The 'When & How to Raise Venture Capital' deck, presented by Frank Rimalovski in March 2016, is an educational resource rather than a startup pitch. It provides a sobering look at the reality of venture funding, noting that 75% of startups fail to return investor capital. The deck is particularly strong in its visual representation of equity dilution, tracing a hypothetical founder's journey from 100% ownership to 67% after a seed round and option pool creation. It challenges common founder misconceptions, such as the idea that VCs invest in 'ideas' or that running out of money constitutes a…
Key takeaways
- VCs primarily make money by investing at low valuations and exiting through multiple rounds at increasing valuations, exemplified by a 9x return at M&A (Slide 4).
- A significant majority of venture-backed startups—75%—fail to return any capital to their investors (Slide 5).
- Fundraising is a long-term commitment; the deck cites a hypothetical scenario of 5 months and 40 pitches to secure a lead offer (Slide 9).
- Equity dilution is inevitable; founders are shown moving from 100% ownership to 67% after adding a 10% option pool and taking seed investment (Slides 6-9).
- Venture capital is not for every stage; typical pre-seed amounts range from $5,000 to $250,000, while late-stage rounds start at $2,000,000 (Slide 3).
- The deck explicitly states that 'Running out of money is not a milestone,' emphasizing that raises should be tied to value creation (Slide 43).
- Investors look for businesses, not just technologies or IP, which are described as only one of many critical pieces (Slide 37).
- The initial goal of any outreach is not to get a check, but simply to secure a meeting (Slide 40).
Introduction: The Academic Approach to Venture Capital
The presentation 'When & How to Raise Venture Capital,' delivered by Frank Rimalovski of the NYU Entrepreneurial Institute on March 5, 2016, serves as a foundational primer for early-stage founders. Unlike a standard startup pitch deck designed to sell a specific product, this deck is an educational tool designed to sell the reality of the venture capital ecosystem. It covers the mechanics of investment, the math of dilution, and the psychological hurdles of the fundraising process.
The Fundamentals of Investment (Slides 1-5)
The deck opens by defining the 'investor' as one who puts money into schemes or shares with the expectation of profit (Slide 2). This sets a transactional tone that persists throughout the teardown. Slide 3 provides a useful taxonomy of 'Types of Venture Investors,' breaking down the market by stage (Pre-Seed to Late), typical amounts ($5,000 to $2M+), and source of funds. This slide is particularly valuable for founders to identify where they fit in the capital stack.
Slide 4 addresses the 'How do VCs Make Money?' question with a chart showing an implied stock price growth from Series A to M&A. It illustrates a 9x return at exit, providing a clear visual for why VCs require high-growth trajectories. However, Slide 5 immediately balances this optimism with a stark statistic from Shikhar Ghosh of Harvard Business School: 75% of startups fail to return investors' capital . This 'sobering reality' slide is a hallmark of high-quality founder education, ensuring that entrepreneurs understand the risks involved in taking institutional money.
The Math of Dilution: A Step-by-Step Guide (Slides 6-10)
This section is perhaps the most practical part of the deck. It uses a hypothetical startup to show how ownership changes over time. On Slide 6, the founders own 100% during the 'Search for Product-Market-Fit.' By Slide 7, after a seed round, the founders drop to 75% while seed investors take 25%.
Slide 8 introduces the 'Option Pool,' showing that adding a 10% pool reduces the founder's stake to 67%. Slide 9 adds another layer of realism, noting that it took '5 months & 40 pitches' to get an offer from a firm like Flybridge Capital. The offer detailed is a $7.50m pre-money valuation for a $2.50m raise. Slide 10 summarizes the 'VC Math Lessons Learned,' emphasizing that 'Options come out of your hide, not theirs' and that founders should focus on driving enterprise value rather than just maximizing ownership percentage.
Strategic Timing and Tips (Slides 31-43)
Moving into the strategy of 'When to Look for VC,' the deck transitions to high-level advice. Slide 37 delivers a critical message: 'VCs invest in businesses. Not ideas. Not technologies.' It warns that IP is only one piece of the puzzle. This is a common point of failure for technical founders who believe their patent is the business, rather than a component of it.
Slide 40 defines the 'initial goal' as getting a meeting, which helps founders calibrate their expectations for cold outreach. Slide 43 contains one of the most quoted lines in startup coaching: 'Running out of money is not a milestone!' This slide serves as a warning against 'bridge' rounds that aren't tied to specific value-creation events like product launches or revenue targets.
Debunking Myths and Final Thoughts (Slides 46-58)
The final section addresses common misconceptions. Slide 46 labels the idea of waiting until you are 'ready to raise' to talk to VCs as a myth, suggesting that relationship building should happen much earlier. Slide 49 challenges the notion that VCs only invest in 'teams with strong data,' implying that at the earliest stages, other factors like market size and founder vision play a larger role.
Slide 52 offers 'Final Thoughts on Fundraising,' advising founders to 'Diligence investors like they diligence you' and reminding them that a formal business plan or prospectus is often unnecessary in the modern VC landscape. The deck concludes on Slide 54 by stating that the investor pitch is a 'proxy'—a stand-in for the founder's ability to communicate, lead, and execute.
What Works in This Deck
Visualizing Dilution: The step-by-step pie charts (Slides 6-9) are excellent. Most founders struggle to understand how option pools and seed rounds interact; these slides make it undeniable. · Honesty Regarding Failure: Including the 75% failure rate (Slide 5) builds credibility. It moves the presentation from 'hype' to 'education.' · Actionable Lessons: The 'VC Math Lessons Learned' (Slide 10) provides a concise summary that founders can actually use when reviewing term sheets. · Clear Hierarchy: The use of large, bold text for key takeaways (e.g., Slide 37, Slide 43) ensures that even a casual viewer absorbs the most important points.
What Is Missing
Unit Economics: While the deck covers macro-math (dilution), it does not touch on micro-math (LTV/CAC, margins), which is vital for the 'Business' part of the 'VCs invest in businesses' argument. · Modern Funding Instruments: Being from 2016, the deck focuses on priced rounds and equity. It does not mention SAFEs (Simple Agreements for Future Equity) or convertible notes, which are now the standard for pre-seed and seed stages. · Diversity of Outcomes: The deck focuses heavily on the '9x M&A' outcome. It doesn't discuss 'acqui-hires,' secondary sales, or the 'zombie startup' scenario where a company is profitable but not growing fast enough for VCs.
What Founders Should Copy
The 'Proxy' Mindset: Adopt the view from Slide 54 that your pitch is a proxy for your business. Every typo, every missed metric, and every unclear slide is seen as a reflection of how you will run the company. · Milestone-Based Raising: Take the advice from Slide 43 to heart. Never tell an investor you are raising because you are low on cash; tell them you are raising to hit the next specific value inflection point. · Investor Diligence: Follow the advice on Slide 52. Ask for references from an investor's failed portfolio companies, not just their winners, to see how they behave when things go wrong.
Frequently asked questions
- What is the primary way VCs generate returns according to the deck?
- According to Slide 4, VCs make money by investing at a low valuation and participating in multiple subsequent rounds at increasing valuations. The slide illustrates an 'Implied Stock Price' growth curve starting at a Series A and culminating in an M&A event that yields a 9x return compared to the Series A price.
- How does the deck define the different stages of venture investors?
- Slide 3 categorizes investors into Pre-Seed (Founders, friends, and family), Seed/Startup (Individual angels and seed funds), and Early/Late (Venture Capital Funds). It notes that while Pre-Seed rounds are usually single-investor affairs, Early and Late stages typically involve multiple institutional investors, family offices, and corporations.
- What is the 'Option Pool Shuffle' described in the dilution slides?
- Slides 7 and 8 demonstrate that option pools 'come out of your hide, not theirs.' When a 10% option pool is added, the founder's ownership drops from 75% to 67%, while the seed investors' stake is also slightly adjusted. This highlights that investors expect the founder to bear the dilution cost of incentivizing new hires.
- What are the common myths the deck seeks to debunk?
- The deck identifies several myths, including the idea that founders should wait until they are ready to raise before approaching VCs (Slide 46) and the belief that VCs invest solely in 'teams with strong data' (Slide 49). It also clarifies that VCs invest in businesses, not just technologies or intellectual property (Slide 37).
- What is the 'initial goal' of fundraising outreach?
- Slide 40 states clearly that the 'initial goal is to get a meeting.' This shifts the focus from the final transaction to the first step of the relationship, suggesting that the pitch deck and initial communications are tools for engagement rather than closing a deal immediately.
