The post covers the one of the final 3 slides: Funding status/ask. The original outline is here: THIS is the OUTLINE.
Slide 10: Funding Status and Ask Slide
The funding ask slide requires a bit of finesse as you are starting a set of discussions that could turn into negotiations if your potential investor turns into your actual investor.
In this slide, a little back ground is very helpful. Make sure you let your audience know who you have raised money from in the past and at what valuation. This is not “secret” information; be open and transparent. If you seed funded your company, that’s a good story, make sure you talk about it. You should also talk about the structure of any prior formal investment by a third party: who, how much, when, format (common, preferred, convertible debt, etc).
It’s important to get right to the punch line of this slide; You MUST be prepared to address the following (have data, be thoughtful, use a clear explanation):
- how much money would you like to raise?
- why that amount? (what will it be spent on? how long will it last? what value will you create in your business using it?)
- could you do what you need to do with less? what might you do with more?
- are you actively working with anyone else on this round?
When it comes to timing, it’s important be realistic. If this is the first time you have met with this firm, it’s typically just the beginning of a process that will almost certainly involve multiple meetings over weeks if not months. For larger VC firms, you will not receive a term sheet until you’ve run the gauntlet of their Monday partner’s meeting…if you’re dealing with a top 25% firm, you’re not even close to “done” until you’ve got the Monday invite. Smaller firms are able to be much more dynamic and efficient…however, that doesn’t guarantee that they will.
If the conversation is going remotely well, you’re likely to be asked about your valuation expectations. If you have raised money at a particular valuation in the past, that is your starting point…but in this current macro-economic environment previous valuations do not guarantee ANYTHING. If you have a number in mind that is based on data that is realistic – don’t be shy – flop it out there. It’s important to understand enough about the VC business to know that investors tend to model their business on investment exits, cash returned to their limiteds…and consequently ownership percentages in their portfolio companies at the time of exit. Given this, it’s reasonable to approach a valuation discussion by starting with “how much of the company you’re comfortable selling in this round of financing.” Fixing the amount raised and how much you’re comfortable selling implies a valuation. Raising $300k while targeting selling 25% of your company imples a valuation of $1.2m. This is a useful way to have a valuation discussion because if the round size happens to go up (not uncommon) as the round & syndicate come together, you can at least make an argument for raising the valuation. No guarantee it will work.