7 Practical Steps to Raise VC Funding on your Terms.

1. Choose your investors wisely.

Choosing Investors is much like choosing partners for life. However with a caveat, the ideal situation as a Founder is to have multiple potential 'money mates'. Being courted by multiple investors is a good thing as it is better to have choices and comparisons than only one or none.

Capital is only one part of the equation, with wisdom and relationships being the other two parts.

The industry talks of 'smart money' and 'dumb money' which refers to the added value that your business partner will provide after the funds have landed in your account.

Do your due diligence on the investors, what successes have they had. What is their value-proposition. Have they generated any exits?

Be sure to take notes during the negotiation stages and include the business partners promises as potential addendum's and CP's in the term sheet and contracts.

A VC Referral Masterclass: Ask for a referral from an existing portfolio company founders to the VC's Managing Partners.

Firstly they have to be convinced that you have a great business and secondly they will need to spend some of their valuable 'social capital' denominated in 'Reputation' to introduce you into them.

A double validation.

2. Know your Value.

Valuation is not an exact science. At the end of the day according to Aswath Damodaran, Professor of Finance at the Stern School of Business at NYU.

Valuation is all about telling compelling stories.

Being able to bridge a story between reality and the future using numbers.

Watch Professor Damodaran classes on YouTube for free, he values Tesla frequently.

My advice is being able to 'sell your company' to investors using your financial model in excel. Ensure you cover all variables and ensure your unit economics have been validated.

Revenue is the foundation of valuations, the more certain the revenue (in ARR) in an uncontested sector where skills are scarce.  The higher your revenue multiple the higher your valuation.

Finally there are recent multiple reports (Capital IQ, Pitch book & SEG) that you can use to benchmark against other sectors and sub-sectors that you are currently positioned the business in. Make sure that you correctly position your business in the right sector and sub-sector from the beginning.

3. Win-Win-Win's

Simply ensure you tick 3 boxes when you show up as a Founder to VCs.

1. Win the Heart ❤️

What drives you to build when you could be making more money as a consultant?

2. Win the Mind 🧠

Why are you going to be successful?

3. Win the Wallet 💰

How will you be a fund’s home run and return their entire fund?

What is the maths for you to achieve that in your pitch. 5x 10x 50x?

4. Negotiate

This is one of the hardest part of the process and could be akin to playing paintball against the SAS or Navy Seals. This is where an advisor adds enormous value to the negotiations process.

As navigating legal clauses and a new process can be daunting. From liquidity preferences, condition preferences (CP's), rights and warrants, exclusivities, board seats, voting rights, dilutions, deal fatigue on both sides and delays in the due diligence.

Make sure that you consult with people that have done this before. In most cases a start-up friendly lawyer that has been recommended by a previous founder will be invaluable. They have sat on both sides of the table in drafting and reviewing contracts.

5. Protect your equity

As I always share with founders that I am advising during their fund raising processes.

"Equity is the most expensive form of funding."

Be very mindful of who you sell it to.

6. Fail to Plan, Plan to Fail.

"Use scenario planning to raise the optimal amount of cash to manage monthly cashflows (raising too much you gives away too much precious equity; raising too little and it's a "never-ending" raising process and valuable time spent away from business building.

Also, be careful over-promising and under-delivering (applicable to all stakeholders). The last thing a founder wants is a down-round at a lower valuation or if existing funders are not willing to follow.

Be realistic, there are mechanisms (within reason) to adjust for excessive returns (or below promised returns) if one cannot agree on a reasonable valuation using clawbacks (whichever way they are structured)." Thanks Gregg B 🙏

7. Health is Wealth

Look after your well-being.

Ensure that you keep a regular practice of exercise and mental and emotional well-being.

Include it as your daily stand-up with your co-founders, whether it's hiking, running or biking. That way you are maximising what precious little time you have during the process. Outside in nature is best but you could meet at the gym, walk around the block or have a sauna.

In Cape Town? Join me and other founders and funders for my weekly Friday Will's Green Walk up Lion's Head at 6:00am, come rain or shine

Sign-up here: https://www.bit.ly/WillsGreenWalk .

In California, New York, London, Dubai, Berlin or Singapore (or anywhere on the planet for that matter) you can always join me for a Zoom workout. DM me.

Make sure that you select key roles that suit your strengths during the fund raising process. Maintain a centralised document that you can collaborate a-synchronistically on and allocate and update tasks when they are completed.

Sustaining your energy and mind over a marathon period of pitching, due diligence, negotiations and closing is key.

Don't forget to celebrate with those people who supported you when closing your funding round.

Good 🍀

What would you add to my list of 7 steps to Fund Raising on your terms?

Will Green