Fundraising

The world is becoming aware of the potential in blockchain technology. The rise of Bitcoin, Ethereum, and other blockchain protocols have created a new class of startup working to innovate on a new frontier. From alternative cryptocurrencies to companies who support the crypto ecosystem, we are witnessing the infrastructure-building phase of a new wave of technology. At Visible, we talk to founders every day who are looking for investors. Our new Connect platform allows you to search our database of nearly 11,000 investors to do your own research, but in this post, we will be highlighting some of those investors in the blockchain space. 2020 Ventures Stage: All Stages Investment Geography: United States, Southeast Asia Key person: David Williams Blockchain investments: Bitpay, Polysign, Kava Networks, Ripple Labs, tokens like BTC, ETH, LINK, & more. Thesis: 2020 Ventures doesn’t only invest in blockchain & crypto, but when they do invest in the space they make bets on both coins and companies in the space. They spend time primarily on payments & stores of Value, but also invest in DeFi, exchanges, and other projects. View Profile Notation Stage: Pre Seed Investment Geography: New York, Agnostic Key Person: Alex Lines and Nicholas Chirls Blockchain Investments: Filecoin, Zepplin, Livepeer Thesis: Notation capital explicitly says on their site that they are not thesis driven. Instead, they focus on writing the earliest checks into big ideas that are of interest to them. With deeply technical backgrounds, Notation is placing bets across many different sectors – blockchain being one of them. They’ve invested directly in protocols like Filecoin and in crypto-focused companies such as Bison Trails and Livepeer. You can read their operating principles on Github here. View Profile Blockchain Valley Ventures Stage: All stages Investment Geography: Global Blockchain Investments: Algotrader, Coinfirm, Keyless Key People: Heinrich Zetlmayer Thesis: Another hybrid advisory/investment firm, Blockchain Valley Ventures brings expertise to the blockchain space by helping projects of all kinds come to fruition. From corporate blockchain projects to startup ventures in the space, BVV is there to help with both capital and expertise. View Profile Pillar VC Stage: All stages Investment Geography: United States, Northeast Key People: Jamie Goldstein, Russ Wilcox, Sarah Hodges Blockchain Investments: Algorand, Circle, LBRY Thesis: Pillar is a highly founder focused VC fund that differentiates itself by investing in good founding teams. They invest across many categories, but found themselves as one of the first investors in new blockchain Algorand and several other crypto companies. View Profile Boost VC Stage: Accelerator/Seed Investment Geography: Global Key People: Adam Draper, Brayton Williams, Maddie Callander Blockchain investments: Abra, Aragon, Filecoin, Ethereum, and many more Thesis: Boost.vc invests in what they call ‘Sci-Fi Founders’ primarily via their accelerator. They have dozens of investments across many different frontier industries, primarily focusing on VR/AR, Crypto, and what they call ‘sci-fi’ investments. View Profile Castle Island Ventures Stage: All stages Investment Geography: Global Key People: Matthew Walsh, Nic Carter Blockchain Investments: BlockFi, Zabo, Talos, and more Thesis: Castle Island Ventures invests almost exclusively in public blockchain projects. They have conviction that public, permissionless blockchains will form a new economic infrastructure, and deploy capital using their past financial and crypto expertise in projects that support public blockchains. View Profile Blockchers Stage: Accelerator, Seed, Grants Investment Geography: Europe Blockchain Investments: Volvero, Blocksquare, and more Thesis: Blockchers provides grants and occasional investments through their accelerator in the European Union. They are smaller than some of the other players on this list, but they’re a great option to explore if you’re building a blockchain based startup in Europe. View Profile Kenetic Trading Stage: Series A/Series B Investment Geography: Global, but focusing on Asia Key People: Jehan Chu, Daniel Weinberg Blockchain Investments: BlockFi, Handshake, Alchemy, and many others Thesis: Kenetic Capital is involved in a few different areas of crypto and blockchain markets. They invest in Series A and later blockchain companies like BlockFi and Handshake, and also are involved in cryptocurrency trading. They offer many sophisticated trading products and executes on advanced trading strategies with a team of experience software engineers and quantitative traders. Jehan Chu, the fund’s CEO, has played a major role in the building the blockchain community in Hong Kong and hosts meetups throughout Asia. View Profile ConsenSys Ventures Stage: Accelerator, All Stages Investment Geography: Global Key People: Min Teo, Joseph Lubin Blockchain Investments: Compound, Gitcoin, Juno, and many others Thesis: ConsenSys is a highly successful Ethereum software development company. They’ve built multiple hit products such as MetaMask, Codefi and Quorum. They’ve used their expertise to spin out an investment arm that has made investments to projects like Compound, Gitcoin, and many other protocols and infrastructure builders in the space. Just starting out? You can consider their hackathon or accelerator programs. View Profile Placeholder VC Stage: All Stages Investment Geography: Global Key People: Joel Monegro, Chris Burniske Blockchain Investments: Magic, Nexus Mutual, 0x, Aragon, and many others Thesis: Placeholder invests in new projects in the space that seek to build around cryptonetworks. Their thesis is that the advent of blockchains and their open-sourced nature will lead to a slow decline of the current tech monopolies of the day. The key reason: blockchains undermine the key advantage of tech giants: data monopolization. ‘crypto collapses the cost of building and scaling information networks by replacing centralized coordination with universal financial incentives.’ You can read their full investment thesis here. View Profile Use Visible Connect to browser our investor database of hand curated investors. Find investors and add them directly to your Fundraising Pipeline in Visible. Give it a try here.

Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days. Relatively speaking, venture capital is a fairly new asset class. Innovations have been consistent since Y Combinator came to market in the early 2000s. Since then there have been countless innovations that are creating more funding options for startup founders. The most recent innovation has been rolling funds. Learn more about rolling funds and what they means for startup founders below: What are Rolling Funds? Pioneered by Angelist, a rolling fund is a new VC fund structure that allows funds to raise money on a continuous basis – creating a new fund structure as quickly as every quarter. These funds can also be publicly marketed under Rule 506(c). While rolling funds are still relatively new, there have been early benefits and signs of more innovation to come. To learn more about rolling funds and their impact on startup founders and investors, read more below: What are the benefits of Rolling Funds Rolling funds have the opportunity to transform the venture capital space. As we begin to scratch the surface on rolling funds and how they fit into the space, there have been some clear benefits so far. 1. Attract New Types of Investors These funds also lower the barrier of entry into VC for aspiring investors by allowing them to get started with less up front capital. Angelist can manage most of the legal and administrative aspects of rolling funds too, further lowering the overall amount of knowledge and capital needed to get started. Because of this, rolling funds may create many new types of investors. 2. Provides More Funding Options for Founders More investors means more funding options for startup founders. As we mentioned above, rolling funds will lower the barrier to entry for emerging VCs, in turn creating more funding options for startups. As more competition pops up in the space, the more competitive it will become to get on a startup’s cap table. Because of this, funds will have to create more resources and terms for startups. Related Resource: The Understandable Guide to Startup Funding Stages 3. Continual Limited Partner Fundraising Rolling funds allow VC’s to continue to raise money from limited partners on a regular basis, essentially turning the process of LP investing into a quarterly subscription-based model. If an LP decides that they don’t want to continue backing an investor, they can stop allocating resources to them immediately. On the other hand, if they see that a given investor is making good bets, they can invest more money in them very quickly. This is especially useful for VC’s who would like to fundraise opportunistically in the case of portfolio markups. 4. Shortened Feedback Loops This new structure will shorten feedback loops for venture capitalists. Startups take a long time to reach full maturity, but they still have clear milestones throughout their journey. If an investor has several companies in their portfolio that succeed in securing future funding or obtaining product market fit, they can be rewarded instantly by raising more money during the next quarter. This is good for LP’s too, as they can make small, periodic investments in rolling funds based on the real time performance of the investor. This is quite different from having to write very large checks every 10 years. It opens up LP investing to smaller funds and individuals – rather than just institutions. How are Rolling Funds Structured? As we mentioned, rolling funds will allow more people to become VC’s. Because companies like Angelist will allow these small investors to outsource many fund management responsibilities, more people with A+ networks and good judgment can get into the game. For example, a star employee at Stripe or AirBnB might have access to many startup deals and the judgment needed to allocate capital effectively. Traditionally, if they wanted to get into VC, they would have needed to slowly work their way into an established fund or quit their job to start their own. If they didn’t want to do this, then they could angel invest, but then may not have hit the threshold needed to be an accredited investor (and even then they were confined to only investing their own money). Rolling funds allow them to start investing part time, and without needing to hit accredited investor requirements (although LP’s do need to be accredited). These new operator investors will be able to attract LP investment from many different sources, such as their managers, successful friends, and others who are impressed by their network and experience. Maybe you, a current founder, have always thought that you’d be a good VC and wish you could allocate capital into your other founder friends’ deals. With rolling funds, you can start a fund as a side hustle. This enables you to capitalize on your access and judgement by investing in other founders. 506(c) Funds Rolling funds are structured as a 506(c) offering. According to the SEC: “Rule 506(c) permits issuers to broadly solicit and generally advertise an offering, provided that: all purchasers in the offering are accredited investors the issuer takes reasonable steps to verify purchasers’ accredited investor status and certain other conditions in Regulation D are satisfied” Put simply, a 506(c) requires that all LPs are accredited investors. As Investopedia puts it, “An accredited investor is an individual or a business entity that is allowed to trade securities that may not be registered with financial authorities. They are entitled to this privileged access by satisfying at least one requirement regarding their income, net worth, asset size, governance status, or professional experience.” LP Subscriptions Accredited LPs, limited partners, are the investors behind a rolling fund. As the name implies, rolling funds are raised on a rolling basis. Quarterly Funds As the team at Rolling Fund News puts it, ‘A rolling fund is structured as a series of limited partnerships: at the end of each quarterly investment period, a new fund is offered on substantially the same terms, for as long as the rolling fund continues to operate. With this fund structure, rolling funds are publicly marketable and remain open to new investors.” Contributions The fund managers are responsible for deciding what the contribution minimum or maximums are for LPs. Currently on the AngelList rolling fund marketplace the quarterly minimums range anywhere from $2,500 to $50,000. Fee Structure Like any venture capital fund, there are fees associated with a rolling fund. Admin Fee For all rolling funds on AngelList there is a 0.15% admin fee. The fee is similar to more traditional funds and syndicates offered through AngelList. Management Fees There are also management fees associated with rolling funds. Most management fees are 2% but can generally range anywhere from 0% to 3%. As defined by AngelList, “Each fund will pay the fund manager a customary management fee. Management fees generally accrue over the first ten years of each fund’s life and are typically payable in advance over four years. Like a traditional fund, GPs can waive fees on an LP-by-LP basis.” Check out an example from AngelList below: How to Get Involved with Rolling Funds? The rolling fund structure opens up VC investing to many people who would have otherwise had a difficult time getting started. For example, imagine a fund built entirely around an independent media creator with a strong brand. High quality tech bloggers or university professors with a deep understanding of startups and a large audience can raise funding quickly on top of their brand and expertise. It could create an additional income stream for these individuals and allow them to build wealth through venture investing. Networking A common thread is that rolling funds will open up the opportunity to create a VC fund to anyone with a great network, access to deals, and good judgement around startups. Whether it’s an elite tech blogger, current founder looking to invest on the side, or startup executives who wants to benefit from their understanding and access to early stage companies – there will be new players in the VC game that might be different than the typical venture investor. Exploring Since launching rolling funds, AngelList has launched a marketplace where anyone can peruse and check out different funds that are currently raising. You’ll be able to check out the different funds (and their managers) to get an idea of who is in the space. Check it out here. Invest With lower investment minimums and more availability, rolling funds are becoming a feasible investment for non-traditional investors. Founders particularly are beginning to invest in rolling funds to invest in other founders. Of course this is an incredibly risky investment and should seek advice before investing. How Rolling Funds Could Impact Fundraising As we previously discussed, rolling funds have created more funding options for startups. Because of this it has the opportunity to impact the current VC fundraising process. Related Resource: All Encompassing Startup Fundraising Guide Increase in Total Number of VCs Rolling funds will lead to an increase in the total number of VC’s. More entrants into the VC business will lead to pressure on the traditional players in the ecosystem and more competition for deals. This competition will lead to better prices for founders raising capital. Would you rather take money from your long time friend’s rolling fund or a Sand Hill Road VC during your Seed round? These options may be real in the next 5-10 years. Rise in Early Stage Investing At first, rolling funds will primarily impact early stage investing. Most of these new funds have raised relatively modest amounts of money compared to large VC’s. Due to the large amounts of capital needed to play at later stage investing, rolling funds might not have an impact there just yet. However, due to the nature of compounding, some rolling funds might grow much larger than expected. VC is dominated by power laws, and the most successful rolling funds might find themselves with LP’s begging to get into future rounds. A rolling fund with a few smash hit successes can instantly raise additional LP capital. Traditional VC’s would have to wait longer to do so. One can even expect large VC’s to adopt the rolling fund model in the future. Easing Exit Pressure A final way that rolling funds will help founders is by easing exit pressure. All VC investors (including those who run rolling funds), will want your company to swing for the fences and seek to be a massive outlier. Traditional VC funds, however, need to show returns to LP’s on a roughly 10 year time horizon so that they have the momentum necessary to raise additional funding. This sometimes gives VC’s an incentive to push your company to exit or IPO within a specific time frame. LP’s want to see returns on set schedules. If your company’s exit would help show better returns, your VC’s might pressure you into selling your company prematurely. With rolling funds, this is not as much of an issue, as they can raise funding from LP’s on a continuous basis, vs having to raise a giant new fund every 10 years. Rolling Fund FAQs Because rolling funds are fairly new to most founders and investors – check out a few common questions below: Can You Market a Rolling Fund? One of the unique factors of a rolling fund are that the general partners behind them are allowed to market them to the general public. As AngelList writes, “Unlike most traditional venture funds, managers of Rolling Funds (known as general partners or “GPs”) can publicly advertise their offerings to grow their investor network and raise money.” Because of this, GPs of a rolling fund can attract LPs from different walks of life. More individuals are beginning to invest in rolling funds which means that startup founders will have a more diverse network of investors with more resources and connections available. What is the Difference Between a Syndicate and a Fund? As put by the team at AbstractOps, “A startup syndicate – or an investment syndicate – is a special purpose vehicle (SPV) created for the sole purpose of making one investment. Although syndicate investors are typically high-risk (high-reward) investors, through syndicates, they can invest in more deals with small amounts of capital, as little as $1,000 per syndicate. ” This means that a syndicate is only investing in a single company. On the flip side, a fund is dedicated to making investments across many companies. Related Resource: Accredited Investor vs Qualified Purchaser Is There a Minimum Investment for a Rolling Fund? The minimum investment for a rolling fund varies from fund to fund. The list of Rolling Funds currently raising on AngelList varies anywhere from a minimum of $2.5K a quarter to $167K a quarter. Checkout Visible’s Investor Database To Find the Perfect Investor Early signs show that rolling funds are here to stay and can be transformational for both venture capitalists and startup founders. If you’re a founder looking to raise capital, check out Visible Connect, our investor database, here. We maintain the database with firsthand data and will continue to add new funds and data as it becomes available.

While you’re busy launching your startup and talking with investors, insurance might not be high on your priority list. But as you start planning to raise your next round, keep in mind that commercial insurance will most likely be a requirement of securing venture funding. Not having insurance can even slow down funding, so it’s wise to get the coverage you need ahead of time to avoid closing new rounds. Venture capital firms often require certain policies to help mitigate the risk associated with investing in your startup. Here we’ll explain five key policies you should understand to help make your next funding round as smooth and seamless as possible. Directors & Officers (D&O) Insurance D&O insurance will likely be the first policy you need to have in place to secure if you’re raising money from investors. D&O covers you, the company, and your board of directors from a broad array of claims associated with wrongdoing that results from managing the company. Some examples include: Theft of trade secrets Misrepresentation that results in a loss for investors Breach of fiduciary duty D&O has three main coverage areas: Side A: Covers individual insureds not indemnified by the corporation Side B: Covers reimbursing the corporation for indemnifying individuals Side C: Covers the corporation itself against securities claims, such as company mismanagement It’s important to note that D&O will not cover any instances of intentional illegal acts, such as fraud or illegal remuneration. Tech Errors & Omissions (E&O) Tech E&O is a type of professional liability policy that is specifically designed for the needs of tech startups and can cover liability associated with technology products or services you provide, media content, and network failures. Essentially, this policy covers claims where your products, services, or professional advice results in a financial loss for your clients. As your startup grows this policy will be essential to mitigating these risks. Keep in mind, tech E&O will not cover claims associated with a deliberate breach of contract. Cyber Liability Insurance While tech E&O will cover errors or omissions, it will not cover cases of cyberattacks. For that, you’ll need Cyber Liability. This is the only type of commercial policy that will help cover the damages associated with data breaches. You can often add this coverage to your Technology Errors & Omissions policy. Startups rely on technology to keep their operations going and this leaves them vulnerable to hackers. In fact, a report by Verizon found that almost a third of all cyberattacks involved small companies and the average cost associated with data breaches, like notification and legal fees, will set you back thousands of dollars. To help cover this risk, it’s important for startups to have Cyber Liability in place. This policy covers liability that originates both internally from employees and externally from hackers, and can cover the following areas: Loss of digital assets Business interruption expenses Cyber extortion Non-employee and employee privacy liability Digital media liability It’s important to note that Cyber Liability will not cover risk mitigation costs or loss of first-party intellectual property. Employment Practices Liability insurance (EPLI) As startups secure more funding and hire new talent, the risk for employee-related claims goes up. Since many startups often lack the HR and legal resources that large corporations have, disgruntled employees could easily sue for allegations of discrimination, wrongful termination, or harassment. Not only are these claims costly, but they can also damage a startup’s reputation. EPLI insurance will cover the startup and employees against allegations of: Discrimination Wrongful termination Sexual harassment Retaliation Workplace harassment Breach of employer contract Keep in mind, EPLI does not cover claims of bodily injury to employees. That’s what Workers Compensation is for. Key Man Insurance Key Man insurance is simply a corporate-owned life insurance policy, typically on the founder or CEO. With startups, the sudden or unexpected death of someone as important as the CEO or founder could sink the company. With Key Man insurance, if this were to happen, the company would receive the life insurance payout. The Key Takeaway As you start planning your next funding round, make sure you keep insurance top-of-mind. You’ve worked long and hard to get here, so it’s important your company is adequately protected. VC firms know they’re taking a big risk by investing in your company, so they’ll need reassurances their liability is covered. Don’t wait until the last minute to provide proof of insurance, you should make sure you’re getting the right coverage that fits your budget. Some startups might find it difficult to secure commercial insurance due to their limited financial history. Make sure you use a broker that specializes in helping startups with broad management liability coverage. With these policies in mind, you’ll be ready to sign on the dotted line to secure your next funding round in no time. Related Resource: Down Round: Understanding Down Round Funding and How to Avoid It By Emily Lazration, CoverWallet Emily is the Content Marketing Specialist at CoverWallet, a tech company that makes it easy for businesses to understand, buy, and manage commercial insurance online. She has written for several outlets including Inc., Ooma, and Fundera covering small business news and advice.

What is a Convertible Note? A convertible note is a type of short term debt that converts into equity. Convertible note holders essentially get paid interest in the form of discounted equity shares, rather than regularly scheduled payments. They are often used by early stage startups when closing a seed round, and later stage companies looking for more cash in a ‘bridge’ round before their next planned fundraise. Convertible notes have a few key components: Conversion Discount — The discount at which the investor will receive shares at the date of maturity or the next ‘qualified financing’ (i.e. the next round of funding). Valuation Cap — The cap on the valuation (i.e. price) that the investors will pay for their equity during the company’s next fundraise. Interest Rate — This interest rate will be added to the principal amount invested when the debt converts into equity. Most convertible notes in 2020 have a low rate to keep the value primarily on the equity conversion & reflect the current interest rate environment. Maturity Date — Like some other forms of debt, convertible notes have a maturity date at which the investor can request full payment back from the company. This date is mostly designed to set expectations for the date of the next round of funding. It depends. They have some clear advantages in that they tend to allow deals to get done faster. However, many in the VC community have been critical, citing that they come with more complexity and hidden risk down the road if both sides are not careful. Related resource: Liquidation Preference: Types of Liquidation Events & How it Works Are Convertible Notes Good or Bad? When Convertible Notes Are Good Convertible notes are good for quickly closing a Seed round. They’re great for getting buy in from your first investors, especially when you have a tough time pricing your company. Paul Graham wrote a post in 2010 called ‘High Resolution Fundraising’ in which he argued that innovation in convertible securities allows for more accurate & personalized pricing in early stage funding. If you need the cash to get you to a Series A that will attract a solid lead investor at a fair price, a convertible note can help. When Convertible Notes Are Bad Convertible notes are destructive when used carelessly. Having too many notes or poorly structured notes outstanding can put your company and later negotiations at risk by complicating your cap table. You should partner with a lawyer who understands the ins and outs of convertible notes, and educate yourself prior to closing a round with this type of funding. Convertible notes are great for speed in Seed rounds, but they must be well thought out to avoid problems later on. What Happens When a Convertible Note Matures? When a convertible note is issued, both the investor and founders are expecting the debt to ‘mature’ by converting to equity during a financing round within the next 1 to 2 years. However, notes also come with maturity dates, enabling the investor to get their money back (with some interest added to the principal) if that financing round does not happen on time. There have been instances in which companies are either acquired before their initial equity round or choose to not raise any equity funding. These are both rare occurrences, but they create tough situations. See investors are not making an exceptionally high risk investment just to get their principal back plus a small interest rate. VC’s and angels win by having huge outliers in their portfolio – if they don’t get equity and you become a unicorn, they lose. It’s best for founders to add language into their convertible notes that state what investors can expect to get in these situations. Do You Have to Pay Back a Convertible Note? Convertible notes are just like any other form of debt – you’ll need to pay back the principal plus interest. In an ideal world, a startup would never pay back a convertible note in cash. However, if the maturity date hits prior to a Series A financing, investors can choose to demand their money back. This could effectively bankrupt the company. After all, the startup raised the money because they didn’t have the cash in the first place. If a company raises money using multiple convertible notes, this risk is even greater. Because of this, neither side of the table wants a convertible note to reach its maturity date prior to the next round of funding. Is a Convertible Note Debt or Equity? Convertible notes begin as short term debt, but convert into equity during a later round of financing by allowing the investor to receive a discount on shares at a future date. The investor technically has downside protection in the event that the company goes out of business until the note converts. They are entitled to their principal in a liquidity event prior to the conversion date, or if the note reaches maturity prior to a qualified financing. Related Resource: A User-Friendly Guide on Convertible Debt How Does a Convertible Note Convert? A convertible note converts at the next ‘qualified financing round.’ In most cases, convertible notes are issued during a seed round, with the Series A round being the expected conversion event. However, it’s critical to understand the terms at which the note will convert because it will have a huge impact on dilution (this article goes into depth on convertible instruments and dilution). There are three options, all of which are explained in great detail in this post from CooleyGo and this one from Alexander Jarvis Pre Money Method In this instance, the convertible note converts based on the pre-money Series A valuation of the company. The dilution in this case will be passed from the founders on to the note holders and new Series A investors. Percent Ownership Method With this method, the note will convert based the percent ownership that the incoming Series A investor expects to receive. Founders bear the brunt of all of the dilution, which benefits the convertible note holder in addition to the new investor. Dollars Invested Method This method is unique in that it includes the value of the convertible note in the post money valuation of the company. In the Pre Money Method, the founder is favored at the expense of investors, while in the Percent Ownership Method, the founder gets diluted more than they expect. The Dollars Invested Method serves as a middle ground between the two, and allows the dilution to be shared amongst the Seed investors, Series A investors, and founders. Why Are Convertible Notes Used By Startups? Convertible debt has obvious advantages in that it can allow you to get deals done faster. By giving your first investor(s) a good deal, you compensate them for taking a risk on your team by allowing them the option to take a future stake in your company at a discount, while protecting their downside risk. However, you should be warned that these early benefits can come with nasty long-term consequences if you are careless with convertible notes. It’s best to be careful, do your research, and understand the terms so that you’re protected for future rounds. When Should Convertible Notes Be Used? When they can help you close your seed round faster: If a company is trying to raise a seed round, one of the biggest challenges they’ll face is getting the first investor to say yes. There is an old saying in the startup world that the most common question investors ask is ‘who else is investing?’ There is a ‘herd mentality’ stereotype that is often applied to VC’s. Even though it drives founders crazy, investors have a point. Startups almost always need cash to succeed, and if they’re not fundable, they’ll fail. For an investor to see a return, the company will need many other investors to see the same value. No investor takes more risk in this regard than angels or early stage VC’s. They need to take the first chance on a company, typically long before it has any substantial financial or user data to make a convincing funding argument that’s based on fundamentals. Angels are making high risk bets on an idea, a team, and a market. Convertible notes allow founders to provide better deals to investors who take this risk, and ultimately give you a chance to scale your company. To give you more time to determine a valuation: One of the most difficult problems when getting an early stage deal done is agreeing on a valuation. Seed stage founders don’t have much data to help price their company, and every investor wants to wait until someone else agrees on a given valuation to get on board. Investors keep the company arms length, waiting for another fund or angel to take the first step. With convertible notes, founders can offer better terms to an investor who writes the first check, and delay having to put a firm price on their company. Notes also enable companies to avoid extra legal fees associated with negotiations that take place during equity financing . This allows them to save cash and get deals done faster (although there are now templates like Series Seed documents that make this easier). When Should Convertible Notes NOT Be Used? When they can overcomplicate your cap table: If a company raises money with multiple convertible notes, the cap table can get complex and the founders may place themselves in an uncomfortable position. This is especially the case if they don’t hit the next qualified financing on time. Convertible notes are still debt prior to their conversion. You may be liable to pay back cash that you don’t have if your future round doesn’t go as planned. This also gets awkward if founders don’t raise another round of funding at all (i.e. if the company gets acquired, hits profitability, or goes out of business). The key is to remove the complexity by trying to include these scenarios in your thinking prior to closing the seed financing. We suggest reading more about this from Jose Ancer on his insightful blog: Silicon Hills Lawyer. When they come with extra dilution and liquidation multiples: We touched on dilution in convertible note conversion earlier in this post, but they can also pose another challenge: liquidation multiples. Here’s a quick example on how a hidden liquidation multiple can surface with a convertible note: Let’s say an investor who gives us a convertible note worth $1M at a $10M valuation cap (more math to come later). If we raise a $20M seed round, this investor ends up owning roughly 10% of a company that is now worth $20M. They only paid $1M, but now are entitled to $2M in the event of a liquidation. This investor will now receive 2x what they paid in the event of an early liquidation that is worth less than the initial valuation. This is quite disadvantageous for the founder (and potentially other investors). You can avoid this situation by adding some additional language to your convertible notes – similar to this this paragraph suggested by Mark Suster (but consult your lawyer first). Related Resource: Everything You Should Know About Diluting Shares What the pros say: Many investors, such as Jason Lemkin, Fred Wilson, and many others have been critical of convertible notes. They would rather put a price on the company and believe that, due to their experience, they can negotiate a fair price quickly. They also argue that the valuation cap essentially puts a price on the company by default. If you’re willing to price your company, why not just raise the equity and avoid the headache that can come with the conversion? Jason Lemkin also argues that investors who invest with convertible debt are less incentivized to be involved early on. After all, they don’t yet have any control or stake in the company. To some investors, the complexity of convertible notes is not worth the time saved – it’s simply pushing important conversations down the road while exposing both sides of the table to unnecessary risk. Convertible Note Examples Let’s say you’re a founder of a seed stage company who just raised $1M via convertible note. The valuation cap is $10M and the discount rate is 20%. Then, you raise a Series A round 18 months later at a $20M valuation. If there are 1M shares outstanding, then new investors will pay $20 per share, while the investor who issued the convertible note will receive equity based on either a valuation cap or the discount – typically whichever is most advantageous for the investor on a price per share basis. Example 1 - If the note converts based only on the $10M valuation cap, then the $1M invested will convert into a $10 per share price vs a $20 per share price ($20/share multiplied by ($10M cap divided by $20M Series A valuation), turning the $1M investment into $2M in simple terms. The $1M investment will now convert into 100,000 shares. The seed investor will get an effective 50% discount on the shares ($10/share vs $20/share) and a 100% return on their investment. Example 2 — On the other hand, if the note converts at the 20% discount rate, the investor will be able to buy the shares for $16/share rather than $20/share. This would allow the investor to convert their $1M investment into 62,500 shares ($1M / $16/share) rather than 50,000 shares had they invested in the Series A. The $1M investment converts into equity worth 1.25M, a 25% return on their investment. In this case, the investor would convert the shares on the basis of the cap, because it provides better economics. The math works out similar to what would have happened had they simply invested $1M at a $10M post money valuation, but they did not have to bear as much risk as typical equity holders and likely got less dilution. The investor, in exchange for taking an early chance on a company, gets a better deal than those who came in later. This is an overly simple example of how a convertible note works, but it’s useful to see how the conversion math looks in practice. Looking for more resources on fundraising, investor updates, and navigating the unsteady waters of startups? Subscribe to our newsletter — The Visible Weekly, Curated resources and insights delivered every Thursday.

TL;DR — We are excited to announce Visible Connect, our investor database. Visible Connect uses first hand data and directly integrates to our Fundraising CRM. You can give Visible Connect a try here. Fundraising is a challenging, time consuming process for startups. One of those challenges is finding the right investors. Founders spend countless hours trying to understand: Is this investor active? What deals have they done recently? Will they lead? Take a board seat? What geographies do they invest in? What stages? What verticals? What size checks do they typically write? Have they raised a new fund recently? Do they have certain traction metrics or growth rates they like to see? The current patchwork of data sources & resources lack the founder first mentality, can be cost prohibitive and lack insightful data for founders who are fundraising. This isn’t a novel idea. Founder-friendly individuals who know the pain of fundraising consistently try to solve aspects of this problem with lists like Joe Floyd’s Emergence Enterprise CRM and Shai Goldman’s Sub $200M fund list. We believe these efforts should be coordinated and data aggregated for the benefit of founders everywhere. Introducing Visible Connect In the spirit of the Techstars #givefirst mentality, we are thrilled to announce Visible Connect. Our attempt at curating the best investor information in the world and opening it up as a resource for founders to derive investor insights and run more efficient fundraising processes. Visible Connect allows founders to find active investors using the fields we have found most valuable, including: Check size — minimum, max, and sweet spot Investment Geography — where a firm generally invests Board Seat — Determines the chances that an investment firm will take a board of directors seat in your startup/company. Traction Metrics — Show what metrics the Investing firm looks for when deciding whether or not to invest in the given startup/company. Verified — Shows whether or not the Investment Firm information was entered first-handed by a member of the firm or confirmed the data. And more! Visible Connect + Fundraising Pipelines Once you filter and find investors for your startup, simply add them to your Fundraising Pipeline in Visible to track and manage your progress (You can learn more about our Fundraising CRM here). We believe great outcomes happen when founders forge relationships with investors and potential investors. One of the benefits of the current system is that founders with options are forced to be thoughtful about who they reach out to. However, not all founders feel they have options. They need to know that they do. We believe Connect is not a tool for founders to ‘spray and pray’ or spam investors with template cold emails. There will be no contact emails provided on the database for this reason. We believe founders waste precious time trying to figure out investor fit and profile for their given stage when they could be spending that time building potentially fruitful relationships with the right investors. It should not be a core competency of a founder to understand all of the investment thesis for venture investors. Connect Data Sources We collect data in three principal ways: Primary information – Direct attestations from venture capitalists, accelerators and other investment firms about their business Secondary information – investor lists provided to us by venture capitalists (co-investors) or startup founders aggregated in the course of a fundraise or the ordinary course of business Public information – third party data sources that are not labeled as proprietary or have terms of use associated. These sources may include: deal flow newsletters, public lists and databases, social media posts, journalistic articles, and more We’d like to give special thanks to all the individuals who gave their time to build data sources used in the compilation of this ongoing project. The AllRaise Airtable of investors. All Raise is on a mission to accelerate the success of female founders and funders to build a more prosperous, equitable future. Data from the team at Diversity VC The Southeast Capital Landscape built by Embarc Collective, Modern Capital, Launch Tennessee, and HQ1 Joe Floyd and the Enterprise Fundraising CRM Shai Goldman and the Sub $200M VC fund list Crunchbase Open Data Map API NVCA’s membership database The Fundery’s Essential VC Database for Women Entrepreneurs Venturebeat’s NYC lead investor roster This public airtable aggregating investors who invest in underrepresented founders (anyone know who we can give credit to?) David Teten’s list of Revenue-based Investors (and Chris Harvey’s tweet about it) Tech In Chicago’s list of Chicago VCs Clay and Milk’s list of Midwestern VCs Brian Folmer of XRC Labs Nick Potts of Scriptdrop Ideagist’s list of accelerators and incubators in California Jason Corsello’s Future of Work Investors Dan Primack’s Pro Rata Newsletter (We manually enter this data daily) Evan Lonergan’s Excoastal (We manually enter this data weekly) Austin Wood’s Tech Between the Coasts (We manually enter this data weekly) We’re always looking to bring on more data sources, contributors and maintainers of the project. If you want to submit a data source or help contribute you can fill out this Airtable form.

Naval Ravikant, the founder of AngelList, recently began a new project called Spearhead. The program gives founders $1M to start angel investing, and seeks to educate those who wish to enter the space. The Spearhead podcast, meant to scale these efforts, is a treasure trove of insights not just for those who wish to be angels, but for entrepreneurs looking to raise a Seed round. You can find the full podcast & transcribed episodes at spearhead.co. Here are 7 insights for founders from the podcast: Angels build brands. Be aware of who you’re associating yourself with. Investors in early stage companies need not just deal flow, but access to the best deals. To get access, angels build brands. They do this in many different ways – Jason Lemkin built the SaaStr conference, Naval built AngelList, and Fred Wilson blogs. You should be mindful that the brands you associate yourself with in the early days can have an impact on the future of your company. Angels with great brands can get you access to key hires, new customers, & helpful mentorship. Future investors may also use the brand of your angels as a signal as to whether or not they should invest. If your early stage investors have have a track record of success, securing later funding gets easier. Avoid angels who put too much on the line. It can lead to bad behavior. If an angel invests so much into your company that they stand to lose a large portion of their net worth if you fail, this could lead to tense situations. This applies to family member & friend investments as well. Angel investing is a high risk sport, you should only play with people who understand this. Don’t use FOMO as a fundraising tactic. The best angels refuse to be pressured into a deal. Telling a high level angel investor that they ‘only have 24 hours to get into the round!’ can backfire. There is a fine line with this, as social proof and scarcity are tools that you need to leverage when fundraising. However, being overly aggressive or pushy makes people hesitant about working with you – especially investors with experience and strong brands. Social proof is key. Angels are often wary about getting involved in deals where they have no network connections to the founders or fellow investors. Naval & Nivi explain this by saying that good angels should be cautious about deals that are made up of complete strangers. If a founder is raising money and none of their direct connections or past investors are involved, that may be a bad sign. Similarly, if an angel with excellent judgement writes a huge check to a company, it sends a message to other investors that they’re a strong bet. Cold emailing is part of the fundraising process, but you’ll have far more success with people you already know. Your network is critical. Build it before you have to. Get your psychology right. Great founders often toe the line between visionary & madness. To build a massive company, you need to attempt something that most people don’t think will work. It takes a special mindset to do this. Naval explains that great angels don’t expect founders to be ‘coachable’ or have perfect records, as they sometimes have to operate as an outsider at first to be successful. Instead, founders should be aggressive and seek to build traction. However, you should avoid the perils of over-aggressiveness. If you prioritize hyper growth at the expense of traction, you can end up ‘blitzfailing’ as David Sacks explains on a guest episode of Spearhead. You need to keep your genius in check, and ensure that you’re prioritizing the right things in your business. Build a technical network. Angels are looking for huge returns in exchange for taking a chance on you. This is an all or nothing game, and you’ll need to be very right when others are wrong. It’s often the only way to generate massive returns. This is why you should solve technical challenges where you have what Naval calls ‘specific knowledge.’ Many of the most valuable startup opportunities are in technology. Build relationships with scientists & technologists at the source of new developments. These people can give you access to angels who seek to invest in tech companies, in addition to talent and insight that comes from the source of innovation. Get your team right. Angel investors are betting on founding teams more than their initial ideas. Pivots are common in startups, and savvy early stage investors understand this. When a company pivots, the common denominator ends up being the team the angels invested in. Naval explains that you should seek to create a company of world class builders, salespeople, & community creators. These are vague categories that take on different meanings in different industries. A builder could be a software engineer or a logistics expert, while a seller could be a fundraiser or a marketer. The key is to have both. An amazing product with no distribution won’t win, and Naval calls the outsourcing of product development a “red flag.” Team up with skilled people who have the 3 traits Naval & Nivi look for in partners – intelligence, energy, and integrity. If you do this, you’ll attract investment, and be more likely to whether the inevitable storms that come with starting a company. When marketing any product, you start by understanding your customer. Why wouldn’t you do the same when selling investment opportunities in your company? We think that Spearhead is a great entry point into understanding the psychology of an angel investor, and hope that you can use these insights when raising funding for your early stage startup. Want more advice delivered to your inbox every Thursday? Subscribe to our Founders Forward Newsletter. We search the web for the best tips to attract, engage and close investors, then deliver them to thousands of inboxes every week.

Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days. What are the advantages of angel investors? When trying to get investors to fund your company, you should know that funding comes in a variety of flavors. You will have access to different types of investors depending on your industry, company stage, and size. A common question we receive when talking with new founders is about the difference between varying types of investors. In this post, we’ll explain the the differences between angel investors and venture capitalists and the advantages of angel investors. Angel investors and venture capitalists have many things in common. In principle, VC’s and angels perform like functions – they invest in your company in exchange for a percentage of ownership. The amount of money they give and the total number of shares they take is dependent on their valuation of your company. To better understand the advantages of angel investors and VCs, we need to take a look at the differences between angels and VCs. Angel Investors vs. Venture Capitalists VC funds are often organized under the limited partnership (LP) model. They raise large sums of money from institutions – such as pension funds, endowments, and family offices, then invest that money in exchange for a share of the return & management fees (see this excellent article by Elizabeth Yin for a deeper explanation on how VC’s make money).This gives them incredible leverage and financing power, but often leaves them under the watchful eye of LP’s who want a return on schedule. Angel investors usually operate under a different model. Most tend to be high net worth individuals, and in many cases have built and exited a company themselves. They need to be accredited investors who can stomach the inherent risks involved with early stage startups. Because angel investors tend to have smaller sums to invest than VC funds, you’ll often find them in Pre Seed and Seed rounds. VC’s tend to participate across all rounds, but typically only they can afford to play the game in Series B and beyond, as the shear amount of money required tends to be out of the range of most angels. How Angels and VCs Can Help Angel investors can often play a role in providing crucial company building guidance in the early days. Because they tend to arrive on the scene early, they stand to make a massive return if your company succeeds. VC’s can be equally helpful, and they’ll sometimes place a member of their fund on your board who can assist in guiding the direction of your company. And, if you’re successful after raising funding from them, they’ll often provide and help orchestrate follow on investments as you continue to grow. While you can benefit from raising from both angels and VC’s, it’s important that you be careful and seek to partner with investors who are high integrity. Some VC’s are known for asking CEO’s to step down the moment that things don’t go well, while angels can try to become too involved in the operation. There’s an apocryphal quote about the average founder / investor relationship being longer than the average marriage – we recommend keeping that in mind when doing diligence on your angel investors and venture capitalists. Advantages of Angel Investors While you can benefit from raising from both angels and VC’s, it’s important that you be careful and seek to partner with investors who are high integrity. Some VC’s are known for asking CEO’s to step down the moment that things don’t go well, while angels can try to become too involved in the operation. There’s an apocryphal quote about the average founder / investor relationship being longer than the average marriage – we recommend keeping that in mind when doing diligence on your angel investors and venture capitalists. What Kind of Money Do You Want? Not all investments are created equally. Do you want an investor that will write you a check and leave you alone? Are you interested in ‘smart money’ that will help you build your company? Do you want mentorship in exchange for a board or advisory seat? No one can answer these questions for you, but it’s important to keep it them mind when evaluating the pros & cons of angel investors vs venture capitalists. Fundraising is one of the hardest jobs in the world – you should try to make it worth it. To learn more about fundraising, subscribe to our weekly newsletter here.

Over the last few months we’ve directly helped a few of our customers with their venture fundraise. One of the questions that continues to come up is, “how should I display my sales and marketing plan in my pitch deck?” In order to best help our customers, we’ve set out to research and find out how to best display go-to-market strategies. Your Business Model Your business model often goes hand-in-hand with your go-to-market and customer acquisition strategy. At the end of the day, an investor needs to make a return on their investment. In order to do so, investors need to clearly understand how your company will make revenue. In the Guy Kawasaki pitch deck template, Guy suggests sharing your business model in slide 5 and following that with your marketing and customer acquisition plan in slide 6. Assuming you have a solid understanding of your business model, you’ll need to clearly articulate how you will acquire new customers and retain existing customers. Your Go-to-Market Strategy Being able to show a repeatable and efficient process for acquiring new customers is a must. Investors want to make sure that they will not be throwing their money down the drain. Going into a pitch with potential investors you need to understand your go-to-market strategy like the back of your hand. Make sure your GTM strategy slide is easily digestible and can be easily understood without added context. Still developing your GTM strategy? Check out how Nick Loui, CEO and Founder of PeakMetrics, found their first customers below: Customer Acquisition Costs & Strategy One of the key metrics that investors will want to understand is your costs to acquire a new customer. (Learn more about CAC here). It is important to demonstrate to your investors that your customer acquisition costs are less than your customer lifetime value. This will help showcase your path to profitability. Ablorde Ashigbi is the Founder and CEO of 4Degrees. Earlier this year, Ablorde wrapped up a round of financing for 4Degrees. We went ahead and asked Ablorde what tips he has for founders looking to showcase their CAC in a pitch deck. His response: Don’t present CAC without a corresponding view of LTV Don’t present a blended CAC (including both organic and paid – only include conversions that came from paid channels) For earlier stage companies, payback period equally (maybe more) important than pure LTV / CAC When it comes to presenting your GTM strategy and customer acquisition costs it all comes down to simplicity. An investor should be able to take a look at your slide and know exactly how your business functions. Under the current circumstances and in the wake of larger companies failing to find profitability, a financially responsible customer acquisition strategy is more important than ever. If you have your own tips for presenting your GTM and customer acquisition strategy, we’d love to hear it. Shoot a message to marketing at visible dot vc. Related Resource: Customer Acquisition Cost: A Critical Metrics for Founders

Term sheets can be intimidating as a first-time founder. As it is likely the first time you’ve seen a term sheet, the intricacies of the deal can be difficult to understand. You can spend hours trying to understand a term sheet and what exactly makes up a “good” term sheet. As the team at YC writes, “we’ve noticed a common problem: founders don’t know what “good” looks like in a term sheet.” If you’re looking for a breakdown of a term sheet specific to Series A, check out our blog post, “Navigating Your Series A Term Sheet.” In order to help founders best understand their term sheets, many firms and individuals have come up with their own term sheet templates. In fact, many investors and founders now use a 1-page term sheet template. Check out our breakdown of term sheet components with a few templates below. As a note, this is not legal advice and we suggest consulting with your lawyer while reviewing your term sheet. Related Resource: How to Choose the Right Law Firm for Your Startup VC Fundraising Timeline As we often write about at Visible, we believe a startup fundraise shares a lot of characteristics of a B2B sales funnel. In the most simple breakdown — at the top of the funnel you are bringing in new investors, in the middle you are nurturing them through investor updates and meetings, and at the bottom, you are signing term sheets and building relationships with new investors. Kicking off a VC Fundraise Once you have formed your company and launched/are preparing to launch a product you may decide to pursue venture fundraising (to learn more about determining if VC funding is right for you, check out this post). Before kicking off a fundraise, especially at seed stages and later, you likely have some form of product-market fit. Finding Investors If you’ve decided VC funding is right for your business. You’ll need to start finding investors to “fill the top of your funnel.” Check out Visible Connect, our free investor database, to filter and find the right investors for your business. If you’re earlier in your company lifecycle and want to find angel investors, check out this post. Pitching Investors Once you start reaching out to investors (via cold email or warm intros) you’ll begin a series of meetings and pitches with the hopes of moving them down the funnel. Check out our template and guide for pitch decks here. Related Reading: How to Write the Perfect Investment Memo Due Diligence and Final Steps If an investor is interested in moving forward, you will likely begin due diligence where they will audit your data, get feedback from customers and investors, and confirm their conviction in your company. If they decide to move forward, next comes a term sheet. Term Sheet At the end of a fundraise comes the term sheet. Assuming both parties are happy with the terms, you’ll be able to onboard your new investor. 6 Components of A VC Term Sheet Liquidation Preferences Liquidation preference is simply the order in which stakeholders are paid out in case of a company liquidation (e.g. company sale). Liquidation preference is important to your investors because it gives some security (well, as much security as there is at the Series A) to the risk of their investment. If you see more than 1x, which means the investor would get back more than they first invested, that should raise a red flag. To learn more about liquidation preferences check out this article, “Liquidation Preference: Everything You Need to Know.” Dividends In the eyes of an early-stage investor, dividends are not a main point of focus. As Brad Feld puts it, “For early-stage investments, dividends generally do not provide “venture returns” – they are simply modest juice in a deal.” Dividends will typically be from 5-15% depending on the investor. Series A investors are looking to generate huge returns so a mere 5-15% on an investment is simply a little added “juice.” There are 2 types of dividends; cumulative and non-cumulative. YC warns against cumulative dividends; “the investor compounds its liquidation preference every year by X%, which increases the economic hurdle that has to be cleared before founders and employees see any value.” Conversion to Common Stock Common practice will automatically convert preferred stock into common stock in the case of an IPO or acquisition. Generally, Series A investors will have the right to convert their preferred stock to common stock at any time. As Brad Feld puts it, “This allows the buyer of preferred stock to convert to common stock should he determine on a liquidation that he is better off getting paid on a pro-rata common basis rather than accepting the liquidation preference and participating amount.” Voting Rights On a Series A term sheet, the voting rights simply states the voting rights of the investor. Generally, your Series A investors will likely receive the same number of votes as the number of common shares they could convert to at any given time. In the Y Combinator example, as with most term sheets, this section can include some technical jargon that is not easy to understand. The most important vetoes that a Series A investor usually receives are the veto of financing and the veto of a sale of the company. Board Structure One of the more important sections when navigating your Series A term sheet is the board structure. Ultimately, the board structure designates who has control of the board and the company. How your Series A investors want to structure the board should be a sign of how they perceive you and your company. The most “founder-friendly” structure is 2-1. A scenario in which 2 seats are given to the common majority (e.g. the founders who control a majority of the common stock) and 1 given to the investors. This allows founders to maintain control of their company. On the flip side, there is a 2-2-1 structure (2 founders, 2 investors, 1 outside member). In this scenario, it is possible for the founders to lose control of the company. While a common structure, be sure that the board structure is in line with conversations while fundraising. As Jason Kwon of YC puts it, “So when an investor says that they’re committed to partnering with you for the long-term – or that they’re betting everything on you – but then tells you something else with the terms that they insist on, believe the terms.” Drag Along As defined by the Morgan Lewis law firm, “Drag along is the right to obligate other stockholders to sell their securities along with securities sold by the investor.” Drag along rights give investors confidence that founders and the common majority will not block the sale of a company. While there is no way around drag-along rights, some people will suggest that founders negotiate for a higher “trigger point” (e.g. ⅔ votes as opposed to 51%). You can learn more about drag along clauses in this post, Demystifying the VC term sheet: Drag-along provisions. VC Term Sheet Examples The Y Combinator Term Sheet Template With thousands of investments under their belt, Y combinator is always a great place to start when looking for startup best practices. The team at YC put together an awesome 1 page term sheet template (with a focus on Series A) that any founder can use. While your actual term sheet may look different the Y Combinator Term Sheet template is a great place to get familiar with the subject. YC does a great job of breaking down the different components and laying out terms and language that founders should keep their eye out for. Check out their term sheet template here. Buffer Series A Term Sheet The team at Buffer raised a $3.5M Series A back in 2014. Check out the signed term sheet and the terms from their raise here. VC Term Sheet Templates As term sheets are a necessary part of any fundraise there are hundreds of templates and examples to choose from by the investors, founders, and lawyers that have been there before. Check out a few popular templates below: The One Page Term Sheet Template from Ben Milne Ben Milne, Founder of Dwolla, has spent his fair share of time navigating term sheets. Ben is a Midwest founder and has seen the amount of time midwest founders and investors waste negotiating term sheets. As he put it, “Midwest investors and founders lose a lot of time trying to figure out the term sheet. Sometimes, they lose even more time deciding what the terms should be.” In order to help bring some guidance to both startups and investors, Ben put together a one-page term sheet template. You can check out the template below: You can check out the one-page term sheet template from Ben Milne in this blog post. The NVCA Term Sheet Template The National Venture Capital Association recently released their latest version of their term sheet template. As the team put at NVCA wrote, “The Enhanced Model Term Sheet allows an investor to draft term sheets while comparing terms against market benchmarks. Version 2.0 is powered by a database that now includes more than 100,000 venture transactions, representing over 40,000 investors with a combined network of over $1 trillion in assets under management.” Check it out and download the template here. Let Visible Help We are here to help with any fundraise. Use our free investor database, Visible Connect, to kick off a raise. From here, use our fundraising CRM as you move investors through your funnel and sign a term sheet. Start your free trial here.

Elizabeth Yin is the Founder and General Partner at Hustle Fund (and one of our favorite follows on Twitter). A few weeks back she Tweeted that fundraising is all about managing the supply and demand. As she put it, “Supply of your round. Demand from investors.” (To pick Elizabeth’s brain on the matter, we hosted a webinar with her last week. Check out the recording here.) Before I dive into what this is, let’s take a step back. Fundraising is all about supply and demand. Supply of your round. Demand from investors. It’s hard to control demand from investors. But you can constrain the supply in your round to get it done. — Elizabeth Yin (@dunkhippo33) May 29, 2020 Rewind to your Economics 101 course and you’ll remember the supply and demand curve all too well. To jog your memory, “The price and quantity of goods and services in the marketplace are largely determined by consumer demand and the amount that suppliers are willing to supply. Demand and supply can be plotted as curves, and the two curves meet at the equilibrium price and quantity.” So what does this have to do with startup fundraising? Well, a lot actually. Managing the Demand from Investors Managing the demand for your round from investors can be difficult. If you don’t have the combination or product, market, or team that an investor is looking for, drumming up demand might be difficult. However, there are a few levers you can pull to generate demand and encourage investors to move faster. If you look at your startup through the eyes of the investor, most of the time it is not beneficial for them to make an investment now. They will only benefit from waiting to see more data to make a more informed decision on your investment in 6 months. As Elizabeth explains, “It is your job as a founder to build impetus for investors to move now.” You want them to feel like the deal won’t be on the table in 6 months. The best way to do this is to generate demand from a large group of investors. This means that you are running a strong process and talking to as many investors as possible to drum up demand. This will create a fear of missing out for investors as you continue to push forward with meetings and new investors. As Elizabeth Yin puts it, “you want investors to be afraid of each other.” Constraining the Supply of Your Round When it comes to raising a smaller round drumming up demand almost feels impossible. At earlier stages, you likely lack a product or strong traction metrics that forces investors to move fast. Additionally, you’ll likely be talking to smaller investors and cashing smaller checks that don’t create the urgency for larger firms to jump in before the round is closed. Tranche Strategy One way Elizabeth Yin suggests to constrain the supply of your round is by using a tranche strategy. “As an example, Elizabeth uses a seed company going out to raise $2M total. This company may go out and raise a smaller tranche to create some demand from investors to move quickly. For example, if the smaller tranche is $500k investors may have a fear they will miss out as it is a smaller size round that is easier to raise. From here, it is a lot easier to go to larger investors as you can create some urgency around the round as you’ve already raised $500k.” Ask around and see what your founder and investor think about trying a tranche strategy. While some investors may not agree with a tranche strategy it is up to you as a founder to make the decision that is best for your business. Tranches can certainly be a powerful way to manage the supply and demand of your round. Take on Your Investors in Sets Another strategy to constrain supply and build demand is by taking on your investor meetings in sets. As the team at First Round Review puts it, “There’s nothing worse than the perception of an over-shopped deal, as VCs relish having the inside scoop on an exciting company. Group investors in batches to better evaluate and select them, like a surfer scanning sets of waves that move toward the shore.” Regardless of how you look at it, fundraising essentially turns into a founders full time job. By accepting this, you’ll be able to stack your meetings for a full schedule. This will allow you to talk to new investors regularly and build a strong process. As you continue to escalate conversations with different investors, this will also create a sense or urgency that the deal is moving forward and now is the time to get in on the terms. Fundraising is hard in good times and challenging times. By building a process and understanding what levers you can pull you will only increase your odds of a good raise. Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days.

Last week, we had the opportunity to talk to Elizabeth Yin of Hustle Fund. Elizabeth Yin is a co-founder and General Partner at Hustle Fund, a pre-seed fund for software entrepreneurs. Previously, Elizabeth was a partner at 500 Startups where she invested in seed stage companies and ran the Mountain View accelerator. In a prior life, Elizabeth co-founded and ran an adtech company called LaunchBit. Our CEO, Mike, and Elizabeth chatted about all things related to fundraising. Elizabeth shared what she has seen in the VC market over the past few months and how founders can manage the supply and demand of their round. Check out the video recording or our favorite takeaways below: Now is Actually a Good Time to Raise Fundraising in good times and bad times is challenging. Fundraising over the past few months could almost feel impossible. Elizabeth saw her portfolio companies attempt to raise in early April and most struggled as larger firms slowed investment at the start of COVID. However, investors, both large and small, are quite active again. With US states beginning to open and more investors comfortable with making remote decisions investment activity has been picking up pace. With the uncertainty of a future lockdown in the US it may also be a good idea to raise now. As Elizabeth puts it, “now is actually a good time to raise, especially from local investors.” In fact, Hustle Fund has even increased investment over the past 2 months. Bifurcation of Terms As Elizabeth puts it, “terms have been weird.” Elizabeth has been seeing a bifurcation of terms over the last few months. On one side, you have well networked founders raising at very high valuations similar to 2019. On the flip side, you have less networked founders raising at quite low valuations. Why Invest Now? When going out to raise it is important to understand how investors think to improve your odds of success. One of the first questions an investor will ask themselves is, “Why should I invest now?” However, most of the time “now” is not a great time for investors to make an investment. Generally, it is most beneficial for an investor to drag their feet as they can get more information and data. So how do you make investors move faster? You need to make an investor feel like they cannot wait 6 months because the valuation will change and the deal won’t be on the table. As Elizabeth said, “your job is to generate demand on your deal from other investors… you want investors to basically be afraid of each other.” You can do this by running a strong process and talking to a LOT of investors. Tranches Can Be Useful When going out to raise a seed round it is difficult to get people to move faster on the deal. You have a large supply of your raise with little demand. At the earliest stages, investors rarely feel motivated to move quickly as the deal may still be on the table in 6 months. To help with this, Elizabeth suggests reducing the “supply of your round” using tranches. As an example, Elizabeth uses a seed company going out to raise $2M total. This company may go out and raise a smaller tranche to create some demand from investors to move quickly. For example, if the smaller tranche is $500k investors may have a fear they will miss out as it is a smaller size round that is easier to raise. From here, it is a lot easier to go to larger investors as you can create some urgency around the round as you’ve already raised $500k. While Elizabeth may be a black swan when it comes to her thoughts on tranches, it can certainly be a powerful way to manage the supply and demand of your round. Customer Discovery… with Investors If you are struggling to drum up any interest from investors you likely need to improve different aspects of the business. Feedback from investors can be a valuable asset for prioritizing your time. Elizabeth suggests harnessing customer development strategies when it comes to investors. While you may not hear back from most investors, getting feedback and data points from investors that rejected your company can be incredibly valuable. If you start to see a theme in why investors said no, that is a good indicator of where you need to improve your business. Founders Should Fundraise Full Time Elizabeth suggests that her founders do fundraising full time (when they set out to raise). This means that you are not working directly on the business. In a good raise, it can take anywhere from a few weeks to a few months to close your round. Juggling this and making sure the needle still moves without you there is challenging. Elizabeth promotes stacking your meetings so you may have 20+ meetings in a week as opposed to a handful. In the beginning, this is a great way to create urgency with investors. If you are taking second meetings and have a docket full of investor meetings, investors may feel the heat and move quicker. Interested in joining our next webinar? Subscribe to the Founders Forward to stay up-to-date with our upcoming webinars.

Fundraising is hard. Fundraising in the current environment can almost feel impossible. Being able to bring capital in to grow your business is a skill that all founders should hone. In this webinar you’ll learn: How the state of the venture capital has changed over the last 6 months How fundraising has changed over the last 6 months How to create supply and demand while fundraising How VCs think and work so you can better your odds of raising

Are you building your first pitch deck? The Guy Kawasaki pitch deck is a great place to start. It is not easy getting started on a pitch deck for you startup.A great pitch deck is concise, but thorough, informative, but not boring, simply designed, but with personality. Although you have a wealth of knowledge on your startup and market it is often intimidating trying to get everything you want to say in just a few slides. Enter: the Guy Kawasaki Pitch Deck Template. Who is Guy Kawasaki? Guy Kawasaki is a marketing specialist. He worked for Apple in the 1980s and is responsible for marketing the original Macintosh computer line in 1984. Guy is infamous for coining the term evangelist in marketing. He might be most famous for his simple pitch deck template and the 10/20/20 rule of Powerpoint and pitch decks. What is the 10/20/30 Rule of PowerPoint? What is the 10/20/30 rule of PowerPoint. The 10/20/30 rule is a presentation rule coined by Guy Kawasaki. As he wrote, “It’s quite simple: a PowerPoint presentation should have ten slides, last no more than twenty minutes, and contain no font smaller than thirty points.” The 10/20/30 rule is a great place to start when you are evaluating what should be in your pitch. By only allowing for 10 slides you’re required to have a hyper-focus on what truly matters to your business. Of course, every business is different. Some may require more than 10 slides and some may even require less. However, start with the 10/20/30 rule and see what you need to add or subtract from there. Before even getting too deep in the weeds by laying out your 10 slides you’ll have a skeleton of what your presentation will look like. The Guy Kawasaki Pitch Deck To go along with the 10/20/30 Rule, Guy also has a pitch deck template that he uses for lay out the 10 slides for a pitch. It looks something like this (originally from our pitch deck guide): Pitch Deck Slide 1 The first pitch deck slide of your business pitch is straightforward. A simple slide that shares your company name and contact info. Use this slide to set the stage for your pitch deck design. Pitch Deck Slide 2 The second pitch deck slide consist of what problem you are solving. This can take form in what the opportunity is or what the pain your potential customers are feeling. Pitch Deck Slide 3 The third pitch deck slide should explain the value proposition that you are offering. This explains the direct value that your customers receive when choosing your product or solution. This is where your business pitch template will come in handy as your describe your value. Pitch Deck Slide 4 The fourth pitch deck slide explains what differentiates your solution than others in the market. Guy Kawasaki suggests using a visual pitch deck design here by using images, charts, and diagrams of your “secret sauce.” Pitch Deck Slide 5 The fifth pitch deck slide should contain your business model. This shows how you are, or plan, to make money. Another slide where knowing your business pitch will be vital. Pitch Deck Slide 6 The sixth slide should contain your plan for acquiring customers. This slide will share how you can effectively find new customers and the costs associated. Pitch Deck Slide 7 The seventh pitch deck slide should show what the market looks like. This includes your competitor landscape. Guy suggests that “the more the better” for this slide. Pitch Deck Slide 8 The eighth pitch deck slide should be a highlight of your management team. Include a brief profile of your company’s managers and any other associated stakeholders. This can include your investors, board members, and advisors. Pitch Deck Slide 9 The ninth pitch deck slide should contain your financial projections and key metrics. The key to building a business is generating revenue and having a financial plan to effectively scale and grow. Use a top-down, not bottoms-up, projection to wow your investors. A visual pitch deck design will also help here by using charts to make your projections easy-to-understand. Pitch Deck Slide 10 The last pitch deck slide should be an overall timeline of your business. Where have you been in the past? What are the major accomplishments you’ve achieved so far? Where is your business headed and will the person you are pitching fit into this timeline? While every business differs, the Guy Kawasaki pitch deck template is a great place to start. Lay out your pitch using his style and see what you think. From here you can tailor it to your businesses’ needs. Once you’ve got your pitch deck in place, it is time to kick off your fundraise. Check out our guide on fundraising to make sure you’re making the most of your fresh pitch deck.

Raising capital is hard. Raising capital during a pandemic can feel impossible. As we discussed with Lolita Taub in our webinar last week, more founders are looking for alternatives to venture capital. Founders are looking to solutions like Pipe, Earnest Capital, ClearBanc, Angels, Friends & Family, among others. Raising from angels and friends/family came into focus during our webinar with Lolita. Note: Check out our “How to Find Angel Investors” guide if you’re searching for angels for your business. Friends and family often make for an easier fundraising process. Less stringent due diligence combined with less pitching can make friends and family be an attractive option. However, a friend or family member could be less startup savvy than a traditional VC and can become a burden to you and your business. Internally we call the burdensome investor, “Dr. Dan.” Maybe a family member or friend invested in your business but calls every week for status updates or to ask questions about a metric, etc. With the investor + founder relationships (8-10 years) lasting longer than the average U.S. marriage it is important that you are taking on investors that you can build a relationship with. So how do you approach a potential “Dr.Dan?” Set Expectations Early As we previously mentioned, a friend/family or angel investor may not be as startup sophisticated as your traditional VC. Sometimes an inexperienced investors’ expectations may be wildly different from reality. It is your job as a founder to make sure a potential angel investors expectations and reality are aligned. Before you cash a check, make sure that these investors are aware of the realities of investing in a startup. Make it clear how and when they will hear from you, what the possible outcomes are, and where their capital will be going. Even though someone is an “accredited investor” they are investing their own money and it could be a considerable chunk of their savings. Explore Other Options If you’re talking to a potential “Dr. Dan” you may need to weigh other funding options. As we mentioned at the beginning of the post there are quite a few alternatives for raising capital. While the most ideal is using customer revenue to fuel growth, that is generally not an option for most startups — especially early stage. There are countless alternatives and more popping up every day. You can check out a few of our favorite alternatives here. Trust Your Gut As Lolita Taub put it in our webinar, “You just have to hustle and do what you need to do for your business.” At the end of the day, only you know what the right decision is for your business. If you’re in dire need of capital, it may be worth the burden of bringing on a “Dr. Dan.” If you’re in a good spot financially, it may be time to re-evaluate and take your time to explore other funding options. There are countless pros of bringing on a new investor — capital, new networks, fresh eyes, etc. On the flipside, an angel or family/friend investor can quickly become burdensome if they are inexperienced or unsure of what to expect from you. Remember bringing on a new investor means bringing on a new business partner for the foreseeable future — only you know what the right decision is for your business. Already have angel investors? Send them a quick Update to let them know how your business is doing.

Fundraising is hard. Fundraising in the current environment as a first-time founder can feel impossible. Being able to bring capital in to grow your business is vital during these trying times. In this webinar, you’ll learn: How will COVID-19 impact the fundraising environment How to split focus between fundraising and cash efficiency How to conduct pre-fundraising research How to build relationships with potential investors How to manage and track my fundraise How to raise as an underestimated founder