The NYU Entrepreneurial Institute deck is not a startup pitch but an educational framework for founders, delivered by Frank Rimalovski in November 2016. Spanning 73 slides (19 analyzed here), it demystifies the venture capital industry by explaining that VCs manage 'Other People's Money' (OPM) under a '2-and-20' fee structure with a 10-year fund life (Slide 5). The presentation uses a hypothetical seed round led by Greycroft to illustrate how a $1.00m raise on a $3.00m pre-money valuation impacts founder equity (Slide 15). It further tracks dilution through the hiring of first employees and a…
Key takeaways
- Venture Capital is not the primary source of startup funding, despite popular belief (Slide 3).
- VC funds typically operate on a 10-year life cycle using a '2-and-20' fee and carry model (Slide 5).
- Statistically, 75% of startups fail to return the capital invested in them, according to Shikhar Ghosh of Harvard Business School (Slide 9).
- A standard seed round of $1.00m on a $3.00m pre-money valuation results in a $4.00m post-money valuation (Slide 15).
- Founder ownership is significantly impacted by the creation of option pools, such as a 10% pool for early hires (Slide 19).
- Series A rounds, exemplified by a $2.50m raise on a $7.50m pre-money, can push founder equity down to 60% when combined with a 20% option pool (Slide 23).
- VCs prioritize scalable and repeatable business models that generate high ROI in large, growing markets (Slide 37).
- Founders are advised to never hire an agent or banker for venture fundraising and to diligence investors as thoroughly as they are diligenced (Slide 53).
Introduction: The Educational Framework of Venture Capital
The presentation titled When & How to Raise Venture Capital , delivered by Frank Rimalovski of the NYU Entrepreneurial Institute on November 1, 2016 (Slide 1), serves as a foundational guide for student and faculty entrepreneurs. Unlike a typical startup pitch, this deck is designed to manage expectations and explain the mechanical realities of the venture industry. It uses a mix of industry statistics, hypothetical cap table scenarios, and tactical advice to prepare founders for the rigors of institutional fundraising.
The Macro View of Venture Capital
The deck begins by challenging common misconceptions. Slide 3 labels the idea that 'Venture Capital funds are the primary source of startup funding' as a myth. This is a critical starting point for any founder, as it suggests that most businesses are funded through other means, such as bootstrapping, grants, or angel investment. Slide 5 dives into the mechanics of the VC business model itself. It notes that VCs manage 'OPM' (Other People's Money) from pension funds, foundations, and endowments. The slide highlights the 10-year fund life and the 2-and-20 fee structure, illustrating how multiple funds (Fund I, II, and III) overlap over a 15-year period. This context is vital for founders to understand the pressure VCs are under to deliver returns within a specific timeframe.
The Reality of Failure and Dilution
One of the most sobering slides is Slide 9 , which features a large 75% figure. Citing Shikhar Ghosh of Harvard Business School, the slide states that 75% of startups fail to return investors' capital. This sets the stage for the high-risk nature of the asset class. The presentation then moves into a multi-slide hypothetical case study to explain equity dilution. On Slide 15 , a 'Series Seed' round is described where Greycroft leads a $1.00m raise on a $3.00m pre-money valuation , resulting in a $4.00m post-money valuation . The NYU Innovation Venture Fund and three angels are noted as completing the round.
Slide 19 introduces the next phase: hiring the first employees. It suggests adding a 10% Option Pool . At this stage, the 'Fully Diluted Ownership' chart shows Founders at 67%, Seed Investors at 23%, and the Option Pool at 10%. The dilution continues on Slide 23 , titled 'Make room for more options!' Here, Flybridge Capital offers a $2.50m raise on a $7.50m pre-money valuation . The option pool is increased to 20%, leaving the founders with 60% ownership and the seed investors with 20%. This sequence is an excellent educational tool for founders to visualize how their 'piece of the pie' shrinks as the company grows.
Tactical Advice and VC Expectations
The deck transitions from mechanics to strategy in the middle section. Slide 29 offers specific advice on legal counsel, warning founders not to use 'cousin Murray' or a patent attorney, but rather someone who 'does venture financings daily.' This emphasizes the specialized nature of venture law. Slide 37 answers the question, 'What do VCs look for?' The list includes a large and growing market, differentiated solutions with data, customer validation, a scalable business model, and a focused team. These are the standard pillars of a venture-backable business.
The timing of a raise is addressed on Slide 41 with the simple mantra: 'Raise money when you can raise it!' This reflects the cyclical and often unpredictable nature of the capital markets. Slide 45 and Slide 49 work together to debunk the idea that founders should wait until they are 'ready' to talk to VCs. Instead, the deck argues that VCs 'invest in the trend,' meaning they want to see progress and data points over time rather than a single snapshot in time.
Final Thoughts and Resources
The 'Final Thoughts on Fundraising' on Slide 53 provide a checklist for founders: diligence your investors, remember that 'less is more' in preparation, and avoid hiring agents or bankers. This slide reinforces the need for a professional, direct relationship between the entrepreneur and the financier. The final portion of the deck (Slides 57-73) focuses on specific resources available at NYU. Slide 61 mentions NYU Green Grants , and Slide 65 highlights the NYU Innovation Venture Fund , which was previously mentioned in the hypothetical seed round. The presentation concludes with a call to action to attend the next 'Startup School' session on 'Metrics that Matter' (Slide 69) and provides contact information for the NYU Entrepreneurial Institute (Slide 73).
What Works in This Deck
Mechanical Clarity: The step-by-step breakdown of the cap table from seed to Series A (Slides 15, 19, 23) is exceptionally clear. It removes the abstraction of dilution and shows exactly how valuations and option pools interact. · Industry Realism: By starting with the '75% failure rate' (Slide 9) and the '2-and-20' fund structure (Slide 5), the deck forces founders to view their startup through the lens of an investor's portfolio math. · Direct Tactical Warnings: The advice on lawyers (Slide 29) and the prohibition against hiring bankers for early-stage rounds (Slide 53) are high-value 'insider' tips that can save a founder significant time and reputation.
What Is Missing
Unit Economics: While the deck mentions 'scalable & repeatable business models' (Slide 37), it does not provide examples of the specific metrics (LTV, CAC, Churn) that VCs use to verify these models. · Pitch Deck Structure: For a presentation about 'How to Raise,' there is no slide outlining the specific order or content of a 10-12 slide pitch deck. It focuses more on the 'what' and 'when' rather than the 'how' of the document itself. · Modern Funding Instruments: The deck focuses on priced rounds (Seed, Series A). There is no mention of SAFEs (Simple Agreements for Future Equity) or Convertible Notes, which are standard for the 'Seed' stage mentioned on Slide 15.
Founder Takeaways
Understand the VC's 'Boss': As shown on Slide 5, VCs answer to LPs (Limited Partners). Your startup is a vehicle for them to return capital to pension funds and endowments within a 10-year window. If your business cannot scale to that timeline, venture capital is the wrong tool. · Dilution is Cumulative: Slides 15 through 23 demonstrate that you don't just lose equity to investors; you lose it to the talent you need to hire. Founders should model their ownership not just based on the check they are taking today, but the option pool they will need to build tomorrow. · Build the 'Trend,' Not the 'Dot': Slides 45 and 49 are the most important for early-stage networking. Don't wait for a 'perfect' deck to start talking to investors. Start early so they can see your progress over months, which builds the 'trend' they are looking to fund. · Professionalism is Non-Negotiable: The emphasis on experienced venture lawyers (Slide 29) and professional investors (Slide 53) suggests that the 'who' of your cap table is just as important as the 'how much.'
Frequently asked questions
- What is the '2-and-20' model mentioned in the deck?
- On Slide 5, the deck explains that VCs manage 'Other People's Money' (OPM) from sources like pension funds and endowments. The '2-and-20' refers to the standard compensation structure where the VC firm charges a 2% annual management fee on the total fund size and retains 20% of the profits (carried interest) after returning the initial capital to their investors.
- How does the deck illustrate the impact of an option pool on dilution?
- Slide 19 and Slide 23 show the progression of equity. In the hypothetical scenario, adding a 10% option pool for the first employees reduces founder ownership from 100% (pre-seed) to 67% after the seed round and pool creation. By the time a Series A is raised and the pool is expanded to 20%, founder ownership drops further to 60%.
- What are the key criteria VCs look for according to NYU?
- Slide 37 outlines five core requirements: serving an unmet need in a large and growing market, providing a differentiated solution backed by data, having customer validation of 'pain and gain,' possessing a scalable/repeatable business model with high ROI, and having a focused team with a proven ability to execute.
- Why does the deck advise against hiring an agent or banker?
- Slide 53 explicitly states, 'Never hire an agent/banker.' In the venture world, hiring a third party to raise a seed or Series A round is often seen as a signal that the founders lack the necessary network or ability to sell their own vision. VCs generally prefer a direct relationship with the founding team from the start.
- What is the 'Myth' regarding when to approach VCs?
- Slide 45 identifies the belief that you shouldn't approach VCs until you are ready to raise money as a myth. This is supported by Slide 49, which states 'VCs invest in the trend!' This implies that building relationships and showing progress over time (the trend) is more effective than a cold approach only when capital is needed.
