fundraising tactics

How to turn user data into your next pitch deck • ZebethMedia

By zebethcontrolPosted on November 16, 2022Posted in Column, EC Column, EC How To, fundraising tactics, pitch deck, Startups, VentureNo Comments

David K Smith Contributor David Smith is VP of data and analytics at TheVentureCity, a global early-stage venture fund investing in product-centric startups across the U.S., Europe, and Latin America. Of every 100 deals a VC firm considers, about a quarter get a meeting, and only one ends up securing investment. Given the downturn in the markets leading to a startup funding squeeze, getting through the door is a critical first step. But then what? How do you prove you’re that one in 100? Well, you have one drastically overlooked superpower: your data. Many early stage startups don’t have a data team or even a data expert. They’ve been told that it looks good to have cash flowing in and user numbers ticking up. But investors are looking past superficial metrics for indicators that your product is poised to grow years into the future. There’s no one metric for that, which is why you need to know exactly which ones to focus on, and what they tell others about your product’s growth prospects. If possible, collect the most granular, user-level data you can: events and transactions. Having this data allows you to X-Ray how people are interacting with your product. Visualizing and communicating this data can definitively power up a pitch deck. If you’re a founder of a new SaaS, fintech, marketplace, or consumer subscription product, here’s what you should be showing investors at the early stages of your journey. Investors need to see that you’re not being blindsided by easy wins that can go up in smoke within weeks, but are using hard data to build a sustainable company. At all stages: Focus on active usage, not vanity metrics If you haven’t been thinking about product-market fit, you don’t have a pitch. Now, that doesn’t mean you have to prove you have product-market fit, but you absolutely need to show investors that you’ve been working towards it. If investors can’t tell where you are in your lifecycle, they have no way of telling how close you are to getting real traction — and getting them their returns. Product-market fit isn’t a defined point. It’s more about reading the right signals: You have to know which metrics to look at and how to measure their strength. The stronger the signals related to user engagement and retention — all measured in different ways and all trending positively — the more evidence you have that you’ve reached, or are reaching, product-market fit. Building up all that evidence through data helps bolster a pitch and increases your odds of landing an investment.

A new playbook for startup fundraising • ZebethMedia

By zebethcontrolPosted on November 11, 2022Posted in Column, EC Column, fundraising tactics, revenue-based financing, startup financing, Startups, VentureNo Comments

Miguel Fernandez Contributor Miguel Fernandez is CEO and co-founder of Capchase, which provides non-dilutive financing to SaaS and comparable recurring-revenue companies. More posts by this contributor Use alternative financing to fuel VC-level growth without diluting ownership A few years ago, founders only had two options when starting a company — bootstrap yourself or turn to VC money, and they would use that money primarily to pursue growth. Later on, venture debt started to gain prominence. While non-dilutive, its problems are similar to that of VC equity: It takes time to secure, involves warrants, isn’t very flexible and not every startup can get it. But in recent years, more options have become available to founders. Most startups can now avail non-dilutive capital, and purpose-specific financing has entered the fray. While venture capital remains the most popular avenue for startups, founders should take advantage of all the financing options available to them. Using an optimal combination of capital sources means using cost-effective, short-term funding for imminent goals, and more expensive long-term money for activities with uncertain returns on the horizon. What is revenue-based financing? Let’s define it as capital provided based on future revenue. While venture capital remains the most popular avenue for startups, founders should take advantage of all the financing options available to them. So what is unique about revenue-based financing? Firstly, it is quick to raise. Compared with the months-long process usually involved with other forms of equity or debt financing, revenue-based financing can be set up in days or even hours. It is also flexible, meaning you don’t have to withdraw all the capital up front and choose to take it in chunks and deploy it over time. Revenue-based financing also scales as your credit availability increases. Usually, there’s only one simple fee with fixed monthly repayments. How should startups evolve their financing playbook? To optimize fundraising using different sources of capital, startups should think about aligning short- and long-term activities with short- and long-term sources of funds. Revenue-based financing is shorter term in nature, and a typical term ranges between 12 and 24 months. Venture capital and venture debt are longer-term capital sources, with a typical term of two to four years. A startup’s short-term activities may include marketing, sales, implementation and associated costs. If a startup knows its economics, CAC and LTV, it can predict how much revenue it will generate if it invests a certain amount in growth. Because the return on these activities may be higher than the cost of revenue-based financing, startups should use revenue-based financing to fund initiatives that will bear fruit soon.

3 VCs explain how founders can stand out when pitching • ZebethMedia

By zebethcontrolPosted on October 27, 2022Posted in EC TechCrunch Disrupt 2022, EC venture capital, fundraising tactics, Startups, TechCrunch Disrupt 2022, VentureNo Comments

Venture capitalists get flooded with startup pitches, which can make it difficult for founders, especially those building in crowded categories, to stand out. And while every investor is looking for something different, there are ways founders can improve their chances of getting noticed. Speaking at last weeks’ Disrupt 2022 conference, investors Annie Case, a partner at Kleiner Perkins; Sheel Mohnot, co-founder of Better Tomorrow Ventures; and Jomayra Herrera, partner at Reach Capital, said that the founders who manage to capture their attention are the ones who come to the pitch process prepared. Of course, this could mean a lot of things. Case said that it’s incredibly helpful when founders help investors prepare for their pitch meeting. When founders send over information before the pitch, or offer a preview of the deck, she can to go beyond surface-level questions right away, which leaves more time for in-depth questions, she said. That allows her to walk away from the meeting with more information, which could help a founder get a check down the line. If you’re starting a company, and there are three or four other companies that people would look at, I expect you to know intimate details about them. Sheel Mohnot, co-founder, Better Tomorrow Ventures For Herrera, just sending over a partial or basic pitch deck, or a demo, if relevant, can be wildly helpful. “I generally recommend having almost like a teaser version of the deck with enough data and information to give us a sense of where you are in terms of the journey of your company,” Herrera said. “Just enough information so that we come prepared to the meeting.” The three investors agreed that founders should come to the pitch meeting ready to answer questions about the team, progress and TAM. Mohnot said it’s a red flag when companies don’t seem to have thought through these potential questions, especially when it comes to competition. “If you’re starting a company, and there are three or four other companies that people would look at [in the space], I expect you to know intimate details about those companies,” Mohnot said.

A prep checklist for startups about to undergo technical due diligence • ZebethMedia

By zebethcontrolPosted on October 26, 2022Posted in Column, due diligence, EC Column, EC How To, fundraising tactics, Startups, technical debt, VentureNo Comments

Matt Van Itallie Contributor Matt Van Itallie is the founder and CEO of Sema, which provides codebase analytics for M&A. Previously, the author offered a detailed overview of the technical due diligence (TDD) process investors conduct before injecting cash into early stage startups. In this follow-up, he offers a detailed checklist for C-level executives and senior managers who are responsible for helping VCs determine whether their “codebase is safe enough for investment.” Product roadmap Explain how you collect user and customer feedback. Provide a sample subset of the most granular user/customer feedback you collect. Provide the results of the synthesis of user/customer feedback. Provide the last 12 months of product management data for Engineering (e.g. Jira tickets). How much was spent on new features / functionality compared to maintenance? What are the major items on the list? Explain the roadmap for the next 12 months. Code quality How much does Finance invest in tech debt prevention and remediation? In security risk prevention and remediation? In IP risk prevention and remediation? Which software languages do you use? Is the use of new languages managed? Is a refactoring being considered or possibly needed? Which testing methods do you use and what is their breadth? Do you perform unit tests, automated tests, manual QA testing, and user acceptance testing? Share the most recent results from each type of test. Is a line-level scanning tool such as SonarQube in place? If yes, share a sample report. Is third-party code managed through a manager, stored in the code, or both? Why? Describe your architecture and provide architectural diagrams. Intellectual property

8 questions to answer before your startup faces technical due diligence • ZebethMedia

By zebethcontrolPosted on October 25, 2022Posted in Column, due diligence, EC Column, EC How To, fundraising tactics, Startups, technical debtNo Comments

Matt Van Itallie Contributor Matt Van Itallie is the founder and CEO of Sema, which provides codebase analytics for M&A. Investment activity is down now, but it’s likely to pick up in 2023. And when investments ramp up, so does M&A. Will your organization and your code pass technical due diligence when it’s your turn? Let’s start with the positives: If an investor is proceeding with technical due diligence (TDD), you’ll likely pass. You’ve passed the tests for product-market fit, financials and competitive differentiation well enough that they now want to look under the hood. Here’s the not-so-good news: Companies can pass the business test, but fail TDD. Especially for non-technical executives, the code-examination process can feel like … an audit … conducted in another language … with a loud clock ticking away incessantly. Not fun. Our firm has analyzed the code of hundreds of billions of dollars worth of deals, from three-person software companies to firms with thousands of developers. We’ve looked at the contributions of over 200,000 developers who have collectively written 4 billion lines of code. Poor codebase health is more often than not “caused” by other teams rather than by engineering. From that dataset, we’ve distilled eight questions that you can ask yourself now. Even if TDD is not on the horizon, having good answers to these questions will ensure your codebase is healthy. A quick primer on TDD Before we go any further, here’s a bit more context on technical due diligence for software: TDD applies to traditional software companies and non-software companies enabled by custom created software. It involves the examination of code written by employees or contractors. TDD is conducted by in-house experts or by specialist consultancies. Investors and acquirers, especially the larger and elite ones, may ask to conduct a quantitative code scan to supplement qualitative interviews. Such a code scan is effectively mandatory if the investor is seeking reps and warranties insurance (RWI) for the deal. The goals of TDD are to: De-risk the deal by determining if the codebase is safe enough for investment. Identify opportunities for improvement if the transaction goes through. We say “codebase” because it’s more than just the source code that’s under the magnifying glass. Your documentation, processes and most importantly, the software developers will also be under examination. The functional scope of TDD includes code quality, code security, intellectual property, DevOps, IT and, sometimes, product management. Because it’s more than just the quality of the code, we talk about codebase health to encompass all of these areas. Question 1: What have you been working on? Making sure that the organization is working on the software products that matter most is an important part of de-risking the deal. This may sound obvious, but sometimes, a company claims to be working on a new product, but will actually be spending the majority of their time on custom development for major clients or not working much on anything at all. Consider this example of a company’s software development over two years. Not only is there a cyclicality in the work (higher in summer), but it has declined significantly over time, especially in 2022. Image Credits: Sema Important point: Here, and for all questions in TDD, any answer might be sufficient to clear the examination. This leads us to TDD Theme #1: The most important part of TDD is ensuring the state of the codebase is aligned with the organization’s business objectives. For example, U.S. education software companies typically see cyclical software development — higher in summer and lower in fall — to minimize disruption for customers when school starts. Question 2: How much unit testing does your codebase have? We like to distinguish between underlying code quality to include such measures as its maintainability or the ability to be extended, and the functional code quality — how the product works for users. “Technical debt” is another way of describing any lack of perfection in the underlying code.