Early Stage Financing for Tech Startups Overview for SCORE Seattle May 11, 2010 Chris DeVore General Partner,  Founders’ C...
Agenda <ul><li>Who am I </li></ul><ul><li>What is Founders’ Co-op </li></ul><ul><li>What do I know (and not know) on the t...
Chris DeVore <ul><li>Serial entrepreneur-turned-investor with enterprise product management / marketing background </li></...
Founders’ Co-op <ul><li>Fund I: $2.5MM Committed Fund, raised in 2008 </li></ul><ul><li>Seed + Early-Stage Deals ($100K-$5...
What I know (and don’t) <ul><li>Startups </li></ul><ul><li>Web + Mobile Software </li></ul><ul><li>Technology investing </...
What I believe <ul><li>Too many entrepreneurs equate raising money with success </li></ul><ul><li>Most small businesses sh...
Who should try to raise $ <ul><li>Table stakes: </li></ul><ul><ul><li>Highly qualified founding teams… </li></ul></ul><ul>...
Funding landscape (I) Low Friends + Family Angels + Networks Seed Funds Venture Capital High Early (Idea + Team) Late (Rap...
Funding landscape (II) <ul><li>“ [T]here is plenty of investment capital available for Consumer Internet companies that ha...
Definitions Type Description Examples Bootstrap <ul><li>Sell services before products </li></ul><ul><li>Whatever it takes ...
How to ask for $ <ul><li>Have your act together (see “Who should try to raise $”) </li></ul><ul><li>Do your homework, i.e....
Questions? <ul><li>Anything goes… </li></ul><ul><li>Contact info: </li></ul><ul><ul><li>[email_address] </li></ul></ul><ul...
Local Resources <ul><li>Alliance of Angels -  http://www.allianceofangels.com/   </li></ul><ul><li>Bellingham Angel Group ...
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Early Stage Fundraising

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Early Stage Fundraising

  1. 1. Early Stage Financing for Tech Startups Overview for SCORE Seattle May 11, 2010 Chris DeVore General Partner, Founders’ Co-op [email_address]
  2. 2. Agenda <ul><li>Who am I </li></ul><ul><li>What is Founders’ Co-op </li></ul><ul><li>What do I know (and not know) on the topic </li></ul><ul><li>What I believe about fundraising </li></ul><ul><li>Who should try to raise money </li></ul><ul><li>Early-stage funding landscape </li></ul><ul><li>How to ask for money </li></ul><ul><li>Q&A </li></ul><ul><li>Resources </li></ul>
  3. 3. Chris DeVore <ul><li>Serial entrepreneur-turned-investor with enterprise product management / marketing background </li></ul><ul><li>Enterprise </li></ul><ul><ul><li>AT&T, McCaw Cellular, Patagonia </li></ul></ul><ul><li>Entrepreneur </li></ul><ul><ul><li>Bootstrap : Adjacency (acquired by Sapient; NASDAQ:SAPE) </li></ul></ul><ul><ul><li>VC-backed : Judy’s Book (asset sale) </li></ul></ul><ul><ul><li>Founder-funded : Cooler Planet (profitable) </li></ul></ul><ul><ul><li>Seed-fund-backed : AppStoreHQ (TBD) </li></ul></ul><ul><li>Early-stage investor </li></ul><ul><ul><li>Co-founder / General Partner – Founders’ Co-op </li></ul></ul><ul><ul><li>Mentor / Investor – TechStars Seattle </li></ul></ul>
  4. 4. Founders’ Co-op <ul><li>Fund I: $2.5MM Committed Fund, raised in 2008 </li></ul><ul><li>Seed + Early-Stage Deals ($100K-$500K / round) </li></ul><ul><li>Web software companies in the Pacific Northwest </li></ul><ul><ul><li>12 investments in the portfolio currently </li></ul></ul><ul><li>General Partners (2) </li></ul><ul><ul><li>Andy Sack </li></ul></ul><ul><ul><li>Chris DeVore </li></ul></ul><ul><li>Limited Partners (22) </li></ul><ul><ul><li>Seattle-area software entrepreneurs + angel investors, e.g., Andy Liu, Geoff Entress, Alex Algard, Ben Elowitz, Jay Westerdal, Edward Yim </li></ul></ul>
  5. 5. What I know (and don’t) <ul><li>Startups </li></ul><ul><li>Web + Mobile Software </li></ul><ul><li>Technology investing </li></ul><ul><ul><li>Angel + Early-Stage </li></ul></ul><ul><ul><li>Venture Capital </li></ul></ul><ul><li>Retail </li></ul><ul><li>Medical Devices </li></ul><ul><li>Services </li></ul><ul><li>Pretty much anything else </li></ul>“ Stick to a narrowly-defined circle of competence” - Charlie Munger, Berkshire Hathaway
  6. 6. What I believe <ul><li>Too many entrepreneurs equate raising money with success </li></ul><ul><li>Most small businesses should never raise capital </li></ul><ul><li>Most that do should raise as little as they possibly can </li></ul>“ The probability of an entrepreneur getting venture capital is the same as getting struck by lightning while standing at the bottom of a swimming pool on a sunny day.” - Guy Kawasaki Raising $ ≠ Success
  7. 7. Who should try to raise $ <ul><li>Table stakes: </li></ul><ul><ul><li>Highly qualified founding teams… </li></ul></ul><ul><ul><li>Committed full-time… </li></ul></ul><ul><ul><li>To an idea they have validated w/direct research… </li></ul></ul><ul><ul><li>In the target customer segment (i.e., not just their mom)… </li></ul></ul><ul><ul><li>With a realistic, bottom-up revenue and cost model… </li></ul></ul><ul><ul><li>Based on benchmarks from relevant comparable companies. </li></ul></ul><ul><li>Force multipliers: </li></ul><ul><ul><li>Paying customers </li></ul></ul><ul><ul><li>High gross margins </li></ul></ul><ul><ul><li>Scalable + capital-efficient business model </li></ul></ul><ul><ul><li>Unique + differentiated offering </li></ul></ul><ul><ul><li>Unique distribution insight / approach </li></ul></ul><ul><ul><li>Upstream market players with related strategic needs </li></ul></ul><ul><ul><li>Etc. </li></ul></ul>
  8. 8. Funding landscape (I) Low Friends + Family Angels + Networks Seed Funds Venture Capital High Early (Idea + Team) Late (Rapid Growth) SCALABILITY STAGE Bootstrap The Funding Chasm Bootcamps
  9. 9. Funding landscape (II) <ul><li>“ [T]here is plenty of investment capital available for Consumer Internet companies that have demonstrated significant market traction in terms of traffic or revenues, but there’s almost none available for what, up until recently, would be considered the sweet spot of true VCs: Seed or Series A startups.&quot; </li></ul><ul><ul><li>Bill Burnham, The Great Abdication: Consumer Internet, Venture Capital, and Angels </li></ul></ul><ul><li>&quot;So what do I think is wrong with funds today? Many of them are too big. They need to make big investments to justify fund size and the associated management fees. But companies can create a lot with much less in the way of resources compared to a few years ago.” </li></ul><ul><ul><li>Mike Arrington, On Venture Capital </li></ul></ul>“ Hard” software startup costs  zero + VC fund sizes  $Billions = Terminal misalignment of goals + incentives
  10. 10. Definitions Type Description Examples Bootstrap <ul><li>Sell services before products </li></ul><ul><li>Whatever it takes to stay in business </li></ul>Friends + Family <ul><li>Individuals who know + trust you </li></ul><ul><li>Small checks - $5K - $50K </li></ul>Bootcamps <ul><li>Selective programs w/ intensive peer and mentor coaching </li></ul><ul><li>Small $$ (<$20K), but big screening and network value </li></ul>TechStars Y Combinator Angels + networks <ul><ul><li>“ Accredited” investors (>$1MM PNW) </li></ul></ul><ul><ul><li>$100K-500K rounds </li></ul></ul><ul><ul><li>Diverse interests + motivations </li></ul></ul>Alliance of Angels Bellingham Angels Seed Funds <ul><li>$250K-$1MM rounds </li></ul><ul><li>Focused investment thesis </li></ul><ul><li>Small number of decision-makers </li></ul>Founder’s Co-op 2 nd Ave Partners Venture Capital <ul><li>$1MM - $10MM rounds </li></ul><ul><li>Investment focus varies by partner </li></ul>Madrona Ignition
  11. 11. How to ask for $ <ul><li>Have your act together (see “Who should try to raise $”) </li></ul><ul><li>Do your homework, i.e., only target investors who… </li></ul><ul><ul><li>Have done deals in your space </li></ul></ul><ul><ul><li>Have done deals at your stage </li></ul></ul><ul><ul><li>You can access via a personal introduction </li></ul></ul><ul><li>Create your own momentum </li></ul><ul><ul><li>Never ask an investor for permission to get in business </li></ul></ul><ul><li>Make a personal connection </li></ul><ul><ul><li>Firms don’t invest, people do – they (almost always) have to like you first </li></ul></ul><ul><li>Follow-up </li></ul><ul><ul><li>Raising money is selling – show your investors you know how to sell </li></ul></ul>
  12. 12. Questions? <ul><li>Anything goes… </li></ul><ul><li>Contact info: </li></ul><ul><ul><li>[email_address] </li></ul></ul><ul><ul><li>206.801.1080 </li></ul></ul>
  13. 13. Local Resources <ul><li>Alliance of Angels - http://www.allianceofangels.com/ </li></ul><ul><li>Bellingham Angel Group - http://www.bellinghamangels.com/ </li></ul><ul><li>Founder’s Co-op – http://www.founderscoop.com </li></ul><ul><li>Northwest Energy Angels - http://www.nwenergyangels.com/ </li></ul><ul><li>Northwest Entrepreneur Network – http://nwen.org </li></ul><ul><li>Puget Sound Venture Club - http://www.pugetsoundvc.com/ </li></ul><ul><li>Tacoma Angel Network - http://www.tacomaangelnetwork.com/ </li></ul><ul><li>TechStars Seattle - http://www.techstars.org/ </li></ul><ul><li>Washington Biotechnical & Biomedical Association - http://www.washbio.org/ </li></ul>
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