US Startup Investment Market (Startonomics Tokyo, June 2009)

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Presentation on US Startup & Seed / Angel Investment Market for Startonomics Tokyo (June, 2009). Speakers Dave McClure, Joyce Kim, Dave Troy, Ryan Pipkin.

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  • US Startup Investment Market (Startonomics Tokyo, June 2009)

    1. 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
    2. Startup Investment Trends <ul><li>Venture Capital Turmoil: “ R.I.P. Good Times ” </li></ul><ul><ul><li>Not so bad for startups (valuation), however.. </li></ul></ul><ul><ul><li>Pretty bad for VCs (fundraising) if poor returns </li></ul></ul><ul><li>Slowdown Later Stage Deals, Reduced Valuations </li></ul><ul><li>Legal Trends and Changes? </li></ul><ul><li>Growth -> Monetization, Revenue -> Profitability </li></ul><ul><li>Growth of Seed Funds, Incubators </li></ul><ul><ul><li>Y-Combinator, TechStars, fbFund REV </li></ul></ul><ul><li>Startonomics / Startup Metrics / Lean Startup </li></ul>
    3. Dave McClure PROPRIETARY & CONFIDENTIAL <ul><ul><li>2001-2008: </li></ul></ul><ul><ul><li>Startup Investor: 500 Hats LLC, Founders Fund </li></ul></ul><ul><ul><li>Tech Marketing : PayPal, Simply Hired, Mint </li></ul></ul><ul><ul><li>Advisor, Angel Investor : 20+ Startups </li></ul></ul><ul><ul><li>Conf. Organizer : Web 2.0, O’Reilly, Startonomics </li></ul></ul><ul><ul><li>Stanford Visiting Lecturer : Facebook, Startup Metrics </li></ul></ul><ul><ul><li>80’s & 90’s: </li></ul></ul><ul><ul><li>Entrepreneur : Founder/CEO Aslan Computing (acq.) </li></ul></ul><ul><ul><li>Developer : Windows Apps / SQL DB Admin </li></ul></ul><ul><ul><li>User Groups : E-Commerce, Internet, Client-Server </li></ul></ul><ul><ul><li>Engineer : Johns Hopkins ‘88, BS Eng / Applied Math </li></ul></ul>
    4. Personal Investments (2004-2008) PROPRIETARY & CONFIDENTIAL
    5. Professional Investments (2009) <ul><li>FF Angel LLC </li></ul><ul><li>Twilio </li></ul><ul><li>1000 Markets </li></ul><ul><li>UserVoice </li></ul><ul><li>Bit.ly </li></ul><ul><li>DailyBurn </li></ul>
    6. Changing Focus
    7. 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)
    8. Angelsoft.net Data Metrics Angelsoft represents over 80% of the Organized Angel Networks in the United States
    9. From Q4 ‘08 - Q1 ‘09 <ul><li>Growth by 17.83% in # of companies actively looking for angel capital </li></ul><ul><li>Decline by 35% in total $ investment amount </li></ul><ul><li>Decline by 23.42% in valuations </li></ul>
    10. From Q4 ‘08 - Q1 ‘09 <ul><li>Decreased by 50% in time it took to make an investment </li></ul><ul><li>Increase by 31.19% in average amount of money entrepreneurs are seeking </li></ul><ul><li>Increase by 86% in average investment amount per deal that closed </li></ul>
    11. Legal Trends <ul><li>Convertible Notes / Caps </li></ul><ul><li>Priced Rounds </li></ul><ul><li>Terms are very pro-investor </li></ul><ul><li>Valuations are down </li></ul><ul><li>Tip – ask your attorney how to control costs. </li></ul>
    12. Investment Stages <ul><li>Micro-Seed: $0-$100K –> Prototype </li></ul><ul><li>Seed: $100K-$1M –> Market Development </li></ul><ul><li>Series A: $1-5M+ –> Revenue / Profitability </li></ul><ul><li>Series B: $2-20M+ -> Profitability / ? </li></ul>
    13. Example #1: Micro-Seed (“Prototype / Incubate”) <ul><li>1-2 person startup </li></ul><ul><li>Founder / Angel Investors </li></ul><ul><ul><li>=> $25-100K @ $500K-2M pre-money valuation </li></ul></ul><ul><ul><li>FF&F: Friends, Family, & Fools </li></ul></ul><ul><ul><li>Credit Cards, 2 nd Mortgage, Customer-Financed, etc </li></ul></ul><ul><li>Examples: Y-Combinator, TechStars, fbFund REV </li></ul><ul><li>Goal: Build Functional Prototype </li></ul><ul><ul><li>Concept->Alpha , ≤ 3-6 mo’s </li></ul></ul><ul><ul><li>Develop Minimal Critical Feature Set => Get to “ It Works ” </li></ul></ul><ul><ul><li>Instrument Basic Dashboard, Conversion Metrics </li></ul></ul><ul><ul><li>Setup Build/Release/Test Cycle </li></ul></ul><ul><ul><li>Test Cust. Adoption (10-1000 users) / Cust. Satisfaction (Scale: 1-10) </li></ul></ul><ul><ul><li>Connect with Advisors & Mentors, Angels/VCs </li></ul></ul><ul><li>Demonstrate Concept , Reduce Product Risk, Vet Team </li></ul><ul><li>Develop Metrics & Filter for Follow-on Investment </li></ul>PROPRIETARY & CONFIDENTIAL
    14. Example #2: Seed (“Angel / Syndicate”) <ul><li>2-5 person startup </li></ul><ul><li>Angel Investor / Syndicate </li></ul><ul><ul><li>=> $100K-$1M @ $1-3M pre-money valuation </li></ul></ul><ul><li>Examples: First Round, True Ventures, Union Square, FF Angel </li></ul><ul><li>Goal: Develop/Expand Prototype -> Functional, Growing Beta </li></ul><ul><ul><li>Alpha->Beta , ≤ 3-6 mo’s </li></ul></ul><ul><ul><li>Test Cust. Sat ≥ 6 / 10 => Get to “ Doesn’t Suck ” </li></ul></ul><ul><ul><li>Setup A/B Testing Framework, Optimize Conversion </li></ul></ul><ul><ul><li>Test Mktg Campaigns, Cust. Acq. Channels: Volume, Cost </li></ul></ul><ul><ul><li>IF/WHEN Cust. Sat ≥ 8 (“ It’s Good! ”), THEN Grow User Base </li></ul></ul><ul><ul><li>Connect with Advisors, Series A Investors, Key Hires </li></ul></ul><ul><ul><li>Test/Develop Revenue Model </li></ul></ul><ul><li>Prove Solution/Benefit, Assess Market Size, Initial Lines of Revenue </li></ul><ul><li>Test Channel Cost, Revenue Opportunity </li></ul><ul><li>Determine Org Structure, Key Hires </li></ul>PROPRIETARY & CONFIDENTIAL
    15. Example #3: Series A (“Venture”) <ul><li>3-10 person team; bring in key CXO/VP roles </li></ul><ul><li>Large Seed / Small Series A </li></ul><ul><ul><li>=> $500K-$5M @ $2-20M pre </li></ul></ul><ul><li>Examples: Founders Fund , Sequoia Capital, Benchmark Capital </li></ul><ul><li>Goal: Market Expansion: </li></ul><ul><ul><li>Beta->Production , ≤ 6-12 mo’s </li></ul></ul><ul><ul><li>Rigorous A/B Testing, Optimize Conversion </li></ul></ul><ul><ul><li>Get Cust. Sat ≥ 8 / 10 => “ It Rocks, I’ll Tell My Friends ” </li></ul></ul><ul><ul><li>Marketing Plan => Predictable Channels / Campaigns + Budget </li></ul></ul><ul><ul><li>Vet Scalability & Infrastructure, Customer Service & Ops </li></ul></ul><ul><ul><li>IF/WHEN Predictable, Scalable Growth THEN Step On Gas </li></ul></ul><ul><ul><li>Connect with Marketing / Distribution Partners </li></ul></ul><ul><ul><li>Revenue / Profit focus </li></ul></ul><ul><li>Prove/Expand Market, Operationalize Business </li></ul><ul><li>Future Milestones: Expansion, Sustainable, Exit Options </li></ul>PROPRIETARY & CONFIDENTIAL
    16. Startup Metrics PROPRIETARY & CONFIDENTIAL <ul><ul><li>A cquisition : What channels do customers come from? </li></ul></ul><ul><ul><li>A ctivation : Do they have “happy” 1st experience? </li></ul></ul><ul><ul><li>R etention : Will they come back? </li></ul></ul><ul><ul><li>R eferral : Do they tell other people? </li></ul></ul><ul><ul><li>R evenue : How to make money? </li></ul></ul>
    17. STARTonomics 2008 Conference 300+ Startup Entrepreneurs & Investors Startup Metrics Education for Product, Marketing, Tech <ul><li>Startup Metrics </li></ul><ul><li>Product Development </li></ul><ul><li>Scalability </li></ul><ul><li>Game Mechanics </li></ul><ul><li>Design 101 </li></ul><ul><li>Activation & Retention </li></ul><ul><li>Marketing </li></ul>PROPRIETARY & CONFIDENTIAL <ul><li>SEO </li></ul><ul><li>Social Media </li></ul><ul><li>Viral Marketing </li></ul><ul><li>Social Platforms </li></ul><ul><li>Revenue Optimization </li></ul><ul><li>Customer Service </li></ul><ul><li>Funding & Financing </li></ul>
    18. Links & Resources <ul><li>FoundersFund.com , follow @DaveMcClure </li></ul><ul><li>Fortis General Counsel , follow @JoyceKim </li></ul><ul><li>AngelSoft.net , follow @ripkin </li></ul><ul><li>follow @BaltimoreAngels, @DaveTroy </li></ul><ul><li>Yokum Taku, StartupCompanyLawyer.com </li></ul><ul><li>Eric Ries, Startup Lessons Learned </li></ul><ul><li>Dave McClure, Startup Metrics for Pirates </li></ul><ul><li>Finance4Founders.com </li></ul><ul><li>Startonomics SF (2008) </li></ul>

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