Founder turned investor @7pcventures; cofounder of non-profits @icelist and @allocategp. First startup in 1998, since then 1 exit, 4 fails, 1 still running without me. Can advise around early stage funding, go to market, product strategy and product/market fit, business models, growth hacking and venture funding. I'll follow up with you once by email after our call for further support. For more details http://linkedin.com/in/andrewjscott
I would question the motivations of the Founder/CEO if they are keeping this from you.
Pre-investment it's slightly different as it's understandable sometimes when negotiating if founders dont want to reveal other potential angels; you can then include that fact in your decision whether to invest. But post investment it would be very unusual and actually unhelpful to the founder/startup itself for investors not to know each other.
Ask for a copy of the CAP table.
Craig is right, you'll need 3-5 year (you might aswell do 5 year btw) financial projections; a spreadsheet of course, with summary yearly costs/EDITDA etc on a slide in your deck.
The plan can take the form of a slide deck. Use something like this as a template:
10 to 15 Slides
Define the company/business in a single declarative sentence.
Describe the pain of the customer (or the customer’s customer).
Outline how the customer addresses the issue today.
Demonstrate your company’s value proposition to make the customer’s life better.
Show where your product physically sits.
Provide use cases.
Set-up the historical evolution of your category.
Define recent trends that make your solution possible.
Identify/profile the customer you cater to.
Calculate the TAM (top down), SAM (bottoms up) and SOM.
Go to market strategy
If viral, why will it be viral? ('Sharing' is not an answer)
List competitive advantages
What is your unfair advantage?
Product line-up (form factor, functionality, features, architecture, intellectual property).
Average account size and/or lifetime value, LTV
Sales & distribution model, CPA & CAC
Founders & Management
Board of Directors, and any key Advisors
Investment to date
The deal (EXCLUDING valuation OR completion date)
AND financial projections/cashflow (as excel s/sheet, ideally 5 yrs but atleast 3)
** You'll also need, for review before investment (due diligence): **
- Company formation docs, any trademark, patent, etc certificates
- CAP table (current shareholder ownership to two decimal places %
- Contracts of employment (Founders should have these also, and you should have founder vesting agreements)
- IP assignments for employees/contracts current & previous if not included in their employment contracts
- Any insurances, atleast the minimal required by law (i.e. in UK employers liability if you employ anyone, public liability insurance if members of the public visit you at your place of work or if you perform work at places of work owned by third parties, and Professional negligence, not mandatory but sensible (covers you for eg. making a mistake in a piece of work for a customer, Loss of documents or data, Unintentional breach of copyright and/or confidentiality, Defamation and libel, Loss of goods or money, your own or for which you are responsible).
- In the UK, registration with the https://ico.org.uk/ (illegal not to if you store peoples data)
Slide headings based on an amended list from Sequoia.
Long typed out business plans cloud the precision that data and specifics provide. A deck as above with few words, forces you to get to the crux of your business and your go to market strategy and will be valuable both internally to you and your team and of course to raise funding.
If you can't make it concise and clear, you probably have not thought it through enough.
You need to think about the user experience for the first 50 people, as you are doing.
If you're not solving a problem for them, then there is no value, so the user base will not grow. It's always easy to envision a product or service which if you have e.g 1m users is valuable; but the hard part is getting there.
If your service is ONLY valuable with 1m , or 1k users, then you need to find a different reason to onboard them, so they find some different value until you get critical mass to begin delivering on your vision.
e.g Facebook started by solving the problem of who is in my year at college to flirt with (hence the Poke button, amongst other things), later it delivered alternative value. They also just "onboarded" everyone in one go, which helped. So, you need to narrow your focus to a segment of your target audience you can focus on, target, and onboard, by vertical, geography, or some other measure. Get the first 50 people, or even 5(!) people happy, because you deliver them some value, then you can start building on that start.
Is there a critical mass of value that someone will care about the problem you are solving for them?
The size of the problem you are solving and well you solve it generates the value. That then dictates what (if anything) you can charge. The number of people who have that problem defines your market size. That might give you an indication of the type of business/startup you have - is it a high growth startup, or in the case of a problem being solved where the market is not very large, maybe it's a life style business. Pete Thiels excellent book from last year talks about this and is certainly worth a read http://ajs.io/bookzerotoone.
Wikipedia says: A business model describes the rationale of how an organisation creates, delivers and captures value.
Or in my words: your business model is the way you profit from the value you create for others.
The good news is, starting simple has lots of benefits to usability, UI, message to market and capturing your first 100, 100, 10,000 users or customers. Go-to-market is where many startups fail most, not the technology, so that is something you should focus on and simplicity -provided your idea is part of a bigger vision- is a great place to start.
In short, lean test. Try and test messages to market however you can to explore the range; or start high and offer discounts of varying amounts while driving traffic to your homepage to convert and test the pricing points. You can also use focus groups, but for pricing I've found they are often unreliable.
I presume that is $100k USD per investment, not in total?
Early stage tech investment is a numbers game, in that the rewards are potentially great but the number of failures is high. Startups are defined differently to regular businesses because of their attempt to grow unfeasibly quickly. That's why angel and VC capital is needed, to short-circuit an extended growth time, as a regular business would. Not surprisingly that means risks increase.
With that in mind, understand what sort of investment portfolio you want (and the risk you're willing to assume) will help decide how you invest your money. If you want to advise and even be hands-on, geography will be important.
You could then look at syndicates on Angel List (though these require some consideration as they vary in quality, unless you put your funds in a syndicate of syndicates from a more experienced syndicator), going direct to startups (though this is time and knowledge intensive) or one of the many crowd funding platforms.
There are also people -like myself- who have clubs or networks of high-net worths looking to invest on deals together. Happy to discuss further if you wish.
It's nearly all about the people if the startup is early stage.
- Do you believe in their ability to execute?
- Are they transparent and communicative (do they listen?)
- Do they have the appetite to deliver on their vision and have a sense of urgency about them to do this?
- Are the co-founders complementary in their skill sets?
- Is the CEO a leader? they don't have to be Fortune 500 material, just able (and willing!) to delegate, hire and inspire.
Yes you need to check the companies basic documents, due diligence, ensure the valuation is not crazy etc etc, but at the early stage it's really all about the people disproportionate to anything else.
If there is ONE other thing which isn't directly people, it's do they understand where this investment round takes them to (most often, another investment round) so are they raising enough money to give them enough runway to deliver on whatever is needed in order for them to raise another round of funding; in a seed or angel round very broadly that's usually 18 months of runway (as they'll have to start raising again after 12 months).
Depends on what you mean by "big" contract?
Also, are you UK or US based?
These questions will help you decide if the VC route is the right route and as the other commentator notes, speaking to a bank wouldn't be a bad idea either, although you may find you don't have the collateral to put up to support a loan. VC's also bring other value beyond money, if you get the right one.
Angels are a better route, depending on the amount of money you want/need. That should be informed by your cashflow projections to deliver the contract and the overall strategy of the business. Angelist is an option, though if you're not experienced raising you'll probably want someone trustworthy as a non-exec, consultant or advisor, to help you shape the proposition and help manage the raise.
So in short there are a lot of moving parts to answer this question.
A pitch deck is a must however, if for no other reason than to make clear in your own mind your immediate plans going forward. This is a good a template as any, to work from www.sequoiacap.com/ideas
Depends where you are in your process.
Taking a lean approach to prove demand will always help your case. Without having built anything significant in terms of the market functionality, you can easily have a sign up page, and drive traffic and have signups ready when you open your market - both in terms of buyers and sellers. Using this time in parallel while something is built to prove your go to market message and demonstrate traction will prevent delays later.
There are of course the pre-requisites, such as ensuring your vision is big enough to be attractive to your target investors (VCs have different needs on an exit -read multiples- to traditional business angels for example) but also starting to engage those investors now, not for money but to build a relationship, provide a high level roadmap and starting to deliver on that roadmap, will prove to those investors you deliver on what you promise. All ease the road later, removing fears so they can ultimately sign a check.