How Not to Fail Your Startup Fundraising by Ardent Capital VP Araya Hutasuwan
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Includes an overview of the fundraising process and what VCs look for in potential new portfolio companies.
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How Not to Fail Your Startup Fundraising by Ardent Capital VP Araya Hutasuwan
- 1. Ardent Capital How to Not Fail Your Startup Fundraising Araya Hutasuwan (Noon) araya@ardentcapital.com
- 2. Singapore | Thailand | Indonesia | Philippines Ardent Capital The Leading Operator Venture Capital Firm in S.E. Asia FOUNDED IN 2012 Investments in 7 countries TH, ID, PH, HK, MY, SG, and Sri Lanka Team SEA Exits over $110M PORTFOLIO 16 Investments to date (3 core commerce group and 13 venture investments)$6B+ Team Global Exits
- 3. About Me • VP at Ardent Capital • Managing 8 companies in portfolio • Past: • Investment Banking at Phatra Securities • Factory expansion in Myanmar • Co-founded several retail fashion brands • MBA Kellogg School of Management, BBA Thammasat
- 4. Agenda 1. Overview of Fundraising Process 1. Timeline 2. Preparation Phase 3. Execution Phase 4. Business Plan 5. Round size and Valuation 6. Tips 2. What VCs look for
- 5. VC Money Ask yourself, is VC Money the right funding source? If yes, is it the right timing? Be Targeted – Who Could Help You Get There? Pros & Cons
- 6. Typical Fundraising Process Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Preparation - Current Runway - Business plan - Teaser - Presentations - Practice pitching - Dataroom prep Investors Process - List of investors - Generate leads - Roadshow - Due diligence 1 - Term sheet - Due diligence 2 - Agreements - Closing Update 3 weeks Commercial DD Investors proceed to dataroom Negotiation Sign term sheet Legal DD Documentation Update Execute Closing
- 7. Preparation Phase Module What to Prepare Runway • The process takes roughly 4-6 months depending on deals so need runway of at the very least 6 months when start Business Plan • Focus on first 12 months then top down • Full model with P&L CFs and BS Teaser • Good way to quickly gauge interests from investors and short list • No more than 1-2 pages, no confidential information Presentation Deck • Investors always read the deck before and after the meeting and send around to the team, so put message in • Avoid word documents Pitching • Practice a lot, CEO should go • Don’t go alone, VCs invest in teams Dataroom Preparation • Commercial – Cap table, business plan, historical performance, CVs, presentations, sales pipeline • Confirmatory – legal contracts, accounting, etc.
- 8. Business Plan • Lead with your best 2 strongest points • Want to see your logic in structuring and deriving assumptions • Captures execution plan! • Focus on the next 6-12 months – understand all drivers • Show that you are ambitious but realistic – 2nd and 3rd year of projection shows your vision • Avoid over promising - worst thing is to miss business plan “during fund raising” • Don’t forget to think about what happens after fundraising as well - credibility
- 9. Execution Phase Module What to Prepare List of Investors • Research investor first – right industry? Right stage? Right geography? Generate Leads • Try to use referral as much as you can Roadshow • Try to control the process so that all the road shows are close to one another Due Diligence 1 • Commercial due diligence, to determine valuation, initial terms Term Sheet • Normally issued by lead investor and agree on commercial terms • Beware of investors who issue term sheet early on and too broad, need to know what you’re getting in detailed Due Diligence 2 • Investors will proceed to legal due diligence after agreeing to term sheet, if you have things to hiding, better to disclose Agreements • SHA, SSA, corporate approvals • Hire a lawyer if you have no experience Closing • Fulfill condition precedents and closing checklist • Timing of funds transfer
- 10. Managing the Process • Create competitive environment, VCs are FOMO • Understand all decision making timeline for each investor • Fully prepared upfront – organize complete dataroom and do a full financial model – You can set a deadline for investors • Need a lead – keep them on hold list, update regularly • Find a lead – agree on term sheet • Determine amount available for co-investors – discuss with the lead and go through the on-hold lists • Lead investors would want co-investors who are complimentary and add value to the round
- 11. Round Size and Valuation Tips • The “Round Size” is very important • Last you at least 18 months, providing a range is good • Not too high to dilute yourself early on with over ambitious goals • Not too low so you still have flexibility to prove your business and increase valuation for next round • Enough to bring you to the target KPIs in the next 18 months • Valuation • Set valuation at a level that you could achieve a certain milestone • Need to be able to bump up valuation for next round • By setting way too high – guaranteeing to fail next round • Focus on the whole package, liquidation preference, etc. • Battles vs War
- 12. Areas Investors Look at… Team • Believe in the team, entrepreneur type? • Complement of team members? History? Market • Ability to disrupt the market? • Big enough market? Profitable enough? Exit opportunities? Product • Product/market fit? Value proposition? • Traction? Product well built and scalable? Revenue • Revenue model? Benchmark? Scenarios? • Risk of the assumptions? Traction to date? Costs / Customer Acquisition • CPA vs LTV? Margin of error? • Acquisition channels appropriate? Burn rate make sense? Competitors • Competitive landscape look attractive? Disrupt current players? Sustainable competitive advantage? VC Fit • Value add from VC? • Synergy with portfolio companies? Current Funding and Ask • Valuation? Funding size makes sense? • Other investors?
- 13. Be Prepared • Research a lot and prepare information before meeting • If you can address questions that VCs going to ask or need to do research anyway and provide them upfront save time and look professional • VCs evaluate so many deals in a given week, if you could cut through the noise, provide critical information, it will help a lot • Prepare to answer the question: “What is your unfair advantage?” / “are you the right team to do this?” • Think of the pitch as a play, never ever ever ever disagree with each other, rehearse!
- 14. Final Tips • Choose your VC well - you can’t fire your VC – make sure the goals align • Think as partner • Make sure you get along with VCs – nothing worst than having friction – if you don’t feel right during negotiation and as long as having alternative options, don’t be afraid to jump to others
- 15. Thank You Twitter: @ardentcapital Visit us at www.ardentcapital.com Araya Hutasuwan araya@ardentcapital.com
Notas del editor
- Right funding source and when? Be targeted – referral, who is your ideal VC? Pros and cons of each investor, e.g. name? strategic? Exit vision? Do not approach VCs who don’t invest in your industry, stage and geography waste of time and credibility If targeted, your pitch will be more personal, tell us why you want our help, not just about the money.
- Fundraising is most likely to be the biggest sale in your life It is a tough long process, it takes, on average, 4-6 months for a company to complete fundraising round Some talk to over 10-50 VCs to find the right one So prepare, prepare, prepare - Business plan, execution process, dataroom, industry knowledge, etc. This is very rough, most deals are different, some modules can be overlapped, some times it’s hard to move all investors at same pace I have seen deals that are fast and deals that took 6 months after signing term sheet. Spend a month or two preparing deck/business plan/dataroom
- Mapping out runway is extremely important last thing you want is to raise money when you’re running out of cash and in desperate need Business plan – full model (investors will ask anyway so you’ll be delaying your process if you don’t prepare) Presentation deck – always send the deck before the meeting – investors will have time do some research, call up some friends and provide more meaningful questions during meeting – more efficient
- Logic, drivers, salaries, headcounts, Understand how all drivers are connected – see your execution plan, how are you going to do it What are your milestones and how you will get there? Some models I saw is just % growth and everything else is a % of sales lazy model for more mature business.
- Round size – depends on the business – if have resources to do full time Valuation – battle, war – risk downround Expectation bar too high – that you will be able to achieve so much with a large round size, handcuff yourself into over-ambitious goals Big mistakes founders make early on – set valuation too high and can’t increase next round – i.e. no revenue yet, but next round your have revenue and people will be benchmarking you with peers multiples (first round based on hopes and dreams and second round based on actual results)
- How big the opportunity is and the caliber of the founding team
- Investing is complicated. There are many things to consider in every deal. There is a lot of information to take into each investment decision, so your ability to cut through the noise and hit the critical points can be the difference between being funded and not. I’ve had some companies being so frank and honest and asked me what is a cap table – it’s great to be honest but it gives me the feeling that will this team be aggressive and go out raise another round in 6 months? It doesn’t come across that way
- Think of VCs as partner of the business, much like when you choose a co-founder. Don’t just think about the name or reputation, it’s basically a marriage.