Raising funding? Blume’s Karthik has some great advice for you

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👇 @DeepikaDakuda @saritaraichu 0/n
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. 1/n
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! 2/n
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. OR b) Sell into the investor’s visualization of the end market. Not 100% in your control. Also about timing in the market. 3/n
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. 4/n
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! 5/n
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. 6/n
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! 7/n
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 $ 8/n
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! 9/n
10) Dilution: – 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! 10/n
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 12/n
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. 13/n
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 14/n
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