While some entrepreneurs like uncapped notes, most investors hate them. But agreeing to a valuation cap can send a signal that may hurt you in your next round - it could be too high, scaring off potential investors or too low, hurting your negotiating power. Here is a way to raise this bridge with a price the investors will like without signaling any price at all!
In last week’s episode, we discussed the pros and cons of SAFE/Convertible Debt vs. Equity. This week we take a deeper dive into some unexpected problems you can run into when deciding to raise with SAFE/Convertible Debt. Make sure you are always putting yourself in the best position for your next raise, always be optimizing for the future!!
When you are raising your first round of capital you basically have two options, SAFE/Convertible Debt or Equity. One option may seem to offer more flexibility and lower cost, but the other will be much more beneficial in the long run. Show your investors you know what you are doing and do the hard work up front and you will benefit in the long run!
We’ve talked about how to construct a great deck, but how do you get in front of investors and make your meeting count? In episode six of MATH 101, Troy dives deeper into the fundraising process talking about how to identify key investors, getting the meeting, how to pitch, and the follow up. Remember, it’s not about you, it’s about the investor.
You asked, Troy answered! When you are starting to think about how much money you should raise, you probably start to develop a range in your head. In episode five of MATH 101, Troy digs into the strategy behind which side of that range you should push for to create momentum and excitement around your company. Additionally, he offers advice on how to best communicate to funds on how you will use their capital.
It sounds obvious when you say it out loud: if you show an investor a big pot of gold and a low-risk path to getting that pot of gold, he/she is going to invest. In episode four of MATH 101, Troy explains how to best illustrate this in your VC pitch. If you follow this advice, your audience will be listening!
In episode three of MATH 101, Troy highlights the risk of raising too much capital. Remember, you want to fuel growth, but you don't want to completely diminish the value to you and your shareholders!
In this example, Troy assumes a $50mm exit -- the 2017 average for N. American and European exit activity -- across three different scenarios: bootstrapping, raising too much, and raising the proper amount.
In episode two of MATH 101, Troy digs into when the best time to raise capital for your young business is. In entrepreneurship, timing is everything, and it's more of an art than a science. This video should start to demystify where in the process you should think of raising money, enabling you to play chess while your competition is playing checkers.