1. Bring a starting line-up, not an entire soccer teamBringing too many people from your startup team to a VC meeting sends subliminal messages – the team isn’t busy with other work, they are slightly desperate, they don’t entirely trust each other. While none of these impressions may be fair or true, you aren’t given an opportunity to refute them. Plan to bring at most three people to a partnership presentation. The CEO and founder should be present, along with another cofounder, if applicable, and the chief technical person. The person who understands the market opportunity and the competition best should attend. Some startups bring their chief financial officer, which is not necessary. Your CEO should be able to speak to financial questions from memory this early in the business’s development.
2. Sell the company, not the productThis presentation should look very different from the pitch you give to sales prospects. The venture firm is not buying your product, they are buying your stock and your partnership in success. To win the sale, you need to demonstrate how great your team is, where your company fits into the world, and how well your group is suited to capitalize on the opportunity. And remember, the objective of the first meeting is not to close the deal, it’s to get a second and third meeting. Don’t go into every detail during an introductory meeting.
3. You, not your presentation, should drive the meetingCome well prepared with a compelling deck, but don’t let the presentation and the plans you have for this meeting take over. A robust two-way discussion leaves the best impression. Do not forget that you are a buyer as well as a seller, and often the best way to sell is to buy. Ask about the venture firm, its strategy, and its portfolio, and listen well. They will tell you what they are looking for, and then you can sell what they are buying.
4. Demonstrate your managerial skill by running a good meetingHow well you run the meeting shows how well you can run the company. Be organized and timely, but with a light touch. It’s important that the meeting not run over its allotted time, typically an hour and a half. Therefore, your deck should take no more than 30 minutes to deliver when not interrupted; with introductions, questions, and discussion, you should be right on time. The CEO should deliver the bulk of the presentation, with others responding to questions.
5. Don’t reveal too muchMost VCs will ask who else you have been talking to and how far along you are in the fundraising process. Your goal is to create enough urgency for them to dig in now while not making them feel they are too late to bother. So, the best response is, “We have had a number of initial meetings with high quality firms, but we are still in the initial phase of the process.”
It all boils down to one key takeaway: Any initial meeting is a two-way street — you are trying to gauge the VC firm’s fit with your organization. You should imply that you have choices and are being selective and thoughtful. Come prepared, not just with information about your company but with what you are looking for in a financing partner. A second meeting will be your reward.
A capitalization table (or cap table) is an important part of your private placement memorandum (PPM). It lists the shareholders of the company and shows their corresponding ownership shares along with voting rights and other specifics. It is typically shown in chart format with accompanying notes.
Pre-Money and Post-Money Ownership
The cap table can be used for your own purposes to better understand how your percentage ownership will change with the current capital raising round. This is important to understand, especially if the financing results in the original owners losing the necessary 50% of voting rights which gives them control of the company. A lawyer may be so focused on protecting you from legal liability that they do not adequately explain how you can keep this control, even through a significant round of funding.
If you can raise a smaller amount and spend more time proving your business model with this limited amount of financing, you can avoid giving up controlling interest in your company both now and in a future round of financing. By the time of the second round of financing, you will likely have sales revenues history and greater demonstrated interest from customers, all supporting a higher pre-money valuation of the company.
Common, Preferred, Options, Warrants
It is important that the cap table dig into the specifics, by differentiating between common stock and preferred stock. Preferred stockholders generally hold no voting rights but are paid dividends before common stockholders. Therefore, to keep control over the company, issuing preferred stock may be the way to go. However, savvy investors may want the control that comes with voting rights more than additional dividends if they believe their influence can help improve the value of the stock overall.
The cap table should include lists of options or warrants that have been issued or will be issued as well. This gives both management and prospective investors a full picture of potential future changes in ownership if and when the options or warrants are executed.