This workshop as presented at Startsummit in St Gallen in April 2015 covers the basics of planning and executing a fundraising round involving institutional investors. It looks at why startups choose to raise money, when to start the process, who and how to reach out to potential investors, what documents to prepare and share with investors, which metrics to track to show traction, and finally how to get the most out of the actual pitch meetings. We will also cover the most common pitfalls regarding round size, timing, documents, KPIs, reaching out to investors and overall fundraising strategy for early stage startups.

1. VC fundraising 101
The why, when, who, what and how
April 2015
Stephan von Perger – @vonperger – vonPerger@wellington-partners.com

2. What do you want to take away from this session?

3. introducing Wellington Partners
Why raise money?
When to start?
Who to reach out to?
What information is required?
How to nail the meetings?

4. My journey from Augsburg to London

5. Wellington Partners
European early-stage VC that will help you scale globally

6. introducing Wellington Partners
Why raise money?
When to start?
Who to reach out to?
What information is required?
How to nail the meetings?

7. Taking in external capital usually has 2 types of motivation
> faster-than-revenue driven growth or
> building a free product with network effects or other stickiness
> access to experience, contacts and public support of investors
@vonperger

8. “VC is for growth, bootstrapping for freedom”
Non-dilutive alternatives:
> Non-equity Accelerators
Microsoft Ventures Accelerator https://www.microsoftventures.com/locations/accelerators
VentureLab http://www.venturelab.ch/
TechPeaks http://techpeaks.eu/
> Government and EU grants
> Crowdfunding platforms (Kickstarter, IndieGogo)
@vonperger

9. > Startups looking for
stratospheric growth
typically need to raise several
rounds of funding; investors
like to finance one phase at a
time and with decreasing risk
at increasing valuations
> Startups normally seek
additional capital when there
is a concrete step to be taken
to take it to the next level,
not necessarily when you
run out of money
@vonperger

10. > Some people say raise as much as you can while it’s possible
> Raise for 12-24 months of runway, including the expected
expansion of the team/marketing/etc to reach a clearly defined
milestone
> Most investors expect 20-25% ownership after the financing
round (investment = 20% of post-money valuation)
> Consider a Convertible Note as an alternative instrument;
you do not have to agree on valuation, but typically agree on a
max and min conversion “cap” and discount for conversion into
shares at valuation of next equity round
@vonperger

11. Common pitfalls
> Getting on Techcrunch is only important when your customers/users are
reading it (e.g. Producthunt, Github, vs Spotify, Tamoco)
> The competition having just raised or just being acquired is not a good
reason on its own
> Just financing sales or marketing typically does not seem to be the basis
of a good fundraising request (tech, team is better)
> Fundraising plans sometimes lack “phase thinking” and claim profitability
in one go
> Not thinking big enough for vision
> Raising for more than one idea
> Forget Share Options (ESOP) when negotiating pre and post money
valuations

12. introducing Wellington Partners
Why raise money?
When to start?
Who to reach out to?
What information is required?
How to nail the meetings?

13. Fundraising will easily last at least 2-3 months from
initial emails to closing even when you have great momentum and
probably keep the CEO & founding team quite busy
~ 2 weeks to find the right people to speak to with the investor
~ 3 weeks to do the full partner meeting and pre-Due-Diligence
~ 1 week to Termsheet then 3 weeks for legal drafting and DD
~ 2 weeks for money to arrive in your account
@vonperger

14. Ideally you start the process 6+ months
before you run out of cash
> to avoid having no position to negotiate
because you need to make payroll
> many investors love fast growing
companies “that are currently not raising”
@vonperger

15. Even before the actual fundraising process try to
> find out which metrics investors are interested in
- start tracking them diligently
- show how you moved them into the right direction
- demonstrate data-driven management style
> see which people you need to get to via introductions and
start networking
- map out who you want to meet
- identify who in your existing network can help
> consider building some sort of social media presence
- engage on Twitter, Reddit, HackerNews, Producthunt
- write Blogposts
@vonperger

16. Common pitfalls
> Reaching out to (2nd choice) investors very late, often just
before running out of cash
> Repeatedly pushing back the timeline of “closing the round”
> Repeatedly changing the “size of the round”

17. introducing Wellington Partners
Why raise money?
When to start?
Who to reach out to?
What information is required?
How to nail the meetings?

18. Find a lead for your round with deep pockets and then fill up
the rest with other investors that can also add value
§ Types of (early stage) financial investors
‒ Friends, Family: up to 25k
‒ Business Angels: 10-100k
‒ Micro Seed funds: 50-250k
‒ Seed funds: 100k-1m
‒ Series A funds: 500k-5m
§ Later stage alternatives are: Corporate VCs, Venture Debt, Growth funds
§ Alternatives for financial investors are Accelerators, usually taking around 10%
equity, but provide a bit of money, office space, publicity, investor access and
mentoring
§ Existing investors are normally expected to do their pro-rata
§ Try to make one investor to commit early on, otherwise process "of the round
coming together” can drag on for a long time
@vonperger

19. First shortlisting filter: Do they fit the overall bracket?
> Some investors want to lead, some only follow; especially
government related vehicles often need a private fund to commit
and send the money; find out what the minimum ownership % is
that the VC wants to achieve (often 10% or 15%)
> Especially for business angels, ask whether they can fund 3x the
amount they are putting down now (most of the time it takes
longer than expected)
> Taking money from people that are not typically investing at
your stage can send mixed signals to other investors
> Check geographical preferences or potential constraints
@vonperger

20. Second shortlisting filter: Do they know your space and invest
in companies like yours?
> Check their existing portfolio companies for synergies and
conflicts; particularly the more recent investments as focus can
change over time
> Check their latest hires, this could be an indicator for appetite
for new type of deals
> Check what the investment team tweets/blogs about, this can
be a good conversation opener http://vnpr.gr/youngVCs
@vonperger

21. Third shortlisting filter: Are they the right partner for you?
> Ask around your network about the reputation of the firm
> Once you have had a few meetings, check which partner would
be leading the deal and check his/her reputation
> Ask the investor for intros to their portfolio CEOs, but also do
some blind reference checks
> Ask who they syndicate follow on deals with, who they know in
your acquisition landscape
@vonperger

22. More sources for finding investors:
> AngelList https://angel.co/ & Crunchbase http://www.crunchbase.com/
> Mattermark (founders deal) http://info.mattermark.com/mattermark-research
> Crowdsourced investors GoogleDoc : http://vnpr.gr/investorsDB
> Fund reviews at TheFunded: http://www.thefunded.com/
> Crawl your network on LinkedIn by searching “Venture Capital”
@vonperger

23. Pick a startup-experienced lawyer
> look for firms recently started by partners previously at large
firms and ask for pre-fundraising rates
> make sure they keep the docs founder friendly (liquidation
preference, change of control events, founder vesting etc.)

24. Tips when reaching out
> Always try to get an intro from someone you
and the other person both actually know
> Portfolio founders are highly effective
introducers; check if any portfolio companies of
the investor use your product
> Make it easy for the introducer by sending
them a few bullets about you and your company
> At conferences, write what you do on your
badge and booth and have a 30 sec summary
ready
> When cold emailing, refer to something
unique about the recipient (existing deal, blog
post etc.)
> Use Twitter and AngelList to your advantage
@vonperger

25. Common pitfalls
> Cold emailing partners at VC funds
> Adding people on LinkedIn after 1 email or even earlier
> Spelling first names of recipients wrong
> Not including email and mobile phone in your email footer
> Blanket emailing several funds (especially when wrong stage, geography, focus)
> Emailing several people in one fund at the same time
> Asking for an NDA too early
> Using a banker for pre-Series A deals
> Be careful when taking money from “VP of X in Bank Y”-type Business Angels
> Bluffing with offers from “Tier 1” funds
> Taking money from later stage VC or Corporate VC too early (especially when they
don’t always follow on or deliver on their value add promises)

26. introducing Wellington Partners
Why raise money?
When to start?
Who to reach out to?
What information is required?
How to nail the meetings?

27. Tips for emailing information to investors:
Initial emails
> a few bullets on what your product is and a forward-able 5-15
slide PDF presentation
> no need to share a Termsheet or detailed XLS model at first
Follow up emails
> include recent success stories (metrics, sales, hiring etc)
> arm your sponsor (Associate) with info to convince their team
> send data points you promised or where asked about in the
meeting/call
> sent gentle email reminders every week but no more than 3
> potentially add investor to your regular company update email
@vonperger

28. Select tips for the presentation
used in calls and meetings:
> Team: put team competencies into pitch
deck to show you are structured problem
solvers; try to find senior industry guy to
add credibility as advisor
> Product & market: describe product in
simple terms early on in presentation; be
realistic when estimating future revenue
and show >10x ROI potential
> Traction: explain how you got the first
users/clients and show improvement on
metrics over time
@vonperger

29. Metrics deep dive
> There is a common set of metrics most investors will want to see
> Deciding on the right metrics is as important as tracking itself
> You need to start tracking as early as possible to be able to
show historical evolution
> Many investors are looking for data driven entrepreneurs
> Metrics can be displayed in a variety of ways: weekly, monthly,
quarterly evolving charts for total user base or by cohort;
comparisons for week-on-week, month-on-month, quarter-on-
quarter, year-vs-last year growth rates
@vonperger

30. Metrics ideas - B2C: Freemium / ad-supported website or app
> Uptake: Number of Downloads, Unique Visitors
> Engagement: Daily, Weekly, Monthly Active Users (and ratios
between the these), 7 day, 30 day actives, time per session,
Actions taken by users, Downloads to signup to user conversion
rates
> Virality: Social, Search, Direct, Paid traffic, Shares per user,
Users invited per paid acquired user
> Unit economics: User Acquisition Cost by channel (also Cost per
Visit, Install, Signup etc), User Lifetime Value by Channel, achieved
Cost Per Thousand Impressions (CPM)
> Revenue: monthly, annualised run rate, % of paying users
@vonperger

31. Metrics ideas - B2C: ecommerce or marketplace
> Revenue: monthly, annualised run rate, commission or margin
achieved, conversion rate
> Uptake: Number of Buyers, Sellers, Unique Visitors, Signups,
Newsletter database
> Virality: Social, Search, Direct, Paid traffic, Shares per user
> Unit economics: Customer Acquisition Cost by channel (also
Cost per Newsletter Signup etc), Customer Lifetime Value by
Channel
@vonperger

32. Metrics ideas - B2B: SaaS product
also check out http://www.forentrepreneurs.com/saas-metrics-2/
At ChartMogul you can plug in your existing tools: https://chartmogul.com/
> Revenue: Monthly Recurring Revenue (MRR), especially for
subscription based Software As A Service (Saas) products, MRR
run rate, Churn, Average Revenue per Customer by type of
Customer
> Unit Economics: Customer Acquisition Cost by Sales Channel
(self sign up, inside Sales Team etc), Customer Lifetime Value by
Sales Channel
> Uptake: number of customers, trial-to-account conversion,
freemium-to-paid conversion
@vonperger

33. Metrics ideas - Operational
> Operational: burn rate (gross or net including revenue), team
size
> Financial: cash reach date, break even date
@vonperger

34. Common pitfalls
> Using click-tracking tools for the pitch deck
> Leaving out definitions of metrics or legends in charts
> Repeatedly changing the definitions of key metrics
> Sending vertical A4 books instead of slides with bullets
> Sending 20+ page presentations in first email

35. introducing Wellington Partners
Why raise money?
When to start?
Who to reach out to?
What information is required?
How to nail the meetings?

36. Tips for the pitch meetings:
> bring all relevant founders for a full partner
meeting
> do not forget to build a personal
relationship with the people in the room
> take notes, especially when investors talk
about vision
> have the key metrics all ready in your mind
> no need to bring printed pitch decks
> dress like you would in your own office
> ask concretely for introductions when
offered
@vonperger

37. Common pitfalls
> Failure of live demo due to lack of internet connection
> Using the wrong name of people in the room
> Exposing other funds you are talking to when searching for a
file in the finder/explorer

38. Recap: What is the 1 thing you learned today?
Why raise money?
When to start?
Who to reach out to?
What information is required?
How to nail the meetings?

39. What we look for at Wellington Partners
Fantastic teams with unfair advantage
working on big problems
with some degree of traction
§ late seed / early Series A: $500k - 5m
§ b2c and b2b (digital) technology startups
§ ideally ambitious plans to grow into the US
Stephan von Perger – @vonperger – vonPerger@wellington-partners.com

40. Questions?
Thank you!
@vonperger
medium.com/@vonperger
Other reading materials:
http://vnpr.gr/fundraisingBlogs
Stephan von Perger – vonPerger@wellington-partners.com