First Time Fundraising
Here are a few highlights from a panel discussion with a Venture Capitalist, CFO, and Equity Pro. To gain full context behind the questions and answers, watch the video below!
VC: What makes a company investable to institutional investors?
Are you building a foundational business of the future? We look for founders and companies that are swinging big enough. Those that have identified the most impactful version of their product and can execute. Ideas are cheap — it is all about execution, strategy, and building the scaffolding to get there.
CFO: How do you advise clients when exploring first-time fundraise vehicles?
There are three typical vehicles for a first fundraise: Priced Round, Convertible Debt, and SAFE financing(Simple Agreement for Future Equity — link below).
A priced round can be more labor-intensive — you must establish a valuation for the business (which may be challenging at early stages). While it may take the same amount of time to identify the investors, the negotiation, paperwork, and diligence may add months to the process.
With convertible debt or a SAFE — you don't have to establish a valuation. So save some time and stress in deliberating over the valuation at that stage. Most commonly, first raises tend to prefer the SAFE route. This is because it’s founder-friendly and has become widely accepted amongst investors. And the contracts are FREE, to boot.
Equity Pro: What benchmarks have you observed that would be helpful to a founder raising their first round?
According to Carta data, pre-money SAFEs continue to dominate, making up 65% of all SAFE agreements. Although Y-Combinator has removed broad access to a pre-money SAFE, attorneys are still encouraging their clients in this direction.
Of total seed-stage investment rounds, 74% of deals are either convertible notes or SAFEs. The other 26% are priced rounds.
The median SAFE pre-money valuation cap for pre-seed (<$1M raised) is $5M, according to Carta data.
Q&A
A top skillset to build as a founder:
An earned insight into an industry, something you know better than anyone else. Your pedigree is not on the list of requirements.
Skillwise — the job of the founder / CEO is to be a resource magnet. You are attracting capital, customers, and selling vision as much to investors as you are to early employees.
Number one bit of advice to a new founder:
Equity Pro: Make sure you have an experienced start-up attorney or advisor. Set things up right from the beginning. Keep things simple and standard.
CFO: Be prepared. It’s easy to go out early and raise money, but you really haven’t done your homework and may realize that when you meet someone that knows the market better than you.
VC: Make decisions that give you optionality. You’ll have more options down the road. Keep that as your north star.
A conversation with:
VC: Kira Noodleman, Principal at Bee Partners
CFO: Rich Frankenheimer, Partner at AVL Growth Partners
Equity Pro: Jeff Erickson, Business Development at Carta
Moderator: Roman Villard, AVL Growth Partners
A big thank you to Elyse Kent at Access Ventures and Malte Witt at Techstars Boulder for their support on this panel!
