Dan Martell - January 04, 2021


Startup Funding Rounds EXPLAINED (The #1 Key To Get Funding FAST)


Episode Stats


Length

9 minutes

Words per minute

174.5083

Word count

1,674

Sentence count

100

Harmful content

Toxicity

3

sentences flagged

Hate speech

1

sentences flagged


Summary

Summaries generated with gmurro/bart-large-finetuned-filtered-spotify-podcast-summ .

In this episode, Dan Martell explains the three-step process of raising funding for a startup. He breaks down each stage of funding and explains why it's important to have a clear understanding of each stage so you can make the most of it.

Transcript

Transcript generated with Whisper (turbo).
Toxicity classifications generated with s-nlp/roberta_toxicity_classifier .
Hate speech classifications generated with facebook/roberta-hate-speech-dynabench-r4-target .
00:00:00.160 What's up everybody, Dan Martell,
00:00:01.680 serial entrepreneur, investor, and creator of SaaS Academy.
00:00:03.760 In this episode, I'm gonna share with you,
00:00:05.560 demystify and explain startup funding rounds,
00:00:09.960 deconstruct it, explain why they're created
00:00:12.720 and how they're used, and be sure to stay in the end.
00:00:14.320 We're gonna share with you my fundraising
00:00:16.980 like a pro framework.
00:00:18.400 It's literally a three phase approach
00:00:21.540 to raising a round of funding that my clients have used
00:00:23.960 to raise over $400 million.
00:00:25.840 I've used it to raise millions of dollars in funding.
00:00:28.540 So it is my gift to you.
00:00:29.880 sure to stay at the end, but let's get into it. Oh, fundraising, fundraising, fundraising. It is
00:00:47.060 one of my favorite things. I'm a big fan of business development and sales and the art of
00:00:52.300 the deal. So raising capital is that same energy excitement. You know, I've raised venture capital
00:00:58.120 twice for my last two companies, Flowtown and Clarity.
00:01:01.080 I raised a million dollars for Flowtown
00:01:02.580 and about $2 million for Clarity.
00:01:05.420 But the fun part is I've actually been involved
00:01:07.500 in Silicon Valley, helping startup founders
00:01:10.600 go from literally seed rounds all the way to IPOs.
00:01:14.900 I've been blessed to be an early investor
00:01:17.000 in companies like Intercom and Udemy and Hootsuite,
00:01:22.260 get around, you know, companies that have combined
00:01:24.380 and raise probably $2 billion-ish.
00:01:29.280 And what I've learned is kind of like
00:01:31.500 the appropriate amount of capital, the valuation,
00:01:33.680 what it's used for, where we raise the money
00:01:36.640 so that I can help guide the founders
00:01:38.640 that I'm supporting and coaching
00:01:40.440 to get the best type of focus.
00:01:43.200 Cause the worst thing you can do with fundraising
00:01:44.940 is spend time trying to raise money
00:01:46.500 and not build your product.
00:01:47.920 So if you're chasing the wrong strategies
00:01:50.320 with the wrong people,
00:01:51.460 trying to get too much money or too little money, 0.98
00:01:53.660 it can be a big pain in the butt. 0.65
00:01:54.720 So let's dive into the specific stages of fundraising 0.81
00:01:57.680 and how it all works.
00:01:59.480 Number one, the pre-seed.
00:02:01.520 The pre-seed round is the first amount of money
00:02:04.260 you get into your business
00:02:05.240 from typically friends, family, the founders.
00:02:09.340 Usually it's around 50K.
00:02:10.720 It's to test the idea.
00:02:12.580 It's to set up the legal.
00:02:14.440 It's to talk to customers.
00:02:16.280 But that is the first round typically raised.
00:02:20.000 It's the pre-seed.
00:02:21.120 That's one.
00:02:21.660 Number two, the seed funding, okay?
00:02:25.320 Seed funding is usually between 2 million.
00:02:28.720 Typically, now valuations, when I first started,
00:02:31.160 were a lot lower than this.
00:02:32.180 But today, usually it's about $2 million
00:02:34.220 plus or minus 20% at a $8 million valuation.
00:02:39.200 Typically, that's gonna come from angels or micro VCs,
00:02:42.580 VC funds that are focused on that early pre-seed
00:02:45.380 or pre-seed funding stage.
00:02:48.360 And typically, that's used to build the product
00:02:50.600 and really start focusing on marketing and sales.
00:02:53.780 But that's that second stage.
00:02:56.380 It's the seed funding.
00:02:57.400 That's number two.
00:02:58.480 Number three, Series A.
00:03:00.640 So I've raised two Series As in my life
00:03:03.880 and Series As are typically 7 million in funding
00:03:08.060 and usually done at about a $30 million valuation.
00:03:11.640 Now, the way I think about Series As
00:03:13.840 or really any funding is you wanna give up about 20,
00:03:17.220 no more than 30% of the value of the company.
00:03:20.780 So the pre-money valuation is 30 million.
00:03:25.320 So the post is 37 because you take the 7 million,
00:03:27.900 put it into the pre,
00:03:29.040 that makes $37 million valuation, post money.
00:03:32.400 And then usually that's raised by venture capitalists
00:03:35.360 or sometimes strategic investors.
00:03:37.760 So maybe in your market,
00:03:38.780 there's like big established kind of conglomerates
00:03:43.300 and they wanna be involved in early stage companies.
00:03:45.420 So you'll see like American Express and Salesforce
00:03:48.620 and Amazon and many others have kind of strategic funds
00:03:51.940 inside their companies to invest
00:03:53.520 in some of the companies
00:03:55.480 that are leveraging their platforms to grow.
00:03:57.660 And usually the focus is around really broadening the market
00:04:03.200 and really fortifying the market.
00:04:05.060 If you're at a series A level, you've got the traction
00:04:07.960 and you gotta focus on broadening the market
00:04:10.600 and fortifying what you have.
00:04:12.320 Number four, series B.
00:04:13.960 So now this is where you start getting
00:04:15.540 in some interesting money.
00:04:16.520 You get 20 million typically for a Series B round
00:04:19.760 done at about a $100 million valuation.
00:04:23.060 So you're giving up about 20% of the company.
00:04:26.520 Again, these are all like plus or minus 20%
00:04:28.960 kind of you can go up or down on valuation
00:04:30.940 and or pre-money.
00:04:32.440 And with the 100 million,
00:04:33.760 you're usually raising from pretty traditional VCs.
00:04:36.660 This is the Sequoias, the Benchmarks, and many others.
00:04:40.840 You know, Charles River Ventures.
00:04:42.000 I mean, there's so many VCs.
00:04:44.320 There's probably, I mean,
00:04:45.420 I've been to Sand Hill Road a dozen times
00:04:47.800 and I've had to count,
00:04:49.480 there's probably 50 to 75 VCs
00:04:51.880 in just this one street area in Silicon Valley.
00:04:56.120 And then up in the city, there's investors
00:04:57.860 and there's a bunch in Boston and New York and Chicago
00:05:00.720 and major cities definitely have their own VCs
00:05:03.640 that are focused on tech.
00:05:05.160 But this is typically
00:05:06.700 when you're trying to increase your market share,
00:05:09.160 You're trying to start putting together some acquisitions.
00:05:12.320 And honestly, you're probably considering raising money
00:05:15.400 to do a secondary.
00:05:16.800 Secondary is the founders taking money off of the table
00:05:20.520 so that they can get some,
00:05:22.200 they can take the risk out of their personal life.
00:05:24.780 Because most founders have all their net worth
00:05:26.540 in their one company.
00:05:27.900 So they might take one to two million bucks
00:05:29.560 off the table at this round.
00:05:31.560 And that'll allow them to continue to march forward
00:05:33.920 and build the big business.
00:05:35.760 Number five, Series C.
00:05:38.040 This is when you get into the big money,
00:05:40.060 $50 million typically done
00:05:41.820 at about a $250 million valuation.
00:05:45.240 You're raising money at this stage
00:05:46.700 from VCs, private equity funds, late stage investors,
00:05:50.900 and it's really all around focusing on expanding,
00:05:55.720 getting on the IPO track,
00:05:57.660 or again, looking at potential secondary rounds
00:06:01.160 for early angel investors or the founders,
00:06:03.680 so then they get some liquidity.
00:06:05.080 But at this stage,
00:06:06.200 you're getting ready for the next stage,
00:06:08.420 which is one of the rarest,
00:06:11.060 but if you can do it as a founder,
00:06:12.840 if you're actually still as a founder,
00:06:14.220 it's the next stage, it is a beautiful thing.
00:06:16.440 Number six, IPO.
00:06:18.900 The IPO stage, the initial public offering.
00:06:22.420 So how does that work?
00:06:24.040 Well, here's the deal.
00:06:24.620 Like I said, if you're the founder at IPO stage
00:06:27.680 of the company you founded,
00:06:28.960 you're part of a rare number of founders
00:06:32.220 that make it to that stage
00:06:32.980 because the person who starts a company,
00:06:35.080 scales a company and brings it IPO and manages it properly
00:06:38.280 is usually not the same person
00:06:39.740 because at each stage,
00:06:40.900 and there's literally, I say three,
00:06:42.280 there's probably several,
00:06:44.000 you need to become a completely different person.
00:06:46.960 In essence, your priorities, your strategies,
00:06:49.360 your ability to communicate,
00:06:51.340 your ability to delegate,
00:06:53.040 your ability to hire top level talent, etc.
00:06:54.780 But usually you're raising about $150 million
00:06:56.580 through initial offering.
00:06:59.000 It's done typically at a billion dollar valuation
00:07:01.840 in the focus or where the money comes from
00:07:03.700 typically, you know, private offices or family offices,
00:07:08.940 hedge funds, private banks.
00:07:11.780 So this is where the Morgan Stanley's and many others,
00:07:14.620 the Schwab's, those kind of, you know,
00:07:17.460 you know, pools of money and then the public itself.
00:07:21.240 I mean, that's why it's an IPO is ability for an individual
00:07:24.240 to buy shares into, before that, a private company
00:07:27.880 that otherwise you wouldn't get access to.
00:07:29.520 And this is all about really growing teams.
00:07:31.660 This is hiring senior leadership,
00:07:33.320 incentivize them with that stock.
00:07:34.980 Now you've got liquidity in your stock.
00:07:37.000 It's for going international.
00:07:38.660 And it's also looking to really protect your position
00:07:41.340 in the market and acquisitions.
00:07:42.520 If you think of Facebook buying Instagram
00:07:44.400 or WhatsApp, et cetera,
00:07:46.000 that's typically why companies feel they have to go public
00:07:49.540 so that they have the liquidity
00:07:50.920 and the ability to leverage their stock as an asset
00:07:55.480 to go and buy other companies without using cash.
00:07:58.540 It's a very powerful strategy.
00:08:00.520 and IPO is this crazy fund.
00:08:03.760 So six stages of funding.
00:08:06.760 Pre-seed is number one.
00:08:08.220 Seed funding is number two.
00:08:10.000 Series A, three, four, Series B, five, Series C.
00:08:14.140 And number six, the IPO.
00:08:17.800 So like I mentioned,
00:08:18.800 if you're looking to raise around the funding,
00:08:20.580 maybe you're just getting started
00:08:22.220 and you're trying to understand
00:08:23.080 what's the difference between each one.
00:08:24.820 I mean, the reality is it shifts a little bit.
00:08:26.680 When I first started,
00:08:27.520 there wasn't really like this kind of like bridge fund.
00:08:30.580 There's like literally,
00:08:31.260 sometimes there's like this funding stage
00:08:33.460 in between, you know, your pre-seed
00:08:36.300 and then your seed or like your A.
00:08:39.000 So at the end of the day,
00:08:39.880 this is just to give you a frame of reference
00:08:41.760 of the type of investors,
00:08:43.060 what you should be focusing on each stage
00:08:44.500 and know that you shouldn't try to,
00:08:45.960 you shouldn't give up more than 30% of your company
00:08:48.140 at each stage.
00:08:49.380 But to make this even easier for you,
00:08:51.460 as I mentioned at the beginning,
00:08:52.540 I wanna share an exclusive resource called Fundraising.
00:08:55.020 like a pro it's my three phase strategy that I teach all of my coaching clients that are
00:09:01.260 on the venture track the companies are looking to raise from VCs the specific stage the one that
00:09:07.720 most people don't know about is a pre-marketing so you can click the link below to watch that to
00:09:11.680 get access to that private training it's fundraising like a pro three stages click the link
00:09:16.260 below to get access and if you like this video feel free to smash that like button subscribe to
00:09:21.140 my channel. If there's anybody that you care about, you think this could serve, feel free to
00:09:24.920 share it with them directly. And as per usual, I want to challenge you to live a bigger life
00:09:28.780 and a bigger business. And I'll see you next Monday. You good? What's up, everybody?