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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.

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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  • 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
    • 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
  • 3. 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
  • 4. Personal Investments (2004-2008) PROPRIETARY & CONFIDENTIAL
  • 5. Professional Investments (2009)
    • FF Angel LLC
    • Twilio
    • 1000 Markets
    • UserVoice
    • Bit.ly
    • DailyBurn
  • 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
    • 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
  • 10. 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
  • 11. Legal Trends
    • Convertible Notes / Caps
    • Priced Rounds
    • Terms are very pro-investor
    • Valuations are down
    • Tip – ask your attorney how to control costs.
  • 12. Investment Stages
    • Micro-Seed: $0-$100K –> Prototype
    • Seed: $100K-$1M –> Market Development
    • Series A: $1-5M+ –> Revenue / Profitability
    • Series B: $2-20M+ -> Profitability / ?
  • 13. 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
  • 14. 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
    PROPRIETARY & CONFIDENTIAL
  • 15. 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
    PROPRIETARY & CONFIDENTIAL
  • 16. 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?
  • 17. 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
    PROPRIETARY & CONFIDENTIAL
    • SEO
    • Social Media
    • Viral Marketing
    • Social Platforms
    • Revenue Optimization
    • Customer Service
    • Funding & Financing
  • 18. 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)