Learnings from an investment memo📃| 3 commons ways to raise money 💰| Y Combinator's series A pitch deck guidelines 🟠| Venture Studio 101🎒
Here is the best of my research.
Welcome to Explore, your weekly Startups and VC podcast. 📈
This is a summary of all my research from the week.
Podcast of the week 🎧
This week's episode is "Venture Studio 101" with Dallas Price.
Dallas is a venture builder at Forum Ventures.
He came on the show to explain the venture studio model in details.
This is an off-track episode where we learn from an expert. 🧠
Listen here or on 🟢Spotify / 🟣Apple Podcast.
Learnings from a memo📃
Here is 3 learnings from Jeff Lawson's first round of financing at Twilio.💰
Some context: Twilio is a cloud communication platform founded in 2008.
They help integrate SMS, voice, email, and video into companies' services.
Think about SMS you receive from Uber or Amazon - this is Twilio!
What can we learn from the memo?
1️⃣ Product development can compensate for growth
⤷ "Growth has not been explosive but we've been impressed with the company's rapid product development pace"
2️⃣ Product Market Fit is king
⤷ "The company is seeking a $3M Series A but we'd like to see market validation of the new features and impact on sales before committing"
3️⃣ Market size is a make or break
⤷ "While the voice application telephony market is big enough to support a large profitable business, we haven't dug deep enough into the market dynamics to get comfort around what percentage of the piece will be addressable by Twilio"
Twilio is now a $11BN company, great job to the team and to BVP! 👏
3 commons ways to raise money 💰
Safe - Priced Equity - Convertible Note.
Priced Equity
⤷ this is the straightforward method. It's a direct exchange of money for shares at an agreed price. Investors and founders know exactly what they’re getting (number of shares, valuation, type of shares) and giving up (investment).
In simple terms, this is an exchange today at set terms. 📃🔄️💰
Convertible Note
⤷ This is a debt mechanism that can convert into equity at a later time. This means that founders delay the process of valuing their company until a later date and get the money today. When the startup raises its next round, investors have the option to convert into equity.
A few important terms as part of the convertible note:
• Valuation cap - maximum price at which debt converts into equity
• Discount rate - gives investors the right to a lower price per share
• Interest rate (rarely happens) - which adds up to amount that converts
• Maturity date - deadline by which the note must be repaid or converted
On that last one, if you fail at raising a round, this is a risk of repayment.
In simple terms, founders receive money today but are accountable for certain terms in the future. 📈💰
SAFE (Simple Agreement for Future Equity)
⤷ This is more straightforward than convertible notes. It's a legally binding agreement (not a debt) between investors and a startup. It gives the investors the "promise" to receive equity in the future. The startup doesn't issue any shares or equity to the investor right away. Instead, the investor receives a piece of paper that says they have the right to receive equity in the future.
TL:DR SAFE are a much easier version of convertible notes. It's a simple and quick way to fundraise.
You can refer to the table above to look at differences between those 3 options.
YC’s series A guidelines 🟠
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Here is YC's guideline for your Series A pitch deck 👇
(above are the most important slides)
Remember the purpose of this deck is to:
⤷ show investors why they should invest
⤷ share your vision for the future
⤷ explain use of funds
𝐒𝐥𝐢𝐝𝐞 𝟏: 𝐓𝐡𝐞 𝐭𝐢𝐭𝐥𝐞
⤷ list your company name or logo and a one sentence description.
Anyone reading your one-liner should be able to picture what you do.
Tips: use common words but be specific to your business.
𝐒𝐥𝐢𝐝𝐞 𝟐: 𝐓𝐡𝐞 𝐭𝐫𝐚𝐜𝐭𝐢𝐨𝐧
⤷ hooks investors for the rest of your presentation
This is a smooth lead from your one-liner into numbers.
And that will set the stage for the problem.
𝐒𝐥𝐢𝐝𝐞 𝟑: 𝐓𝐡𝐞 𝐩𝐫𝐨𝐛𝐥𝐞𝐦
⤷ how does the world works for your customers and what's wrong with it?
Tips: make sure its specific to your product, present the problem from your customer's perspective, aim to show not only to tell the story
𝐒𝐥𝐢𝐝𝐞 𝟒: 𝐓𝐡𝐞 𝐬𝐨𝐥𝐮𝐭𝐢𝐨𝐧
⤷ side by side comparison (the world with vs without your product), quantify in numbers
Tips: focus on what is true today, show how customers are using the product
𝐒𝐥𝐢𝐝𝐞 𝟲: 𝐓𝐡𝐞 𝐭𝐫𝐚𝐜𝐭𝐢𝐨𝐧
⤷ show trends and present numbers clearly and concisely, pick your metric wisely
𝗦𝗹𝗶𝗱𝗲 𝟵: 𝗧𝗵𝗲 𝗺𝗮𝗿𝗸𝗲𝘁
⤷ show how big of an opportunity this is!
Tip: use this formula = number of prospective customers x value of each customer to you.
𝗦𝗹𝗶𝗱𝗲 𝟭𝟬: 𝗧𝗵𝗲 𝗰𝗼𝗺𝗽𝗲𝘁𝗶𝘁𝗶𝗼𝗻
⤷ show why you're 10x better than everyone else, show that you can defend your business
𝗦𝗹𝗶𝗱𝗲 𝟭𝟭: 𝗧𝗵𝗲 𝘃𝗶𝘀𝗶𝗼𝗻
⤷ how do you become a $10BN company?
𝗦𝗹𝗶𝗱𝗲 𝟭𝟮: 𝗧𝗵𝗲 𝘁𝗲𝗮𝗺
⤷ show who the founders are, why they’re the right people,
⤷ show how great of a team you’ve recruited
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