#+title: Section 3| Lesson 18 - What is a VC / How to Raise Money #+HTML_HEAD: * Links #+attr_html: :class links - [[./../mba-main.org][TOC | Business]] - [[https://www.udemy.com/course/an-entire-mba-in-1-courseaward-winning-business-school-prof/learn/lecture/4282944#overview][S03:L18 - What is a VC / How to Raise Money / Get a Board of Advisors]] * Notes ** Intro | year | who | |------+------------------| | 1-2 | angel investors | | 2-3 | equity investors | *** angel investors - people that fund early stage companies - about 100k in general *** banks - never use them - if you miss one payment they will seize everything - they are blood suckers *** equity investors - high worth individuals - venture capitalist firms - want equity *** "A" Round - first round of venture capital money - make sure to present correctly ** Equity Investors / Venture Capitalists *** most important investment characteristic - NOT "good business model" - it is MANAGEMENT - business model is irrelevant - management team is the MOST important thing *** how to find out if the team is good - have they sold companies in the past - their employees like them - glassdoor.com and do a search - search linkedin if you can find someone who can vet these guys - past performance is VERY indicative of future performance - they want to back someone who made a company ** How to Meet High Quality People *** how to get a board of advisors - go to linked in and do an advanced search - enter the keywords that are relevant - keyword of interest - your university - your current zip code - ask for help - send a short message "John hope all is well. I am also from Canada/ also went to NYU/ etc. Please let me know if you have time for a coffee in the next few weeks. thanks" *** in meeting - first half - get to know them - business is about relationships - talk about what you have in common - city - university - final part - thank you for your time - please let me know if I can ever call upon you as an advisor now and then - great, Ill call upon you every now and then thanks *** follow up - meet up every 3 to 6 months - remember something you talked about that was interesting to the person - follow up by sending them a message / email/ etc with something interesting on that topic - add value by sending messages - in months ahead every now and then - that help them out with their business - based on something you talked about ** VC Capital Raising and Terms *** Who are the Investors / LPs? - high net worst investors - big endowments - pension funds *** What are the Terms? (2 and 20) - generally 2% annual fee, this pays for maintanence - 20% buyout when you sell *** How do you harvest and investment? - go public - get sold (to another company) *** returns - 5 by 5 - 500% return within 500 years - because most investments go belly up - most companies declare bankruptcy in 5 years *** valuation - in five years, is this company going to be more or less relevant than it is today - long term vision - you actually prefer downturns so you can buy cheaper ** Investment Stages *** initial | seed - angel investors - family *** venture capital - A Round - need to grow your business - hire more engineers - early stage vc firm - about a 1.5-2 years - B round - second stage vc firm - another 1.5-2 years - C round - final stage vc firm *** final | IPO - Initial Public Offering - revenue grown slows - still positive ** How to Pitch to a VC *** prepare 3 pitches 30-5-30 - 30 second pitch - most important - simple to understand - understanding in one sentence - if people understand it, you'll get your first meeting - 5 minute pitch - 30 minute pitch *** sell yourself - you are what they are actually buying *** discuss what is different about your product *** be ABLE to discuss competition and market - know the size of the TAM - Total Adjustable Market - if you don't, they'll assume you don't know what you are talking about *** have basic financials ready for discussion - a few annual revenue expense line items *** what are your partners, investors and advisors - talk about them *** show the product - most people dont - show it right away *** keep it simple - be passionate - speak from the heart