Ryan Barrett

Your fundraising materials aren’t just documents, -- they’re strategic tools in your fundraising journey. When viewed through the lens of game theory, fundraising becomes a dynamic, multi-stage game where information asymmetry is key. As a founder, your goal is to provide investors with just enough information to spark interest and advance to the next stage, all while maintaining leverage. Here’s how to navigate this: 1. Intro Request: Craft a compelling blurb that aligns your company with the fund’s investment thesis and hints at exciting opportunities ahead. This should be enough to get you on their radar. 2. First Meeting: Present a concise deck that positions your company as an outlier with all the essential bases covered. Avoid sharing your Data Room at this stage—you don’t want to give away too much too soon. You all should now by now that I hate when you share screen get into 'presenter mode' during a zoom meeting. 3. Second Meeting / Deep Dive: Only share your Data Room if there’s a meeting scheduled to discuss it in detail. This ensures that the information exchange is meaningful and keeps you in control. But here’s where it gets strategic: What comes after the Data Room? How can you continue to engage the fund and keep their analytical momentum high? Consider what additional insights or updates you can provide to maintain their interest without compromising your negotiating position. Recently, Mercedes Bent highlighted a growing trend of founders writing their own investment memos. I’m a big advocate for this practice. After all, founders are the primary investors in their ventures. By articulating the investment opportunity from a high-level perspective and demonstrating an understanding of the VC’s underwriting process, you position yourself as a savvy entrepreneur. This not only enhances your credibility but also adds significant value in the eyes of potential investors. At Oss, we will help you craft this document in a way that not only will boost your fundraising process, but will also help you to internally align with your team and investors about the opportunity at hand!

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Valuations are starting to (only slightly) be in check. Investors looking for revenue, quality of revenue, margins, and repeatable GTM. This has the best founders focused on what matters, and reaching out to their Boards and advisors for real advice and guidance. Good stuff.

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VCs: 'shareholder promote' is a cap table modeling cheat code. I used to struggle to follow the calculations required to model pro forma cap tables. I would constantly run into circular logic that was hard to reason about. That circular logic required the 'iterative calculation' setting in Excel, which would break the model if it wasn't turned on. Then I read a 2017 article by Jeffrey Bussgang at Flybridge, in which he introduced the concept of 'founder promote.' Jeff tells the story of losing a deal because a founder chose another VC firm's term sheet offer with a higher pre-money valuation. Jeff's offer was more favorable to the founder despite having a lower pre-money valuation. The reason was that Jeff's offer had a smaller option pool. Jeff realized that if the founder had calculated the $ value of the founder's ownership (the 'founder promote') for both deals, the founder promote would have been higher for Jeff's deal. At Flybridge, founder promote became the standard way he and his colleagues communicated the economics of their term sheet offers to founders. After reading this article, I realized that founder promote was also a more effective way to model cap tables. However, I needed to expand the concept beyond the promote for founders to also include earlier investors. So, I came up with the concept of "shareholder promote". Shareholder promote = the existing shareholder's % ownership of the startup after an investment round, including expansions to the option pool, the conversion of SAFEs/notes, and the assumption of warrant exercise. Let's say existing shareholders would own 60% of the company after a Series A round because the new money would own 25%, the option pool would be expanded to 10%, and prior SAFEs/notes would own 5% after the conversion (1 - 25% - 10% - 5%). If there are 10m shares on the cap table before the investment, you now know there will be 10m shares / 60% shares on the cap table after the investment. Dividing 10m / 60% = 16.67m "post-money" shares on the cap table after the investment. Now you can calculate the # of shares to issue to all stakeholders by multiplying 16.67m by each stakeholder's ownership %. Series A investors = 16.67m * 25% = 4.17m shares Target option pool = 16.67m * 10% = 1.67m shares SAFE/note holders = 16.67m * 5% = 833k shares No hard-to-reason about circular logic and no iterative calculations in your spreadsheet are needed. Once I started modeling cap tables by first figuring out the 'shareholder promote' and then using it to calculate the post-money shares, then working backward from the post-money shares to determine the # of shares to issue to each stakeholder, modeling cap tables became WAY easier. -- Do you want to level up your ability to do VC mental math? I host a weekly 1-hour free webinar every Friday at 4 pm EST on another tricky term sheet valuation concept, the 'option pool shuffle.' Apply here: https://lu.ma/f35acifg 

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An important message for any investors reviewing startups, corporate partners considering a startup pilot, or customers considering becoming a startup’s client: PLEASE MOVE FASTER (if possible). It’s a tough market for startups at the moment, and every day you do not act results in the startup burning cash, putting them in a worse position. Not everyone has the ability to increase their operational pace, but if possible, it would be greatly appreciated. Sincerely, Every Startup Founder PS: Thanks to Peter from Carta for the perpetual data-backed wisdom. PPS: This is exactly why we launched Scorecard.vc — to help investors and startups manage the fundraising process more efficiently. Sign up for free at http://scorecard.vc

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"Falling costs of building new software companies are a mirage, and the reason for that is this thing in economics called the Jevon's paradox... ...the Jevon's paradox occurs when technological progress increases the efficiency with which a resource is used (reducing the amount necessary for any one use), but the falling cost induces increases in demand enough that resource use overall is increased, rather than reduced." Marc Andreessen with a counterintuitive take on what the future could hold for the software industry. #tech #technology #innovation #software #deeptech #startups #entrepreneurs #entrepreneurship #ai #artificialintelligence #vc #venturecapital #money #business

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The VC funding model when everything works out fine... In real life: Only a few startups make it! So if you are considering going the VC route: Have a backup plan!

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