How to Pitch VCs by the founder of TheFunded.com

get funded for your dream a crash course raising smart money By Adeo Ressi, Founding Member of TheFunded.com Global Venture Capital Statistics • $60 Billion USD Annually Invested • 3,000 Companies Funded Annually • 3,800 VC Firms • 16,500 Professional Venture Capitalists Great Timing for You • Low Costs – New Technologies – Open Source – New Distribution – Inexpensive Global Labor Pool • New Opportunities – Web 2.0 – Social Networking • Strong Financing Climate What Type of Company gets Financed?  Big Vision  Growing Market  New Approach  New Technology • Facebook • Google • Microsoft / Yahoo • Electronic Arts • Apple Computer • FedEx / Kinkos • Cisco • and more… Investor Motives • Fund Returns - $$$ • Cheap Equity • Partner Esteem What to Expect when Fundraising? Low Management Effort Time to Close VCs Pitched Offers Received Equity Dilution Amount Raised 25% 4 mn’s 10 1 15% $0.5 MM High 50% 12 mn’s 60 5 45% > $10 MM Step 1: Choose a Good Lawyer • Identify 3-4 “Fundraising Firms” • Interview Firms Thoroughly – – – – What is the right corporate structure? How many VC deals have they done? How many VC firms can they introduce you to? How will they protect your equity? • Conflict of Interest & Declining Honesty Step 2: The “Throwaway” Pitch • Prepare your First Presentation – – – – – 20 minutes long Push the Big Vision Push the differentiation Avoid detailed financial discussions Avoid confidential information • Take a First “Throwaway” Pitch Meeting – Write everything down – Watch for when your pitch “disengages” – Ask what they liked and did not like Step 3: Prepare your Approach 1. Introductory “One Sheet” 2. Meeting PowerPoint 3. Capitalization Table 4. Working Financial Model 5. Competitive Landscape Analysis 6. Published Industry Research 7. (Audited Financials, Patents, Etc.) Step 4: Shotgun Attack • Goal: Pitch 30 Firms in 2 Weeks – Expect 1/10 success ratio – Expect investors to talk • Leverage Law Firm, Friends, Associates – Get “introduced” – find a connection – Set-up meetings – over the phone or face-to-face – Ensure a Partner is present – the more the better • Send out the One Sheet in Advance Good Signs • Thoughtful Questions • Market Understanding • Set Follow-up Items • “Interesting” • Meeting Partners Bad Signs • No Questions • Market Size Ignorance • No Further Steps • “Maybe” or “but” • Handled by Associates • Are they doing competitive research? • Are they overly concerned about traction? • Do you sense a run-around? Step 5: Negotiate • The First Term Sheet – DO NOT ACCEPT IT !!! DO NOT NEGTIATE !!! – Time is on your side – Exclusivity and expirations are tactics • Goal: The 2nd / 3rd Term Sheet – Inform the interested parties – Avoid the syndicated round • Your Lawyers work for THEM – Trust, but VERIFY Key Secondary Terms Good Liq Preference Participation Inv Board Seats Founder Vesting Option Pool Dividend 1x None 1 None 20% Optional Bad >3x Full >1 75% <10% Mandatory Step 6: Close the Financing • Diligence – Prepare your references – Say “no” when excessive • Legal – The deal is more important that you – The DETAILS MATTER • Have a Back-up Plan Tips from the Inside • Do not outsource your fundraising • Do your homework • There is no “Industry Standard” • There is no confidentiality • Understand exit scenarios • Inform targets of progress during the negotiation