What do VCs look for? 1. Do you have capability to build a large outcome? 2. Can you hire a team who can also build this outcome? 3. Is market large enough? If not, can you expand the market? That’s how you grow from $10B to $100B – by being the everything of everything!
As a part of our #BlumeVelocity program at @BlumeVentures, @BKartRed took a session for the founders on Fundraising!💰
Looong thread below on our takeaways on preemptive rounds, vision selling, round structures, & managing investors👇
1) There has been a massive⬆️in VC capital, from 450 funds in ’19 to ~600 today
@BKartRed: This is a great market to amass $ whether or not you need it – don’t know how long the party will last! But, if you don’t achieve revenue / EBITDA, market will eventually punish you.
2) 4 types of rounds:
Plan A: Optimal, priced, clean – usually with financial investors
Plan B: Sub-optimal round – strategics / poor terms / low balled valuation
Plan C: Internal/bridge round
Plan D: Sale/survival
Market shouldn’t sense multiple plans➡️indicates weakness!
3) Selling your vision:
a) Self marketing – why are YOU the right person to build this company? Is there founder market fit? Needs a certain persona.
b) Sell into the investor’s visualization of the end market. Not 100% in your control. Also about timing in the market.
4) ONLY way to sell: Underlying customer traction is on a tear — either engagement or adoption is at rare levels of velocity🚀If you’re not showing growth, you’re already in trouble⚠️
Monetization is less imp. If you’re seeing consumer ♥️, you can sell a round in advance.
5) Creating FOMO
– Organic (founder side): You’re hitting it out of the park & the market is talking about you
– Organic (investor side): They’re looking at the space & find you = space FOMO
– You excited the market➡️investors track you➡️even 1 TS coming in creates a frenzy!
6) The day you do PR for your previous round = best time to raise your next round. You’re the hottest property that day! After this you have to re-prove yourself.
If you raise immediately, you continue to sell on vision💡, not traction📈- easier for non niche businesses.
7) What do VCs look for?
1. Do you have capability to build a large outcome?
2. Can you hire a team who can also build this outcome?
3. Is market large enough? If not, can you expand the market? That’s how you grow from $10B to $100B – by being the everything of everything!
8) Build a $ war chest➡️Gives you courage to burn aggressively🚀
– Take $ whenever you get it – Afterall, “ghar aayi laxmi ko naa nahi bolte” 🙂
– Anything with < 10% dilution that gives you more $ = worth taking
– Be deliberate about measuring risk vs reward of taking $
9) Downside of frequent fundraises: May not see a big bump up in valuation (unless you show massive jump in traction/virality): could be 1.5-2x
But, if you grow very fast + are hot, your valuation jump can be > your revenue jump. Should entertain the offer to extend runway!
– Optimize for cash raised, not valuation
– If you feel strongly about dilution, control the $ raised➡️valuation adjusts itself
– Over subscribed? Take the money!
If you’re building for a large outcome, the small dilution changes don’t matter!
11) Complex structures: Not about IF but HOW!
– Always take the $, unless person acts in bad faith/ poor caliber of investor
– Structure should be as clean as possible
– Avoid performance linked
– Exceptions: Love the investor & size of capital isn’t meaningful in the full round
12) Convert notes
– Be more stringent on floors, not caps! Why cap the valuation? Instead put a floor to avoid low balled pricing
– Caps create mental barrier for incoming investors – seen as approx price
– Don’t be afraid of fixed pricing instead of taking a convert note
13) Need to think of investors as enterprise customers➡️build a cadence for updates & learn enterprise marketing!
💰raising & vision selling: Buck stops with the CEO, can’t delegate. But, get a CEO’s office resource to mine investors, manage the backend, forecasting, etc.
14) Ability to bring down burn & move towards quick profitability makes you anti-fragile. Helped Zomato survive the many ups and downs!
@BKartRed says – Don’t burn on experiments too aggressively unless:
a) You are on a steep growth chart and
b) Have ~12-18 month runway