The 'How to Find & Structure Early Stage Funding' deck, produced under the Google for Entrepreneurs brand, is a tactical educational resource rather than a traditional startup pitch. It categorizes the 'Pre-VC' landscape into six distinct buckets, ranging from Friends & Family to Crowdfunding, providing specific investment ranges such as $0-$200k for family rounds and $25k-$2m for Micro VCs. The deck is particularly strong in its breakdown of deal structures, contrasting convertible notes with priced equity rounds and defining complex terms like liquidation preference, participation, and drag…
Key takeaways
- Friends & Family rounds are characterized as 'Quick, Easy, Cheap' but carry the risk of 'Dumb money' and strained relationships (Slide 4).
- Incubators and Accelerators typically provide $10k to $100k in exchange for 3 weeks to 3 months of runway (Slide 5).
- Seed Funds and Micro VCs, including firms like Andreessen Horowitz and SV Angel, are noted for providing $25k to $2m in capital (Slide 6).
- Crowdfunding is highlighted for providing market validation and PR without debt or equity, though accountability remains a 'Con' (Slide 7).
- Historical data from 2015 shows a significant -47% drop in Pre-A deal volume compared to 2014, despite stable capital deployment (Slide 9).
- Investors prioritize 'Intangibles' like domain expertise and passion alongside 'Metrics' such as addressable market and traction (Slide 11).
- Convertible notes are recommended for speed and simplicity, allowing founders to put off pricing discussions until a later date (Slide 13).
- Priced equity rounds are noted as more expensive due to legal fees and the difficulty of setting a price for very early companies (Slide 14).
Introduction to the Funding Landscape
The deck titled How to Find & Structure Early Stage Funding , produced for the Google for Entrepreneurs program, functions as a comprehensive primer for first-time founders. Unlike a standard pitch deck designed to sell a specific product, this presentation is designed to sell the concept of structured fundraising. It moves from high-level market categorization to the granular details of term sheet negotiations. The visual style is consistent with Google's branding at the time, utilizing a clean, icon-heavy layout to demystify the often-opaque world of venture capital.
The Pre-VC Spectrum
Slide 3 introduces the 'Different Stages of Funding' timeline, placing 'Pre-VC' at the very beginning of the product development cycle. This stage is positioned before the 'Market' and 'Growth/Scale' phases, which are typically associated with Series A and beyond. The deck then spends four slides (Slides 4 through 7) breaking down the specific sub-categories of Pre-VC capital.
Friends & Family (Slide 4): This is defined by investment amounts between $0 and $200k, providing 6 months to a year of runway. The 'Who' is explicitly listed as 'Mom, Dad, Wealthy Friend from College.' The pros are speed and low cost, while the cons are the 'Awkward' nature of the relationship and the risk of 'Dumb money'—investors who cannot provide strategic value.
Incubators/Accelerators (Slide 5): These are characterized by smaller checks ($10k - $100k) and very short runways (3 weeks - 3 months). The deck lists major players like YCombinator, 500 Startups, and TechStars. The primary value-add here is networking and peer help, though the deck warns that these programs are highly competitive and often require relocation.
Seed Fund/Micro VC (Slide 6): This category represents the bridge to institutional capital, with check sizes ranging from $25k to $2m. The deck cites firms like Andreessen Horowitz, FirstRound Capital, and SV Angel. The trade-off for higher validation and resources is 'Higher ownership' and 'Big Expectations' from the investors.
Crowdfunding (Slide 7): Platforms like Kickstarter, Indiegogo, and SeedInvest are highlighted. The unique advantage here is market validation without giving up equity or taking on debt. However, the deck notes that the final amount raised is often unknown at the start, and the high number of investors can lead to accountability challenges.
Market Data and Timing
Slides 8 and 9 provide a historical snapshot of the venture market using data from Mattermark as of October 2015. Slide 8 shows a ten-year trend in deal volume, highlighting a massive spike in Seed/Angel rounds starting in 2010 and peaking in 2013 before beginning a decline. Slide 9 compares 2014 to 2015, showing a sharp 47% decrease in 'Pre A' deal volume. Interestingly, while the number of deals dropped, the capital deployment for Pre A remained flat at $1.1 billion, suggesting that investors were writing larger checks for fewer companies—a trend that has often repeated in subsequent market cycles.
Investor Due Diligence: The Two-Way Street
Slide 10 shifts the focus to the relationship between the founder and the investor. It advises founders to look for three things in an early investor: Trust (checked via backdoor references), Speed/Responsiveness (nimbleness in generating a term sheet), and Value-Add (connections in industry verticals or recruiting).
Slide 11 flips the perspective to what investors look for in founders. It categorizes these into 'Intangibles' and 'Metrics.' Intangibles include domain expertise, passion, and the 'Founder Relationship.' Metrics are focused on the addressable market and traction. Notably, the slide mentions that financials are 'probably non-existent' at this stage, but investors will still look for signals in customer acquisition costs and potential margins.
Slide 12 provides a tactical list of 'Questions they’ll ask,' which serves as a checklist for founders preparing for a pitch. These include:
What will you do with the money? · How long will it last? · Who is your target customer? · What if Google/FB/Amazon/Apple builds this tomorrow? · What is your biggest mistake so far?
Structuring the Deal: Notes vs. Equity
The final section of the deck (Slides 13 through 16) is the most technical, covering the legal and financial structures of a round. Slide 13 advocates for Convertible Notes , describing them as loans that automatically convert to equity. The benefits are simplicity and the ability to 'put off pricing discussion until later.' The main consideration for founders is the 'cap,' which effectively serves as a price ceiling for the conversion.
Slide 14 contrasts this with a Priced Equity Round . While these offer transparency, the deck warns they are 'More expensive due to legal fees' and can be difficult to negotiate if the company is very early and lacks leverage.
Slide 15 and 16 dive into specific term sheet language. Slide 15 explains Preference and Participation , clarifying that 'Preference' means investors get their money back first, while 'Participation' allows them to double-dip into the remaining pool. Slide 16 covers Drag-along rights , Pro Rata rights , and Protective Provisions . The advice on Pro Rata rights is particularly specific: the deck recommends NOT giving these rights to anyone who is not a board member or providing board-level value, as it can 'leave little room for new investors in subsequent rounds.'
What Works in This Deck
The primary strength of this deck is its taxonomy of funding . By breaking down the 'Pre-VC' stage into six distinct buckets with specific dollar amounts and runway expectations, it provides a realistic roadmap for founders who might otherwise treat all 'early stage' capital as identical. The inclusion of pros and cons for each type of funding (e.g., the 'Awkward' nature of family money vs. the 'Big Expectations' of Micro VCs) adds a layer of practical honesty often missing from fundraising guides.
The technical breakdown of terms on Slides 15 and 16 is also excellent. Terms like 'liquidation preference' and 'participation' are frequently misunderstood by first-time founders. The deck uses plain language to explain these mechanisms as 'protection for returns in downside outcomes,' which helps founders understand the investor's risk-mitigation mindset.
What is Missing
While the deck is a strong educational tool, it lacks modern context regarding SAFE (Simple Agreement for Future Equity) notes . Since this deck was produced around 2015, it focuses heavily on Convertible Notes. In the current startup ecosystem, SAFEs have become the standard for early-stage Silicon Valley deals, and a modern version of this deck would need to contrast SAFEs with Convertible Notes (specifically regarding interest rates and maturity dates, which SAFEs lack).
The deck also omits cap table examples . While it explains terms like 'dilution' and 'ownership' conceptually, it does not show a visual representation of how a cap table changes from a Friends & Family round through a Series A. For a founder trying to 'structure' funding, seeing the mathematical impact of a 20% dilution event versus a participation clause would be highly valuable.
Founder Takeaways
Founders should copy the investor vetting framework found on Slide 10. The concept of 'backdoor references'—talking to founders an investor has funded who didn't succeed—is one of the most important due diligence steps a founder can take. Additionally, the 'Questions they'll ask' on Slide 12 should be used as the basis for a FAQ document that founders keep in their data room.
Finally, the warning on Slide 16 regarding Pro Rata rights is a crucial piece of advice. Many founders give away these rights to small angel investors without realizing they are creating a 'signaling risk' or a 'crowded cap table' problem for future institutional rounds. Limiting these rights to value-add board members is a sophisticated move that protects the company's future fundraising flexibility.
Frequently asked questions
- What are the primary benefits of using a convertible note according to the deck?
- According to Slide 13, the primary benefits are simplicity and speed, as a deal can be closed over a weekend with limited expense. It also allows founders to delay the difficult discussion of company valuation until the startup is more established. Furthermore, it enables multiple seed investors to join at different times without needing a formal 'round,' and typically allows founders to maintain full control as these investors usually lack voting rights.
- How does the deck define 'Participation' in the context of investment terms?
- Slide 15 defines participation as a mechanism where, after investors receive their initial liquidation preference (getting their money back), they continue to share or 'participate' in the remaining proceeds with common shareholders. This continues until they receive another specified multiple of their money. The slide notes that investors can elect to 'convert to common' at any point, giving up these rights to simply receive their percentage of ownership.
- What specific metrics do early-stage investors look for?
- As detailed on Slide 11, investors look for Addressable Market Opportunity and Traction. Traction is further broken down into Adoption and Churn. While the deck notes that financials are 'probably non-existent' at the earliest stages, they still look for potential in Revenue and Customer Acquisition Cost (CAC). Additionally, they evaluate margins, specifically looking at Operating Margin and the potential for Margin Growth.
- What are 'Protective Provisions' and are they negotiable?
- Slide 16 describes Protective Provisions as a list of actions a company cannot take without investor approval. This often includes the right for investors to block the company from raising a new round or selling the company. The deck explicitly states that these provisions are considered 'standard and typically non-negotiable' in professional venture capital deal structures.
- What is the 'Drag-along right' mentioned in the deck?
- Slide 16 defines the drag-along right as the ability for a certain percentage threshold of shareholders to force all other shareholders to agree to a sale of the company. The deck notes that the specific threshold is highly negotiable. The goal is a 'fair outcome' where neither the VCs nor the founders can force a sale alone, but together they can 'drag' angels and employees into the exit.
