Summary, Notes & Highlights

This book increased my confidence to approach investors. Finding the perfect match and avoid common fundraising mistakes

A practical investing guide for creators, freelancers, entrepreneurs or anyone who needs $1,000 or $100,000,000 for their passion

• Know who you do (and don’t) want as an investor

• Know how to screen an investor

• Know how to converse with investors effectively

you really want an investor that you can get along with. You want him or her to be on point when it comes to business, but you'll enjoy the relationship a lot more if the investor is someone you could invite to a ballgame, to a new restaurant, to go running, or to simply hang out with over a craft beer on a Friday evening.

Get to know one another on a personal level. Ask the investor about his or her family, find out about his or her favorite hobbies, and so on.

don't be afraid to say that you don't know. Tell the investor you will do the necessary research and you will follow-up

3 Factors to look for

Domain Experts

Don't just settle for money. Look at what else an investor can add. could be business-related in general, industry-specific expertise, or simply funding and the financial aspects of your venture.

Connected

Great connections are some of the best value that you can ask for as a startup.If the right celebrity is out there touting, advertising, and recommending your product to the right demographic, business can explode.

Financial Strength

When was the last time the prospective investor funded something? How much does the investor have left? How are the investor's other investments performing? How strong is the investor financially?

If the investor isn't doing well financially, that person is going to be under a lot of stress, and that pressure will flow down to you.

when you see a venture capital firm that has not made new investments or followed up on investments in a period of six months, you know they are running out of capital on their fund and they are having troubles in securing the next fund.

3 Factors to avoid

• Greed

• Lack of Scruples people who have no values. Savvy investors with values should be looking for good qualities in founders, too. A bad decision can follow you forever.

• Takeover Don’t be Steve Jobs and get kicked out of your own company

19 Answers every Investors wants and expects

• A well-thought-out and researched business idea and plan

• Organization

• Integrity and character

• Answers to obvious questions

• That you know what you don't know and don't have, but you have a plan to get it

• Market potential

• Plans for repayment if seeking a loan

• Plans for additional rounds of funding and/or exits

• That you have put your heart into the project

• That you have and will keep skin in the game

• Feedback from others

• Proof of demand

• That they can get along with you

• That you are coachable

• Consideration of the safety of their capital and time

• A good match

• Passion for your product or service

• Passion for connecting with and working with them

• An opportunity that will take them closer to their goals

Without adequate communication between founders, managers, and investors, there can be no clear way of gauging how well a company is proceeding

State expectations

set of your own expectations. What do you think is achievable within the confines of the investment round you are currently negotiating within? How does this relate to the “big picture” of your business? Most important, what do you think are reasonable goals and time frames that should be given in return for an agreed-upon amount of investment capital?

Listen to investors

investors may have valuable experience to impart in terms of business acumen, start-up experience, or marketplace knowledge.

Even if your investor is not experienced, they may still have specific ideas about what they should expect within a set timeframe.

need to clearly outline what they believe are acceptable requests in return for their investment—that is, product launch, market research, prototype development, advertising, and so forth.

Updating Your Investors

You have to communicate with your investors throughout the negotiation period, but also after securing investment. This ensures that misunderstandings will be avoided.

Avoiding Common Fundraising Mistakes

Failing to Connect

Do not underestimate the value of connections. invest in making connections and building relationships. ability to connect carries over to circulating your investment opportunity, as well as following up.

fundraising process, it is ultimately not only about the capital: It comes down to value. making initial contact or following up, it will be those who personalize their messages who will be successful.

pitching the right opportunity to the right investor and in the right language. Venture capital firms, for example, place a lot of weight on the introduction.

Depending on who is introducing you, they will take your pitch more or less seriously. Normally, introduction from a founder who has given an exit.

people do appreciate entrepreneurs who will make the effort to hunt them down and follow up.

Clarity and Doing What You Say

Mistakes. Avoid this

• Not having a clear pitch

• Lack of authenticity

• Lying

• Changing your story

• Overpromising

• Overselling

• Name dropping without having much of a relationship with the individuals

• Spamming

White lies, embellishing the truth, hiding the facts, and grossly overexaggerating are all types of lying. They will destroy your reputation, credibility, and opportunity to raise funds. Be realistic.

Self-Sabotage in the Deal-Making Process

Don't cut yourself short and run out of money, but don't take too long shopping around or sealing the deal with interested investors.

Investors are like sheep. They go where everyone else is going—they see it as validation from the market.

average time to raise a seed series as of mid-2015 was 12.5 weeks.Series A rounds, TechCrunch reported an average timeline of 9.6 weeks,

You should know what terms you can and can't work with in advance. Don't get greedy and try to squeeze out more after you've made an agreement.

Avoid these when looking for Investors

• Time wasters

• Lack of experience

• Asking for far too much

• Offering too little

• Too pushy

• Too Many Members of the Founding Team too much equity in the hands of too many. early shareholders can be problematic.

• Overhead Is Too High

• Buzzwords Forget the jargon when speaking with investors. Deliver substance.

• Founders Have Other Jobs

• Founders Have No Other Source of Income Don't expect investors to be throwing millions on the table for you to go off and buy a bigger house, get a new car, party half the week away, and generally upgrade your lifestyle. This is money to use to carefully and prudently grow the business.

• Weak Marketing Plans

• Blind Optimism positive, but acknowledge the real challenges that exist too.

• Claims of Having No Competition

• No Technical Founders that means there will likely be significant cost in paying for technical development and maintenance

• Asking for Too Much or Too Little Capital Don't be too shy. Don't forget that you can raise additional capital in further rounds

• Poor Use of Previous Funds you've got to have something to show for it

• Entrepreneurs Have No Financial Skin in the Game looking for investors who will not just bring money, but will also put in some work. You want them to bring some effort, their contacts, their expertise, and a lot of money to the deal. From the other side of the table, it makes investors feel a lot better if founders are putting some money in, too.

• Lack of Momentum But make sure you are tracking and reporting traction and momentum

• How many deals have they funded recently?

• When was the last time they funded an enterprise?

• What is their close rate?

• What additional expertise can this investor bring to the table?

• Who can this investor introduce and connect me to?

• How solvent and flush is this investor?

• Is this investor looking to create shared success, or just take all they can?

• Do we share the same values and level of integrity?

• Are they asking for a large stock option pool? (This could suggest intentions to replace you.)

Don't expect only these questions. Be prepared not only to answer the questions, but to master answering them. Creating a write-up can be a smart decision.

Most investors will ask you the same questions. I would encourage you to maintain a list of frequently asked questions and have your responses in a form you can quickly access. This way you will be prepared for future meetings and calls.

• What is the difference between you and your primary competitors?

• When will you break even?

• How much is revenue forecast to be this year, and next year?

• How will you use the money?

• What risk factors does your business face?

• What round of funding is this for your startup?

• What terms are you seeking?

• Who is the management team, and what is their experience?

• What is your burn rate?

• Why did you start it?

• How long have you been working on this startup?

• How does the business model work?

• Do you have wider expansion plans; where and when?

• Do you hold any patents or proprietary technology?

• What makes you think you can excel in this space?

• Who are your other investors?

• How are existing investors involved?

• Are existing investors involved in this funding round?

• What's the exit strategy?

• When do you expect an exit?

• How much money has been raised so far?

even the best business plans can be virtually useless when it comes to raising capital.business plan may play a part in up to 10 percent of the funding process

Often, spending too much time creating a “perfect” business plan costs entrepreneurs and their ventures the first mover advantage, and lots of precious time that could have been spent making sales. marketing tool or pitching tool that will actually help you raise money.

Get Your Message Straight

make sure your message is clear as a bell, and you need to ensure that you have a unified team capable of communicating it

your spoken words, your slogans, your taglines, your backstory, and your branding—they all matter. marketing to attract customers, but also in getting funded,

💡 crystal-clear picture of exactly who it is you want to connect with, what you want to portray to them. Consistent messaging pulls investors

Example

you may be a real estate technology company. Odds are that you will want to focus on identifying mostly as either a real estate company that happens to have a great tech edge, or a tech company that has an edge in the real estate world. You need to choose and stick with one

Google is not a search engine. This has been made even clearer with the move to become Alphabet. If Google (or Alphabet) were just a search engine, it would be a monopoly, ripped apart by regulators in days.

Google search engine is just a tiny project that the company happens to engage in.

The Effective Elevator Pitch

• An elevator pitch is simply a quick introduction to your business

• It sparks interest and response

• It's clear

• It's authoritative

• It is about them (your customers), not you

6 Tips for Mastering Elevator Pitch

• Role-play your pitch with team members, friends, and family

• Record yourself and tweak it

• Go listen to other pitches and note what works or doesn't work

• Check out elevator pitch competitions (some offer up to $10,000 prizes)

• Document it in your mobile phone, so you won't be at a loss for words

• Practice, practice, practice until it becomes natural

Make sure the whole team is armed with it. This is your key to unlock the gates to capital

can be used in person in actual elevators, online, over the phone, by text message, and in email

Example

“I run a crowdfunding portal that gives investors early access to the hottest, prescreened tech startups, and the ability to invest in them in 10 minutes or less from any Wi-Fi connected device, anywhere in the world.”

Pitch deck

One is the version you will send out with all pertinent information, including everything you need to have people understand your story and where you are heading. The second version of the pitch deck will be used during presentations and contain illustrative graphics that will add to your presentation.

Three minutes, 44 seconds is the average time a venture capitalist spends looking at a pitch deck, according to TechCrunch. 1 A DocuSend and Harvard Business professor study shows that the average deck is 19 pages long.

no more than 10 slides, not using anything smaller than a 30-point font, and keeping presentation time to 20 minutes.

putting a range between $3 million and $5 million.

if you place $5 million in your pitch deck and that firm has a mandate to not invest over $3 million, you will most likely have them pass. By including the range from $3 million to $5 million on the raise amount you are also including such firms.

Harvard Business study proclaims there is no correlation between getting funded and the volume of decks sent out. Rather, it is a matter of getting your pitch deck into the right investors' hands.

10 things every Pitch Deck needs

• Company purpose

• Problem

• Solution

• Why now

• Market size

• Product

• Team

• Business model

• Competition

• Financials

Pitch Deck Design

Don't be afraid to be different, but don't make yourself look outdated, either. amazing visuals are great for building emotion—just don't sacrifice clarity. ensure that it is easy for investors to take action.

running a direct link should take investors right to a button where they can invest on the spot. If giving a live presentation, you might even go as far as layering the slides with augmented reality so they can scan the screen and get right to that page from their mobile devices.

social handles and URLs so that they can instantly follow you, and share you and your presentation with other investors.

Partnerships and Business Development Deals

• Month over Month growth. VC’s want to see you got the grit and there is demand for your product or service

• Product Lunches and Events

• Social Media /Blogging - build a online presence that you own and control. long term marketing benefits

Focus on inbound-outbound warm blogger outreach

• Try HARO (help a reporter out; www.helpareporter.com)

• Use Publiseek

• Tap local press connections

• Choose a press release service that includes blasts to journalists

• Follow reporters on Twitter and engage with their tweets so they start recognizing who you are

• Create own Content. Become the go-to resource in your industry or niche. By Blogging, posting sharable content. Consider publishing new infographics, then emailing key bloggers to encourage them to share them.

The term sheet is the document that lays out the terms of the investment and collateral. It details what you as the startup are giving, and what you are getting in return. Then it lays out the guidelines of how both parties will act to protect the investment.

Common items in a term sheet include:

• Who is issuing the note or stock

• Type of collateral being offered

• The valuation

• Amount being offered

• Shares and price

• What happens on liquidation or IPO

• Voting rights

• Board seats

• Conversion options

• Antidilution provisions

• Investors rights to information

• Founders obligations

• Who will pay legal expenses

• Nondisclosure requirements

• Rights to future investment

• Signatures

Smart strategies

Think about what is most important in advance. What do you want the outcome to be? Do you really want this investor on board, or are you just happy raising money from anyone, provided it is on your terms? How much does timing and speed matter?

💡 Don’t dilution more than 20% per round of financing. at a seed stage and you feel it is okay to give up a good amount of equity. equity will not come back to you

Red Flag Terms to Watch Out For

• Harsh debt financing and convertible note terms that could bankrupt you

• Asking for too large a controlling stake, which may suggest you'll be replaced

• Terms that can limit further fundraising

• Investors that simply want a short and hot exit, and don't have realistic expectations of timelines

Investors may aim to exhaust a founder who's eager to wrap things Hang in there and be patient

💡 be prepared to walk away if you see that the investor is overtly using tactics to wear you down during the process

Convertible notes

A simple only 2 document debt instrument that also gives the investor stock options. The flexibility of convertible notes offers security from the downside, and more potential upside if the startup performs as expected.

investment, and the promissory note explaining the conversion and the amount that the investor is investing.

the fastest and cheapest way to fundraise. While equity rounds can be north of $20,000, convertible notes should not cost you more than $7,000

maturity date

make sure that the maturity date is a date that you feel confident about.

date by which you agree to repay unless you have not done a qualified round of financing in which the convertible notes are converted into equity.

3 main ingredients

• interest that the entrepreneur is giving to the investor. interest to be accrued on a yearly basis on the investment amount that the investor puts into the company. The interest will continue to be applied until the company does another equity round, when the debt will convert into equity with the amount plus the interest received.

• discount on the valuation. This means that if your next qualified round is at X amount of premoney valuation, the investor will be converting his or her debt at a discount from the valuation that has been established in the next round by the lead investor.

• valuation cap. regardless of the amount that is established on the valuation in the next round, the investor will never convert north of whatever valuation cap is agreed. This is a safety measure in the event that the valuation goes through the roof. It is a good way to protect your early investors and to reward them for taking the risk of investing in you at a very early stage.

🎯 The last thing you want to happen is to be in default and to have to shut down your business because investors are demanding their money back.

Board Seats

The founders and investors may have ownership, but the board of directors really has control.

sizable amount of money into a young company, you'd like to have a say in major decisions,

You don't want board meetings to become a nightmare. You want to be sure the board you have isn't a turnoff to future investors. So fill the seats on your board with care.

Junior analysts

Most junior people want to be analysts. These people are either MBA students in an internship or people that just graduated from school.

The main role of analysts is to go to conferences and to scout deals that might be within the investment strategy of the fund that the VC

Associate

An associate could be either junior or senior. Associates tend to be people with a financial background and with powerful skills in building relationships.

Associates do not make decisions in a firm but they can definitely warm up an introduction with individuals involved in the decision making.

Principals

They are senior people who can make decisions when it comes to investments but they do not have full power in the execution of the overall strategy of the firm

Partners

most senior people within a VC firm are above principals, and are called partners. Partners could be general partners or managing partners

has only a say in investment decisions or also has a voice in operational decision making.

accountable for raising capital for the funds with which the firm will be investing.

venture partners are not involved in the day-to-day operations or investment decisions of the firm.

Entrepreneur in Residence (EIR).

relationship with the VC and perhaps have given the VC an exit,

Limited Partners (LPs)

LPs are the institutional or individual investors who have invested capital in the funds

Friends and Family

get your startup off the ground, and that is done by asking friends and family to invest in your business idea.

Micro Seed Round

however, is that it usually involves investment from angel investors, seed venture capitalists, accelerators, incubators or crowdfunding networks across a limited time frame, rather than investment from family and friends.

The purpose of this round is to provide just enough capital to allow startup founders to work full time on their project over a limited period, usually around three months.

Seed Round

“seed” your startup so that it can begin to grow.

any investment in a startup prior to a Series A round can actually be considered a seed round.

Series A Round

This is often the first major form of investment a startup will secure. As the name implies, this investment round is often followed by others, and so, just like preliminary rounds, it is not usually considered as the last investment round a startup will require,

Series B, C, D Investment Rounds

Strictly speaking, other than an IPO, most subsequent forms of investment will be alphabetized. Each series will have a specific goal, but that will be defined by you, the startup founder, and existing investors based on what your company needs.

Series B investment, for example, is usually entered into once your product/service is launched and more capital is needed to expand profits and market share.

• Bootstrapping

• Credit Cards

• Business Loan

• Friends and Family

• Crowdfunding

• Angle groups

  • Angel investors are increasingly combining to form and join angel groups.

• Family Offices

• Venture capital

• Venture debt

  • Venture debt is effectively borrowing to raise working capital and growth capital. This is a valuable source of funding that doesn't mean giving up more ownership or diluting equity.

• Angel Investor & Super Angels

Angel investments are high risk, which is why this strategy normally doesn't represent over 10 percent of the investment portfolio of any given individual.

What angel investors look for is a great team with a good market that could potentially return 10 times their initial investment in a period of five years. The exits, or liquidity events, are for the most part via an initial public offering or an acquisition.

💡 Due Diligence means doing your homework and acquisitions of required knowledge before entering into any agreement or contract with another compan

The time to polish your due diligence package is now, not after you begin generating interest.

Due diligence process is really all about clarity in these four areas

• People

• The product

• Market

• The deal

Startup Due Diligence Checklist

• Key team member bios and resumes

• Market size

• SWOT analysis

• Patents

• Technology used

• Financial statements (three years)

• Information on who is providing accounting services

• Valuation

• Capitalization table

• Exit strategy

• Company articles of incorporation and certificate of good standing

• Organization charts

• List of places the company does business in

• Credit reports

• Background checks

• Inventory and assets list

• Financial forecasts

• Cash flow projections

• Details of current funding, financing, leases, credit, and investors

• Bank statements

• Trademarks and copyrights

• Employee and contractor agreements

• Insurance documents

• License and permit documentation

• Tax returns and receipts

• Marketing plan

• Brand style guide

• List of professional and legal consultants used

• Offering documents