Thread by @TimKipchumba

Understanding Venture Capital (VC), Who is involved & Some terms (Thread);
@bfeld makes the case that VC sort of begun with $70,000 AR&D investment in DEC. Ken Olson and Harlen Anderson received funding from Geroges Doriot.

George Doriot sent out a letter expressing his interest in investing with proposed terms, today's termsheet. For $70,000, we would like 78% of the company, resulting in $90,000 post money valuation

Termsheets: The two most important things a termsheet will have are Economics and Control- percentage of ownership, their rights

The players:
-Entrepreneur
-VC/Venture Capitalist, typically a Managing Partner at a fund,
-Lawyer
-Angel Investor
-Mentors to Entrepreneur

Whats the first goal of Raising money? Secure Termsheets, ideally more than 1.
-Determine amount to raise
-Answer the time + burn rate (monthly spend)#

Focus on how much runway to next milestone of the company. I see many entreprneurs on twitter guestimate 18 months as typical

Fundraising Materials
Pitch Deck/ (Executive Summary) 3-5 pages with
- Product idea
- Problem
-Team
-Business Model/Business Description
-High level financial data

Focus on Assumptions and rationale

Presentation 10-20 page ppt.
This is the visual document and turns out FORM, Design matters a lot.
-problem entrepreneur is solving
-size of market
-team experience
-moat/competitive advantage
-financials (cash flow, P&L, use of funds)
-underlying assumptions
-milestones

- Business Plan -This is the 30page document mostly for planning and thinking through.
-Private Placement Memorandum- Business Plan with some legal disclaimers

Most investors and entrepreneurs will know that the forecasts will be certain to be wrong

Detailed financial model
Focus more on;
-Assumptions underlying projections
-Monthly Burn rate or cash consumption of the business and the assumptions that affect these

Demo and Prototype. And if possible some pilot generating incomes

Finding a VC
-Research
- Recommendations from fellow entrepreneurs
-Engaging with VC's
-Finding someone who can lead, is interested
-Publishing content on domain area

How did you find VC @SamGichuru? How should others go about this? Should they seek VC anyway?

Termsheet: Lets assume all the work has resulted in a teamsheet or two.

Focus on:
-Economics; return the investors will ultimately get
-Control; typically, preferred stock, the ways investors will exert control and the situations/decisions they will control

Economic Terms:

What valuation is affected many many terms that include;
-Price per share
-Number of shares available
-Pre-money or post money expectations

Lets see some exampls

If an investor invests $500K at a valuation of $1M, this is often post money, giving them 50%.

If it is $500K for premoney valuation $1M , this gives them 33%

Ask do you mean premoney?

Term 2:

Dilution, fully diluted
So imagine, you had set aside 10% for your team at this premoney valuation of $1M and the VC wants employee pool expanded to 20%. What does this mean?

Well it means, 10% will come out of your $1M valuation, making your valuation $900K premoney.

What the investors are doing is guard future dilution. Ideally, preparing a list of all your key hires in future and then budgeting options for them, can allow make the case that the 10% or whatever you had set aside is enough.

Other things that impact valuation
-stage of company, experience of founders, money being raised, opportunity and how its perceived.
-Competition by other funding sources....How hot its perceived.
-Leadership team
-Numbers; EBITDA, Free cashflow, revenue
-Economic climate!

In next thread, we will cover

-Liquidation preference
-Pay to Play provisions
-Vesting
-Employee Pool
-Anti dilution