Hi, everyone, how's it going?
My name is Sam Sugarman, and I'm an associate on the Fearless Fund team.
I'm very excited to be giving this GVR masterclass today and to meet you all and to take all
of your questions.
So to start off today's presentation, here's an agenda of everything we're going to talk
about today.
I mean, as you'll see at the very bottom, I left the Q&A section.
So we'll save about 10 to 20 minutes, depending on how the rest of the presentation goes.
But as you have questions, feel free to throw them in the chat, and then we'll make sure
to address all of those at the end.
But in terms of today's discussion, so just walking through the agenda.
Number one, we're going to talk about when to fundraise.
So things that you should accomplish as a startup before you're thinking about fundraising.
Obviously, this varies significantly by stage, but just a good way to think about it from
the investor perspective.
And then also, when do you need fundraising?
When does it actually make sense for you to go for it versus when can you bootstrap or
when should you think about alternatives?
Number two, we're going to be talking about fundraising terms.
So thinking about how much to raise, valuation considerations, the mechanisms by which you
can raise capital, and then shaping out your fundraising round.
So having a lead investor and some smaller investors, doing a party round, doing a crowd
funding round, or other alternatives.
As an example, diligence process, just to get an understanding of what it's typically
like, what are the things that are normally talked about, and how can you present effectively.
I'm going to walk through what the fearless fund diligence process is like, and the key
items that we look for.
And then after that, I'm going to talk more broadly about preparing for fundraising.
So creating your pitch, what to make sure to include in there, metrics to have prepared
for when you get follow-up questions, and then diligence items to have ready.
And then lastly, common mistakes that we see from companies that are pitching, so that
hopefully you're able to avoid those in the future.
And then again, lastly, we're going to be talking through Q&A, and any questions that
are in the chat, we're going to be reading through those and going through them.
So starting off with when to fundraise, kind of broke this slide out into two halves, right?
The right way and the wrong way.
And so under both of the right and wrong options, there are steps accomplished.
So things that you've done as a company when you're thinking about fundraising.
And then number two is when you actually need the fundraising.
So starting at the top left side of the slide, steps that I think are really important to
have accomplished before you start raising capital are identifying the market opportunity
and who the customer is.
So that's not just saying, there's a gap in the market.
I think I found it, and I've created a minimum viable product, so I should start fundraising.
There's a big emphasis on product market fit when I'm thinking about this bullet in
particular.
So going out to a variety of potential customers, of potential users, and saying to them, would
you use this product today?
Would this solve a problem that isn't already being solved today?
And if you were to use this product, are there other iterations that I need to make in order
for it to be something that you would consider using?
Number two, you've created a product that matches the customer's needs and is being
adopted at a high growth rate.
So one thing that Fearless Fund focuses on very frequently is traction.
So that doesn't mean that you need to be generating a lot in revenue yet, but it should
show, it should be some sort of proof of concept that your value proposition and your unique
solution is needed in the market, and you're offering something that your competitors don't
offer today.
And then number three, you have validated that there's a long and sustained demand for
your product.
So not only are customers using it, or if it's a technology platform, not only are they
engaging with it, but are they engaging with it repeatedly?
If it's a consumer business, if they've bought your product before, are 40, 50% of
your customers buying again?
Is there a long-term need for the product that you're selling?
On the flip side, looking at the wrong way, so maybe you have an untested idea that you
think could be a billion-dollar company.
That's great, but it doesn't mean that it's necessarily time to start fundraising.
You know, before you get to that, you know, it could be a billion-dollar company.
That's definitely possible.
But it's really important that you at least have an understanding of what the broader
market thinks, because maybe you think it's a great idea.
Maybe a few peers and maybe even a few investors think it's a good idea.
But if there's not a mass market that's willing to pay for your product and use it
consistently, then the fundraising capital won't go to any, you know, positive use.
Number two, you're raising because your competitors are, and you don't have a plan on
how to use the proceeds.
This is something that actually comes up in today's world more frequently than you would
think it would.
So maybe a company is getting started, and they hear about the velocity of some of their
peers, how quickly they're growing, and how they each raise, you know, $5 million, $10
million, and maybe the company and the founders feel like they're behind.
So they go, and they pitch to investors, and the investors say,
you know, what are the use of proceeds? And they say, you know, all these, you know,
maybe it's a consumer product that has a lot of retail reach. They're saying we want to expand
into retail, but they don't actually have a concrete plan, partnerships that they're targeting,
a go to market strategy. And without these, you know, a venture capital investor can invest and
feel confident that they're going to generate a substantial return if the founders don't have
a plan that's ready to go. And then lastly, you have an idea of who the customer could be,
but you haven't tested it yet. So it's a good step to have an understanding of who you're
targeting as your customer. But again, until you actually go out to them and say, is this
the product that you'll use? You start getting traction, getting your customers to start
buying the product or utilizing the service. There's not any validation that you can go to
an investor and say, this is why you should support me. We already have a good business.
We want to grow. Instead of you're saying you have to believe in me, but you're taking
an additional risk that maybe the market doesn't actually have a demand for this product.
So going down to the bottom part of this slide of when you need fundraising.
So the good situations, you have a proof of, you know, you have a proof of concept or traction
and you need to make product enhancements to become scalable. So this is a situation where
you have traction. So maybe let's say you have a thousand users with your company, right? They're
using your product and they say, oh, this one feature in the backend, maybe it's a services
company and there's a billing feature. They say, we'd really like you to fix up this billing feature
and you know, in order to do that, you need a backend engineer to do that. So you go up to
an investor and say, you know, we need to raise $250,000 that we can hire an engineer to fix this
problem. And that will make our business more scalable. That's a really attractive proposition
to an investor. The second one, you're launching a near-term go-to-market strategy, but you need
a key hire to do so. This is something that comes up frequently and is, you know, not scary for an
investor at all, because as you're founding a company, typically you'll start with, you know,
one to three people on the founding team. And maybe there's someone focused on operations,
someone focused on creating the product. And rarely do you have someone that's actually
focused on sales or go-to-market strategy. So once you've developed the product, you've put
yourself in a good position, that's a big hire. And you know, that's someone who can help accelerate
growth substantially. So oftentimes, Fearless Fund, when we're meeting with companies,
we see that they want to hire someone to focus on go-to-market strategy or sales,
especially once they've identified a channel that they're targeting. And then lastly, you've secured
purchase orders and need capital to enhance product and enhance production or fund inventory.
So this is more tilted towards consumer products. But the idea here is that you already have purchase
orders. You know that there's demand for your product, but you're not actually able to sell
the product until you can make it and you need capital to be able to make it. If you're an early
stage investor, you find that that's a low risk situation because you know that your capital is
going directly towards the company generating revenue. So when you need fundraising on the
bad side, you need to hire a developer to build a minimum viable product. This is not a great
situation because if you don't have a product available, there's a risk that if I invest in
your company, you build this product, and then you go out to potential users and they say,
there's no need for this product in the market today. And then the investor's not in such a good
situation. The second one, you want to use the proceeds to run a product market fit study with
potential customers. By the time you go out and try to secure capital, this should be something
that you've already done. Even if it's not, you know, thousands of people, you want to at least
talk to hundreds of potential customers to make sure that there is a product market fit before
you try and bring on an investor. Lastly, you've created a sales pipeline of potential customers
and want to have capital ready in case you secure an order. Again, for an early stage investor,
this is creating an additional risk that you don't necessarily need to create for an investor.
Because if I invest in your business, and then you're not able to execute on that sales pipeline,
then again, we're in a situation where that capital is not going to use and it's kind of
stuck with your business. And you're making a lot of adjustments when you've already received
an investment. So you're receiving a lot of pressure from the investor.
So below on this slide are a few examples of good and bad situations of which to say,
you know, I'm in a situation where I should be raising capital and I'm in a situation where
maybe I shouldn't be. We'll be setting this deck around after so everyone can read these more
specifically. But the idea is the companies that are raising capital have some sort of demonstrated
traction. And the capital is going towards the use of proceeds that has already been identified.
And, you know, it's something that an investor is feeling comfortable with.
So you'd noticed in the consumer business on the good side, they've sold 10k of product
at direct to consumer and they're trying to expand into a retail strategy. That would be a check from
an investor because you're growing your potential market and you've already had proof of traction.
From a technology business, while oftentimes they're not
actually generating revenue by the time we invest.
You have unique users, including active monthly users
and daily active users,
and the capital will be used towards a mass launch.
And again, a go-to-market strategy
that's been clearly laid out,
and you have a plan,
you just need the capital to be able to accelerate.
On the flip side,
you know, consumer business where it wouldn't be the case
is if you showed a product to 50 to 100 friends,
and they're supportive of the idea,
and maybe you've held a meeting or two
with a big potential customer,
but there's not really anything that says
there's a need for this product
and that competitors aren't already doing the job.
Same road technology business.
Oftentimes these days,
a business will get started
because somebody will launch a blog post
and it will go viral and you'll get a lot of traction,
but that's just for the post.
Maybe that interested a lot of people,
but doesn't actually prove
that there's a fundamental need or desire for the business.
And again, you know,
wanting to hire a director of sales
before the product is ready.
It's great that you're anticipating
what could potentially be there,
but your business is in a position
where they're ready for external capital.
So once you've decided that you've gotten to the stage
where, you know, you're ready to go,
it's time to be fundraising,
there are a few considerations that you should think about.
So the first consideration is how much capital to raise.
And there are a few kind of sub bullets in there
talking about what are the key considerations to think about.
Number one is cash runway.
So in terms of cash runway,
that's the amount of cash that you'll have,
the amount of months that you'll be able to last
with the cash that you have on your balance sheet.
So when you're raising capital,
you wanna make sure with all of the initiatives
that you're thinking about,
you have at least 12 months of runway
to achieve significant milestones.
And the goal there is that
if you're raising a pre-seed or a seed round,
by the end of that 12 month period,
you'll have been able to obtain
certain significant milestones
that will allow you to raise capital again
at a much higher valuation.
So when you raise your next round,
you're giving up less of the company.
The second item to consider is valuation.
So when you're determining what your company is worth,
you have to think about the valuations of peer companies,
both how are they doing revenue wise?
What are the valuations that they've recently raised at?
What's their market potential versus yours?
And then also key differentiators.
So do you have a unique IP?
Do you have growth projections that are different?
Are you outperforming the general market?
And in particular, the early stage market
that's in your field.
And then lastly, dilution.
So how much equity are you willing to give up today?
Oftentimes when companies are raising their first round,
they'll give up anywhere from 15 to 35% of the business
with 20 to 25% typically being the sweet spot.
So it seems like a lot to give up
that much of your business off the bat,
but if you take the pie and you're able to grow it 10 times,
it's worth it to give up a pretty substantial slice.
So the second consideration to think about
are the potential mechanisms that you can use
when you're raising capital.
So there are advantages to doing any of convertible debt,
safes or equity, and there are disadvantages
to each as well.
So in terms of convertible debt,
this is often what early stage companies choose to use.
And there are a few reasons.
For an investor, you feel safe
because you're getting an interest rate,
and you have a maturity date.
So with these factors kind of incorporated,
you know that you're gonna be receiving capital
from the company through interest payments,
and that's something that's beneficial for an investor.
From the company perspective, it's beneficial
because you don't necessarily need
to put a valuation cap on there.
So there's less pressure to think about
what your company's worth today.
And then additionally, kind of at the early stages,
both convertible notes and safes
require very little legal work.
They're very standardized templates.
So when you have a limited amount of cash in the bank,
it minimizes the amount that you have to spend
on legal fees.
And spending 3,000 instead of spending 25,000 off the bat
is a really significant difference
when you're trying to get a capital infusion
done really quickly.
So safe investments have been used very frequently,
created by Y Combinator.
It basically lets you invest now
for the right to equity in the future.
So why this is advantageous for the startup company,
it kind of acts like a convertible debt
or a convertible note
without the interest rate or maturity date.
So you're able to get the cash in hand
and you don't feel like you owe anyone in the near term.
And then from the investor perspective,
safes are really easy.
So again, minimal legal fees
and there's a valuation cap that's put on there.
So you can determine that I'm investing in your company
and it's worth $10 million today.
And while it doesn't convert into equity until later,
I'm saying it's worth 10 million.
And when you raise again at a $20 million valuation,
I still get to convert at that $10 million valuation
because I was an early investor.
And then lastly is an equity round.
So that's kind of the most traditional option of the three.
where I give you a certain amount of capital
and in exchange for that, I get a certain number of shares
and that equates to a particular percentage
ownership of the business.
And then lastly, shaping out the fundraising round.
So one consideration to be thinking about
is what type of investors do you wanna have?
And that often reflects the stage that you're at.
So having angels versus VCs
can be beneficial in different scenarios.
So angel investors are really helpful to have
when you want a little bit less scrutiny,
when you're raising a smaller round
because angels typically come in with checks
of up to $100,000,
typically closer to the 25,000 to $50,000 range.
And sometimes they offer very strategic benefits.
For example, if I'm starting a online meetup company
and the CEO of Eventbrite wants to be an investor,
that'd be a really strategic person to know
because they have relevant industry connections.
On the flip side, venture capital,
venture capitalists can write larger checks,
so there's a little bit more scrutiny
because unlike angels who are investing their own capital,
venture capital funds are representing capital
from pension funds and endowments
who are expecting a certain return.
So they're less willing to take a loss,
but they also can have a lot of strategic benefits.
For example, if you're a consumer company
and you have mostly have a direct to consumer strategy now,
but you wanna launch your products in retail.
And for example, Fearless Fund,
we have a relationship with Costco.
They're one of our investors.
That's a connection that we could easily make.
So as your later stage
and you're thinking about your go-to-market strategy,
venture capitalists can be very helpful.
So in terms of thinking about the setup of a round,
you can have a round with a lead investor
and a few smaller investors, a party round,
and then you can also do crowdfunding.
So a lead investor, if you're raising a million dollars,
the lead can take anywhere from 30% to 50% plus of the round.
It's a pro because they're the ones
who are working with you frequently.
They're gonna have a board seat.
They're very invested in you.
But on the flip side, you know that you're gonna have,
you know, you're gonna be working with that person
and reporting to them very frequently.
On the flip side, with a party round,
there's no one investor
that's likely going to take a board seat.
You have a lot of potential investors
that you could work with and they'll be supportive,
but no one that you necessarily have to report to.
On the flip side,
you have a higher number of investors in the round.
So you have to manage that in a different way,
but typically they're less,
you know, they're gonna scrutinize you
less than a lead investor would.
And then lastly, crowdfunding is always an option.
So in terms of the pros of crowdfunding,
you get increased exposure to a bunch of smaller investors
and potential customers.
You have an established audience
with centralized communication
and you get a lot of customer feedback.
On the flip side, it's less strategic.
So what we talked about with angels and VCs
adding unique value,
that's not necessarily available
to the same degree with crowdfunding
because it's typically, again,
individuals with less industry experience
writing checks of maybe a thousand to $5,000.
It takes, there's longer preparation time
and sometimes there are high fees
and strict rules associated with that approach.
So like I mentioned earlier,
thought it would be helpful to walk through
an example diligence process.
So walking through the one that Fearless Fund typically uses.
So we have a three-stage investment process
and this slide shows on each step,
what are the topics that we typically discuss?
What are we looking for specifically
in terms of metrics or higher level content?
And then lastly, what are the followup items
that we typically look for?
So during our initial meeting,
that'll typically occur with the founders of the team
and myself, excuse me,
or other junior members of our team.
So what we look for when we're speaking with a company,
we kind of have a four level scorecard.
So we have four criteria that we use
and for each criteria, we rank them from one to four.
So our four criteria are market,
what's the size of the total potential market?
How realistic do we think it is
that you could get a strong market share?
The team, what experience do they have?
Do they compliment each other in terms of skillset?
Third is traction.
So is their product market fit?
Is there substantial growth that's happened to date?
Is there reason to believe
that there's gonna be accelerated growth in the future?
And then kind of the last thing is just thinking
about the product in terms of how it's set up today.
So if it's a technology product, is it all set up?
Do you have to do a lot of iterations
before you can do a mass launch?
If you're doing a consumer
or maybe a food and beverage business,
is the manufacturing and supply chain set up
that you can scale very rapidly?
So with those criteria in mind,
the topics we typically discuss in a first meeting
are the problem you're addressing,
the solution you're creating,
the potential market size, the business model.
So the pricing strategy that you're thinking about,
whether you wanna target businesses, consumers,
what specific type of customer,
the traction that you have to date,
an overview of the team.
team and their experience, and then a high-level overview
of the fundraising terms in your direct ask.
In terms of the follow-up items, we're
typically looking for a pitch deck,
relevant market research, financial projections,
and then team biographies.
So we'll take this information, put it into a one-page summary
because, like other venture capital firms,
we're meeting with anywhere from 5 to 20 new companies a week.
And so we're creating one- to two-page summaries.
And we want to make sure that after that first meeting,
we want to be able to present to our team and say,
this company checks all the boxes.
We should look at them more in depth.
So our second step, if you work past that first stage,
is a follow-up meeting with our portfolio operations team.
So some of the topics we discuss more specifically
are unit economics.
So for every dollar of revenue that you generate,
what's your gross margin?
What's your net margin?
How long until you're actually going to be profitable?
Do you have significant costs related to marketing,
related to the cost of goods sold, et cetera?
Competitive landscape.
So not only who are your competitors,
but do one to two companies own the majority of the market?
If I wanted an Uber or Lyft alternative,
it'd be really difficult to compete in that market.
The business model more in depth.
So thinking more about the pricing strategy.
If you're running a B2B business,
are you targeting larger corporations
or smaller businesses?
Product roadmap.
So not only the products that you have today,
but what are the potential products
that you could be adding on in the future?
So if you're a food and beverage business
and you have cookies and waffles,
what are the other products that you can add on
to your overall offering?
What SKUs do you want to launch?
Are retailers that you're in receptive to that?
And then go-to-market strategy.
So there are a lot of different ways that you can approach
go-to-market strategy.
You can use influencers and creators to generate revenue.
You can use established partnerships
with retailers and larger organizations.
So just getting us feel for the fact
that the team understands what they're gonna do,
why they're gonna do it,
and why that's the most effective way
to generate additional consumer interest.
So what we're looking for is sustainable economics.
So as you grow, you will generate a lot of revenue.
You're gonna be able to generate profitability
at some point.
Again, for tech, it typically takes a little bit longer
than it does for consumer businesses.
You have competitive pricing.
So when I go to the store and look at your product
and look at peers,
there's no reason that I would say
there's no way I'd buy yours.
It's way too expensive.
And then thoughtfulness around
your long-term growth strategy.
So the follow-up items, as we get more detailed,
we want to talk about a 30, 60, 90-day plan,
and then goals post-investment,
so milestones that you're trying to achieve
before you raise again,
a deep overview of the competitors in your field,
and then a detailed product roadmap.
And then finally, the third stage
is a final meeting with the general partners.
So the topics that are discussed there,
because they've already seen all of the notes
from the first and second meetings,
thinking about long-term strategy and fundraising plans.
So if I'm a tech business and I'm raising today
so that I can launch my product,
I know that I'm gonna need to raise again in a year
because I will have run out of cash at that point
if I have 12 months of cash runway,
but I don't plan on being profitable till 2025.
So how much am I gonna have to raise?
What's it gonna go to?
Really thinking about what's happening
three to five years down the road.
And then also, what does the team and hiring look like?
What are my near-term needs?
And what are those hires going to go towards
in terms of your near-term objectives?
And then lastly, how can Fearless
or the Venture Capital Fund work with the company?
Again, like I mentioned earlier,
whether it be retail relationships,
talking about pricing strategy, other introductions,
working with a marketing agency together,
there are a lot of ways
in which venture capital firms could support you.
And if we're gonna take a five to 10% ownership stake
in the company, we wanna be very hands-on
because the investors and the founders
are very aligned with one another at that point.
So what we're looking for in that last conversation
is thoughtfulness around cash burn and fundraising needs.
So making sure you're not just raising a bunch of money
and you're only gonna spend half of it
when you really only needed to raise half of it.
Thinking about hires,
making sure you're adding the right people
because all startups think they need a lot of capital
off the bat to continue to grow,
but sometimes you might think you need $2 million
but what you really need right now is $1 million.
And the other things are what,
the additional 1 million is what you want
and you can wait a little bit
until you're later down the road.
And that'd be beneficial for both you
and the investor if you wait.
And then around strategic support.
So how can we partner together?
And follow-up items from that last call
might include year-to-date performance first projections.
So just making sure whatever budget you set,
you're around there, you're outperforming that budget,
details on your near-term hires
and then milestones for subsequent fundraising routes.
So in terms of preparing for fundraising,
the next three slides are gonna talk about
what are the best ways you can prepare.
So number one here is.
the pitch deck. So these are the slides that you should be
including. The next slide is going to be talking about key
metrics. So if you're pitching to me, and I ask you for key
metrics, these are the ones that I think would likely come to
mind. And then lastly, kind of diligence items or follow up
requests that a venture capital fund or an angel investor would
typically ask for. So in terms of the pitch deck, kind of walk
through the slides that we think are really important to always
make sure to include. So the first two, kind of glance over
those, they're pretty self explanatory. So the title, you
know, just making sure you have an overview of who the company
is, who the key contact is, an agenda, a slide showing what the
content is going to be in the deck, similar to the agenda,
this slide. And, you know, a lot of the times when you're pitching
different companies, there's a lot of variation. Sometimes
you'll have an hour long meeting with an investor, sometimes
you'll be doing a five minute pitch competition. So it's
really important to make sure you have all these slides
available and an agenda so that if you're meeting with someone
and they say, we don't need to talk about the problem solution
or the traction, we just want to talk about your go to market
strategy, and your fundraising, you're able to adjust
accordingly, and really just hit on the slides that are most
important. So in terms of slide three, the problem solution,
what's the problem? How big is it? And why are you uniquely
positioned to sell it? Market. So not only the market size, the
TAM, the SAM and the SOM, but also are you going B2B versus
B2C? Who's the buyer profile? Is it an individual customer? Is
it a business? Why is it a certain demographic that you
might be targeting? Why that customer will buy in particular
and then largely and then lastly, sorry, market trends. So
what are tailwinds in the industry? What's the compound
annual growth rate that's associated with that? So if
there are a lot of regulations around clean tech today, and we
know that all the companies in Europe want to be fully on solar
energy by 2050. If there's a clean tech investment, we know
that that market is going to be growing very quickly, because
they're getting rid of the old legacy projects, and they're
replacing them with clean tech products. So that's a market
that we would find very attractive. And I'd want that
communicated to me right off the bat. In terms of traction, you
want to make sure that you're communicating that you have a
demonstrated proof of concept, so that you're able to say, not
only do we think this is a good idea, but there are a lot of
customers who are supporting this too. We have a lot of key
metrics and trends that support this. So if it's, you know, a
new social network, you're able to say, not only do people like
this, but we have 10,000 daily active users, and they're
spending an average of 15 minutes a day on the platform.
And it's growing by, you know, five seconds a day. So we think
we're going to have 20,000 users, and they're going to be
spending an hour on the platform a few years from now. I think
that's something that's super helpful. And then additionally,
if you're going a retail or business channel, relevant
partnerships is something you want to disclose. So if I'm
creating templates for financial advisors, maybe I go to a few
firms like JP Morgan and Bank of America, and I say, I've
established partnerships with them, where we're creating three
unique templates, we're launching a pilot now, and
they've indicated that they want to launch kind of a long term
contractor and order it down the road. In terms of product
roadmap and demo, that one's pretty self explanatory, but a
demo of the product today. So making sure that the investor or
person that you're working with is able to understand how it
works, because sometimes you're able to talk about how you
provide a solution. But being able to see it always makes
things a little bit easier. In addition to that, discussing
near term priorities and long term additions in terms of the
product feature. So, you know, if I'm, if I'm, you know, an
online platform that's selling nail art, like one of our
portfolio companies pamper, not only are they selling direct
to consumer today, they're thinking about other channels
they could be expanding to like partnerships with companies like
Disney, or the NFL where they can do more license. And then
after that, maybe they become a marketplace and they're able to
charge commission fees. So I'm able to see over the next five
years, not only what the opportunity is today, but where
that opportunity is 5-10 years from now. Going on to sustainable
differentiators, things like intellectual property, so filing
a patent when there's an opportunity to do so. Market
knowledge, do you really know something that the rest of the
market doesn't know? And if so, are you the first mover in that
market? Are you doing something that's different that no one's
going to recognize the next one to two years? Do you have unique
technology in place? Maybe if you're in the manufacturing
space, you have a unique adhesive that makes it so that
when you're creating products, it's less expensive than when
your peers are doing it. And then how you'll defend your
market position. I think that's something that's super, super
important. And as it's a nice transition into the competitive
analysis slide, because you're talking about not only are you
unique, but you're so much better than the other companies
that even if they create a solution that's similar, you
have something that's different, that makes you think that
you'll be able to continue to take up market share and they
won't be able to cannibalize your business. Competitive
analysis. So the competitive landscape.
Not only what features do they offer,
is the pricing similar?
Is their business model similar?
Is there any reason why a competitor
would be preferred over your product?
Business model, not only what is your primary revenue model,
how else can you generate revenue today?
What's your secondary revenue stream?
What else is there that's down the road?
If you're targeting customer A,
how are you gonna reach customer B
that actually makes up 90% of your potential market?
And then the last few items,
so go-to-market strategy,
thinking about marketing, sales, and scaling.
So how are you able to grow quickly?
How are you able to scale your business
in line with the marketing span
and the additional customers that you're bringing on?
Financials, what have you done historically?
What have been the trends?
Have there been any hiccups?
If so, making sure to explain that.
What do your unit economics look like today?
So for every dollar of revenue you generate,
how much do you get in gross margin?
And then how much actually goes to you?
And then team, so leadership team.
You wanna make sure you have photos in there,
you have bullet point bios, and then LinkedIn links.
So anything that an investor would need to see about them,
they'd be able to access very easily.
And then also kind of leaving a placeholder
for expected near-term hires.
So just making sure that if there are any key hires
that you think are essential
and where the fundraising capital will be used towards,
you wanna highlight that as clearly as you can
because if the investor agrees with you,
it'll give them a good understanding
that you know what you're doing
and you're kind of being selective and thoughtful
about how you're gonna use the capital.
And then lastly, the fundraising terms in the ask.
So number one, just the high-level terms
of the fundraising round.
So how much are you raising?
What's the valuation?
What's the investment round that you're trying to structure?
And then B, use of proceeds.
So what we see most frequently is product enhancement,
marketing and sales.
So go-to-market strategy,
spending on different advertising mechanisms,
making new key hires,
but making sure whatever the use of proceeds is,
you're really transparent off to that
because that's always an in-depth conversation
that investors wanna have.
So there are a lot of different metrics here
and I'm not gonna go through all of them,
but I think there are a few here
that are very important to highlight.
A lot of these are kind of focused on technology businesses,
but some are focused on consumer businesses as well.
So the ones that I would highlight
are customer acquisition costs.
So what's the cost of acquiring a new customer?
It's the total cost of the sales and marketing
that you're spending,
divided by the number of new customers that you brought on.
Customer lifetime value.
It's the revenue that you receive from ongoing customers
over the lifetime in which they are your customer.
So you're basing this off of how long
your average customers have stayed with you in the past,
and then how much have these customers paid in the past?
And one thing that investors look at very frequently
are customer lifetime revenue
over the customer acquisition costs.
And why that's important is because you're saying,
if I'm gonna spend a bunch of money
bringing on new customers,
I wanna make sure that they're generating
a really substantial profit on the money that I'm spending.
Other ones to point out are viral coefficients.
So won't get too into it,
but the high level idea is that
for every consumer or new customer
that you pay to bring on,
oftentimes they'll refer other customers.
So you wanna get the real value of what you're spending on.
So if I'm spending 20 bucks and I bring on a new customer
and their viral coefficient is two,
maybe that actually means that they're bringing on
two more customers that I didn't even think about.
And so if the viral coefficient is two
for companies in one space
and it's 0.5 companies in another space,
I wanna be targeting that too
because it gives me a larger reach overall
for the same spend.
And then lastly, cash runway.
So how long can your business run
before you get another capital infusion?
This is something that's super important
and it's gonna come up in the majority of your discussions
as you're fundraising
because investors wanna make sure that if they invest,
you're able to run your business,
whether it's good times or whether it's bad times,
kind of similar to a lot of stuff
that's been happening recently,
that you'll be able to run for 12 to 18 months
with the cash that you have,
if all goes poorly and you're not able to fundraise anymore.
And then lastly, these are some of the diligence items
and documents you wanna have available
when an investor goes up to you and says,
here are some things you should be able to have ready.
The ones that I'm gonna highlight are pro forma cap table.
So cap table being showing all of the investors
or founding members in your company
and how much equity they own.
Pro forma meaning that it accounts
for the fundraising round
that you'll be bringing on right now.
So an investor is able to see how much equity ownership
will I have at the end of the round,
but also how much will each of the founders
and prior investors have?
Because you wanna make sure that.
Everyone's in line.
And if I take a 20% stake in your business,
I don't want your CEO to be losing 20% stake
in that business because then we're not aligned anymore.
And when an investor comes in, you all wanna be happy.
You wanna be teaming up together.
And that's something that's really important.
And then number 10, description of exit strategy.
So I know a lot of times when companies are fundraising,
you know, they're just getting off the ground.
They're not even revenue generating yet.
But from a venture capital perspective,
when you invest, you know, a million dollar check,
you're thinking about generating 20, $25 million.
You want that big return.
So while you may not be thinking about it yet,
it's really important to have a thoughtful answer
around who could the potential buyers be?
Am I a tech company that could one day IPO?
And if so, why am I a good candidate for an IPO?
Are there similar companies or companies
that are in my space that have IPO'd before?
And so just making sure you have good answers
to that question.
So lastly, here's some common mistakes
that we've seen some founders make.
As you'll see on the left-hand side,
these might be slight exaggerations,
but there are a lot of founders
that have made similar mistakes like this.
So number one is market sizing.
If you go out and give unrealistic projections,
a lot of investors meet with a lot of companies frequently.
So it's pretty easy to have an understanding
of when the unrealistic projections
are a little bit too far-fetched.
We know I have a lot of investors
that are far-fetched.
We know everyone's kind of bullish on their company
and the opportunity,
and it's okay to exaggerate a little bit in a positive way.
But if you say, we're targeting $100 billion market
and that's globally,
but we're only targeting Manhattan and New York,
but we think we can obtain 1%
and generate a billion in sales,
that's not something that's realistic.
You're really targeting in Manhattan,
maybe that's a $1 billion market,
so maybe you'll generate $10 million in sales.
And a big difference like that shows an investor
that you don't necessarily have a strong understanding
of what the market potential is,
of what you're actually going to be targeting
in the next two to three years.
Same with competitive landscape.
This one actually happens probably more than it should.
So company comes to us, they say,
we're the only company that offers this solution.
I'll do a quick Google search while we're on the call
and I'll say, I found five, 10 different competitors
that are doing the exact same thing that you're doing.
Can you explain why you're unique?
And not only are they surprised by that answer,
but they're not able to explain
what their key differentiators are.
And in terms of other common mistakes,
fundraising, asking for an unrealistic valuation,
not talking about your team enough.
Sometimes that item gets overlooked
because you're able to look up teams easily,
but if you have accomplishments
and you have the relevant skillset,
you should be bragging about that
because the first two things that I look for
when I'm meeting with an early stage company
are team and TAM.
Who are the founders?
Are they the right fit?
And what's the large-scale market opportunity?
And then one that I'll just point out
because I think it's super important, initial outreach.
Probably two to three times a week,
companies will reach out to me
and they don't meet our funds investment criteria.
I know a lot of people go on Crunchbase or Pitchbook
and find all the investors they can
and send out a big message,
but it's not such a great look
if you're not being targeted with your approach.
And so at this point,
I'm going to exit out of the slide deck
and kind of go through some of the questions that we have.
So if you all have any questions,
in addition to what you've already put in the chat,
now would be the time to go and enter those in.
Let's see.
I'm not sure that we have any questions so far,
but it looks like the team is processing any questions
that you all may have.
Even if there aren't any questions,
but any kind of specific scenarios
that I can provide guidance on,
now's kind of the time to get it out.
So just let me know if there's anything that comes to mind
or ways in which we can be helpful.
We're just going to wait for a minute or so
and kind of process all these.
All right.
So first question,
do you have any advice for outreach
in advance of getting ready for a fundraise,
say four to six months earlier?
That is a very good question.
And oftentimes, Peerless Fund communicates with companies
long before they actually have a fundraiser.
actually start fundraising.
So we're going to go ahead and answer that.
So whoever asked that question, that's very thoughtful
And then we'll go to the next question.
and it's definitely the right way to be approaching it.
So in terms of outreach, I think it's really important
to just start networking with both venture capital firms,
angels and accelerators,
and just to get a broader understanding
of who the right investor could be for you.
Because once you think about a lot of specific criteria,
that kind of narrows it down,
maybe you'll start off with a list of a thousand investors,
but by the time you actually start communicating with them,
there might only be 10 to 20 that could be a potential fit.
So what I like to do is,
I'll start with a list on Crunchbase,
or I'll start Googling,
and I'll wanna find who's investing in my sector,
if I'm raising pre-seed capital,
who's raising pre-seed,
and identifying a list of people.
And in order to start connecting with companies,
I'll either start reaching out to junior people,
or I would start reaching out to junior people
on those teams,
or I'd be going on LinkedIn
and they're kind of developing mutual connections.
So if I'm in the food and beverage space,
I'll look at a lot of founders
who at one point in time did what I did.
So one of the founders in our Fund2 portfolio,
her name is Denise Woodard,
she's the founder of Partake Foods.
So she's running a very successful
food and beverage business,
but at one point she was starting
making food out of her own kitchen,
like a lot of others are in the food and beverage space.
So if I was an early stage founder in that space,
and I wanted to get a feel
for who potential investors would be,
I'd reach out to her or a junior person on that team
and say, hey, I'm where I think you were
five, six, seven years ago.
Can you give advice on how you approached
your first fundraising process?
Who are the investors you reached out to?
And oftentimes when you have that kind of related story,
that sentiment goes a long way,
and they'll be willing to make a lot of introductions.
And then also just getting an understanding
of who the venture capital landscape is,
and just starting to communicate with them briefly,
I think is something that's very important.
Question number two, is Crunchbase the only place
where we can find potential investors?
That's a good question, and the answer is no.
It's just one, Crunchbase is probably
the most cost effective way,
because I think it's only like $30 a month,
and it helps you find investors.
But on the flip side, you can do Googling,
you can look on TechCrunch,
because if you go on there,
every day they're posting stories about
investors that have invested in startup companies.
So if you just create a list using TechCrunch articles,
you just say, Andreessen Horowitz,
Fearless Fund, Precursor,
and you just start creating that list,
and then you can Google them
and kind of figure out what they do.
So they're seed investors, they only invest in FinTech.
Maybe that's not for me, but Anthemis is a group
that does focus in FinTech, so this makes more sense.
Focusing on those articles and leveraging
those kind of free resources
is something that's really important.
But in that case, unlike Crunchbase,
you have to maintain your own database
and put everything together.
All right.
Question number three.
Can you give us an example of how to think through
viral coefficient for a consumer goods company?
Would that be a repeat purchase rate?
That's a very good question.
So it could be,
but that's not exactly how I'd think about it.
So again, I'm going to use an example
of a food and beverage company with a retail presence.
So if there's a company that's selling,
you know, cookies and waffle mix,
and I go into the store, you know,
and they're spending a lot of money
putting digital ads on my computer
because they think that I'm the ideal consumer
who wants the waffle mix or the cookies.
And I go into the store and I go in there,
I buy one time, I don't mention it to any of my friends
because it's my guilty pleasure and I like these cookies,
so I'm not going to tell anybody else about it.
My viral coefficient is really low
because the spend that they're spending on me
isn't giving them reach to any additional customers
in my network.
Let's say I have a friend of mine, John,
who goes into the store, tries the waffle mix,
and then throws a big waffle party, right?
And so he has 10, 20 people over
and he's referring them to the business
because they say, oh, this waffle mix is awesome,
where'd you get it?
They've only spent money on bringing him on as a customer,
but in turn, they've actually been able
to reach 20 new customers.
And so his viral coefficient would be very substantial.
And from the business perspective,
that second example that I just mentioned
is the ideal consumer that you want to be targeting.
Okay.
Next question.
If you don't have much of a big audience,
how would you recommend crowdfunding?
I was able to do a round of crowdfunding
for a pitch competition,
but I would like to do another round.
but possibly targeting a new audience, or should I continue with my target current audience and
customers? Got it. Okay. So I think there are a few parts to this question. In terms of how I'd
recommend crowdfunding, I think it's kind of like an organic kind of go-to-market strategy. So number
one is just having an understanding of who your core customer is. So whoever asked this question,
you mentioned that you were able to do a round for a pitch competition, but you kind of focused
mainly on one audience and you're thinking about targeting a new audience. So like I mentioned a
lot of the presentation, one thing that's really important is a product market fit.
So if you are only targeting certain types of consumers or certain types of businesses,
and you think that that makes up the majority of your market, I think what's really helpful is if
you put all the crowdfunding information on your site, and then you start selectively targeting
the individual consumers or the businesses that are in that market, because that's the best use
of your time. And those are the people who are not only most likely to be investors,
but people who are likely to be customers, even if they don't invest. And to the point of viral
coefficiency, they're the people who will be referring others in their network, who are in
kind of the mass network you're targeting. If you think that with the current product or service
that you have, that maybe there's an ancillary market that you haven't gotten into yet, and
there's an opportunity there, then maybe you should try tapping into that new network. But I'd
really get an understanding first of who is your core customer, because oftentimes when you're
going into crowdfunding, it's a lot of companies who, a lot of individuals who believe in your
company, that would be potential customers or who would be big referrals. And so those are the ones
when you're doing that product market fit are the ones who'd say, you know, yes, this is a necessary
product. This is a unique value proposition. And you don't want to spend a lot of time going into
a new market, targeting someone who you think could be helpful with crowdfunding, even if
ultimately, you know, you're just spending a lot of time and money focusing on the wrong opportunity.
So maybe just asking, you know, 50, 100 people first, in that old audience and in that new
audience, what do you think of my product? What could I be doing better? You know, who are the
peers you'd use instead of me? And do you think I'm better or worse? Even basic questions like
that will give you an understanding of who believes in you, not only from a consumer
perspective, but as a potential investor. All right. Next question. What are your recommendations
for companies that may not have enough resources for 12 months due to the COVID-19 economic impact?
Sure. So I think one thing to consider, and I didn't really talk about this in the presentation,
is from an investor's perspective, there are things that are not necessarily deal killers,
but there are things that make investors kind of hesitate because and one of those things is,
again, having sufficient cash when you're in a downturn. So I think, number one, I think my
recommendation is being able to say that I know I have a limited amount of cash. And I wanted to
be really thoughtful and I was worried about fundraising. So maybe my cash burn was $20,000
a month a few months ago, but during the pandemic, during this tough fundraising environment,
I made key adjustments and now I'm only spending $10,000 a month. That kind of shows you when
things are really not going well, you're making the right adjustments. And that's something that
investors will be very receptive to. I think the other thing to be able to explain is in terms of
a year ago, is there a reason why you have less than 12 months of resources? If you projected
that you'd be spending $10,000 a month and you're spending $20,000, $25,000 in your missing budget,
that's not such a great story to tell. But if you say, hey, I was growing, but I didn't want
to over-raise off the bat and the environment changed on me, I think that's a more reasonable
story. If you've been spending efficiently, if you've been using capital towards the goals that
you had set when you raise capital, even if it's like a friend and family round,
I think that's a better story to be telling and it'll be more receptive with investors.
Next question. Where do you find pitch competitions? Good question.
So one thing that I do is just in terms of newsletters, number one, is just finding as
many as I can. So finding ones that are particularly relevant to my business.
So with Fearless Fund, we're targeting women of color founders. So oftentimes their newsletters
focus on pitch competitions for diverse, underrepresented founders. If we're focused
on the digital health sector, I'll look at a lot of digital health accelerators and venture capital
firms and see who's holding kind of events. And then just Googling pitch competitions generally.
I think oftentimes each of these different firms that are running competitions...
are trying to make them, you know, as well-known as possible, but separate from
that, if they're, if you're looking for access to different pitch competitions,
I'm happy to provide my email, so for anyone who has follow-ups, feel free to
contact me, and I will send that out separately with the materials, and I'm
able to go through that question with you and provide some separate resources.
Next question, how do you present a pitch deck when you have a product and a
service, but it's associated? Okay, interesting question, so my understanding
is that you kind of have a two-part value proposition, and they work together, so
maybe you have a product, then a service associated being like setting it up, or
maintaining the product, and how it works today. I think that's something that's
very unique, but it comes up in the market, and I think there are a few
things to consider when you're doing this. So number one, you want to be able
to talk about, you know, the different parts, but then the sum of the parts. So
number one, how do each of these work as individual kind of entities or sub parts
of the business, because maybe when an investor comes in, they'll say, actually
we don't think this services part makes sense, we want you to fully focus on the
product, because the product has better unit economics, if you're a products
business, you, you know, will have better trading multiples if you decide to
become a public company, and considerations like that. So you want to
be able to explain what each of the components are, and how maybe they would
be able to operate without the other, and then in addition to that, you want to
talk about the two of them together. So what's the total business, you know, how
does that operate today, and then, you know, what are the unit economics of that
business? Is it scalable? Are the services taking up too many resources? Is
the service the real unique offering? And does the product not make as much sense?
Then also just being able to talk about things like cross-sell opportunities,
product roadmaps of where can we add, where can we take away in the future, and
then any complications that you foresee. But I think, you know, with businesses
like that, it's always interesting to have a unique business model. So
investors always want to hear a little bit more, but they might give you a
little bit more scrutiny, because they might not be quite as familiar, or see as
many companies that have the two of those put together. And it looks like that is
it for questions. So I wanted to say I appreciate the time. Thank you all for
the very thoughtful questions, and we'll follow up separately. So if you have any
specific questions, like the pitch competition, or anything that I can
answer specifically, even if it's, you know, reviewing a deck, or thinking about
approaching different investors, feel free to reach out, and I'm happy to be a
resource. Have a good day, everyone.