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The Art of Startup Fundraising: Pitching Investors, Negotiating the Deal, and Everything Else Entrepreneurs Need to Know



The Art of Startup Fundraising: Pitching Investors, Negotiating the Deal, and Everything Else Entrepreneurs Need to Know

Alejandro Cremades, Barbara Corcoran (Foreword by)

ISBN: 978-1-119-19184-1 March 2016 224 Pages

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Startup money is moving online, and this guide shows you how it works.

The Art of Startup Fundraising takes a fresh look at raising money for startups, with a focus on the changing face of startup finance. New regulations are making the old go-to advice less relevant, as startup money is increasingly moving online. These new waters are all but uncharted—and founders need an accessible guide. This book helps you navigate the online world of startup fundraising with easy-to-follow explanations and expert perspective on the new digital world of finance. You'll find tips and tricks on raising money and investing in startups from early stage to growth stage, and develop a clear strategy based on the new realities surrounding today's startup landscape.

The finance world is in a massive state of flux. Changes are occurring at an increasing pace in all sectors, but few more intensely than the startup sphere. When the paradigm changes, your processes must change with it. This book shows you how startup funding works, with expert coaching toward the new rules on the field.

  • Learn how the JOBS Act impacts the fundraising model
  • Gain insight on startups from early stage to growth stage
  • Find the money you need to get your venture going
  • Craft your pitch and optimize the strategy
  • Build momentum
  • Identify the right investors
  • Avoid the common mistakes

Don't rely on the "how we did it" tales from superstar startups, as these stories are unique and applied to exceptional scenarios. The game has changed, and playing by the old rules only gets you left behind. Whether you're founding a startup or looking to invest, The Art of Startup Fundraising provides the up-to-the-minute guidance you need.

Foreword by Barbara Corcoran xiii

Acknowledgments xvii

1 Everything Started with Onevest 1

2 Raising Capital for Your Startup 5

Speeding Up the Machine 5

It’s Not as Easy as Reading an Article on Tech Crunch 6

The 18- to 24-Month Plan 7

Milestones 8

Breaking Even 9

Expectations of Investors 9

Outperform the Competition 11

Marketing 12

Storytelling 13

Leveraging Help 15

Divide and Conquer 16

The Rollercoaster of Emotions 17

Learn to Love Rejection 18

Connect the Dots 19

The Pros and Cons of Raising Capital 21

Don’t Underestimate the Need for Capital 22

3 Setting Yourself Up for Success 25

Investors Don’t Want to Invest 25

The Core of Your Business 26

Experienced and Talented Management 27

Organize Your Corporate Structure with a Legal Team 28

Helpful Advisors 29

Building Momentum 31

Team Alignment 31

Show Your Competitive Advantage 32

Know Your Terms 33

Vision 34

Attracting Investors Requires Patience 35

4 Crafting the Pitch 37

The Business Plan Problem 37

Get the Message Straight and Your Team behind It 38

The Elevator Pitch 40

The Pitch Deck 41

Awesome, Effective Pitch Deck Design 43

The One Pager 45

5 The Due Diligence Package 47

The Interview and the Visit 61

Find Balance 62

6 Sources of Capital 65

Bootstrapping 65

Credit Cards 67

Business Loans 68

Friends and Family 69

Crowd funding 71

Angel Investors and Super Angels 74

Angel Groups 76

Family Offices 77

Venture Capital 78

Venture Debt 80

7 Understanding the VC Game 81

Defining Roles in a VC Firm 81

The Process of Getting Funded by a VC 83

How VCs Monetize 84

VC Involvement in Your Company 85

Understanding the Value a VC Brings 85

Cutting through the VC Noise 86

Differences between Venture Capital and Private Equity 86

8 Investment Rounds Explained 89

Friends and Family 89

Micro Seed Round 92

Seed Round 95

Series A Round 97

Series B, C, D Investment Rounds 99

Initial Public Offering (IPO) 100

Research Is Critical 102

9 Deciding Investment Amounts and Prospects 103

Needed, Realistic, and Ideal Investment Levels 103

Your Valuation versus Market Valuation: The Asking Price 105

Persuading Investors with a Financial Forecast 106

Identifying Prospective Investors 108

Six Ways to Contact Investors 109

Creating a Buzz around Your Startup 111

10 PR: Creating a Storm and Building Momentum 113

The Rainmaker Code 113

Journalist Outreach 114

Self-Distributed Press Releases 116

More Buzz-Building Tactics for Smart Startups 119

11 What to Look For in an Investor 123

Why Selecting the Right Investors Is So Critical 123

Three Factors You Should Be Looking For in Investors 124

Three Factors to Avoid in Investors 126

Six Key Questions to Ask Potential Investors 128

Speed Is a Two-Way Street 128

Arming Yourself with Answers 129

12 Term Sheets and Terms 131

Term Sheets 101 131

Terms within Term Sheets That You Need to Know 140

Term Sheet Tactics 143

Smart Term Sheet Strategies 144

If Things Don’t Go Forward 145

13 Closing the Deal 147

The Importance of Urgency 147

Creating a Completion Schedule 148

Managing Expectations 149

Updating Your Investors 151

Closing the Deal Is Not the End of the Deal 152

14 Avoiding Common Fundraising Mistakes 153

Failing to Connect 153

Clarity and Doing What You Say 155

Self-Sabotage in the Deal-Making Process 158

15 Understanding the JOBS Act 161

The Game Changer 161

The JOBS Act 162

Implications for Startups and Raising Money Online 173

Implications for Individual Investors 174

16 Recommended Tools for Fundraising 177

Using the Right Tools 177

Organization 178

Research 181

Social Media 182

Outsourcing 183

Sales and Administration 184

Finding Your Investors 185

17 Red Flags 187

Key Red Flags for Startups 187

Glossary 193

About the Author 197

Index 199

“The Art of Startup Fundraising is an easy read with a lot of good advice on how to raise capital. One of the biggest hurdles of early stage companies is fundraising. Entrepreneurs are not experts in this arena which makes this book a worthwhile read.”
- TONY HSIEH, author of Delivering Happiness and CEO of Zappos

“The Art of Startup Fundraising is a must read for anyone who even considers starting a business. Fundraising is hard. This book gives you the roadmap to get where you are going. Alejandro Cremades speaks with wisdom and from experience.“
- TIM DRAPER, Founder of Draper Associates, DFJ, and Draper University

"The Art of Startup Fundraising should be a mandatory reading for entrepreneurs that are looking to raise capital. This book will enable Alejandro to help many more early stage companies answer the tough questions when fundraising."
- MARCO LANDI, Former Chief Operating Officer at Apple and Chairman at Atlantis Ventures

"Raising capital is often the most daunting and least understood aspects of starting a new business and there are few people more experienced than Alejandro Cremades to act as a guide. The Art of Startup Fundraising unlocks key secrets of fundraising for newly minted entrepreneurs."
- JEFF STIBEL, Chairman of BrainGate, Inc. and Vice Chairman of Dun & Bradstreet, Inc.; New York Times bestselling author of Breakpoint and Wired for Thought

"This book provides a clear, concise tour of the fundraising game. With his crowdfunding and entrepreneurial expertise in full display, Cremades does a terrific job making a complicated process simple and accessible."
- JEFF BUSSGANG, General Partner at Flybridge Capital Partners and Senior Lecturer at Harvard Business School

“Raising money is perhaps the most daunting challenge faced by any startup. For the uninitiated, it is also mystical process filled with an increasingly complex array of investment options and practical considerations. As one of the finest entrepreneurs I know, Alejandro has put together an authoritative guide that should be required reading for all nascent entrepreneurs, as well as veterans looking to brush up on the latest the field has to offer.”
- TYLER WRY, Professor at The Wharton School

“For many entrepreneurs finding the right investor for their venture can be a daunting task. Alejandro's experience with equity crowdfunding gives a unique perspective on the fundraising game. The Art of Startup Fundraising is very insightful for entrepreneurs looking to close a round of financing and changing the world.”
- ANYNDYA GHOSE, Professor at NYU Stern School of Business

 “Entrepreneurs need to be amazing at recruiting, selling and fundraising.  The Art of Startup Fundraising provides the essential toolkit for mastering a core skill for any entrepreneur.”
- GIL PENCHINA, serial entrepreneur and prolific angel investor

“The Art of Startup Fundraising is a practical and comprehensive resource for entrepreneurs to use again and again.  It captures what startups need to do to be successful in the rapidly evolving financing world, while also providing tips on the fundamentals of building businesses that don’t change over time.”
- MARIANNE HUDSON, Executive Director at Angel Capital Association

“It doesn't matter how great of a business you can build. If you can't raise money, you're toast. Master this book.”
- ILYA POZIN, Forbes Contributor and CoFounder of Pluto TV and CoFounder of Coplex

“There is no perfect approach to raising investment for a startup, but there is a certain tribal knowledge out there, that most of us had to learn through several failed attempts.  The Art of Startup Fundraising captures every bit of advice (and then some!) that I would give to any entrepreneur looking for funding.” 
 PAUL MURPHY, Partner at Betaworks and CoFounder of Playdots

“Alejandro's The Art of Startup Fundraising is a must read for any entrepreneur. Clear and concise, he outlines in today's startup community the steps to successfully fundraise. This is the golden era for entrepreneurs, any good idea with proof of concept can get access to money. Know your options!”
- ANGELO J. ROBLES, Founder and CEO of Family Office Association

“One of the biggest crimes in the startup community is to watch good ideas and good teams to go unfunded because the Fundraising process isn’t friendly to first-time entrepreneurs.  The Art of Startup Fundraising is Alejandro’s contribution to the ecosystem that does a masterful job filling in knowledge gaps and giving entrepreneurs the best chances of raising the capital they need.”
- FRANK ROTMAN, Founding Partner at QED Investors

"The Art of Startup Fundraising delivers a smooth ride on the bumpy road of raising capital and starting a business.  Alejandro Cremades delivers up-to-date details and a clear vision - an important guide for any entrepreneur who seeks to build and scale a business today.” 
- JEANNE M. SULLIVAN, Co-founder, StarVest Partners

"Fundraising can be an incredibly frustrating experience for startup founders because they are at a fundamental disadvantage: they know very little about the process, and investors know a lot. Luckily, Alejandro has taken the time to assemble a detailed blueprint of how it works behind the scenes that will help any founder level the playing field and navigate the process like a pro. If you are raising money for your startup, don't start without reading this book."
- PEDRO TORRES-PICON, Founder and Managing Director at Quotidian Ventures

"The Art of Startup Fundraising translates art into science. By sharing proven formulas, strategies, and case studies that work, Alejandro Cremades provides a needed service to future entrepreneurs."
- JOSH COHEN, Managing Partner at City Light Capital

“This ought to be a reading requirement for all entrepreneurs when building a business and raising capital.  This is a very well written and informative book, written by a man who is a testament to dedication and creativity when confronted with the challenges of being an entrepreneur and raising capital.”
- CARTER CALDWELL, serial entrepreneur and Principal at Cross Atlantic Capital Partners

“Alejandro is on the bleeding edge of equity crowdfunding today. When he talks about fundraising, startups listen.”
- ANDREW ACKERMAN, Managing Director at Dreamit Ventures

“Starting a company is full of ups and downs for an entrepreneur and foremost among them can be how to raise money for it. There is no magic bullet to make the process easy, but Cremades comes close in the Art of Startup Fundraising by at least making it intuitive and accessible.“
- WESTON GADDY, Principal at Bain Capital Ventures

“Raising capital can be tough. Alejandro provides a step-by-step guidebook to all entrepreneurs that rather spend their time thinking about changing the world instead of thinking of how to raise funds.”
- TOBIAS P. SCHIRMER, Managing Partner of JOIN Capital

"A superb book on fundraising. Alejandro's guidance should arm entrepreneurs with the necessary tools to close with success a meaningful round of financing." 
 ELLEN WEBER, Executive Director at Robin Hood Ventures

“Raising money is hard. But start-up founders all over the world can make it exponentially easier by educating themselves on the process of raising equity capital before they dive into it.  The practical, hands-on advice from Alejandro Cremades in this book provides a solid foundation in that self-education process. Delivered in an approachable format with a key lesson to take-away every few pages, “The Art of Startup Fundraising”  is essential reading for entrepreneurs everywhere.”
- ALLEN TAYLOR, Managing Director at Endeavor

“There are very few complete resources available to entrepreneurs today to help them navigate the world of fundraising.  Alejandro Cremades does a great job of explaining and demystifying the fundraising process. The Art of Start-up Fundraising will, without question, provide entrepreneurs with a great jump off point.”
- SID PAQUETTE, Managing Director, OMERS Ventures