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Cracking the Funding Code: Twos Summary

Cracking the Funding Code: Twos Summary

by Joe · 182 things on Twos

Model of venture is risk/reward
Fail fast, fail cheap.
Adjust your pitch based on your investors sweet spot
Show me a problem and convince me that nobody else is solving it the way that you are
Show me a vision that is powerful and will change lives along the way
Don’t lose potential profit to excuses
Act now
Prepare your pitch only to the allotted time the investor gives you and be prepared for any question they may ask
Every pitch isn’t a commitment to invest - it’s a first date to determine if the second date is warranted
Angel investors only invest in 1-4% of the deals they’re pitched bc people seeking investments
Don’t have the connections to people they could potentially get money from
Don’t pitch their business in the best way
‘You have to learn the rules of the game, and then you have to play better than anyone else’ - Dianne Finestein
Present your business to get people eager to say yes
It will take time and effort to create a great offer.
You will face a lot of rejection
The baseline question in all these situations, will your business make me money?
Most early stage investors will only look at a deal if someone they know and trust brought them the deal
We need to know who we are trying to connect with
People that will already have an association with notes apps or wanting to write things down
Overall survival rate for tech startup companies: 20%
Overall survival rate for early stage tech firms that complete one of the mentoring programs offered by incubators: 80%
Your idea came in ‘cold’ aka did not come with a recommendation from someone they know
Use your networks to gain access to warm introductions with key decision makers
Investors identify high potential entrepreneurs from two key characteristics
The entrepreneur understands the investors objectives
The entrepreneur builds their startup with the exit strategy in mind
You need to match your funding request with the proper channel of funding
Business execution
How much money is required
Selling yourself and the opportunity
Your story must be so memorable it will stand out from the other thousands of pitches they receive
Our business must be
Consistent
Concise
Compelling
Must include a pitch deck that distills the most complicated and complex concepts of the product so they are not only interested, but intrigued to hear more.
The ability to answer any questions about potential risks
Product risk
Market risk
Management risk
Execution risk
Competitive risk
Financial risk
Must be able to mitigate those risks
A clear exit strategy that will end in a significant ROI for the investor
The most successful entrepreneurs often had what seemed to be some of the craziest ideas
But they also had passion, understood the mind of their investors, had great business plans, and were able to explain in clear and compelling terms what their business was going to accomplish.
Even with the best business and pitch in the world you will still get rejected.
Every entrepreneur knows the key to success is persistence.
Angels invest in people
The quality of the founding team
The initial bet they are taking is really about you
Investors must know you, like you, and trust you before they will fund you.
They are buying trust in you that you will build a large business that will be valuable
Angels love to mentor
They see their advice as more important than their capital
Advice is taken into action
Investors are usually looking for reasons NOT to invest in your company
7 categories of red flags that need to be avoided at all costs
2/3 of startups do not return the initial investment to the investor that funded them
Incubators and investor run accelerators
7,000 accelerators
Organizations dedicated to helping startups succeed
Many are non-profit
Have an innovative idea but need help with a business model, regulatory compliance, or reaching the marketplace
Goal of growing businesses in a particular area
Rigorous application process
‘Goldman Sachs 10-Ds’
Businesses are encouraged to come up with an innovative idea
Accelerators focus on technology groups that are well past the ‘idea’ stage
Usually only last a few months and make the company more investor worthy
Sometimes the founders need to move to the host city
Could receive funds in range from $10,000 - $150,000 in exchange for small stakes in equity
Accelerators usually culminate in ‘demo days’ where they pitch their ideas to VCs.
Graduating from an accelerator can grant access to better future funding tools
They have been ‘vetted’
Angel investors are wealthy individuals that invest in high potential startups usually in exchange for debt, equity, or a combination of both
Angels invest $24B per year
The medium check size is ~$35k
The average rate of return is a 9x multiple within a 5-year time frame
5 things angel investors can offer
Angels do not need to consult with anyone else
Angellist.com
Gust.com
Search for LinkedIn groups for angel investors
When you approach angel investors think about the problem you are solving, because angels are always looking for good deals.
Most tech start up’s fail because they do not know how to make money they only know how to raise it
Corporate venture capital
Wealth preservation
Family offices
Often take a more long term approach
Almost always sourced through personal relationships
Make sure that you have a long term business plan with lasting value
Get in touch with the CIO through your own personal network
How to make fundraising efficient and effective as possible
Are there key hires you need to make?
Hire a marketing firm to reach more users or prove there is a significant market to utilize our product
Set your goals for the next 12-18 months and put in timelines for the specific milestones
Calculate how much money we will need to reach those milestones
Augment those numbers by 10-40% to cover unexpected costs
This will be the starting request for how much capital we want to raise
Asking for a specific amount linked to specific milestones will make us seem like a more credible risk instead of asking for a round sum
‘This is what I need’ or ‘this is what I can accomplish with this dollar figure’
Valuation is an art, not a science.
Compare the company to similar companies in our region
Seed round
The first time you approach will be the hardest and the longest.
Money to grow the seed of your business until it becomes viable.
Cover your expenses to hit milestones for next 12-18 months.
Turn demo into a workable iteration
Hire a key team member
Grow your customer base beyond those signed up for our service.
Seed can be $10k - 750k
Top range is only for biotech and medical sales. Complicated businesses.
May offer us convertible notes for future equity
Usually approaching angels specializing in seed funding
Rather than asking for equity upfront
Because the amounts are small
It may only take 1-2 meetings before reaching an offer.
Since we are pre-revenue, our company will be based on our story, the ability to communicate the vision, and the team we have in place.
We can expect to hear A LOT of no’s.
So it’s a great place to test out our story and refine our vision to when we get told no.
Betting on you more than your business as we continue to develop our product or our business.
Because they understand a lot of pivots will come.
Strategic networking is your key to success
If one resource doesn’t give you what you need, you have 10 more people
Think about the referrals from other investors
Sometime it’s difficult to get your foot in the door
Huge reputational obstacles
Get to know other startups
Begin by making a list of people you interact with regularly
Put a star by the people you have the best relationship with (the co-founder of your startup)
Organize your list by columns
Column 1: 25-50 people who are the greatest help us reach investors
Rank those people on a scale from 1-5 (1 being least and 5 being most likely) of how much wealth, gravitas, connections, etc
4 and above are our champions
In column 2 write where you met them and make notes about things you have in common
In column 3 brainstorm possible connections they can make for you…bankers, CPA’s, investors
All of this is going after a warm introduction
Five ways to add the people you need to your network
The best thing you can do is add value to the other person
How can I help this person today?
Our value may be the list about the conversation
Five warm introduction sources
Proper Email Etiquette
Be prepared to answer every question potential investors will ask of our company
Can a founder articulate how we are going to make money and receive a return on our investment
The elements of a business plan
Remember to write your business plan with our target market in mind
Market differentiation
Path to profitability
Amount of investment needed
How investors will receive a significant return
Any business plan is educated guesses that needs to be revisited regularly
Part of setting regular goals as we learn more about our customers
Three things the founder of any startup needs to know
A pitch is a presentation where you have 10-40 minutes to sell investors or organizations that you, your team, and company present an opportunity for them to reap significant returns
They usually see a pitch deck and presentation are the first thing they will see
On average only 1% get funded
Because they have a bad pitch and can't communicate the viability
If you can't figure out a way to get a warm introduction, you probably can't find the way to your customer either
Once you have the warm introduction, outline your business idea and ask for the meeting until you get a yes or a no
If no, ask why and then ask who else we should talk to
When they say yes
Find out who will be in the room
Research the kinds of deals they've done and the size
Dig a little deeper to figure out what gets them excited outside of work
Build rapport on that and establish a connection to your app through that interest that they have to customize the pitch
The pitch is not designed to raise money but to get the second date
Pitch needs to a combination of -
A clear business plan as outlined in your deck
A compelling presentation with interesting stories instead of dry facts
Delivered by you with confidence, passion, clarity, and brevity
Essentials of a great pitch deck
The real goal is to get a second meeting
A great pitch tells a great story
'Let me tell you a story'
The confused mind will ~always~ say no
They will relax and appreciate the emotional journey
If you can't answer investor questions, we will also get a no
Be concise and clear