Find the right resource to finance your venture. More information on getting investor-ready at www.startups.be/fundraising

1. Investor Readiness:
Startup Fundraising
1
Thibaut Claes
thibaut@startups.be

2. Agenda
• Startup definition
• Alternative to fundraising
• Why raising fund?
• Stages of investment
• Sources of capital
• The process of fundraising
• What are investors looking for?
• Choose your investor
• How to calculate valuation & dilution
• Valuation is not the only important measure
2
FUNDRAISING
www.startups.be

3. 3
Reviewed by
Patrick Polak
Partner
FUNDRAISING
www.startups.be
Frank Maene
Partner

4. Startup
• Company designed to grow fast
• Technology enabled
• High growth potential
• <5 years old
• <10M€ revenue
• Everything else we associate with startups follows from growth
(i.e. funding)
4
FUNDRAISING
www.startups.be

5. Alternative to fundraising
0,1 - 2%
Of startups will raise from VC
5
FUNDRAISING
www.startups.be

6. Alternative to fundraising
• Savings
• Bootstrapping
• Service
• Revenue generating product
• Customers pay for product development
• (Grants)
• Ideally combined with investment
• Non-dilutive but time consuming
=> INDEPENDANCY
6
FUNDRAISING
www.startups.be

7. Why raise funds
•Net cash burn
•Opportunity to
• Develop a killer product
• Earn market shares
•Want to grow faster than you can grow
autonomously
7
FUNDRAISING
www.startups.be

8. Why not raise funds
(The bad reasons to raise funds)
•Pay wages and not grow (employee of your
investors)
•Sustain moribund company
•Others : Time consuming & lack of focus
8
FUNDRAISING
www.startups.be

9. Time before being profitable with 1 customer
9
A16ZFUNDRAISING
www.startups.be

10. A16Z
Your lost is bigger if you grow faster
10

11. 11
After funding

12. Why raise funds
•Survive until profitability and sustainability
12
FUNDRAISING
www.startups.be

13. Stages of investment
•Pre-seed (<50-100k€)
•Seed (100k€-1M€)
•Growth (>1M€)
13
FUNDRAISING
www.startups.be

14. Pre-seed (<50-100k€)
•Business plan validation
•MVP development
•Convertible loans, subsidies, equity
•FFF, Incubators/Accelerators, Business angels
•High failure rate (2/3)
14
FUNDRAISING
www.startups.be

15. 15
It’s becoming less expensive to start a startup but more
expensive to grow one because need to go faster
Ralf Schwartz

16. Seed (100k€-1M€)
•Product development
•First real clients’ traction and test market
•Equity or convertible loan
•Business angels, governemental funds, Seed
funds, University funds
16
FUNDRAISING
www.startups.be

17. Growth (1M€)
•Business Model validated
•Extension to international markets
•Serie A, B,…
•Equity
•Venture Capital, Business angels, governmental
funds, Seed funds
17
FUNDRAISING
www.startups.be

18. 18
Carlos Espinal

19. 19Mark Suster

20. Those are indications there are no fixed rules
20
Thomas Wisniewski

21. Those are indications there are no fixed rules
21

22. Sources of capital
• FFF
• Accelerator/Incubator
• Business angels
• Seed funds
• Governmental funds
• Venture Capital
22
FUNDRAISING
www.startups.be

23. 23
Sources of capital

24. Friends, Family and Fools
•People
• who know/trust you
• who (sometimes) understand your business
•Emotional investment, early support
•Main goal is support (not return)
24
FUNDRAISING
www.startups.be

25. Friends Family and Fools
•Dangers
• Mix business & personal life
• Not always smart money
• Be clear, they can lose their money!
•Fools
• Ex-colleagues
• Advisors
25
FUNDRAISING
www.startups.be

26. Accelerator/Incubators
•Advices and funding
•25-50k€
•Equity or (convertible) loans
•Pre-seed funds (Wing, iMinds, Idealabs, Corda
Campus, Leansquare, Leanfund,…)
26
FUNDRAISING
www.startups.be

27. Business Angels
• (Ex-)entrepreneurs, (ex-)executives
• Advice > money
• No typical ticket size (from 10-15k€)
• Emotional or rational decision
• Hobby project vs professional
• Individuals
• Main goal : return on investment
27
FUNDRAISING
www.startups.be

28. Business Angels
•How to make money?
• Selling shares (few via dividends) => exit strategy
•Individuals, groups or network
•Difficult to find (under the radar)
28
FUNDRAISING
www.startups.be

29. Seed funds
•Funds writing smaller tickets (100k€-1M€)
•Specific for seed rounds
•Governmental funds, university funds and few
private funds
29
FUNDRAISING
www.startups.be

30. Seed funds
•Advice on technical and business problems
•Focus vs « Spray and pray »
•Goals : returns or employment (if public)
30
FUNDRAISING
www.startups.be

31. Venture Capital
•Tickets > 500k€
•Sometimes VCs have a seed fund
•Raise funds from LPs (Limited Partners)
•Remuneration : 2% management fee & 20% carry
(profits from investments)
31
FUNDRAISING
www.startups.be

32. Venture Capital
•Goal : return for their investors (LP’s) and
themselves
• 20% IRR at fund level
• X10 or 40% IRR at deal level
•On 10 deals : 1-2 will make return, 5 will be dead
and 2-4 will be ok
32
FUNDRAISING
www.startups.be

33. Venture Capital
•Goal : return for their investors (LP’s) and
themselves
• 10X or 20% IRR
•On 10 deals : 1-2 will make return, 5 will be dead
and 2-4 will be ok
33
FUNDRAISING
www.startups.be

34. Venture Capital
•Really selective (they invest in 1 out of 100-1000
startups that get in touch)
•Really agressive regarding growth and returns
34
FUNDRAISING
www.startups.be

35. Venture Capital
•Different people in a fund
• Partner (GP/MP)
• Principal / Investment manager
• Associate / Analyst
35
FUNDRAISING
www.startups.be

36. 36
Even by being very picky, VC’s still struggle to have decent returns =>
chose the best ones / the most focused

37. 37
ISAI Capital (French VC) in 2014

38. Fundraising process
(startup’s point of view)
•Preparation (1-2months)
•First interests / tests (1 month – 6 weeks)
•Road show (3-6 months)
•Closing (2-6 weeks)
38
FUNDRAISING
www.startups.be

39. Road show
(VC’s point of view)
39

40. Road Show
• Contacts with selected investors (industry, stage,
geography, portfolio, reputation)
• Setting up meetings
• Feedbacks from first investors
• Adaptation
• Contact with new investors
• Meetings with old and new investors
• Follow-ons
40
FUNDRAISING
www.startups.be

41. Closing
•Term sheet
• First proposition
•Due diligence
• Verification of all legal/commercial/financial/
technical/HR documents
• Contact with last clients
•Shareholder agreement
41
FUNDRAISING
www.startups.be

42. 42
Mark Suster

43. What investors are looking for
• People
• Smart, ambitious, vision
• Reliable
• Achieved
• Product
• Innovation
• Market
• Big
• They/you understand
• New or to be disrupted
• Dynamics of it
43
FUNDRAISING
www.startups.be

44. What investors are looking for
•Competition
•Business model
• Revenue model & margins
• Strategy
• Value proposition vs Perceived Value (validated?)
•Traction (metrics&unit economics) / growth
It’s a figures/money game
44
FUNDRAISING
www.startups.be

45. How to chose investor
• Your ideal investor?
• Do you want to work with her/him the next 5-10 years?
• Role of investor
• Help recruit
• Strategic decision
• Help next rounds
• Available and empathic
45
FUNDRAISING
www.startups.be

46. How to chose investor
• Make your own due diligence
• Current portfolio
• Ticket size
• Fund life time
• Return for LP’s (past and current)
• Geographic, industry
• Team & network
• Follow-on investments?
• Their references?
46
FUNDRAISING
www.startups.be

47. How to chose investor
• Added Value
• Brand
• No extra costs
• Fair treatment of employees
• Post-transaction
• Investor location
• Track record
• Reputation
47
FUNDRAISING
www.startups.be

48. Valuation
•1st rule : there is no rule
•Rule of thumbs
•More mature more rational
• From people/potential to metrics
48
FUNDRAISING
www.startups.be

49. 49
FUNDRAISING
www.startups.be

50. Valuation
•(Net) Burn rate for the next 18-24 months
• Achieve milestones for next round
•Investors want to have 20-35% of the company to
have substantial returns/ impact/attention
•Multiples regarding your industry / your company
50
FUNDRAISING
www.startups.be

51. Valuation
•Prefered shares & exits influence
•Prefered shares with 6-9% dividend
•Participating or not
•Milestones
•Exit value
•Timing
=> It’s a balancing act. You give, they give. Not
simple
51
FUNDRAISING
www.startups.be

52. Dilution
•Pre-money
• Value of your company before investors’ money
•Investment
•Post money valuation
• Value of your company after investment
52
FUNDRAISING
www.startups.be

53. Dilution
•Example :
• Company worth 1M€ before investment (Pre)
• Investors invest 250k€
• Post Money valuation : 1M€ + 250k€ = 1,25M€
• Ownership after investment :
• Founders : 1M€/1.25M€ = 80%
• Investors : 0.25M€/1.25M€ = 20%
53
FUNDRAISING
www.startups.be

54. 54
Pre-seed Angel round/ Seed Round
Shareholder Shares Percentage Shareholder Shares Percentage
Uncle 50 5,00% Uncle 50 4,17%
Founder 1 250 25,00% Founder 1 250 20,83%
Founder 2 250 25,00% Founder 2 250 20,83%
Founder 3 250 25,00% Founder 3 250 20,83%
Option pool 200 20,00% Option pool 200 16,67%
TOTAL 1000 100% Angel 200 16,67%
TOTAL 1200 100%
Pre-money 1.000.000,00 €
Angel invests 200.000,00 €
Post Money 1.200.000,00 €
% angel 16,67%

55. Dries Bruytaert
55

56. 56
Sarah Frier

57. Term sheet
•Pre-agreement of investor’s before due diligence
• Expenses are paid by the startup
•Non-binding contract
but 1-2month(s) exclusivity
57
FUNDRAISING
www.startups.be

58. Attention points in Term sheet
•Valuation
•Voting rights
•Board members/seats
•Class of stocks (prefered vs common)
• 6-8% prefered dividends
•Employee pool
•Warranties
58
FUNDRAISING
www.startups.be

59. Attention points in Term sheet
•Anti-dilution protection
•Good leaver / Bad leaver
•Vesting
•Preemptive rights / Rights of first offer
•Drag along / Tag along
=>Make sure that all (!) items are in the TS!
59
FUNDRAISING
www.startups.be

60. Want to get investor ready?
• Www.Startups.Be/fundraising
60
Thibaut Claes
thibaut@startups.be
@thibclaes