“At end of each round, reach the speed where you can shift into the next gear.” ~P. Graham
- Pre-Seed: Receive a small investment (pre-product) in order to hit one or more of milestones in order to qualify for seed investment (hiring team member for prototype development). Average funding <$1 million, and valuation: $1-3 million.
- Seed: Signs of Product/Market Fit and traction. Angel investors and VC funds (some startup accelerators). Seed sizes range from +- $150,000, to $1.5 million. Average funding $1.7 million, and valuation: $3-6 million.
- Series A: Clear evidence of Product/Market Fit, and revenue growth, and increasing ARPA (Average Revenue per Account). Necessary to develop sales and marketing processes, and to identify new channels. VC’s (some super angels). Average funding $10.5 million, and valuation: $10-15 million.
- Series B: Investors are looking for growth (requires hiring specialists), along with expanding into new market segments, revenue streams (possibly through acquisitions). Hitting milestones and making significant progress must be demonstrated. VC’s (some late-stage VC’s). Average funding $24.9 million, and valuation: $30-60 million.
- Series C+: Supports large-scale expansion (new markets, international, or acquisitions). After Series C, investment rounds can go on to Series D, E and further. Late-stage VC’s, Private Equity, Hedge Funds, and Banks etc. Average funding $50 million, and valuation: $100-120 million.
Recommended Video: Equity Splits
Funding Rounds (2:00)
Getting the money which allows a startup to demonstrate the value they create for customers.
NOTE: video starts & stops at pre-assigned times
Typical Pitch Questions:
- How You Make Customer Happy?
- All good pitches should outline how the idea makes customers happy, along with how it’s better and different from the existing products/services out there.
- What Is Your Market Size?
- This matters because most investors want to know that you’re going after a potentially big business. There are two ways to think about market size: top down (reported market data), or bottom up (calculated based on number of users, size of transactions, frequency, value of industry in offline vs. online capacity etc.).
- What Is Your Business Model?
- Describe how you will make money (is it a transactional or subscription-based model etc.).
- What Is Your ‘Unfair Advantage’?
- Try to identify your unfair advantage. VC’s don’t like to take risks, therefore your market advantage must be based on your team, number of customers, revenue, intellectual property or patents etc. (define what your biggest assets are, and always emphasize what your advantages are over others in the market).
- What Are Your Competitors Solutions?
- Investors want to know what other competing solutions are on the market, along with how what you’re doing is better than what’s already out there. Therefore, it’s important for you to list your most relevant competitors. Don’t leave competitors off your pitch if you want to begin a proper relationship with investors.
- What Is Your Differentiator?
- Knowing your competitors is important but you must also outline why ‘what you’re doing’ is different. Therefore, it’s essential before the pitch to figure out how you can be better and different from all the other possible solutions.
- What Is Your Marketing Message?
- Frame the problem or product that you’re selling in a way that’s interesting and compelling (volume, leads, conversions, revenue, cost etc.). Outline how you plan to get your unique message (solution) across to customers.
- Who Is Your Founding Team?
- What skill-sets do the founding team have: Hustlers, Hackers or Designers? Hustlers figure out how to get customers, Hackers have engineering or technical depth, and Designers can frame product in a way that’s appealing. Remember that the breadth of founding team skills is critical.
- What Are Your Three Budget Scenarios?
- There are three ways to spend money: hiring to build product, hiring to support marketing (campaigns, acquiring customers etc.), and overheads. You must prepare three budget scenarios that address three different levels of opportunity: small, medium and large. In the elevator pitch you should argue and demonstrate how you are going to hit those three milestones (small, medium, and large)?
Source: Dave McClure (founder 500 Startups)
Investment Readiness Level (2:00)
Common language to establish if ‘this is a viable deal’.
NOTE: video starts & stops at pre-assigned times
Investment Readiness Level (IRL)
Rank Business Model
‘IRL is imperfect, subjective and incomplete however; it represents a major leap over what was being used before, when there was no common language to compare startup projects’.
- Level 1-2: Do we have our hypotheses, is the value proposition summarized, are the hypotheses transferred to the , and articulated? Is the value proposition detailed enough?
- Level 3-4: Have we discovered (validated) the problem/solution? Do we have a low-fidelity minimal viable product (MVP), and is it available and ready to test?
- Level 5-6: Have we validated the product/market fit? Is the right side of the Business Model Canvas validated (revenue, customers and channels)?
- Level 7-8: Have we validated the left side of the business model canvas (costs, activities, resources, partners)?
- Level 9: Do we have invest-able metrics that matter?
Funding Rounds (3:30)
M. Skok, Harvard i-Lab
It’s important to develop a funding strategy that fits your particular needs.