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AA 005: Should I include a cap table and valuation proposal in my Series A presentation?

Welcome to the fifth podcast of the Ask Alex show! Today the question is “Should I include a cap table and valuation proposal in my Series A presentation?”

In this podcast, we explain what actually matters when pitching investors and your pitch presentation, when you should share information, how and when. Listen to learn more!

Show notes

What’s your startup valuation is the wrong question. Here’s why and what the better approach is

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Transcript on your valuation proposal if you prefer to read

Hi, guys! Welcome to episode 5 of the AskAlex podcast. Today we have a question from Naseem in Egypt. Naseem asks “Should I include a cap table and valuation proposal in my Series A  presentation.” Okay, fundraising. Fun times. Let me break this down to two parts for you. Firstly, cap the table and then the valuation proposal. Okay? Two parts. But let me just start by saying generally you need understand that what you are doing is selling to the investors. Okay? And your presentation is marketing material. Think about this like dating when you go out on a first date.

You don’t care if she wants two or four kids right now. That’s’ not the first question you want or need to know. You’re just thinking “Do I want to date this person? Like, can I be doing something better right now?” and investors are thinking the same thing. You want to know like do you want to continue dating and should you think about getting married which is terms for, you know, a VC actually investing in you. This all comes down to escalation of commitment.

So at the start you just want to deal with the commercial aspects the tick boxes that investors care about. Are they solving real problem? Do they have a kickass defensible solution? Ideally with moat’s competitive advantages. Is there a really big market? Can this really be huge? Is this the right team for the job? Is the timing now? You know that’s what investors really want to know right now. Do they necessarily need to know your exact valuation or the specifics of your cap table. Not really. Not until they actually care. So let’s deal with your first point; should you include your cap table in your presentation? No, very simply no.

Things like you know the real details your cap table they will be dealt with and I promise you investors do care about your cap table because that cap table represents the ownership of the company and what they own and whoever what else owns and they want to know who the other investors are in case there’s any you know trouble makers there. Well, you know the investor might say early on is “Hey, Naseem is your cap table okay? Is there anything weird?” You’d say “No, it’s a little standard we just did a little angel. Basically, majority is held by the founders and the rest is out angels.” “Okay, cool! We’ll deal with that later.”

That’s sort of like how I would expect the conversation to go.

I mean maybe there might be anal people but I would just need to know the headlines off the top of your head to be able to talk about it. Mean the dumbest thing is to say is “Actually I’m not really sure.” I mean you should know who owns what in your cap table. So to be clear you do not need to include your cap table in your presentation. That’s a total waste of space it’s too detail and frankly I don’t think you should be giving that information away it’s not none of their business. They’re not entitled to that information. Now let’s deal with the second part which is “Should you include a valuation proposal in the presentation?”

You’d think that it would be the owners and the investors to be telling you what the valuation is and sometimes that is the case but most of the times I’m just going to say in my experience, people will ask you what your valuation expectations are. Particularly, you know more early stage angels precede seed stage when you’re getting towards the series A. You’re definitely going to have strong opinions on what that’s going to be but you’re not necessarily price selling.

So I’ve written a blog about this topic along the lines of you know investors asking what your valuation is the wrong question and there’s a better way to think about that which is really worth reading. I’ll put a link in the show notes for you to check that out. The way I would deal with it is in your page where you have your sources and uses. Like how much money do you need to raise? What you can use it for in order to achieve what milestones. So you’ll say on the slide “We’re raising $6 million.”

You can perhaps put the deal structure it would just be very high level and say you know “priced round standard terms.” something along those lines and that’s sort of code for “I’m not asking for crazy crazy shit.” because investors don’t want to waste their time. If you’re going to say “Yeah, I’m raising five at a 200m pre’ I mean that’s a huge waste of time for them. But you don’t really need to put more than that. If you feel the need to do that I would say our targeted dilution is 15 to 20 percent but I wouldn’t specifically write the valuation down. The rationale is you say “According to my plan I need to raise 6 million and this will help me achieve my milestones.” and you can write what those milestones are.

And that’s one part of the valuation. And then you can set your dilution expectations are which is 15-20 percent. Now investors, pretty much everyone, should be able to reverse engineer what that valuation is. When you think about sales guys they never just say the number. They write on a piece of paper they hand over and you know do the thinking yourself, right? There’s reasons for that. So I would be I would be gentle with the details of putting on there. So you know as we started talking about the start you were just really trying to pass the filters, get the commercial excitement there and make investors say “You know what, I want to do more.” And they’ll you know want to tease out if there’s anything crazy like a deal killer.

As I said you know your valuations too high or your cap table’s fucked. In order to see if it’s worthwhile spending more time. But they’re not going to ask super detailed information nor should you necessarily hand them over. You really just need to make it really clear that you’re solving a real problem that there’s a big market, the traction that you would achieve to date backs up the viability of the business that your metrics are strong and that you’re the team to really kick ass and make this happen. And if you have those key ingredients then that’s more than likely your deal structure will. You’ll be able to find a way around it just as long as there’s nothing too crazy going on. Of course, if there was you certainly wouldn’t want to be showing all you’re crazy on your first date, right?

So, thank you so much Naseem for your question. Now, listeners if you would love to be featured on the AskAlex show head over to alexanderjarvis.com/askalex and head to the bottom and there’s a little big red button where you can ask your question with your voice. Thank you so much for spending time with me. I really really appreciate you for that. Have a great day. Bye.

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