The Art of Startup Fundraising

Pitching Investors, Negotiating the Deal, and Everything Else Entrepreneurs Need to Know

Alejandro Cremades

• Publisher: Wiley
• Year: 2016
• ISBN:
  9781119191841
• Edition: 1
• Topic: Business
• Subtopic: Entrepreneurship
• Index: Business

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.

1
Everything Started with Onevest

With the encouragement of my PARENTS, Bernardo Cremades and Leticia Roman, I moved to the United States from Spain with my brother Bernardo on August 13, 2008, after obtaining my law degree in Spain.

My brother is without a doubt my very best friend. On that day, after picking up our luggage and getting into a taxi, we were both completely wowed as we gazed through the windows on our way to Manhattan from the airport, while the driver, Luigi, told us his life story with a thick Italian accent.

Initially, the plan was for me to earn my masters in International Business and Trade Law at Fordham Law School and then practice law as an attorney. I had a great time at Fordham, even though some of my classmates were old enough to be my parents. They all called me Junior.

Three months before my graduation from Fordham, I received a great offer from the respected law firm King & Spalding. The partner who hired me was Edward Kehoe. Our first meeting was over breakfast at the Metropolitan Club. Ed is now a good friend, and he attended my wedding.

I still remember my first day at the firm. It was like a Hollywood movie. At only 23 years old, I had my own secretary and my name on the entrance to my own office. It was completely surreal.

After three years at King & Spalding representing major corporations in high-profile, billion-dollar investment arbitration cases, I discovered my true calling. It all started when I attended my first New York Tech Meetup with my good friend Luis Jose Scull. At the time, Luis was working for a hedge fund and sourcing tech startups as investors.

One thing really surprised me as I immersed myself in the New York tech scene, and that was how difficult it was for entrepreneurs to access capital. When I researched cases like Pandora (rejected over 300 times before securing their first significant round of financing), I knew there was a big gap in the market. There was something missing and I wanted to find out what it was and fill that gap.

At the time of this discovery phase, I was dating the woman who is now my wife, Tanya Prive. Choosing her as my life partner is the best decision I have ever made. We talked about what I wanted to do to help others looking for capital, and I convinced her to invest all our savings in Onevest and launch a platform that would connect entrepreneurs with investors, and from that point on, the rest was history.

Everything started at Tanya's apartment on 27th Street and 6th Avenue in New York City. We had a little studio where we would invite at least five interns a day to join us in building the product, and they worked with a team of engineers that we had assembled in Belarus (Eastern Europe). After four months of interns claiming they were our cousins, the building management figured out that something was up and invited us to leave.

We then rented an office space, raised a seed round, and started to hire top talent. After one year of development, we were able to launch the platform to the public on November 23, 2011. A few months later, the platform was mentioned by TIME as one of the best crowdfunding platforms in the world. It was listed as one of the top-10 digital tools for entrepreneurs by Forbes, and we were named one of the hottest startups to watch by Business Insider. I also had the honor of being ranked number one on Vanity Fair's list of “30 under 30” for 2014, and I was included on the “Top 30 under 30” list in Entrepreneur Magazine (Spanish version).

The press attention was crazy to me, but what kept me moving was the opportunity to make a real difference. Cutting the noise is one of the hardest things that entrepreneurs have to master in order to focus on what really counts, which is the execution of business strategy.

In the early days it was not easy. We had to fight to provide financing. The JOBS Act (which we will discuss later on in this book) was still not in the picture, and the word crowdfunding had not yet been coined. At one point in the process we visited the White House and testified before the U.S. House of Representatives regarding the importance of financing small businesses in the United States.

Everything started to happen at the same time. To our surprise, we were suddenly riding an amazing wave, forming with the passing of the JOBS Act in April of 2012. For the first time in history startups would be allowed to advertise the fact that they were raising money; before the JOBS Act this kind of promotion was completely forbidden. (Prior to that legislation, it was labeled as general solicitation.) Previously, the search for funds was more a word-of-mouth kind of activity. If you did not know anyone in Silicon Valley, it was a real struggle to find capital.

At the end of 2013, a company called CoFoundersLab.com came to raise financing on Onevest, and lit up a light bulb in my mind. I realized that a fundraising platform like the one that Onevest was operating at that moment was really playing a small game. The bigger game was to build an ecosystem around Onevest, where we would empower entrepreneurs and investors, from formation to financing.

As a result of that realization, the conversations began with Shahab Kaviani, the cofounder of CoFoundersLab.com, and we ended up announcing an M&A transaction to bring CoFoundersLab under Onevest in July 2014.

Currently, CoFoundersLab is the largest matchmaking service for entrepreneurs. It's a way for entrepreneurs to meet their cofounders and advisors. We are partners with some of the major startup hubs in America, and we are onboarding thousands of entrepreneur registrations on a monthly basis.

Other products under the umbrella of Onevest include, most recently, 1000 Angels, which is the first digital, invitation-only network for a select group of angel investors. It is a curated community of ultra high-net-worth individuals that come together to invest in startup companies.

After seeing hundreds of businesses formed and financed through the ecosystem of Onevest, I felt it was time to share what I'd learned and help entrepreneurs on their journeys in fundraising—especially after our most recent round of financing, in which we'd increased our total amount raised to over $5 million. We self-crowdfunded our Series A in a matter of weeks and established a record. I literally did not move from my desk. The result was a huge surprise, as these types of rounds would have normally meant spending at least eight months out of the office, attending conferences and meetings to gather investor interest.

Unfortunately the company announcements of successfully closed rounds of financing that you see and hear about are not the reality. They come from only a few companies out of the many, many ventures that launch each year. Raising capital is an art. Every single ingredient needs to be perfectly balanced in the process in order to secure capital successfully. This book aims to be the guide that will help you get there in a process that, many times, can be a rollercoaster ride, full of emotions.

Fasten your seat belt and embrace the process. Be optimistic and have fun with it. Remember, you will never fail—you will either succeed or learn.

2
Raising Capital for Your Startup

Before rushing into preparing pitching materials, meeting investors, and hammering out funding terms, it is critical to get your mindset, expectations, math, and strategy right.

Speeding Up the Machine

Some opportunists and entrepreneurs see the promise of funding or financing as the chance to get someone else to put money on the line to build their dream into reality, especially when it is a product or tool that can only be brought to life with major money. (Space exploration and revolutionary health-care progress are great examples of this.) But these types of fundraising missions represent big risks for investors. And if you've tried walking into a bank for a startup loan, you already know that it's going to be a challenge.

There is another way to approach raising capital for your startup. It's meant to speed up the machine, not build it. This can really present the best opportunity for both fundraisers and funders. By building the product first, entrepreneurs establish that ownership, control, and lead. They also have the opportunity to build and hone a business model that works regardless of additional funds. That's a much more powerful fundraising and negotiating position to be in. On the other side of the table investors are able to put their money to work with confidence, in a startup that has a product, and one which is proven to work. More money just helps to speed up the achievement of various milestones, and to magnify the successes and strengths.

When you are raising money from outsiders, there will be expectations to deliver certain types of milestones in a given timeline. For that reason, it not only helps to have a product on the market with some historical data when negotiating your financing terms, it also helps to avoid a significant dilution that comes with raising money as you're working to figure things out, assembling the machine.

Most startups eventually pivot to adjust to what the market is telling them. I have yet to see a bulletproof business plan, so it's important to have proof of concept and validation before taking the risk of bringing outsiders into the mix.

Take a moment to think and reclarify why you are raising capital. Consider what it will do for you, and what the opportunity offers to potential investors.

It's Not as Easy as Reading an Article on TechCrunch

If people read the weekly headlines on TechCrunch or various startup and fundraising blogs, it sounds as if anyone who can fog up a mirror can land several seven-figure-plus rounds of funding. Some people have the impression that if you throw up a crowdfunding page, you can land a million dollars to play with as you like. This is one of the biggest pitfalls facing startups today. It's not that easy—at least not for most startups. The truth is that it takes work. It takes effort, time, and ...