Fundraising

Raising a Seed round is a pivotal milestone. You should be prepared to fundraise from external investors (i.e., not OCV) with at least 9 months of runway left. Companies with high monthly burn rates may need to start the fundraising process within their first year.

Early interest from investors

Receiving inbound interest from potential investors can be exciting. No matter how “informal” an intro meeting may appear, remember that all meetings with investors are inherently pitches. Don’t meet with investors before you’re ready. Even if you’re not presenting a pitch deck, they are evaluating you.

At this stage, you should typically hold off on meeting investors until you’re ready to actively fundraise and keep your focus on building your product and growing. If you receive an inbound request, capture the interest in your investor CRM and let the potential investor know that you’re still early but would love to chat with them when you start thinking about fundraising.

Hi [Name],

Thanks for reaching out. We’re not meeting with investors yet, but we’d love to meet you when we start thinking about fundraising. Can we reconnect in a few months?

Regards,

[Email Signature]

Fundraising process

Fundraising is a full-time job that should be executed with intentionality and intensity. Fundraising can take months, with the possibility of 100+ meetings. OCV prepares founders to fundraise successfully, including help on materials and investor introductions. Company growth is the single most important determinant for how successful you will be at fundraising.

Soon after company formation, OCV will work with you to craft your

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Building Blocks. Your building blocks will eventually be used as the foundation of your fundraising materials. Your fundraising story is essentially a version of the same story you tell yourself, potential hires, and customers—each version is built on the same building blocks.

Typically, companies fundraise when the founding team is in place and there’s exciting growth. At this time, fundraising becomes the CEO's full-time job. For most companies, the fundraising process will start around 9-12 months after incorporation, depending on the company’s burn rate.

Fundraising steps

Create pitch deck and build investor CRM

Pitch practice with OCV team, ask for intros

Schedule investor meetings and pitch investors

In general, we recommend aiming for a 7-week fundraising process.

Example timeline

Week 1: Review pitch with OCV and iterate

Week 2: Review pitch with Friendly investors and iterate

Week 3: First calls: may not be with a General Partner at a venture firm

Week 4: Second calls: with a General Partner, cut a few firms if too many

Week 5: Third calls: with the General Partner again, cut a few firms if too many

Week 6: Full partner meetings (these are usually scheduled for Monday mornings)

Week 7: Full partner meetings and term sheets due Tuesday noon Pacific

Creating a pitch deck

The process of creating a pitch deck starts with your Building Blocks. Building blocks are introduced before we have a founding team in place. Starting the process early with a CTO allows them to tell their story, recruit a CEO, and provide a foundation for the fundraising deck.

Once your building blocks are done, creating the first draft of the pitch deck can be done very quickly. Use the OCV Pitch Deck Template to create your pitch deck. Start early enough and give yourself a few weeks to polish it.

Pitch deck tips:

Your first draft includes slide titles only. The slide title is the conclusion or key takeaway of the slide. Use active tense and avoid commas.

The slide content should speak for itself. Don’t rely on voice-overs.

Keep the open core slide simple. Avoid getting overly technical on the difference between the open source and proprietary product. The investor just needs to be able to defend open core model to partners.

Don’t include a demo in the mainline deck. You will not want to or need to demo in every situation. Be prepared to demo if needed.

The conclusion is one line. Make it concise and memorable.

Aim to get through each slide in 1-2 minutes. Slides that take longer to explain are trying to do too much and should be split into two slides.

Your deck should take <10 minutes to present. Reserve 20 minutes for investors to ask questions.

OCV will schedule weekly pitch practice to review deck progress and provide feedback. Plan to iterate indefinitely—you’ll incorporate feedback and learnings every time you deliver your pitch, whether to the OCV team or investors.

Include your AI strategy

Every pitch should include the company’s AI story. Companies with a clear AI strategy that can show fast growth will fundraise faster. Many VC firms will not allow investment in companies that cannot articulate a clear AI strategy.

Watch the AI segment below from OCV’s AI and Open Core Roundtable to hear Sid and Rich discuss the importance of including your AI strategy in your pitch deck.

OCV Pitch Deck Template

OCV Companies are expected to use the OCV Pitch Deck Template to create their pitch deck. The template is based on Sequoia's tried-and-true pitch template. The deck template represents how investors think—don’t attempt to retrain investors on how to think about a pitch. Don’t change the flow or try to reinvent the wheel. You may need to add a slide or two for additional company or industry context, but overall, follow the template.

OCV Pitch Deck Template

Each numbered item represents a single slide.

Company Purpose: Define the company in a single declarative sentence. This is your title slide.

Problem: Pain of customer or customer’s customer, how the customer addresses the issue today.

Solution: Value proposition to make the customer’s life better, where the product physically sits, use cases.

Why now: Historical evolution of the category, recent trends making the solution possible.

Market size: The customer profile you cater to, calculate TAM, SAM, SOM.

Competition: List of competitors, list of competitive advantages. 2x2 matrix with your company up and to the right.

Product: Product line-up (form factor, functionality, features, architecture, intellectual property), development roadmap.

Open Core: Two columns showing the difference between the open source project and commercial product. What’s open source, what’s proprietary.

Business Model: Revenue model, pricing, average account size/lifetime value, sales and distribution model, customer pipeline/list.

Team: Founders and management, board of directors/board of advisors.

The deal: $XMM to raise XYZ Series A milestones. Left side shows spend and the right side shows milestones.

Pitch practice

Pitch practice is a weekly session with the OCV team where you will practice your pitch and get feedback. Pitch practice starts the week after you’ve kicked off the fundraising process. You will practice your pitch in whatever stage it’s in, whether it’s just slide titles or a fully formed deck.

We will give you detailed feedback after each session. Once you’ve practiced a few times with the OCV team, you’ll schedule a pitch feedback session with Sid Sijbrandij.

Building an investor CRM

Use OCV’s Investor CRM template to plan and track investor outreach and interest.

Start building your investor CRM when you start working on your pitch deck if you haven’t started already. Start with OCV’s Trusted VC Network list and use the Find Funding database to search for additional early-stage investors.

OCV’s Trusted VC Network

OCV maintains a Trusted VC Network list. Founders can request access in their company channel. OCV classifies VC partners into four groups:

Test VC Group: OCV’s strongest supporters. OCV companies should feel free to test their pitches with this group. This is a subset of the Friendly VC Group.

Friendly VC Group: Those who have invested in OCV companies in the past and/or demonstrated an understanding and appreciation for OCV’s model. They are on our investor newsletter mailing list, along with the Test VC Group. Friendly VCs will be introduced to OCV companies one quarter before others.

Pipeline VC Group: VCs who are new to us and are looking at one company for investment for now. They may graduate to the “Friendly” group.

Deny VC Group: those we have had challenges working with in the past or who have a mixed reputation. For example, bypassing the OCV introduction process, suggesting founders renegotiate equity, not honoring term sheets, last-minute demands.

Founders are welcome to nominate investors in their own networks and/or those who have expressed an interest in investing in the company. OCV will add these firms to the Pipeline VC group.

Scheduling investor meetings

Start contacting potential investors about 3 weeks before you plan to have meetings. Schedule all of your meetings within a 2-week block. Meet with “friendly” investors the first week and all other investors the following week. Both co-founders should attend pitch meetings.

OCV will introduce founders to investors in our network. Send a draft message for each requested introduction. For example, if you ask for 5 introductions, send 5 draft messages.

Always use DocSend when sending decks so you have full visibility into who is accessing the deck. Ask referral contacts to disclose which investors they are sending the deck to. Don’t attach decks to emails. We do not recommend sending decks without a meeting scheduled. It’s ok to send a deck 24 hours ahead of a scheduled meeting. There may be exceptional circumstances where you should send a deck without a meeting scheduled. Discuss specific situations during Office Hours.

Due diligence call requests

OCV's GP is available for a due diligence call if required by the lead Seed investor. As this is expected to be the final step before extending a term sheet, the number of GP call requests should not exceed 2-3 firms for each OCV company. We look to OCV CEOs to manage this expectation with potential investors who request GP calls.

To schedule a GP due diligence call, CEOs can make an introduction via email, copy the GP's PA for calendaring, and OCV’s COO for visibility.

Term sheet negotiation

If investors are interested after due diligence, they present a term sheet outlining the investment terms, such as the amount of investment, equity stake, valuation, and any additional conditions. Upon agreeing to the terms outlined in the term sheet, legal documents, like the investment agreement and shareholders' agreement, are prepared and reviewed by both parties. Company’s Legal Team will review and redline deal documents.

CapTable concerns

OCV companies face three primary cap table concerns:

Founder ownership stake

Seed round options pool

Investor concentration

Companies may lose potential investor interests because of CapTable concerns. We recognize this as a headwind. Founders should focus on growing fast to overcome cap table objections from future investors.

Founder ownership stake

Under OCV’s operating model, founders would receive lower equity ownership percentages compared to traditional ways of founding a startup with two co-founders. Lower founder ownership is a valid concern for future investors. It tends to be a more pronounced concern in early rounds and less so in late stages.

Seed round options pool

One investor concern is needing a larger options pool in the future to grant refreshes to the founders. Typically, founders do not participate in refresh grants. This is counterintuitive but common in the market.

For our model (high risk for OCV) to work, OCV needs high ownership. We won’t do a recapitalization. At the Seed round, the option pool typically will be 15%, slightly higher than the industry norm of 10%. This provides flexibility in equity grants. The company’s board will determine the allocation of the options pool including any refresh grants to founders. OCV’s initial SAFE investment contains a side letter that requires OCV’s prior written consent for any promises of equity awards to officers and employees in the Seed term sheet.

Investor concentration

New investors may see concentrated ownership by one investor as not having a diverse set of advice, opinions, and industry contacts.

The ideal scenario is for new investors to lead and participate in the Seed round to reduce OCV’s ownership percentage. In general, OCV is open to investing in or co-leading the Seed round only to support our companies. CEOs should feel free to leverage this if we commit but still try to find new investors to reduce investor concentration.

Dilution

Dilution is the reduction in ownership percentage that occurs when a company issues new shares, typically to raise additional capital. The initial funding from OCV is in the form of a SAFE, which converts into preferred shares as part of the Seed round. This results in additional dilution along with the sale of new Seed shares. The magnitude of founder dilution depends on how much new money is raised, the valuation for the round, the size of the options pool, and any new grants issued from the options pool.

Example scenario

If founder ownership % pre-Seed is 15%, and we assume the Seed round terms are:

$4M new money + $2M SAFE conversion

$20M pre-money valuation

15% options pool (3% new options granted to the founder)

Founder ownership % post-Seed is ~12.3%

Closing the deal

Once all legal and financial details are settled, the investment is finalized, and funds are transferred to the startup's bank account. The new financing round will become public information after filing Form D. Companies should coordinate Form D timing with any planned public announcements/press releases.

Form D filing

After closing the round, file Form D with the SEC to be received by 30 calendar days after the securities in the offering are closed. Form D is an acknowledgement of exemption from Regulation D, which is typical for venture-backed companies. The legal team will request:

Form ID Application (for SEC EDGAR Codes) review

CEO to sign (wet-ink) Power of Attorney

Wind down decision

In some cases, winding down a company is the best option. The primary reason OCV may recommend winding down is that the company is unlikely to fundraise successfully within the expected timeframe. In rare, exceptional, and justifiable cases, OCV may provide additional capital to extend the runway in a new SAFE instead of wind down.

OCV will initiate wind-down conversations with founders and begin the

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Company Wind Down process in the following situations:

A company is struggling to show commercial traction by the 6-month mark

A company is unable to raise a Seed round, and its runway is <6 months

We don’t wait until a company has completely run out of money to wind down because the wind-down process has associated costs. In certain situations, founders may wish to continue their fundraising efforts after OCV recommends winding down the business. In these cases, to better align incentives and improve the probability of success for this strategy, OCV will work with founders to reduce their cash compensation to extend the runway.