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8 tips for founders trying to raise their first round of venture capital
If you’re an avid TechCrunch reader, someone who loves to absorb endless startup profiles and pore through fundraising stories, you might think raising venture capital is easy. In reality, it’s very, very difficult and not the best source of capital for most businesses.
For startups hoping to scale far and wide as fast as possible, VC may be the right fit. To shed light on the process of raising equity capital from venture capital firms and provide some exclusive tips and tricks for Extra Crunch subscribers, we sat down with three experts on the subject. Below are the top pieces of advice from Charles Hudson, founder and managing partner of Precursor Ventures, Redpoint Ventures general partner Annie Kadavy, and DocSend founder Russ Heddleston. The following has been lightly edited for length and clarity.
1. First, make sure your company is fit to raise venture capital.
Charles Hudson: I think venture capital, it’s really a specialty type of capital. It’s really for companies that have the aspiration to grow really quickly, to build really large businesses … If you’re not a company that needs to grow quickly, venture capital might not be the right source of capital for you. There has to be a really big prize at the end of the journey.
2. Raise capital early if you’re stressing about small costs or fretting competition
Russ Heddleston: If you’re thinking about whether or not to raise, there are a couple of reasons that I will often advise people to raise early. One is if they’re really stressing about buying a whiteboard for their office, or like some something of relatively small cost. If you think it could be a big company, and you’re stressing about small things, raise money and buy the whiteboard, hire the additional person and get back to what you should be doing, which is running your business and growing it quickly.
The other thing is if you ask the question, ‘is there a competitor I don’t know about?’ If you heard tomorrow, that competitor just raised $2 million, or $5 million or $10 million, how nervous would that make you? For some businesses, you’re like, I don’t really care, it’s a services industry, it’s not a winner take all market. And other times, you’re like, oh, I’d be really nervous. So if either those apply, that’s a good reason to make a compelling case to someone like Charles.
The number one thing you can do to get a VC’s attention is make [your pitch] really simple. Precursor Ventures’ Charles Hudson
3. It’s OK to take a salary
Annie Kadavy: I’d be hard-pressed to think of an example where a founder is not paying themselves, the question, though, is how much? You’re paying yourself enough so that the basic costs of life and running your business are not giving you anxiety, because as an early stage investor one of our primary roles is to try and keep the baseline stress as low as it can be, because it’s really hard to go build a company.
If a founder is coming in at the Series A and they say I’m going to go pay myself $300,000, we might be like, well, that doesn’t really feel right, shouldn’t you want to put some of that money into the company? The ranges I’ve seen are anything from $60,000 up to probably $120,000 at the Series A, or maybe $150,000. Then, as the company grows and as the balance sheet grows and it’s de-risked, your salary as an executive at the company will scale with that.
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Get your pitchdeck analyzed by top investors and experts at Disrupt SF next week
…And see other pitchdecks get the teardown treatment from top early-stage investors Charles Hudson (Precursor Ventures), Anu Duggal (Female Founders Fund) and Russ Heddleston (CEO of DocSend). If you’re attending Disrupt, you’ll get an email with instructions on how you can submit your deck and if you are selected, you can get feedback directly from them in a workshop setting.
If we use your deck, we’ll also provide you a free ticket to any TechCrunch event of your choosing next year.
This is part of a new project to make Disrupt even more focused on founders. We’re already offering the Extra Crunch stage, where you’ll get lots of time to ask questions yourselves in addition to hearing their interviews. For this additional project, we’re setting up workshops with experts on our Q&A stage where they’ll be going over the actual founder problems.
These folks have seen everything, so they will have a gut sense for how generalized advice can be applied to your specific team and market — the nuance that can compellingly explain your strengths and weaknesses. Hudson and Duggal have written some of the first checks for some of the most interesting startups today. The Athletic, Clearbanc, Incredible Health, Sudo and Pico are names you may recognize from the Precursor portfolio; Tala, BentoBox, Thrive Global and WayUp are a few of the many on Female Founder Fund’s list.
Heddleston, meanwhile, is a repeat founder who now has some of the best insight into trends in funding through his current company, DocSend . As you may have read on TechCrunch already, the company provides document management for a large portion of startup founders out there, allowing them to share anonymized data with DocSend about how investors are reading their pitch decks. He’ll provide a data-driven founder perspective.
Attendees will be notified via email on how to submit their pitch deck. If you want to submit your deck for review, get your pass to the event here and we’ll send out an email with instructions on how to submit your deck.
Please note: The workshop is open to conference attendees and is officially on the record. Other investors and members of the media may be in the workshop and see what you have in your deck, so plan accordingly.
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Annie Kadavy, Russ Heddleston and Charles Hudson will tell us how to raise seed money at Disrupt SF
Just about anyone can come up with a good idea. Fewer people can execute on that idea and turn it into a prototype or MVP. But there is still one final challenge for most entrepreneurs that can prove challenging.
How do you secure that initial seed capital and take your idea to the next level?
At Disrupt SF in October, Redpoint’s Annie Kadavy, DocSend’s Russ Heddleston and Precursor’s Charles Hudson will sit down together and chat it out on the Extra Crunch stage.
Kadavy, Heddleston and Hudson can offer a unique perspective on the process of early-stage fundraising.
Kadavy joined Redpoint in 2018 after a four-year stint at Charles River Ventures, where she sourced or led deals with ClassPass, Cratejoy, DoorDash, Lauren & Wolf and Patreon. She’s also spent time within firms like Bain & Company, Warby Parker and Uber Freight. She understands the importance of operational experience, and knows better than most how to take a company from point A to point B.
Heddleston, co-founder and CEO of DocSend, has a completely different perspective. DocSend is used to securely send and track documents, and one of the most prevalent documents on the platform happens to be pitch decks. Heddleston can tell us about what characteristics get (and keep) the attention of investors, as well as what turns them off.
Hudson, managing partner at Precursor Ventures, has been on both sides of the conference room table. He founded Bionic Panda Games, which was acquired by Zynga in 2010. He moved on to SoftTech VC (now Uncork Capital), where he spent eight years working on seed-stage investments in the consumer internet space. At Precursor Ventures, he’s continuing to invest in early-stage companies that are tackling problems in new markets.
These three each have their own perspective on how to get the attention of investors and how to turn a conversation into a cap table.
“How to Raise Your First Dollars” is but one of many panels that will take place on the Extra Crunch stage at Disrupt SF. The Extra Crunch stage, much like Extra Crunch on the web, is meant to serve as a resource for aspiring entrepreneurs and VCs, offering practical, step-by-step advice on how to get to where you’re going.
We’re thrilled to have Kadavy, Heddleston and Hudson join us at the show.
Disrupt SF runs October 2 – October 4 at the Moscone Center in SF. Tickets to Disrupt SF are available here.
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Startups Weekly: Zoom CEO says its stock price is ‘too high’
When Zoom hit the public markets Thursday, its IPO pop, a whopping 81 percent, floored everyone, including its own chief executive officer, Eric Yuan.
Yuan became a billionaire this week when his video conferencing business went public. He told Bloomberg that he actually wished his stock hadn’t soared quite so high. I’m guessing his modesty and laser focus attracted Wall Street to his stock; well, that, and the fact that his business is actually profitable. He is, this week proved, not your average tech CEO.
I chatted with him briefly on listing day. Here’s what he had to say.
“I think the future is so bright and the stock price will follow our execution. Our philosophy remains the same even now that we’ve become a public company. The philosophy, first of all, is you have to focus on execution, but how do you do that? For me as a CEO, my number one role is to make sure Zoom customers are happy. Our market is growing and if our customers are happy they are going to pay for our service. I don’t think anything will change after the IPO. We will probably have a much better brand because we are a public company now, it’s a new milestone.”
“The dream is coming true,” he added.
For the most part, it sounded like Yuan just wants to get back to work.
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You thought I was done with IPO talk? No, definitely not:
- Pinterest completed its IPO this week too! Here’s the TLDR: Pinterest popped 25 percent on its debut Thursday and is currently trading up 28 percent. Not bad, Pinterest, not bad.
- Fastly, a startup I’d admittedly never heard of until this week, filed its S-1 and displayed a nice path to profitability. That means the parade of tech IPOs is far from over.
- Uber… Surprisingly, no Uber IPO news this week. Sit tight, more is surely coming.
While I’m on the subject of Uber, the company’s autonomous vehicles unit did, in fact, raise $1 billion, a piece of news that had been previously reported but was confirmed this week. With funding from Toyota, Denso and SoftBank’s Vision Fund, Uber will spin-out its self-driving car unit, called Uber’s Advanced Technologies Group. The deal values ATG at $7.25 billion.
The TechCrunch staff traveled to Berkeley this week for a day-long conference on robotics and artificial intelligence. The highlight? Boston Dynamics CEO Marc Raibert debuted the production version of their buzzworthy electric robot. As we noted last year, the company plans to produce around 100 models of the robot in 2019. Raibert said the company is aiming to start production in July or August. There are robots coming off the assembly line now, but they are betas being used for testing, and the company is still doing redesigns. Pricing details will be announced this summer.
#TCRobotics pic.twitter.com/Vf4kUWH0fR
— Lucas Matney (@lucasmtny) April 19, 2019
Digital health investment is down
Despite notable rounds for digital health businesses like Ro, known for its direct-to-consumer erectile dysfunction medications, investment in the digital health space is actually down, reports TechCrunch’s Jonathan Shieber. Venture investors, private equity and corporations funneled $2 billion into digital health startups in the first quarter of 2019, down 19 percent from the nearly $2.5 billion invested a year ago. There were also 38 fewer deals done in the first quarter this year than last year, when investors backed 187 early-stage digital health companies, according to data from Mercom Capital Group.
Byton loses co-founder and former CEO, reported $500M Series C to close this summer
Lyric raises $160M from VCs, Airbnb
Brex, the credit card for startups, raises $100M debt round
Ro, a D2C online pharmacy, reaches $500M valuation
Logistics startup Zencargo gets $20M to take on the business of freight forwarding
Co-Star raises $5M to bring its astrology app to Android
Y Combinator grad Fuzzbuzz lands $2.7M seed round to deliver fuzzing as a service
Hundreds of billions of dollars in venture capital went into tech startups last year, topping off huge growth this decade. VCs are reviewing more pitch decks than ever, as more people build companies and try to get a slice of the funding opportunities. So how do you do that in such a competitive landscape? Storytelling. Read contributor’s Russ Heddleston’s latest for Extra Crunch: Data tells us that investors love a good story.
Plus: The different playbook of D2C brands
And finally, for the first of a new series on VC-backed exits aptly called The Exit. TechCrunch’s Lucas Matney spoke to Bessemer Venture Partners’ Adam Fisher about Dynamic Yield’s $300M exit to McDonald’s.
If you enjoy this newsletter, be sure to check out TechCrunch’s venture-focused podcast, Equity. In this week’s episode, available here, Crunchbase News editor-in-chief Alex Wilhelm and I chat about rounds for Brex, Ro and Kindbody, plus special guest Danny Crichton joined us to discuss the latest in the chip and sensor world.
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DocSend raises $8M for smarter document sharing
Document analytics startup DocSend has raised $8 million in new funding. Naturally, co-founder and CEO Russ Heddleston said he used his company’s tools to make the deal. DocSend launched at our Disrupt NY conference two years ago, offering users a different way to send email attachments. The attachments are presented in a web viewer, meaning that you get notifications whenever someone… Read More
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