The Babson How2Tuesdays presentation, delivered by David Chang on February 18, 2020, serves as a tactical roadmap for early-stage founders. Rather than pitching a specific product, the deck pitches a methodology for fundraising. It categorizes capital sources by cost and size, provides a granular map of the Boston investor ecosystem, and outlines a five-stage fundraising campaign: Prep, Target, Socialize, Raise, and Close. Key technical insights include a 'rule of thumb' for raising 12-18 months of cash and a visual breakdown of dilution, showing how a $1M raise on a $5M pre-money valuation r…
Key takeaways
- Fundraising is structured as a five-step campaign: Prep, Target, Socialize, Raise, and Close (Slide 9).
- A standard seed round rule of thumb is to raise enough for 12-18 months of cash runway (Slide 7).
- Capital sources are mapped on a matrix of Cost vs. Size, with Grants at the lowest cost and Traditional VC at the highest size (Slide 5).
- Seed stage founders should expect the fundraising process to take 3-6 months, often limited by investor calendar availability (Slide 16).
- Dilution math shows that raising $1M on a $5M pre-money valuation leads to a 37% founder stake after Series B, assuming standard follow-on rounds (Slide 15).
- The deck provides a specific directory of Boston-area investors categorized by stage (Seed, Early, Growth) and sector (Tech, Healthcare, Energy) (Slide 11).
- Founders are advised to 'socialize' the round before officially asking for money to build trust and gather feedback (Slide 12).
- Venture capital is driven by a skewed return distribution, requiring VCs to 'swing for the fences' on every deal (Slide 6).
Introduction and Speaker Background
The presentation opens with a clear title slide (Slide 1) identifying the event as Babson's How2Tuesdays, dated February 18, 2020. The speaker is David Chang, a notable figure in the Boston startup ecosystem. The initial slides establish credibility through the speaker's background (Slide 2), showing affiliations with Cornell University, Harvard Business School, and Goldman Sachs.
Investment Track Record
Slide 3 provides a visual representation of the speaker's angel investments, divided into direct investments and those made via syndicates or funds. The logos displayed include well-known startups such as Crashlytics , Clypd , Logz.io , and Appcues . This slide serves to validate the advice given in the rest of the deck by demonstrating the speaker's active participation in the seed and early-stage market.
The Landscape of Capital
Identifying Obstacles
Slide 4 uses a brick wall metaphor to ask, "What Obstacles Stand in Your Way?" This transition leads into a detailed analysis of capital sources. Slide 5 is a critical chart sourced from Jean Hammond and MassChallenge, mapping various capital sources on a matrix of Cost versus Size . At the low-cost, low-size end are personal loans and competitions. At the high-cost, high-size end are traditional VCs and Private Equity. Interestingly, customers and grants are positioned as the lowest cost sources of capital, while 'Friends & Family' are noted as having a higher relative cost than grants but lower than professional angels.
Venture Capital Dynamics
Slide 6 explains the underlying motivation of VCs. Using a baseball stadium background, it notes that venture capital is defined by a "skewed return distribution." Because most startups fail, VCs "must swing for the fences," seeking companies capable of returning the entire value of the fund. This is a crucial lesson for founders: if your business model doesn't support a massive exit, traditional VC is likely the wrong capital source.
Preparation and Strategy
Determining the Raise Amount
Slide 7 addresses the common question of how much to raise. The advice is to build a financial model of cost drivers and revenue, forecasting monthly for two years. The stated "rule of thumb" is to raise 12-18 months' cash . Slide 8 connects this cash to specific milestones, including Team, Product Development, Market Demand, Product/Market Fit, Business Model, and Execution. A link to a TechCrunch article emphasizes that "running out of money isn't a milestone."
The Fundraising Campaign
Slide 9 introduces the five-step campaign framework: Prep, Target, Socialize, Raise, and Close . This suggests that the actual "asking for money" (the Raise phase) should only happen after significant groundwork has been laid. Slide 10 drills down into target criteria, advising founders to filter investors by stage, location, industry, and investment thesis.
The Boston Ecosystem Map
Slide 11 is a highly tactical resource, providing a directory of local investors in the Boston area. It categorizes firms by stage (Growth, Early, Seed) and sector (Tech, Healthcare/Life Sciences, Energy, Angel Groups). Notable names included are Bain Capital , Spark Capital , Founder Collective , and Boston Seed Capital . This slide provides immediate value to any founder operating in the Northeast US.
Execution and Closing
The Art of Socializing
Slide 12 offers counter-intuitive advice: "Don't Ask for Money!" during the socialization phase. Instead, founders should use phrases like "I'm not ready to raise," "Who would be helpful?" and "Who else should I talk to?" This approach builds relationships and gathers intelligence without triggering a formal 'no' from an investor before the founder is ready.
Creating Momentum and FOMO
Slide 13 discusses the psychology of the close. It encourages founders to approach top candidates simultaneously to create a sense of competition. The key is to land an "anchor investor" to serve as the first domino. Slide 14 and 15 cover the final stages of closing. Slide 15 is particularly useful, showing a bar chart of valuation growth from Seed ($5M pre) to Series A ($12M pre) to Series B ($30M pre). It also calculates dilution, showing that a founder's end stake might be 37% if they raise $1M on a $5M pre-money valuation, compared to 33% if they raise the same amount on a $3M pre-money valuation.
Timeline Realities
Slide 16 sets expectations regarding time. It states that fundraising takes 3-6 months and is often slowed down by the founder's ability to find investors and the simple lack of calendar availability among busy VCs.
Summary and Resources
The deck concludes with a summary slide (Slide 17) and several slides offering advice on presentation style. Slide 18 encourages founders to "Share your summit & basecamp," a metaphor for long-term vision and immediate next steps. Slide 19 emphasizes the power of compounding iterations, showing that a 1% daily improvement (1.01^365) leads to a 37.8x return, whereas a 10% monthly improvement (1.10^12) only leads to a 3.1x return. The final slides (20-21) provide resources like thenounproject.com for icons and bestpitchdecks.com for examples of successful decks from companies like Airbnb and Facebook .
What Works in This Deck
Tactical Ecosystem Mapping: Slide 11 is a standout, providing a ready-made target list for Boston-based founders. · Clear Dilution Math: Slide 15 demystifies the long-term impact of early-stage valuation on founder equity, which is often misunderstood by first-time entrepreneurs. · Process-Oriented Approach: By framing fundraising as a five-stage campaign (Slide 9), the deck moves away from the idea of a "lucky break" and toward a repeatable sales process. · Visual Metaphors: The use of the baseball field for VC dynamics and the brick wall for obstacles makes complex concepts immediately accessible.
What Is Missing
Unit Economics Detail: While the deck mentions building a financial model, it does not provide examples of the specific unit economics (CAC, LTV, Churn) that seed investors typically look for. · Pitch Deck Structure: The deck tells you how to run a round, but it doesn't provide a slide-by-slide template for what the actual startup pitch deck should contain (e.g., problem, solution, market size). · Legal Considerations: There is no mention of the legal instruments used in seed rounds, such as SAFEs (Simple Agreement for Future Equity) or Convertible Notes, which are standard in modern seed fundraising.
What a Founder Should Copy
The Socialization Strategy: Founders should adopt the "don't ask for money yet" approach from Slide 12 to build a network of advisors and advocates before the formal raise. · The 12-18 Month Runway Rule: Using Slide 7 as a benchmark for capital requirements helps ensure the startup isn't constantly in fundraising mode. · The Target Filter: Implementing the criteria from Slide 10 (Stage, Vertical, Thesis) will significantly increase the efficiency of a founder's outreach efforts. · Simultaneous Outreach: The advice on Slide 13 to approach top candidates at the same time is the most effective way to generate the leverage needed to secure favorable terms.
Frequently asked questions
- How much capital should a seed-stage startup aim to raise?
- According to slide 7, founders should build a basic financial model of cost drivers and revenue to forecast monthly needs for two years. The general rule of thumb provided is to raise enough capital to cover 12 to 18 months of operations. This runway is intended to give the team enough time to reach the next set of significant milestones before needing to return to the market.
- What are the primary stages of a fundraising campaign?
- Slide 9 breaks the campaign into five distinct phases: Prep (preparing materials), Target (identifying the right investors), Socialize (building relationships without asking for money yet), Raise (the active pitch phase), and Close (finalizing legal and financial details). This structure suggests that fundraising is a process of building momentum rather than a single event.
- How does the deck suggest creating FOMO among investors?
- Slide 13 outlines a strategy for creating 'Fear Of Missing Out.' It recommends approaching all top investor candidates at the same time to synchronize timelines. The goal is to land an 'anchor investor' who acts as the first domino, which then allows the founder to use triggering events—like a new term sheet—to improve terms with other interested parties.
- What criteria should founders use to target investors?
- Slide 10 lists six key target criteria: Stage, Location, Industry Vertical, Business Model, Investment Thesis, and a Social/Trust Filter. By filtering for these specific attributes, founders can avoid wasting time on investors who are structurally unable to invest in their specific type of company or geographic region.
- What is the expected timeline for closing a seed round?
- Slide 16 warns that fundraising usually takes longer than founders expect, typically ranging from 3 to 6 months. The speed of the round is often limited by the founder's access to investors and, more practically, the difficulty of managing investor calendar availability, which the deck notes is 'surprisingly hard.'
