

Raising Capital: Closing The Deal - waleedka
http://www.slideshare.net/jbeninato/raising-capital-closing-the-deal

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gruseom
Joe, if you're still following this thread, thanks for sharing that
presentation and for the extra information here. I have a question. Your very
last point says "Board composition REALLY matters". Could you expand on that?
What are some red flags to watch out for? Is a fair, founder-friendly solution
possible? Is it common? What does it look like?

I ask because I have heard many nasty stories of founders thinking that they
would stay in control of their company, only to find that, because of the
board, this wasn't true at all. I would like to know how to make sure this
doesn't happen. It seems like the issues can't all be obvious, or so many
smart people wouldn't fall prey to this pattern.

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beninato
Hi Gruseom, I probably won't follow after this post, but you are welcome for
the share. You can always email me directly via the address on the first page
of the presentation. Board composition really matters, because your board is
going to make decisions about the future of the company, and their most
important role (some would say only role) is to hire/fire the CEO. Many
founders give up 2 board seats for a bag of peanuts, and live to regret it.

The bottom line is board composition should be proportional to ownership. If a
VC buys 25% of your company, they should have 1 of 4 board seats. The day
investors (or their close friends who are identified as outsiders) have more
than 50% of the board seats is the day you as a founder have lost control of
your future.

I think most investors are fair about board composition up front. However some
bigger VCs rely up on the fact that over time, you'll need to do multiple
rounds, and they know that follow-on investors are frequently afraid to go
against their decisions, so in effect, they end up with multiple board seats
because the other investors don't want to piss them off. I have seen this
dynamic firsthand, and it is not good. I hope this helps you!

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edawerd
I can personally say that Joe Beninato is a great guy. He personally took time
to meet with me at a Starbucks and gave some honest, valuable advice when we
were looking for some funding early on with Picwing. Glad to see he's still
doing that!

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quique
Hi Joe, we really appreciate your time and energy at fbFund REV!

I'm curious about the distribution of meetings/term sheets for the investors
you highlighted.

Also interested in the second and third order effects of introductions to
investors. Who has the best recommendation/conversion in the valley? *Need to
do my HW on papers, dissertations, etc. to formulate better questions but
seems like we could run tests to validate some of your points with our
teams...

Thank you, Enrique

Sorry would of posted earlier but failing to get my username enriqueallen back
:(

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beninato
Thanks, Enrique. Not sure what you mean by distribution of meetings/term
sheets. If what you are saying is which VCs or angels are most likely to fund,
that is a really hard question to answer. It really depends upon your plan and
what you are doing, so I don't think I could say "firm X gives the most term
sheets."

In terms of your other question about recommendations, I would guess that if
Reid Hoffman or Marc Andreessen recommended an investment to a VC firm saying
they were investing, the VCs would take notice. However, getting time from
either of them is difficult. I'd recommend getting a strong, well-connected
advisor, and a similarly connected lawyer, and work closely with them. I hope
this helps.

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jack7890
Why is he so adamant about not communicating a valuation? Is it because if you
don't give one, there's a chance the VC will value you higher than the
valuation you would have communicated?

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beninato
Hi Jack,

Great question. It's pretty complicated, but I think naming a valuation can
only lead to problems. Bottom line: it's not your job as an entrepreneur to
value your company. It's up to the investor to "make the offer" in most cases.
Angels and VCs are professional negotiators. Most entrepreneurs are not. They
see thousands of companies every year and can very quickly assess the value of
your company. I have seen situations where an entrepreneur shoots himself in
the foot by stating a valuation that is lower than the VC had in mind, as you
suggest above. But the reality is that the "market" will value your startup.
If 3 VCs want to fund it, it's probably worth more than you thought. If 0 VCs
want to fund it, it's probably worth less than you thought :( I think it's
best to let the investors compete and the interest level drive the valuation
of the company. If asked for a valuation by a potential investor, my
suggestion to entrepreneurs is to say "We'd like to raise $X. We're realistic
about valuations these days, so you don't need to worry that we want $20 pre.
But we're going to let the market decide the valuation." Most investors
respect that response from what I have experienced over the years.

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sachinag
You see the list of angels, angel groups, and seed firms? They're all in the
Valley. You can do your startup elsewhere and succeed, but hey, if it's
possible, probably worth moving.

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beninato
Hi Sachinag, thanks for your comment. The reason most (but not all) of the
firms I listed are in the Valley is because this group of startups are all in
Palo Alto and meeting with investors here over the next few weeks. Of course
there are many great investors outside of the Valley (some like Union Square,
Foundry and First Round are all based outside) but I live and work in the
Valley, so most of the investors I've worked with are here.

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jasonlbaptiste
This presentation is really well done and will save you time from having to
read 5-10 other smaller posts on the subject.

I still think it's best to raise capital when they come to you. Most don't or
won't have the luxury of that though.

