By: Alexander Girau, CEO and founder of Advano.
So you think you are ready to raise VC funding? Seed funding and VC funding vary greatly; you won’t raise VC with a back of the napkin sketch, at least not on your first fundraise. You must be armed to the teeth with tiny excerpts of literature that show glimmers of your company. VCs only have a minutiae of time to make a judgement call. The quintessential weapon in the Founder/CEO’s arsenal is the 10 slide pitch deck. Your introduction pitch deck to any VC should follow the 10/20/30 Kawasaki rule — 10 slides, 20 minutes, 30 point font — and it should answer 10 different Who, What, When, Where and Hows:
- Intro — keep it simple. mission statement-ish. Here is where you need to have your PERFECT 1-liner keyed and ready to fly
- Who are we — introduce your team, if they’re in the room they can each introduce themselves, this is to forge a bond and show that this isn’t just a spreadsheet of numbers
- What do we make — introduce the tech, don’t dive too deep, this is the time to whip out a demo solution and give them something tangible to cement the concept and ensure they remember what we were pitching after we leave
- Why is it unique — what makes your solution better? why can’t anyone else do it, or why don’t they do it, and ultimately why people will pay for it instead of buying someone else’s stuff
- How do we protect it — short and simple, if you have IP this is the time to show it. explain how will you keep from getting trolled
- How do we make money — what are your metrics? show your cost-competitive advantage if it exist, e.g. for hardware — COGS, gross margin and profit margin
- Who buys it — list possible customer archetypes, keep the text to a minimum, use diagrams or logos, e.g. for B2B, bombard them with a list of logos. prioritize logos for the customers you will go after initially.
- What’s the exit strategy — focus on how your INVESTORS will get their money back NOT YOU. you should want to build a 100 year company, but have readily identified points where liquidity events can occur.
- How long to return money — revenue ramp showing what’s realistic, even if the goal is acquisition
- What do we need today — how much money do you want? what is your burn-rate and runway? what are you using it for? you can mention expected valuation, but there is more to a term-sheet than valuation, be prepared to defend the valuation if you decide to mention it. If you have current/committed investors mention it.
If this is your first fundraise it will take 4–6 months to get a check in the bank (this may take much longer if you are in a niche industry or outside of silicon valley).
Expect to take a few months to strategically identify VCs who match the criteria that is best for your venture, e.g. dry powder, sector, bandwidth, etc. Remember, these guys will be stuck with you for the next 5+ years, make sure you put serious effort into the search. Once engaged with your VC, and you’ve gotten past the initial meetings, presented to the partners, and have a term-sheet is in hand, expect 2–3 months to go through due diligence. This can be accelerated by having all documents together and detailed answers to the 10 questions mentioned. This period can be tedious for the first-time Founder/CEO. VCs will test and prod you, asking you to continually supply them with market/industry information and other items. Show your tenacity. Don’t let this get to you. Yes, VCs should know the market better than you, but they are testing you.
If you can’t pass the VC’s shit-test, they have no reason to trust you to be able to lead the company if it lays an egg.
Most importantly don’t fret too hard over the valuation. It is easy to get caught up in negotiations over valuation. DON’T. There is more to a term-sheet than valuation. Yes a high valuation may grab some PR headlines, but typically these come with egregious terms, e.g. multiple liquidation preferences, full ratchet anti-dilution , majority board control, etc.
Lastly, be prepared to turn down some deals that you’ve invested significant time and effort into. Some will fall through at the last minute. It’s hard to cope with all the lost invested time — getting the rug pulled from under you sucks. Just shake it off and have short-term amnesia. You will be more prepared to handle the process again a second time.
What doesn’t kill you makes you stronger.