Every piece of advice on raising capital says that you need to have a “Use of Funds” slide in your deck, but few people do those slides well. Hint: “Marketing!” is not an appropriate use of funds.
I want to take a moment to tell you what to put on that slide. There are a few key pieces of information that you need to discuss:
1) How much money you are raising and what valuation (as appropriate)
2) How long this money lasts
3) What you are spending it on
4) What happens when you spend that money.
Here is the big concept that I find missing in most “Use of Funds” slides: Your investors want to see you use the funds in a way that will allow you to raise your next round. This slide is about telling investors what you will do with their money that will be so impressive that you can raise the next round at a substantial premium.
Re-read that sentence again. It tells you everything you need to know: This slide is about telling investors what you will do with their money that will be so impressive that you can raise the next round at a substantial premium.
The barrier you are trying to overcome with this slide is, “I love the idea, but can this team move the needle enough with this amount of funding to get to whatever the next level is?” You are not going to use the money for “marketing”. You are going to use the money to “Acquire 2,000 users”. If you have not done a good enough job explaining how you can acquire 2,000 users, you can add detail here or elsewhere. The question on this slide is, “If they acquire 2,000 users, will that be impressive at demonstrating traction to raise the next round.” If the investor’s answer is “no”, then that was not a good use of funds.
So all you need to do on this slide is think about what it takes to raise the next level of money. (Hint: It it not “launch”. Launch is one of the things you will do.) Then line those things out, along with how much money you are raising and how long it lasts.
Here is an example:
- Raising $500,000 convertible note with no cap closing end of October
- $250,000 already committed
- Sequoia is leading round
- Use of Funds
- Funding through 4Q2015
- Staffing engineering department
- Key Milestones Prior to Series A
- 1Q2014 launch event
- 50 beta launch partners
- 2 big names participating in press release
- Strategic partnership with Google, Microsoft, or Yahoo
- $1,000,000 annual run rate at launch, 20% month over month growth thereafter
- 1Q2014 launch event
- $3.0m Series A to follow
Get it? If that isn’t impressive enough to be able to raise your Series A, then your use of funds is not good enough. The investor needs to look at this and say, “If he did all this, I would sure as heck participate in his Series A, so I would be a fool not to jump on the train now!”