US Startup Investment Market (Startonomics Tokyo, June 2009)

Startonomics / Tokyo - June 9, 2009 Dave McClure, Founders Fund Joyce Kim, Soompi & Fortis General Counsel David Troy, Baltimore Angels Ryan Pipkin, AngelSoft US Startup Investment Market

Startup Investment Trends
Venture Capital Turmoil: “ R.I.P. Good Times ”
Not so bad for startups (valuation), however..
Pretty bad for VCs (fundraising) if poor returns
Slowdown Later Stage Deals, Reduced Valuations
Legal Trends and Changes?
Growth -> Monetization, Revenue -> Profitability
Growth of Seed Funds, Incubators
Y-Combinator, TechStars, fbFund REV
Startonomics / Startup Metrics / Lean Startup

Dave McClure PROPRIETARY & CONFIDENTIAL
2001-2008:
Startup Investor: 500 Hats LLC, Founders Fund
Tech Marketing : PayPal, Simply Hired, Mint
Advisor, Angel Investor : 20+ Startups
Conf. Organizer : Web 2.0, O’Reilly, Startonomics
Stanford Visiting Lecturer : Facebook, Startup Metrics
80’s & 90’s:
Entrepreneur : Founder/CEO Aslan Computing (acq.)
Developer : Windows Apps / SQL DB Admin
User Groups : E-Commerce, Internet, Client-Server
Engineer : Johns Hopkins ‘88, BS Eng / Applied Math

Personal Investments (2004-2008) PROPRIETARY & CONFIDENTIAL

Professional Investments (2009)
FF Angel LLC
Twilio
1000 Markets
UserVoice
Bit.ly
DailyBurn

Changing Focus

Startup Funding Ecosystem PROPRIETARY & CONFIDENTIAL Union Square Ventures First Round Capital SoftTech (Clavier) Maples Investments Benchmark Sequoia Y-Combinator TechStars FF Angel FF II fbFund REV FF I Angels & Incubators ($0-10M) Seed Funds ($10-50M) Small VC Funds ($50-250M) Traditional VC Funds (>$250M)

Angelsoft.net Data Metrics Angelsoft represents over 80% of the Organized Angel Networks in the United States

From Q4 ‘08 - Q1 ‘09
Growth by 17.83% in # of companies actively looking for angel capital
Decline by 35% in total $ investment amount
Decline by 23.42% in valuations

From Q4 ‘08 - Q1 ‘09
Decreased by 50% in time it took to make an investment
Increase by 31.19% in average amount of money entrepreneurs are seeking
Increase by 86% in average investment amount per deal that closed

Legal Trends
Convertible Notes / Caps
Priced Rounds
Terms are very pro-investor
Valuations are down
Tip – ask your attorney how to control costs.

Investment Stages
Micro-Seed: $0-$100K –> Prototype
Seed: $100K-$1M –> Market Development
Series A: $1-5M+ –> Revenue / Profitability
Series B: $2-20M+ -> Profitability / ?

Example #1: Micro-Seed (“Prototype / Incubate”)
1-2 person startup
Founder / Angel Investors
=> $25-100K @ $500K-2M pre-money valuation
FF&F: Friends, Family, & Fools
Credit Cards, 2 nd Mortgage, Customer-Financed, etc
Examples: Y-Combinator, TechStars, fbFund REV
Goal: Build Functional Prototype
Concept->Alpha , ≤ 3-6 mo’s
Develop Minimal Critical Feature Set => Get to “ It Works ”
Instrument Basic Dashboard, Conversion Metrics
Setup Build/Release/Test Cycle
Test Cust. Adoption (10-1000 users) / Cust. Satisfaction (Scale: 1-10)
Connect with Advisors & Mentors, Angels/VCs
Demonstrate Concept , Reduce Product Risk, Vet Team
Develop Metrics & Filter for Follow-on Investment
PROPRIETARY & CONFIDENTIAL

Example #2: Seed (“Angel / Syndicate”)
2-5 person startup
Angel Investor / Syndicate
=> $100K-$1M @ $1-3M pre-money valuation
Examples: First Round, True Ventures, Union Square, FF Angel
Goal: Develop/Expand Prototype -> Functional, Growing Beta
Alpha->Beta , ≤ 3-6 mo’s
Test Cust. Sat ≥ 6 / 10 => Get to “ Doesn’t Suck ”
Setup A/B Testing Framework, Optimize Conversion
Test Mktg Campaigns, Cust. Acq. Channels: Volume, Cost
IF/WHEN Cust. Sat ≥ 8 (“ It’s Good! ”), THEN Grow User Base
Connect with Advisors, Series A Investors, Key Hires
Test/Develop Revenue Model
Prove Solution/Benefit, Assess Market Size, Initial Lines of Revenue
Test Channel Cost, Revenue Opportunity
Determine Org Structure, Key Hires

Example #3: Series A (“Venture”)
3-10 person team; bring in key CXO/VP roles
Large Seed / Small Series A
=> $500K-$5M @ $2-20M pre
Examples: Founders Fund , Sequoia Capital, Benchmark Capital
Goal: Market Expansion:
Beta->Production , ≤ 6-12 mo’s
Rigorous A/B Testing, Optimize Conversion
Get Cust. Sat ≥ 8 / 10 => “ It Rocks, I’ll Tell My Friends ”
Marketing Plan => Predictable Channels / Campaigns + Budget
Vet Scalability & Infrastructure, Customer Service & Ops
IF/WHEN Predictable, Scalable Growth THEN Step On Gas
Connect with Marketing / Distribution Partners
Revenue / Profit focus
Prove/Expand Market, Operationalize Business
Future Milestones: Expansion, Sustainable, Exit Options

Startup Metrics PROPRIETARY & CONFIDENTIAL
A cquisition : What channels do customers come from?
A ctivation : Do they have “happy” 1st experience?
R etention : Will they come back?
R eferral : Do they tell other people?
R evenue : How to make money?

STARTonomics 2008 Conference 300+ Startup Entrepreneurs & Investors Startup Metrics Education for Product, Marketing, Tech
Startup Metrics
Product Development
Scalability
Game Mechanics
Design 101
Activation & Retention
Marketing
SEO
Social Media
Viral Marketing
Social Platforms
Revenue Optimization
Customer Service
Funding & Financing

Links & Resources
FoundersFund.com , follow @DaveMcClure
Fortis General Counsel , follow @JoyceKim
AngelSoft.net , follow @ripkin
follow @BaltimoreAngels, @DaveTroy
Yokum Taku, StartupCompanyLawyer.com
Eric Ries, Startup Lessons Learned
Dave McClure, Startup Metrics for Pirates
Finance4Founders.com
Startonomics SF (2008)

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US Startup Investment Market (Startonomics Tokyo, June 2009)

by Dave McClure on Jun 09, 2009

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US Startup Investment Market (Startonomics Tokyo, June 2009) — Presentation Transcript