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# Fundraising & Investor Relations

## Table of Contents
[TOC]

## Fundraising
As a rule of thumb, try to have at least 12 months runway at all times. Signals to consider fundraising are <12 months runway, breakthrough growth, preempt from a current investor, and/or poor future market conditions.

At the Series A milestone, you should be able to craft a narrative around and chart out a clear path to at least one of the following north stars:
- 10x'ing revenue
- 10x'ing product growth
- Groundbreaking technological breakthrough

### Metrics

Metrics to consider highlighting:

**Revenue**
- ARR
- Revenue growth
- ACV

**Product Growth**
- DAU/WAU/MAU
- User growth + retention
- Number of active wallets
- Number of transactions, average transaction volume
- TVL
- Volume

**Technological Differentiation**
- What status quo does your technology disrupt?
- How easy is it for developers to onboard?
- What new market does your technology enable?
- Why is the timing right for your technology to reach scale?

**Examples:**

1. **Lido:** raised a $70M Series A in March 2022 with ~$30M in revenue and ~$24M in TVL.
2. **Thirdweb:** raised a $24M Series A in July 2022 with no revenue, but 55,000+ developer wallets and 150,000+ contracts deployed.
3. **Pinata:** raised a $22M Series A in August 2022 with 42x YoY revenue growth, 240,000+ total users, and 120M+ files pinned.

### Round Structures

Investors MUST be [accredited](https://www.sec.gov/education/capitalraising/building-blocks/accredited-investor) in order to avoid the extremely resource intensive process of registering with the SEC.
- Understand the need for exemption from registration and rules like 506(b) and 506( c )

Potential round structures:

1. SAFE
2. Equity / Priced Round
3. Equity + Token Warrant (FDV, Insider-based)
4. SAFT
5. Convertible Note

**SAFE**
A simple agreement allowing founders to raise money using an instrument that will convert into shares during a priced round at a later date

- Key Terms: Amount Raised & Valuation Cap
- SAFEs with a discount are less common, while those that are “Uncapped” are extremely rare

**Equity / Priced Round**

- Value of company is formally determined, and investors purchase Preferred Stock
- Financing includes comprehensive documents including **Stock Purchase Agreements, Voting Agreements, Board Consent, Management Rights Letter, Investor Rights Agreements, ROFRs/Co Sale Agreements, Certificate of Incorporation** *(outlining rights of Preferred Stock)*, **Capitalization Table**

**Token Warrant**
A token warrant allows an investor to purchase tokens at a specified price on or before a specified expiration date.
- The number of tokens issued to the holder upon exercise of the warrant is typically commensurate with either 1) the investor's equity stake in the company or 2) based on a specified fully diluted token network value.
- Given 50% of the token network tends to be reserved for the community, equity valuation to token network valuation is typically 1:2

**SAFT**
A fundraising instrument that promises investors some allocation of tokens in the future upon the launch of a network

- SAFTs are becoming less common and are viewed less favorably by investors
- Part of the reason stems from regulatory treatment of SAFTs and their underlying tokens
- The other component relates to investors’ desire for equity ownership in a company as a control / protective mechanism

**Convertible Note**
Hybrid instruments that convert into equity at a **Qualified Financing**

- Note converts into shares, typically upon the successful raise of a subsequent priced (ie: Series A) round
- Conversion happens at the Round’s negotiated Price, with some **Discount** built in to compensate for the risk taken on at an earlier stage
- Valuation Cap: Allows holders to convert into the lower of: (i) the valuation cap or (ii) the price per share of a Qualified Financing (or, if a discount is included, at the discounted PPS)
- Example:
- Discount: Convertible debt with a discount attached gives the early investor the option to convert their Seed investment into stock at a lower price than other investors. So, if you offer Series A stock at $5 /share, a Seed investor holding a convertible debt with a 20% discount would convert their initial investment into stock for $4 /share.
- Cap: Convertible debt with a cap attached sets the maximum value of the equity for that investor. So if your Series A ($5 /share) stock offering is valued at $20M and the cap on your convertible debt is $10M, the Seed investor is able to purchase stock at $2.50 /share.

**Dilution:**

- **Anti-Dilution Mechanisms** include **Preemptive (ROFR) or Pro Rata Rights, Super Pro Rata Rights** (ability to buy ****more**** than existing ownership – less typical), and Price-Based Anti Dilution Protection (protection against subsequent stock sales at *lower* prices)
- When providing Anti-Dilution protection, Founders should optimize for investors who:
- Will provide significant value in the future
- Have the capital available to comfortably invest more capital in later rounds

**Form D and State Securities Filings**
You have 15 calendar days after the first investor irrevocably contractually commits to invest in the financing (typically the day that the stock purchase agreement is executed) to file a Form D with the SEC, which is a notice of an exempt offering of securities. If you have not yet conducted any SEC filings, you will need to file a Form ID with the SEC to obtain EDGAR codes prior to filing your Form D, which usually takes two to three business days. Additionally, after filing the Form D, you should have your counsel make the requisite state securities filings to comply with the relevant fee and notice requirements in jurisdictions where accredited investors purchased shares in the financing.

### Choosing Your Lead Investor
Funds often participate across multiple stages, but tend to slightly concentrate focus around / be better suited for different round stages (Pre-Seed to Series B) depending on their fund size. We've provided a short list of examples below, but can advise on a case-by-case basis.

**Pre-Seed**
- $500K - $3M raise
- $5M - $15M equity valuation
- Fund size: < $50M

**Seed**
- $3M - $10M raise
- $10M - $50M equity valuation
- $50 - $200M fund size

**Series A+**
- $10M+ raise
- $50M+ equity valuation
- $200M+ fund size

## Investor Relations
- Monthly or quarterly investor updates are best practice
- An investor update should include the following:
- Product updates + usage metrics (*# users, user retention, etc.*)
- Financial updates + financial metrics (*ARR, burn, runway, etc.*)
- Team/hiring updates (*# team members, # hires/fires*)
- Highlights (*What's going well*)
- Lowlights (*What's not going well*)
- Upcoming goals/milestones
- Investor asks

- Example redacted investor update:

## Disclaimer
*This post is for general information purposes only. It does not constitute investment advice or a recommendation or solicitation to buy or sell any investment and should not be used in the evaluation of the merits of making any investment decision. It should not be relied upon for accounting, legal or tax advice or investment recommendations. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment or legal matters. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by Archetype. This post reflects the current opinions of the authors and is not made on behalf of Archetype or its affiliates and does not necessarily reflect the opinions of Archetype, its affiliates or individuals associated with Archetype. The opinions reflected herein are subject to change without being updated.*