Timing and Managing a Startup Fundraise

Navigating complexity and avoiding pitfalls

Amir Shevat

Early stage Investor

My Bluesky - @amir.blue

Why fundraise from VC?

Startup: High risk company, with potential for fast growth in a big market, with a capital intensive execution plan, and initial negative cash flow.

Expectation of growth: X3 X3 X2

Amount to be raised: Money needed to reach the next milestone.

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7 challenges of early stage startup fundraising

1. Fundraise at all.
2. Fundraising from the wrong people/entities.
3. Captable mistakes.
4. Round size and valuation mistakes.
5. Poor time management.
6. Incorporation mistakes and sideletters.
7. Relationship mistakes.

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1: Fundraise at all

• Are you a startup or a predictable business?
• Do you need money or can you bootstrap?
• Is your total addressable market big enough?
• Are you planning a high growth company?
• Are you ready for 7-10 years of work?
• Do you want to build a billion dollar company?

2: Fundraising from the wrong people/entities.

• Is this investor professional or hobbyist?
• Do they invest in your area? (e.g B2C or B2B)
• Do they deeply understand your domain?
• Are they active investors? Or time wasters?
• Are you raising on vision or data?
• Did they invest in the competition?
• Can you work with them for 7 years?

3: Captable mistakes.

• Too many people in the cap table?
• Not enough equity for the founders?
• Who controls the company?
• Dead equity?
• Needs re-capping?

4: Round size and valuation mistakes.

• Raising enough for the next round?
• Raising too much leading to high burn?
• Too low valuation? (giving more than 25%)
• Too high valuation? (Over committing)

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Magic Formula for a SAFE

Round size - amount to reach the next big milestone. +20% buffer for mistakes

Cap - Round size X (4-6) Post Money Valuation This means 15%-25% dilution

Discount - 0%-20% Personally not very important in my book

Example

Round size: $1

CAP: $5M Post and 15% discount.

5: Poor time management.

• Did you practice? A lot?
• Do you know how to sell the vision?
• Taking the first offer without shopping?
• Taking forever to raise? Not timeboxing?
• Raising too late in the game?
• Raising all the time?

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6: Incorporation mistakes and sideletters.

• Incorporation outside your target market?
• Founders agreement / board control?
• Custom or standard investment document?
• Special terms? (e.g pro rata)

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6: Relationship mistakes.

• Keep things positive, do not burn bridges.
• Continue to update people who said now.
• Make sure to always be communicating.
• Ask for feedback

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Sneak Peek Into How VCs evaluate you

Team - How amazing is the team? How good of a fit they are for the startup? Do they have all the skills required?

*TAM - How big is the market? Who is the competition? How easy is it to innovate there? Why now?

Technology - Can this product be built? Is the product good enough? Any tech validation? Moat? Dependencies?

*TAM Magic Formula

When pitching you need to tell two stories:

Short term - What have you accomplished and what will you be doing in the next year.

Long term - What is the big dream and where will you be in 5 years.

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Be realistic but sell a vision.

Template for success - first raise

1. Gather a killer team, and a big vision.
2. Do a lot of market validation and research.
3. Practice presenting the deck with +10 friendlies and collect feedback
4. Map 10-20 investors
5. Get warm intros and compress the fundraise into 3 weeks of meetings
6. Get a few offers and close with the one that make best sense.
7. Raise enough for the next round at no more than 25%
8. Keep good relationship with investors that said yes and no alike.

Thank you!