How to raise equity funding for early stage startups

1. Fundraising for
Newbies:
Get dat cash
& don’t get
screwed
George Bevis

2. Agenda 1. About me
2. Whether to raise
3. Types of investor
4. SEIS & EIS
5. Reaching investors
6. Talking to them
7. The presentation
8. Questions to prepare for
9. Terms & lawyers
10. Closing the investment
11. What happens next
Links: tiny.cc/fundraisingfornewbies

3. WTF are you?
• 2002 – 08: Banker
• 2008 – 11: Retail ecommerce startup
(angel funded failure)
• 2011 – 14: Freelancing (more banking )
• 2014 – 2018: Created Tide (pretty good...)
• 2019+: Incubating more startups

5. How it (nearly) never is: Tide
• SEIS: £150k
• EIS: £135k
• Seed: £1m
• + £0.5m VC loan
• Series A: £10m
• and much more after...

6. How it usually is: SpeedSell (2008-2011)
• 150+ pitches
• Total raised: <£200k
• Returned to investors: £0

7. Don't go by reports, by legends, by traditions, by scripture, by
logical conjecture, by inference, by analogies, by agreement
through pondering views, by probability, or by the thought, “This
contemplative is our teacher.” When you know for yourselves that,
“These qualities are skillful; these qualities are blameless; these
qualities are praised by the wise; these qualities, when adopted &
carried out, lead to welfare & to happiness” — then you should
enter & remain in them.

9. 2 noble truths most entrepreneurs don’t want to hear (1/2)
1.You shouldn’t grow a business (yet)
• If you invest your/others’ money now you’re probably wasting it
• Try to prove every hypothesis cheaply first
• What proposition do customers like?
• What will it cost to get customers?
• How much margin will I make over the lifetime of each customer?
• Etc… (although those are the main things)

10. 2 noble truths most entrepreneurs don’t want to hear (2/2)
2. You shouldn’t seek other people’s money (yet)
• Won’t work unless can be a £50m+ business in 5-10 years
• Time-consuming: half your time for 1-3 months (angels), 4-8 months (VCs)
• Long term loss of ownership: rare to end up with over 20%
• Reduced authority with team & other stakeholders
• Investors always add stress, may destroy your business
• Requires a board, who usually won’t add value
• You’ll probably fail and lose their money
• Better to fund experiments using contracting or (maybe) grants

11. Investors: know your stage
Stage Round size You need (usually...) PITA?
Friends & Family & SEIS Up to £150k Presentation
EIS £200k - £1m+ + Product & “team”
Seed (VC) £500k - £3m + Customers
Series A (VC) £4m+
+ Proven economics, ~$1m
run-rate, +$300k/quarter
Timewasters (all stages) £0 (to avoid)
● £Amount to raise: as much as you can (usually)
● Fallback: Quite normal to run out of cash: deep-pocketed investors useful
● Corporate investors: slow, unpredictable, may cripple future fundraising/sale

12. EIS/SEIS: minimise guilt if you lose your investors’ money
Remember:
● Angels make 20x (or more) on a win
● With SEIS/EIS they don’t even lose 1x on a failure
● So: no guilt! (NB taxpayer does brilliantly too)
(source: Crowdcube) EIS SEIS
Individual can invest (per year) £1m £100k
Company can receive (ever) £12-20m £150k
Immediate income tax reduction -30% -50%
Tax relief if company fails (@45%) -31.5% -22.5%
Remaining investor exposure 38.5% 27.5%

13. Reaching them
• Accelerators (Entrepreneur First, TechStars, 177 others)
• Intros from successful people you know (in any field)
• Check quality of connection first
• Lawyers/accountants = hmmm…
• Cold email: why not?
• Operators more helpful than investors
• Events (NB inefficient)
• Don’t use advisors, don’t grant equity

14. Talking to them
• Set a private timeline and ask investors to set their own deadlines
• 10+ first pitches / month if possible
• Pre-meeting: send presentation or 1-pager (both are fine)
• Identify timewasters:
• “What size cheques have you written recently?”
• “Do you usually lead or follow at this investment size?”
• Ignore most inbound from junior staff in funds (particularly US-based)
• No NDAs. Assume information leakage (particularly with VCs)
• Tone: “No I don’t know the answer to that but I’m Gwyneth Paltrow”
• “Yes yes yes your batshit crazy idea is SO smart, I’ll definitely consider it”
• Professional investors tolerate “gruff” entrepreneurs, angels may not
• Don’t mention who you’re talking to, or valuation expectations (to VCs)
• Email follow-ups within 24 hours (but no begging VCs)

15. The presentation (deck)
• Obvious bits: proposition/product, market size, how to get customers,
competition, traction
• Team & “backers” (at start if strong, otherwise at end)
• What the investment pays for (ie what next milestone is and how we’ll get there)
• Forecasts: short-term bearish, long term bullish
• Per customer: Lifetime value (LTV) > 3x marketing cost (CPA)
• “We have done everything possible up to this point”...
• Cheap/free market research
• Testimonials from potential customers
• Financial projections (& finding out every number)
• Lining up key hires & partners
• (Wireframes / mockups for digital products)
• Keep it short
• Nobody good writes “business plans”
• 10-15 slides, <1000 words, graphic design matters more than you realise

16. Sample decks: Tide
SEIS: 11 slides, 898 words Series A: 13 slides, 516 words

17. Questions to prepare for
1. How big can this be?
2. How scalable is your business?
• This usually means “what are the things which will slow scaling?”
• (eg hiring ops staff, national laws, etc)
3. Why hasn’t someone already done this? What’s your advantage?
4. How much behavioural change is required?
5. Where do you think you can take the company in 5 years beyond
your initial market and product?
6. What happens if Google/Amazon/<other corporate> copies you?
7. What are the key hurdles?
8. What’s your exit strategy?
1. What differentiates you personally?
2. Why do you really really want to do this?

18. Terms & lawyers
• Convertibles: SAFEs / Advanced Subscription Agreements
• Equity: Pre-money & post-money
• “Ordinary” vs “preference” shares
• Liquidation preferences: participating vs non-participating
• Anti-dilution, drag-along and tag-along
• Board seats & “observer” seats
• Vetos (probably unavoidable but push for higher salary limits)
• Founder vesting resets (resist this)
• Staff options pool (~7% at angel rounds)
• Lawyers
• SeedLegals.com is usually fine for angel rounds
• Lexoo.co.uk if it gets complicated
• Proper law firms at Series A

19. Closing
• VCs: consider internal fund politics (not all VCs have influence)
• Use competitive tension to get better terms/price
• Termsheets: use SeedSummit standard (if investor does not provide)
• NB some investors do pull out after signing termsheets 😡
• Avoid exclusivity clauses, or insist on a time limit
• “Due Diligence”: Have Google Drive folder ready
• Presentation, model, metrics, accounts, org chart (now and future)
• Angels: if using SeedLegals, no reason can’t close in a couple of weeks from
agreement
• VCs: 1-2 months. Probably more (try to get a commitment on DD levels early on)
• Reference everybody
• Cold-email their portfolio CEOs, particularly the failures
• Lukewarm references = Negative

20. After investment
Board
• Will usually not add value, except for future fundraising
• Ensure #Operators >= #Investors
• Hitting projections matters after Series A
• Updates...
• Formal: every 2-3 months, requires full deck & financials
• Informal: monthly (sometimes more) with key people, requires
bullets
Other shareholders
• Email update (2-3 pages)
• Every 1-2 months (pre series A), quarterly (after)

21. Questions?