Tool: The Slam Dunk Financing
A powerful way to think about your venture-funded business
When we first started assembling deals at Main Sequence Ventures, our founding partner Bill Bartee would frequently ask us “What does the slam dunk financing look like?”
The Slam Dunk Financing is the round that comes next. It goes like this:
- The business levels up resourcing by raising capital to execute on a plan.
- The plan describes key waypoints delivered over what is usually a 2 year period. What are these waypoints?
- Because these waypoints are hit, the business on the other side has a step change in value. What could that value be?
- Given the above, we can already be thinking about who will be investing in the next round and why. Who could those investors be?
This thinking can help a team focus on what is important.
Startups exist in a volatile world that is constantly in flux so we don’t think of this as a rigid plan, but as something that we can believe in that, if done, creates a step change in value and capability in the company.
As a fund, exploring this is a powerful part of our due diligence with a company. If we invest, what comes next? If the company is likely to need more capital than we can provide, then who might invest with us and why?
Here’s a template we’ve been using:
Each column is one quarter over the next two years. In the rows we describe an announcement or a metric that investors will hear about over this period. What is the story we will make come true?
The categories are:
- Team — new hires, team size, geographic location.
- Customers & Partners — evidence that people are starting to value working with us.
- Utility & Proof — product evolution, confidence in scientific proof and proof that it is useful.
- Revenue — is it kicking in?
Here’s an example for a made-up company.
“Air Farm” is at seed stage and creates vertical farming infrastructure (lights/heating/plumbing/software/sensors) for inner-city vertical farms to provide produce at scale for supermarkets.
Before this phase they have proven that their technology works and now they are selling it to inner city farmers and commercial real estate companies to provide food for inner-city residents.
By the end of this phase, the business has proven that its technology makes it possible for realestate developers to deliver food at scale to inner city supermarkets.
Imagine being a potential future investor and getting these updates throughout the period. Can you feel the traction? Is the business coming to life and bringing confidence?
The next job is to socialise this with other people — especially investors that you think you might approach for the financing.
Ask them… “If we do this, are we investible?” And… “What is missing?”