Items to cover before the Deck creation process even starts:
1) Get a real/credible tech start-up law firm before you set-out to raise funding: make life easier on yourself by using a law firm that works with Silicon Valley tech start-ups, it will make everything else go smoother and investors want to see law firms they have worked with before, linked here is a list of some of the attorneys at known firms who are experienced taking on start-ups. Common mistakes made by non-Silicon Valley start-ups is having “their cousin Larry “ be their lawyer — don’t be that start-up CEO. The good news is that real tech start-up law firms all have programs where you as a start-up do not pay ANYTHING until you close your first priced financing round. They get you fully set-up as a legal entity with everything that is needed to raise funding…for free.
2) Legal Structure is a Delaware C-Corp: If you signed-on a real law firm this should not be an issue — but a mistake often made at the early stage is a start-up will set-up as an LLC or sole proprietorship.
3) Cap Table & Stock: Before you start pitching investors, make sure your Capitalization Table is organized such that:
a) Founders have meaningful and logical share ownership
b) All founder equity/ownership is under a standard 4 year vesting plan with 1-year cliff
c) There’s no phantom owners of large pieces of stock from the early days (example: cousin Larry)
d) There’s no large grants of stock to founders or anybody else early-on
e) Pro-Tip: Be sure to let your attorney know about any random promises for stock to various advisors, friends, landlords etc…BEFORE you raise any funding
4) The Big Idea: This could be an entire document in itself, but in short — as you come up with the core idea behind your start-up, there are three fundamental truths to consider:
a) As detailed in Peter Thiel’s oft debated Zero-to-One, this process of starting and building a company is way too difficult, painful and grueling to attempt to do it around anything but a totally unique idea. As Peter tells it, competition is for suckers — but what he means is DO NOT try to build a successful company around a product that already exists in the market. It’s simply not worth the brain-damage.
b) By definition, if you’re attacking an un-addressed, non-obvious opportunity, the initial market will appear to be small most likely, dominate that small non-obvious market FIRST, and then move on.
c) Generally speaking, many of the the best BIG IDEAS are rooted in a secret about the market that only the founder knows — something they know, that others either don’t realize or aren’t aware of.
5) Mechanics of Fundraising at SEED stage:
a) The all-time best how-to guide for managing the mechanics of fundraising from angels to seed-funds is “Pitching Hacks” created by Naval and Nivi — founders of Angellist, basically this was their initial effort around establishing thought-leadership before launching the Angellist platform. It’s linked HERE.
6) Distribution of the Deck: One key mistake of 1st time, non-Silicon Valley founders that I see over and over again….is the founder that is super hesitant to share their deck with others… or who asks for NDA’s to be signed by anybody that needs to see their deck (which will NEVER HAPPEN). KEY POINT, you will get nowhere if you don’t get your deck in front of MANY advisors and investor prospects. If the start-up concept is so fragile that anybody could copy it once having read your deck, then it’s not a good and defensible idea, put another way… ideas mean very little, execution is everything.
7) Key Financing Expectations: Before you start pitching people, be aware of the normal, “standard” financing life-cycle that a start-up goes through, here’s what that looks like (can vary widely but let this be a guide).
a) Friends and Family: People who love you and likely feel sorry for you because they know how hard this is going to be…small checks for $5k-$25K executed on a SAFE
b) Pre-Seed: Angel investments of $250k-$2MM on a SAFE or on a convertible note, typically with valuation CAPS of $3MM-$7MM ( individual checks of $25k-$100k), also could have a discount upon conversion of anywhere from 10% to 25%
c) Seed-Round: Typically a $1.5MM-$3MM “priced” financing on a $6MM-$10MM pre-money valuation ( 2–3 micro funds and many angels)
d) Series-A: Typically a $4MM-$8MM financing on a $10MM-$25MM pre-money valuation (With a Series-A venture fund leading the round and setting terms)