remember that the valuation you choose at this early round will seldom matter to the success or failure of the company. Get the best deal you can get--but get the deal! Finally, once you get to yes, don't wait around. Get the investor's signature and cash as soon as possible. One reason safes are popular is because the closing mechanics are as simple as signing a document and then transferring funds. Once an investor has decided to invest, it should take no longer than a few minutes to exchange signed documents online (for example via Clerky or Ironclad) and execute a wire or send a check.

Documents You Need

Do not spend too much time developing diligence documents for a seed round. If an investor is asking for too much due diligence or financials, they are almost certainly someone to avoid. You will probably want an executive summary and a slide deck you can walk investors through and, potentially, leave behind so VCs can show to other partners.

The executive summary should be one or two pages (one is better) and should include vision, product, team (location, contact info), traction, market size, and minimum financials (revenue, if any, and fundraising prior and current).

Generally make sure the slide deck is a coherent leave-behind. Graphics, charts, screenshots are more powerful than lots of words. Consider it a framework around which you will hang a more detailed version of your story. There is no fixed format or order, but the following parts are usually present. Create the pitch that matches you, how you present, and how you want to represent your company. Also note that like the executive summary, there are lots of similar templates online if you don't like this one.

1. Your company / Logo / Tag Line

2. Your Vision - Your most expansive take on why your new company exists.

3. The Problem - What are you solving for the customer--where is their pain?

4. The Customer - Who are they and perhaps how will you reach them?

5. The Solution - What you have created and why now is the right time.

6. The (huge) Market you are addressing - Total Available Market (TAM) >$1B if possible. Include the most persuasive evidence you have that this is real.

7. Market Landscape - including competition, macro trends, etc. Is there any insight you have that others do not?

8. Current Traction - list key stats / plans for scaling and future customer acquisition.

9. Business model - how users translate to revenue. Actuals, plans, hopes.

10. Team - who you are, where you come from and why you have what it takes to succeed. Pics and bios okay. Specify roles.

11. Summary - 3-5 key takeaways (market size, key product insight, traction)

12. Fundraising - Include what you have already raised and what you are planning to raise now. Any financial projections may go here as well. You can optionally include a summary product roadmap (6 quarters max) indicating what an investment buys.

Next

It is worth pointing out that startup investing is rapidly evolving and it is likely that certain elements of this guide will at some point become obsolete, so make sure to check for updates or future posts. There is now an extraordinary amount of information available on raising venture money. Several sources are referenced and more are listed at the end of this document.

Fundraising is a necessary, and sometimes painful task most startups must periodically endure. A founder's goal should always be to raise as quickly as possible and this guide will hopefully help founders successfully raise their first round of venture financing. Often that will seem like a nearly impossible task and when it is complete, it will feel as though you have climbed a very steep mountain. But you have been distracted by the brutality of fundraising and once you turn your attention back to the future you will realize it was only a small foothill on the real climb in front of you. It is time to get back to work building your company.
Many thanks to those whose knowledge or work have contributed to this document. Of course, any errors are all mine. Please send any comments or questions to geoff@yahoo.com.
Appendix
Fundraising Rules to Follow

Get fundraising over as soon as possible, and get back to building your product and company, but also...

Don't stop raising money too soon. If fundraising is difficult, keep fighting and stay alive.

When raising, be "greedy": breadth-first search weighted by expected value 2. This means talk to as many people as you can, prioritizing the ones that are likely to close.

Once someone says yes, don't delay. Get docs signed and the money in the bank as soon as possible.

Always hustle for leads. If you are the hottest deal of the hour, that's great, but everyone else needs to work like crazy to get angels and other venture investors interested.

Never screw anyone over. Hold yourself and others on your team to the highest ethical standards. The Valley is a very small place, and a bad reputation is difficult to repair. Play it straight and you will never regret it. You'll feel better for it, too.

Investors have a lot of different ways to say no. The hardest thing for an entrepreneur is understanding when they are being turned down and being okay with it. PG likes to say, "If the soda is empty, stop making that awful sucking sound with the straw." But remember that they might be a "yes" another time, so part on the best possible terms.

Develop a style that fits you and your company.

Stay organized. Co-founders should split tasks where possible. If necessary, use software like Asana to keep track of deals.

Have a thick skin but strike the right balance between confidence and humility. And never be arrogant.

What Not to Do While Communicating with Investors DON'T:

Be dishonest in any way

Be arrogant or unfriendly

Be overly aggressive

Seem indecisive - although it is okay to say you don't know yet.

Talk so much they cannot get a word in edgewise

Be slow to follow-up or close a deal

Break an agreement, verbal or written

Create detailed financials

Use ridiculous / silly market size numbers without clear justification

Claim you know something that you don't or be afraid to say you don't know

Spend time on the obvious

Get caught up in unimportant minutiae - don't let the meeting get away from you

Ask for an NDA

Try to play investors off each other when you are not a fundraising ninja

Try to negotiate in real-time

Over-optimize your valuation or worry too much about dilution

Take a "No" personally

A Brief Glossary of Key Terms

The term you are looking for is not here? Disagree with the definition? Go to Investopedia for a more authoritative source.

Angel Investor - A (usually) wealthy private investor in startup companies.

Cap / Target Valuation - The maximum effective valuation for an investor in a convertible note.

Convertible Note - This is a debt instrument that will convert into stock; usually preferred stock but sometimes common stock.

Common Stock - Capital stock typically issued to founders and employees, having the fewest, or no, rights, privileges and preferences.

Dilution - The percentage an ownership share is decreased via the issuance of new shares.

Discount - A percentage discount from the pre-money valuation to give safe or note holders an effectively lower price.

Equity Round - A financing round in which the investor purchases equity (stock) in the company.

Fully Diluted Shares - The total number of issued and outstanding shares of capital stock in the company, including outstanding warrants, option grants and other convertible securities.

IPO - Initial Public Offering - the first sale of stock by a private company to the public.

Lead Investor - Usually the first and largest investor in a round who brings others into the round.

Liquidation Preference - A legal provision in a company's charter that allows stockholders with preferred stock to get their money out of a company before the holders of common stock in the event of an exit.

Maturity Date - The date at which a promissory note becomes due (or at which it will automatically convert to stock in the case of a convertible note)

Equity Incentive Plan / Option Pool - The shares allocated and set aside for grants to employees and consultants.

Preferred Stock - Capital stock issued in a company that have specific rights, privileges and preferences compared to the common stock. Convertible into common stock, either automatically (e.g., in an IPO) or at the option of the preferred stockholder (e.g., an acquisition).

Pre-money Valuation - The value of a company prior to when investor money is added.

Pro-rata rights (aka pre-emptive rights) - Contractual rights that allow the holder to maintain their percentage ownership in subsequent financing rounds.

Protective Provisions - Provisions in a company's charter that give exclusive voting rights to holders of preferred stock. For example, the approval of these stockholders, voting separately from other stockholders, may be required for an acquisition.

Safe - Simple Agreement for Future Equity - Y Combinator's replacement for convertible debt.

TAM - Total Available Market. In pitches, this is the estimated total revenue available for the product(s) you are selling.

Venture Capitalist - A professional investor in companies, investing limited partners' funds.

Sources

1. Venture Hacks / Babk Nivi: Should I Raise Debt or Equity
Discussion of whether raising debt or equity is the best answer.

2. Fred Wilson: Financing Options
Another discussion of debt vs. equity

3. Mark Suster on Convertible Debt
An analysis of problems with convertible debt

4. Clerky Guide
Clerky docs and guides. A great place to start.

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A Guide to Seed Fundraising: Fundraising, Seed Round, Investors

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Why Raise Money - When to Raise Money - How Much to Raise? - Financing Options - Convertible Debt - Safe - Equity - Valuation - Investors Crowdfunding - Meeting Investors - Closing the Deal - Negotiations - Documents You Need - Next - Appendix - Glossary - Sources Startup companies need to purchase equipment, rent offices, and hire staff.

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The trend in Silicon Valley - slightly before, but accelerated by COVID - has  been trending towards being more profitable, and then raising venture capital later, as opposed to the model for the last 5-10 years of thinking about VC first and profitability later.

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Yes, there's just four. No, they're not easy to achieve. But here they are.

I spend most of my consulting days with founders and teams ranging from idea stage to minimum viable product (MVP) to early commercialisation, so I get asked one question a lot, "What will angel or venture capital investors want to see from us before we're good candidates for investment?"

It's just four things, and you only need to achieve one of them to qualify for consideration by venture investors.

Every investor is motivated by a different risk/reward ratio, interested in different markets, business models and technologies, likes to lead other investors or likes to follow other investors, can only write a cheque smaller than X or no bigger than Y.

If they know what they're doing, they're looking for startups that bring one or more of the following assets to the deal table:

1. World class team

Everybody's definition of "world class" is different.

Some investors may be prepared to back raw talent and no prior experience, as long as they can get some evidence that your raw talent can product results. But those results may have to be a really impressive/rapidly iterative MVP because most investors consider 'team proof' to be found in 'product proof'. That kind of investor will be in the minority - most will look for relevant experience and skills.

Have you and your team successfully solved a similar problem for a similar kind of customer in the past? Have you had career success (read: been promoted) at another similar kind of startup, or at one of the big tech companies?

Are you a team rather than a solo founder? Founders who can prove they can recruit and lead a strong team are more likely to succeed at scaling. In the near-term, solo founder startups are a high risk of the founder being hit by a bus (hopefully metaphorically, not literally).

2. Unique intellectual property

Your startup can be valuable to investors if you've invented a unique business model, product feature or manufacturing process that gives your business a measurably unfair advantage over current or future competitors, if it's difficult to reverse-engineer.

If it's not difficult to reverse engineer it, it may still be valuable if you can show that you have a defensible lead in the race to take a dominant share of the kinds of market that tend towards a monopoly - most common in two-sided marketplaces and listings business models.

3. Customer growth

Can you show that your team is capable of acquiring unusually large numbers of users or customers? Can you show that the kind of users/customers you're acquiring will be valuable when you have a large number of them? Can you sustain that unusually large growth?

You don't always need to have big revenue growth - or even any revenue at all - if the users/customers you're acquiring will be valuable to someone else in the future. For a great example of this, read up on why Facebook acquired Instagram.

4. Revenue growth

Can you show not just that your revenue is growing, but that the rate of your revenue growth is itself increasing?

A startup showing steady, predictable 2% revenue growth each month will become a valuable businesses given sufficient time, assuming there's a high enough ceiling to that growth.

But what really interests venture capital investors is evidence that the rate at which your revenue increases is itself increasing - that 2% this month becomes 3%, 4%, 5% in the months to come.

Extra bonus points for startups able to show that revenue growth and operating expenditure are not correlated - that due to the scaling effects of technology, you're able to grow the revenue line of the business without growing the cost line of the business.

If you can show concrete evidence of all four of these assets, maybe you don't actually need an external source of investment and you should instead fund growth through revenue, since all investment is a loan that eventually needs to be repaid, at a multiple. Maybe in some instances you should consider raising capital in order to acquire a competitor, add a new line of product or service, or fund your entry into a new geographic or economic market.

If you can only show you own one of these four assets, the higher reward/higher risk assets are the world class team and unique intellectual property (because teams can always fall apart, and IP can usually be copied and out-competed). The lower risk (and possibly lower reward) assets are the customer growth and revenue growth assets (they're easier for spreadsheet jockeys to value, but most markets and most business models have a limit to scale, and history teaches us that the limit is usually invisible until you hit it).

When you're considering what kind of investor to approach, keep that in mind: some investors are comfortable with taking big risks but want to believe there's a massive opportunity waiting - that's who you go to when you have a world-class team and/or some truly unique intellectual property. If you're better at growing your customer or revenue metrics, consider approaching the kind of investors who have a track record of backing businesses that are already showing evidence of customer and revenue traction.

If you can't yet show you own any of these four investible assets, you may still be a candidate for investment, but you may be limited in your choices to accelerator programs or a 'friends, family and fools' round - both important and valuable forms of investment that you shouldn't discount, especially if their support might sustain you while you try to acquire one of these four investible assets.

Good luck!

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You need one of four things to make your startup a candidate for VC investment

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Yes, there's just four. No, they're not easy to achieve. But here they are. I spend most of my consulting days with founders and teams ranging from idea stage to minimum viable product (MVP) to early commercialisation, so I get asked one question a lot, "What will angel or venture capital investors want to see from us before we're good candidates for investment?"

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Turning seed companies into series A companies

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Turning seed companies into series A companies

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E719: Pear.vc Mar Hershenson on Clinching Series A: Ops plan, metrics, data, & investor engagement

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You have a brilliant idea for a new product that solves a glaring problem for consumers or businesses. You've talked to potential customers and are positive that there is a market for your idea. You've recruited a passionate founding team. Maybe you've even raised money from family, friends, or angel investors. To take the next step, however, you've decided that you need the capital and connections that institutional venture funding provides - it's time to raise a seed round.

For first-time founders, those based outside of Silicon Valley, or those less well-connected to the venture community, knowing where to start when raising funding is difficult. Selecting initial investors is, perhaps, one of the most important decisions that a startup founder will make. When carefully chosen, these initial backers can provide crucial connections to talent, customers, and later stage investors, as well as invaluable advice. How then, do you make sure you are pitching the right investors?

This is an increasingly difficult question to answer, especially given the recent proliferation of small seed-focused funds, with more than 500 sub $200 million funds raised since 2011. While navigating the burgeoning seed ecosystem can seem daunting, many of these funds specialize in geographies, industries, or business models. The key is finding the investors that align with your startup in these categories. A few additional elements to consider when targeting seed investors are:

Size and structure of the fund - Is the fund large enough to lead or follow-on in future rounds and has the firm reserved enough capital to do so? Long-term partners can provide value through both capital and strong signaling to future investors.

Strength of network - Does the fund have experience building strong syndicates? Does it have relationships with potential Series A or later stage investors? Does it have connections to key customers or potential executives?

Level of involvement - Does the firm require a board seat? Will the deal lead take an active day-to-day role in operations and strategy? What is the expected frequency of communication with the firm? Different startup founders prefer different levels of hands-on assistance from their investors. Aligning expectations regarding investor involvement is critical to building a strong relationship with a seed investor.

Below, I provide a helpful overview of the major players in the seed stage venture landscape, based on geography and industry of focus.

You may notice that the above includes only five geographies. These represent current epicenters of seed venture or up-and-coming, regionally significant venture markets. Given the explosion of seed, however, it is increasingly easy to find high-quality firms regardless of geography. Below I outline a few firms that fall outside the above geographies.
Pacific Northwest / Mountain States Midwest Mid-Atlantic

Hatteras Venture Partners (Durham) - Seed and early stage investor that invests in healthcare and biotechnology

IDEA Fund (Durham) - Seed and early stage investor that invests in the Southeast and Mid-Atlantic

Grotech Ventures (Washington DC) - Seed and early stage investor

In addition to geographically focused funds, another recent phenomenon in seed stage venture is the rise of narrowly dedicated, sector-focused funds. These funds can be valuable seed investors, providing sector expertise and connections. I've listed select sector focused funds below.
Sector Focused Firms
A final trend within seed stage venture - and the broader venture community - is the response to increased societal value placed on social/environmental responsibility and diversity and inclusion. These social catalysts have spurred a wave of seed stage venture firms focused on investments in startups led by underrepresented founders or companies with social missions.
Underrepresented Founder Focused Firms Social Impact Focused Firms
The process of finding the right seed investors can be onerous but its importance cannot be understated. While this is, by no means a comprehensive overview of all seed firms, I hope that it will be a useful starting place for those embarking on a seed stage fundraise. Good luck!

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Entrepreneurship Club @ Harvard Business School

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You have a brilliant idea for a new product that solves a glaring problem for consumers or businesses. You've talked to potential customers and are positive that there is a market for your idea. You've recruited a passionate founding team. Maybe you've even raised money from family, friends, or angel investors.