The counter-intuitive ‘Slam Dunk Financing’ that can be a founder’s secret weapon
The ‘Slam Dunk Financing’ approach is an important mental model for us at Main Sequence and has helped companies build successful funding rounds.
We introduced it previously in 2018, and it appears to be used a lot in the community these days.
What is a ‘Slam Dunk Financing’ and why do we focus on it so much?
- Venture financing works best when there are clear step changes in valuation driven by evidence.
- The Slam Dunk Financing is the next round — the one that we are building towards.
- A common cause of weak rounds is not understanding what investors consider a valuation step-change or failing to focus on these factors sufficiently to deliver them convincingly. These rounds present partial progress to investors needing them to ‘believe us’ (vs proof) which is much harder to build conviction around.
- This is particularly important for deep tech because we generally need large amounts of capital, increasing as the company scales. Large amounts of capital are only possible with large valuations to support them.
- It is counter-intuitive. Why develop the roadmap based on investor desires rather than having a singular focus on the technology and products? It could be said that anything that does not have proof for the next financing is not worth doing because the next financing probably determines the ability of the company and the work to continue. So even long-term projects that will take years to develop benefit from showing convincing evidence waypoints.
Imagine the opening page of your deck at the next round
- Create an imaginary version of the company which exists 6 months before the end of the runway. This is the company you will be raising money for.
- What will you need to do next and how much money do you need to raise to get there?
- What valuation will be needed to manage dilution effectively? You don’t want to become an employee of your own company.
- Ask yourself what evidence you will be showing investors at that time. What is the proof that you are building the company you have been telling people about?
- “With just X (resources), we have achieved Y (massive impact relative to what investors might expect)”
- “Because of this innovation, we can now do X”
- “Look at our performance compared to Company X (the company investors assume is much better than yours)”
Build a waypoint plan
- Work backwards from the positioning you have imagined for the future.
- Think about the evidence waypoints. Plot them in time. It is not a Gant chart for project planning — more a narrative arc. For each of these swim lanes, what is the evidence? Evidence is a press release, a white paper, or a clear milestone flagged in an investor report.
- Utility and proof: what is your science/technology uniquely yielding?
- Market readiness: what is the company’s interaction with the market showing that proves you are right about the time being NOW for your company? Customers, partners…
- Team: who have you hired to demonstrate that you have the talent that no one else has?
- $: to what extent is the market financially valuing your products and services? Revenue, grants, investments, valuation uplifts?
- Product Polish: what products have your launched? How polished was the execution? This includes adjacencies and ‘readiness products’ to your main technology drive.
- These prove that you will get to the destination you want people to believe you about and be excited by.
- Waypoints should cover the period between now and when you go to market with the next round
- Do the same exercise for the best version of a company like yours you can think of. What valuation did they have by then? How much did they raise?
- Go back to your own SDF. Are you proud of it? Is it thrilling? What are you worried about? How can you de-risk that?
- Build a list of investors you will pitch this to in the coming months. “If we present this, what is your perspective? Anything missing? What excited you?”