LetsVenture pre-funding guide

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Do I need to raise a seed round?

Rapid growth is what makes a company a startup

Take outside money if and only if it will help you grow faster

Dont raise money if,
You dont want to grow faster, or
Outside money will not help you grow faster, or
If you wont be able to convince investors.

Every instance you raise money, you dilute your holdings
geCng tracDon is not just about geCng funding, it is your
negoDaDng tool

Takeaway:

Do not raise money unless you want it and it
wants you. --Paul Graham (YC)




Recommended reading:

Blog post by Paul Graham, Y-Combinator
founder

When should I raise funds?

Fundraising is a full Dme job

Do not get into fundraising if you think your business will suer
Pitching takes Dme
NegoDaDon takes Dme

Ideally, once you have at least Proof of Concept. Investors do not
favor startups at IdeaDon stage.

TracDon speaks loudest
Get beta out (MVP)
Show growth
Show ability to execute

Takeaway:

Beta > PoC
PoC > IdeaDon

Fundraising can impact your startups
growth. Do not start unless you are
completely ready.


Recommended reading:

Blog post by Marker Davis, CEO, Kohort & VC

Running Lean by Ash Maurya

How much do I raise?

Not too liYle, and not too much either

Raise enough to reach a criDcal milestone
Where you create a entry barrier for compeDDon, and/or
Can raise more money at beYer valuaDon

Typically, seed round should last you 18-24 months with
conservaDve spending

Probability of having unaccounted expenses is always 1, be sure
to double check your spending plan

Takeaway:

Fundraising is incremental process. You only
need enough to reach next criDcal milestone.

Raise as much as you can. Without giving
away control, and without being insane.
- March Andressen

There are downsides to raising too much
money. - March Andressen


Recommended reading:



Blog post by ShanD Mohan, founder @

LetsVenture


Blog post by Marc Andressen

How much do startups typically raise?

Milestones, Valuations and Raises?

Milestone / Stages

Age

Revenue

Raise Amount From Whom

Venture launched

0 0.5

5 25 L

Self, friends and family

Beta Product launched

B2C: Product used by real customer, few paying
customers
B2B: Good customer pipeline, 1-2 customers in trial

0.5 1 yr

Small
amount

25L 75L

Self, friends and family, Individual

Angels, Accelerators

Stable version
Regular customer growth

1 1.5 yr

10 15 L per 50 L
year
1.5 Cr

Self, Accelerators, Seed Funds,

Individual Angels

Product market t found

Strong and Consistent customer growth
Clear product and revenue for next 2-3 yrs

1 2 yr

20 50 L per 1 Cr 4 Cr
year

Individual Angels, Seed Funds, Few

Venture rms

Business model t found

Clear growth path for next 3-5 yrs
Consistent growth in paying customers
PotenDally breakeven

1.5 3 yr

2 5 Cr per
year

Venture Funds

3 Cr
20 Cr

What is dilution over lifecycle?

Year

Start

IniDal
Hires

Seed
Round

Create
Pool

VC
Round

Pool
Refresh

2nd VC
round

Founders

100%

90%

68.4%

59.9%

44.9%

43.2%

32.4%

Seed Investors

0.0%

0.0%

24.0%

21.0%

15.8%

15.2%

11.4%

IniDal VC Investors

0.0%

0.0%

0.0%

0.0%

25.0%

24.1%

18.1%

Later VC Investors

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

25.0%

Early Employees + Advisors

0.0%

10.0%

7.6%

6.7%

5.0%

4.8%

3.6%

Employee Pool

0.0%

0.0%

0.0%

12.5%

9.4%

13.0%

9.8%

Total

100%

100%

100%

100%

100%

100%

100%

Recommended reading:

Funding Fundamental by Manish Singhal

What are different types of investors?

Source of investment,
Accelerators / Incubators
Angle Investors
Seed funds

Investors can be classied into 7 types,
Connectors,
Product people,
TacDcians and Builders,
Smart Business People,
Domain Expert,
The Brand,
The Filler (aka Dumb Money)

Takeaway:

Accelerators / Incubators may be a good
opDon before you approach angel investors
and seed funds.

You want to be in a posiDon to be able to
choose investors.

Know your investors and be sure why you are
bringing them on-board.


Recommended reading:



Blog post by Elad Gill

Angels or VCs?
InsDtuDonal Money beats Individual Money, unless
VC is not adding any value apart from money, or
A pro-acDve Angel is a ready to get on-board

If a VC invests in your seed round but doesnt follow through in
Series A it may send negaDve signal

Not every VC likes to parDcipate in another VC in Series A,
potenDal signaling issues

There are sector specic funds here VCs add a lot more value;
if you are in niche market then look out for them

Takeaway:

Super Angels maybe a beYer choice than a
VC rm.

Take on a VC rm if they are adding more
value than just money. Typically, angel
investors with their domain experience
maybe beYer choice.

In case you do opt for a VC then have
strategy in place to handle signalling issues.


Recommended
reading:


Yet another blog post by Chris Dixon

How do I choose a angel investor?

Look for domain experts, tacDcians, smart business people,
connectors and product people

But most importantly, look for like minded investors who
understand you, your startup and what you are out to do

Fewer investors are beYer than many, but not necessarily

Your rst objecDve should ideally be to look for a lead investor,
introducDons maYer as you reach out to more investors

Do a reference check speak to companies they have already
invested in

Takeaway:

Smart Money > Dumb Money
Dumb Money > No Money

Fundraising is not just about numbers, it is
also about the intangibles.

Many a Dmes, intangibles maYer a lot more
than expected.

Recommended reading:

Blog post by Ankit, Co-founder @ Adpushup

Adpushup used LetsVenture for its fundraise.

How do I connect with investors?

Network
Reach out to college alumni networks
Check if there are angel investors in your alumni network

Reach out to fellow entrepreneurs introducDons will save your
Dme and energy

Oer value to people you meet make meeDng you worth their
Dme

Leverage plamorms like LetsVenture, LinkedIn to reach out to
individuals and groups you wouldnt have access to

Cold emails work keep them simple, straight and exciDng

Takeaway:

Nobody will marry you the rst Dme they
meet you, if they do/did then know it is a
excepDon! It is true for money too.

Build relaDonships.

Follow-up on conversaDons. Send updates.

Investors may need Dme to decide if they
want to invest. Some may come back for
your next round.
Recommended reading:

Blog post by Elad Gill

Blog post by Steve Blank

How do I follow-up and schedule meetings?

Create a target list of investors and break them up into 3 groups
C Most likely will not invest (start with them)
B Those you may or may not invest (ne tune your pitch)
A Dream list (meet them last, give killer pitch)

Follow up politely but persistently

Read between the lines not everyone says No directly

It is a funnel process you may meet 30 and have follow-up with
10, and only 2 may invest.

It is okay to get rejecDon, be persistent and paDent.

Takeaway:

Fundraising is a funnel process. You will meet
100 but not everyone will commit to your
fundraise.

Approach your dream list only when you are
condent about your preparaDon.

Be polite, condent and persistent. Most of
all, be paDent.


Recommended reading:

Blog post by Cheryl Yeoh, CEO MaGIC

What is the fundraising process like?

Takeaway:

If you wait unDl you are ready to be funded
then it is too late. Fundraising is a process
which can take 4-6 months.

Before you being asking for money, create
contacts and open communicaDon channels.

Get a clear understanding of Term Sheets,
SHA and due diligence (DD) process.

Recommended reading:

Blog post by Sunil Rajaraman, Co-founder @
Scipted.com

Blog post by ShanD Mohan, founder @
LetsVenture

What financing terms should I know?

Termsheet
Equity or ConverDble notes
LiquidaDon Preference
AnD DiluDon Clause
OpDon Pool
Board composiDon

Shareholding Agreement

Founders Agreement


Remember termsheet is a non-binding document.

Takeaway:

Before you get into a room understand the
termsheet and SHA clearly.

Have a founders agreement in place to
ensure there no bad blood later.

Read every line of every document.
Ask if you have any doubt.


Recommended reading:

Standard Termsheet by ShanD Mohan,
founder @ LetsVenture

On importance of founders agreement from
Yourstory

What are investors looking for?

Business (not an idea!)
Nobody has monopoly on a idea

The Team
Can you execute? Can you adapt? Are you coachable? Easy to talk to?

Risk Management Plan
Key is to talk about the potenMal risks for your business and more importantly your acMon
plan towards miMgaMng them

Clean Structure and Governance
Clear and unambiguous record of in-house IP
Simple holding/ownership structure

Exit Plan
Key is to talk about your intenMon to provide an exit to investors!

What do investors ask?

Everything.

Prepare, prepare and prepare

In case you do not have a answer be honest and be proacDve
in geCng back with answers and insights.

Takeaway:

Expect lots of quesDons.

Prepare and keep ne tuning your answers.
Keep it simple and straight.

QuesDons will also help you ascertain what
sort of investor a person is (smart money or
dumb money).


Recommended reading:

Blog post by Elad Gill, with contribuDon from
Satya Patel

How do I make perfect deck?

Follow Guy Kawasakis 10/20/30 rule

10 slides

20 minutes

30 point font

Takeaway:

Investors may spend only 4-5 Min on your
deck. They are short on Dme, hold their
aYenDon.

Follow of informaDon is important, not just
headings.

Break your Dme into 5-15-30min - 5 min to
get aYenDon for next 15 min, and which in
turn will keep their aYenDon for 30 min.


Recommended
reading:



Research Deck by DocSend team

10/20/30 Rule by Guy Kawasaki

How do I run investor meeting?

Prepare with your sponsor, you are a team as you enter that
room be in sync with your sponsor and co-founders

Setout the mandate before you begin

Nail them in opening minutes

Pitch your product and vision execuDon > team > idea

Pitch your ability to build

Before you end the meeDng, setout Dmeframe for follow-up and
next meeDng

Takeaway:

AYenDon span drops with Dme.
Keep it simple, straight and precise.

Investors want to see if you can deliver, that
is execute a idea.

Break your Dme into 5-15-30min - 5 min to
get aYenDon for next 15 min, and which in
turn will keep their aYenDon for 30 min.


Recommended reading:

Blog post by Aaref Hilaly, Sequoia CapDal

Blog post by Chris Dixon, a16z

Do I need a lawyer?
Lawyer should be hired if you are not condent in your
understanding of documentaDon

Go with a experience startup friendly rm

Read every word of every legal document

Use standardized documents when possible

Do not send lawyers to negoDate!

Ask them quesDons! Lots of quesDons

Takeaway:

Lawyers are there to ensure what is
discussed is translated on paper, and to
make you aware of potenDal pimalls.

Any lawyer will not do. Work with someone
who has startup experience.

Recommended reading:

Yet another blog post by Elad Gill

How do I negotiate on valuation?

It is not just about pre-money and post-money valuaDons

It is also about terms and condiDons set out by investors

Do not hesitate to ask investors to match the best termsheet
you have received

TracDon is your biggest trump card, it favors you and only you

Share data, get market informaDon where possible but leave
ego at the door

Understand their prioriDes and that one metric that maYers to
everyone, and then chase that number

Takeaway:

Terms and condiDons are very important, not
just the valuaDon.

TracDon is your best friend

If X gets $10M does mean you will get it too,
be informed but leave ego at the door



Recommended reading:

Lets revisit this blog post by Sunil Rajaraman,
CEO of Scripted

How do I get money in bank?

Termsheet is not legally binding document

Be forthcoming with informaDon wherever asked

Commitment to closure is a tedious process work with service
providers experienced in working with startups

Due diligence takes Dme be sure you understand the Dmeline
and have factored it in

Companies take 4-12 weeks to get money in bank talk to
fellow funded entrepreneurs to understand process and avoid
pimalls

Takeaway:

Job is not done unDl money hits the bank.

Dont think about PR unDl you receive the
funds.

Due diligence is Dme consuming process but
one can save Dme by working with
experienced service providers / teams.



Recommended reading:

TechCrunch arDcle by Anthemos, CEO of
Zumper

How do I work with my investors?

You have money in bank, and you are already on your way to
next fundraise
Second seed round, or
Series A

Update your investors on weekly/monthly/quarterly basis be
proacDve and be available

Spend Dme with them, get to know them beYer - relaDonships
are important

Ask help! if needed

Takeaway:

You have spent Dme to nd investors. Now
spend Dme to strengthen these relaDonships.

Put your investors to work for you
everyone has a interest in your growth.

Be proacDve with updates.

Be humble, condent and paDent.


Recommended reading:

Yet another blog post by Elad Gill

(Ps: dont you just love his posts!)

How do I create a Board?

Keep it small

Choose wisely, you dont want to rush on this

Seek experience to supplement your own

Takeaway:

Like minded board members who
supplement your skills and do not shy away
from poinDng out faults while supporDng you
on course correcDon.

Recommended reading:

Yet another blog post by Elad Gill along with
yet another blog post by Chris Dixon

(Ps: promise these are last two links)

Thank you

In case you have a query, please write to startups@letsventure.com