Presentation about Fundraising given by Jordan Schlipf (Founder Centric) on Startupbootcamp Alumni Summit 23 & 24 Jan '14 in London.

1. SHOW ME
THE MONEY!
Jordan Schlipf
@jordups
www.foundercentric.com

2. up
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3. ROB FITZPATRICK
SALIM VIRANI
DEVIN HUNT
JORDAN SCHLIPF

4. WORKSHOP
VS.
LECTURE
Caveat: this is just one man’s opinion

5. 1
TYPES OF FUNDING

6. 4 WAYS TO FUND A COMPANY
1. Revenue
2. Debt
3. Grants
4. Equity

7. REVENUE
The Customer Funded Business
Fact: the vast majority of fastgrowing businesses never
raise VC (nor write business
plans)
Prof. John Mullins “The New Business Road Test”

8. 5 Types of Customer Funded
Business:
1. Pay in advance: architects, DELL
2. Matchmaker models: eBay, Expedia, AirBNB
3. Subscription models: Netfix, Tutor Vista
4. Scarcity models: Zara, GILT
5. Service-to-product models: Microsoft, GoViral
Prof. John Mullins “The New Business Road Test”

9. REVENUE
Even if it s not the long-term
plan, it puts you in a
stronger position for
eventual fund-raising!

10. Ideally you want to be able
to say to investors "We'll
succeed no matter what,
but raising money will help
us do it faster."
Paul Graham

11. WARNING
Raising, or trying to
raise, Venture Capital
too early is dangerous

12. DEBT
Almost always a bad fit (and
dangerous) for startups which deal with
uncertainty
Its good when you have guaranteed
income but negative working capital
Asset based lending, and you might be
personally liable

13. GRANTS

14. EQUITY
Sell a % of your company for cash
If the company fails, you owe nothing
Good for high growth potential
businesses – manages to achieve the
required “risk vs. reward” profile for
investors

15. We re mostly
talking about
equity funding

16. REMEMBER
Equity funding is
designed around the
needs and desires of
investors, not startups

17. 2
STAGES OF
EQUITY FUNDING

18. STAGE AT WHICH ‘SERIES A’ HAPPEN
60%
25%
5%
10%

19. FUNDING STEPPING STONES
Sweat Equity
£0
Fools, Family & Friends
<£10
Accelerator
£15-60k
Business Angel
£25-50k
SEIS (UK only)
£150k
Seed
£250-600k
Series A
£1-5m
Series B
£3-15m

20. SUCCESSFUL
FUNDING JOURNEY
Sweat Equity
Accelerator
Seed
Series A
Series B
£0
£15-60k
£250-600k
£1-5m
£3-15m

21. REMEMBER
The Series A funding gap is
real. Plan to survive off of
your seed round until you
can raise a Series B.

22. REMEMBER
You will need to “herd the
cats”. No single investor
will write the whole
cheque (co-invest)

23. FUNDRAISING IS A JOURNEY
You need to match your
financing strategy to the
‘stepping stones’ or
funding stages available

24. YOU BRIDGE THE GAPS…
…WITH SWEAT EQUITY

25. If you've [already] sold more than
about 40% of your company total, it
starts to get harder to raise an A
round, because VCs worry there will
not be enough stock left to keep the
founders motivated.
Paul Graham

26. 3
WHAT DO VCs
NEED TO SEE IN
THEIR INVESTMENTS?

27. VC INVESTABLE BUSINESSES
1. 10x / 8x returns in 3-5 yrs
2. Big market & growing
3. Ambitious founders +skills
4. Defensible moat
5. Sexy?

28. QUESTION
Do I need a business
plan? Is a slide deck
enough?

31. Source: “The New Business Road Test”, John Mullins

32. UNIT ECONOMICS
That you have an understanding of
the unique cash flow of your business
and its associated risk dynamics
(sensitivities)
The unit economics are within range
or realistically ‘optimizable’ (Series A)

33. RUNWAY & BURN RATE
“What the hell are you intending to
spend my money on… and do I
believe you”
Link the cash burn with timing and
key milestones. Does this align with
next funding stages?

34. REMEMBER
Investors only get paid if
you sell the company, so
you re promising to try and
do that

35. 4
FREQUENTLY
ASKED QUESTIONS

36. QUESTION
How much equity do
you give to your
cofounders? What
about late additions?

37. The most important
principle: Fairness, and the
perception of fairness, is
much more valuable than
owning a large stake
Joel Spolsky

38. We can t invest in a
company where the CTO
has that little equity.
It s too much of a risk.
Sitar Teli (paraphrased)

39. QUESTION
How much equity
goes to key early
employees?

40. KEY EMPLOYEES #1-5
I would suggest the following
allocations of options by position:
Senior VP of Sales
CFO
Senior Engineer
Junior Engineer
*Based on Series A
3.0%
2.0%
0.5%
0.1%

41. QUESTION
What do you give
an advisor? What
do they give you?

42. ADVISOR EQUITY
Equity before funding
After funding
EXPECTATION
1-4 hours per month
1-2%
0.5-1%

43. RULE OF THUMB
Important long-term or
need someone senior,
but light on hours-permonth

44. QUESTION
How much should
we pay ourselves?

45. Source: www.passioncapital.com

46. 5
THE LEGALS
THAT MATTER

47. THE 3 LEGALS THAT MATTER
1. IP assignment
2. Founder vesting
3. Employment contracts
(non-compete)

48. FOUNDER VESTING
Typically structure:
• 3 or 4 Year term
st year cliff
• 1
• Linear: monthly or quarterly

49. EMPLOYEE OPTION POOL
Typically 10%
Be aware that employee options
effectively dilute you without
diluting investors
Note: only to next funding round

50. OTHER BELLS & WHISTLES
• Liquidation preference - full,
capped or non-participating
Beware multiples!
• Pre-emptions rights
• Right of first refusal & Co-sale
• Drag-along

51. TIP
Ask the VC to run a
spreadsheet demonstrating
the individual ‘pay outs’
based on different sales
price scenarios

52. WARNING
What you agree will
carry forward to future
rounds!

53. USEFUL RESOURCES
www.passioncapital.com
www.taylorwessing.com/
twtechfocus/
http://ycombinator.com/
seriesaa/

54. 6
VALUATIONS

55. QUESTION
What s the difference
between pre-money
and post-money
valuations?

56. FORMULA
Post money valuation =
pre money valuation +
amount of cash invested

57. WHAT % DO THE INVESTORS
END UP WITH?
% Investors =
amount of cash invested /
post money valuation

58. QUESTION
Your company is worth $2m ‘pre’ and
you raise $500k.
How much is it worth after the money?
What % do you still own?
The investors?

59. QUESTION
3 co-founders evenly share a
company. They raise 250k on 750k pre
What % and £ does each of them own
now? What % of the company have
they given up ?

60. FORMULA
1. Post-money valuation = Pre-money valuation + Investment
amount
2. Purchase price per share = Pre-money valuation / Number of
fully-diluted shares before investment
3. Number of new shares issued to investor = Investment
amount / Purchase price per share
4. Number of fully-diluted shares after investment = Number of
fully-diluted shares before investment + Number of new
shares issued to investor

61. RUN THE NUMBERS!
When investors put cash
into a business, your %
ownership goes down, but
your ££££ ownership stays
the same

62. There s no
evidence of what
an early-stage
startup will be
worth

63. So we make it up
as a combination
of necessity plus
comparisons

64. VALUATION RULE #1
Regardless of amount
being raised, expect to
give up 20-40% per
round

65. Don't worry about giving up too
much equity at an early stage.
If the company is successful you
will be very rich. If it isn't
successful then holding 60%
versus 30% won't matter
Don Dodge

66. QUESTION
What is the danger
of a sky-high
valuation?
(remember the 10x exit rule)

67. REMEMBER
Valuations that are too high will
deter other VC firms from investing.
They will expose you to all sorts of
problems regarding compensation
and expected future returns for your
employees and investors.

68. WARNING
Valuations that are really low
are obviously bad as well, since
they mean that you either got
screwed or that there is
something wrong with your idea

69. VALUATION RULE #2
Raise enough
money for
12-24 months

70. QUESTION
Why raise for so
much time?

71. THE FUNDING TIMELINE
Raising money takes 3 months (full time)
But you don t want to negotiate with an
empty bank account, so you leave a
safety buffer of 3 months at the end
Which gives you 9-21 months to actually
build your company

72. WARNING
Short runways are often
perceived as a sign of
massive weakness. Ideally,
you have min. 6-3 months of
cash in the bank.

73. So what s your
valuation?
(Or rather, your
valuation range)

74. FIGURING OUT YOUR VALUATION
1. Figure out 12 and 24 month budgets
(include a safety factor)
2. Work out a valuation for each based
on 20% and 40% dilution
3. You ve now got the four corners of
your valuation range
4. Negotiate inside those ranges based
on your strength vs. peers

75. FIGURING OUT YOUR VALUATION
In other words, if you re
strong, you can either
negotiate toward the 20%
(less equity) or the 24
months (more runway)

76. TIP
Keep negotiation simply by
focusing only on premoney valuation and the
amount they re putting in

77. One of the things that surprises
founders most about fundraising is
how distracting it is. When you
start fundraising, everything else
grinds to a halt.
Paul Graham

78. 7
PRACTICALITIES

79. I said, I m not raising money
right now. But I will be in 3
months. What are you scared of
and where would we need to be
for you to be excited?
Stephen Rapoport

80. LONDON VS. THE VALLEY
In 2012, the valley did $12.5B over
977 rounds and London did $1.75B
over 274 rounds
Source: Dow Jones VentureSource, 2012
So the valley has 4x the deals and
2x valuations (but also more
startups)

81. WARNING
It’s virtually impossible to
change your VC; once they’re
on your board and cap table,
they’re there for good. So you
have to choose very wisely

82. DO YOUR INVESTOR DUE DIL
f6s.com (accelerators)
angel.co (angels & VCs globally)
capitallist.co (London angels)
thefunded.com (investor ratings)
+ ask around (previous investees)

83. TIP
Momentum is everything!
See as many investors as
quickly as possible.
Create the illusion of
being oversubscribed

84. TIP
Close a strong lead
investor ASAP (e.g. cash
in bank), and then fill in
the rest as a rolling round

85. TIP
Search for a
champion or
evangelist within a
VC firm

86. TIP
Create a data room
or DD folder using
Dropbox or Box

87. TIP
Cold emails to investors
don t work. You need
warm intros

88. RESOURCES
Read this article:
http://paulgraham.com/
fr.html
www.feld.com/

89. LIST OF FUNDING SOURCES

90. WE’RE
HERE TO
HELP!
Jordan Schlipf
@jordups
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