oak fi-31.03.2016 - fundraising

How to raise some money?

Mika Marjalaakso

Founder InstituteMarch 31, 2016

My Background• I have raised 20+ funding roundings and helped my

fellow entrepreneurs raise venture capital north of +50musd. Mainly pre-seed, seed stage, some Series A and Series B.

• I have never failed in any of my fundraising efforts. Ever.

• Am I so good? No I am not. So, what’s the secret then?

It is relatively easy to raise money for a company that is

fundable. It is close to impossible to raise funding to a company that is not considered

as fundable.

So – focus on making your company fundable.

Three things that are essential for a company to be fundable

• The Market (space)• The Product• The Team

The Market• Some markets are simply too small to justify a VC

level investment. They might still be good opportunities for a lifestyle company, or an angel-funded feature that is either sold or reaches breakeven at relatively small amount of money (<1m€).

• Some, many actually, are extremely overcrowded. • Some markets are not ready right now. • Some markets require a Minimum Viable Product that

is too large and too risky for a startup.

The Market continues ...• So, what’s the big enough addressable market for a

venture funded startup?• It really depends on the underlying characteristics. • Typically the overall global market should be north of

10musd and your addressable market more than a billion as you enter the market. So that owning 10% slice of the addressable market makes a 100musd revenue company.

• If your market is either a niche or totally new market, you can start with total addressable market of few hundreds of millions (or zero), but then the expectation has to be that you will quickly (because of the comp. adv.) become an undisputed market leader.

The Market continues ....• Some market spaces offer tremendous potential for

pivoting. • Some markets are very rigid and you only have the

initial product / go-to-market angle and should that fail – there is nothing else to be tried out.

• Investors’ love markets that structurally, if everything goes well, do not present hindrance to hyper growth.

“When a management with a reputation for brilliance tackles a business with a reputation for

bad economics, it is the reputation of the business that remains intact.”

Warren Buffett

The Product• Normal evolutionary path: feature, product, company. • Don’t be afraid to start up with a feature as long as

you have constantly evolving map on how to move onwards from the initial feature.

• The product shows to the team itself and the investor that this specific team can actually build something together beyond PowerPoint slides. It reduces investors’ perceived and actual risk.

The Team• Timing and market are far more imporant

determinants of a startup super success than a team but they are way more difficult to measure in the early days.

• Team is a qualifier. Without a good and dedicated team, everything will go south quite quickly.

• Timing and market are winners, but they necessitate a good team as a qualifier.

What are the high level requirements for a great team?

• They must be able to swiftly execute against the market opportunity. Each opportunity is distinct and calls for a different composition and backgrounds for the ideal team.

• The ideal team composition changes over time as the company evolves and fine tunes its direction, as well as increases the maturity in the given direction.

• The market is competitive; the team must be able to go-to-market on a timely manner against the competition. Quality product at the right time and place.

Ideal Team Simplified• Key roles and complemetarities• Culture (right roles and skill sets mean nothing

without a great culture)

Key Roles (in a random tech company)

• Someone to lead the whole: CEO• Someone to define and product: VP, Product• Someone to deliver the product: VP, Engineering /

CTO• Someone to sell the product: VP, Sales• Someone to market the product: VP, Marketing

So, you have a fundable company – then what?

• You must be able to present your fundable company in a form of story with interesting narrative.

• You are also going to need the investor deck (10 slides).

• Substance is far more important than images and the color of the lines.

• Exact revenue figures – nobody believes in them.

So, you have a fundable company and you can document it nicely, then

what?• You need to be able to sell. If you are a boring person

and can’t inspire your investors with a fundable company (in terms of its narrative etc.) – guess what?

• You just became a loser.

• CEO together with his / her team must be able to inspire and lure the investors with their combined charisma.

Fundability, Deck, Selling ... anything else?

• Yes – the process. Mastering the fundraising process even at pre – seed / seed level offers a fundamental advantage.

• It will greatly speed up the closing of the round. • It will max the valuation. • And most importantly, it will increase the likelyhood of

getting money in the first place. • What’s the process then?

The Process• Build a prioritized long list. • Approach the list with a teaser first to disqualify the

one’s who do not get the full deck. • Find the lead investor. Don’t share the name of the

lead investor ever. Don’t let anyone to start building syndicates.

• Specify the ask, deal terms and provide a timeline. • Close the deal.

Typical problems in fundability• Market is too small or overcrowded• Team composition sucks; e.g. product lead missing or

not good enough• The equity pie has not been divided fairly or is

otherwise weird• Issues with team culture (e.g. independent comboys)• Lack of laser focus (product, business model, go-to-

market)• In between stages in future funding rounds

Key Takeaways

1.Become fundable my friend. 2. Create a compelling deck. 3. Inspire your investors.

– Passion– Likeability– Humble to learn yet determined to

execute and win4. Master the fundraising process.