Early Stage Fundraising

Early Stage Financing for Tech Startups Overview for SCORE Seattle May 11, 2010 Chris DeVore General Partner, Founders’ Co-op [email_address]

Agenda
Who am I
What is Founders’ Co-op
What do I know (and not know) on the topic
What I believe about fundraising
Who should try to raise money
Early-stage funding landscape
How to ask for money
Q&A
Resources

Chris DeVore
Serial entrepreneur-turned-investor with enterprise product management / marketing background
Enterprise
AT&T, McCaw Cellular, Patagonia
Entrepreneur
Bootstrap : Adjacency (acquired by Sapient; NASDAQ:SAPE)
VC-backed : Judy’s Book (asset sale)
Founder-funded : Cooler Planet (profitable)
Seed-fund-backed : AppStoreHQ (TBD)
Early-stage investor
Co-founder / General Partner – Founders’ Co-op
Mentor / Investor – TechStars Seattle

Founders’ Co-op
Fund I: $2.5MM Committed Fund, raised in 2008
Seed + Early-Stage Deals ($100K-$500K / round)
Web software companies in the Pacific Northwest
12 investments in the portfolio currently
General Partners (2)
Andy Sack
Chris DeVore
Limited Partners (22)
Seattle-area software entrepreneurs + angel investors, e.g., Andy Liu, Geoff Entress, Alex Algard, Ben Elowitz, Jay Westerdal, Edward Yim

What I know (and don’t)
Startups
Web + Mobile Software
Technology investing
Angel + Early-Stage
Venture Capital
Retail
Medical Devices
Services
Pretty much anything else
“ Stick to a narrowly-defined circle of competence” - Charlie Munger, Berkshire Hathaway

What I believe
Too many entrepreneurs equate raising money with success
Most small businesses should never raise capital
Most that do should raise as little as they possibly can
“ 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

Who should try to raise $
Table stakes:
Highly qualified founding teams…
Committed full-time…
To an idea they have validated w/direct research…
In the target customer segment (i.e., not just their mom)…
With a realistic, bottom-up revenue and cost model…
Based on benchmarks from relevant comparable companies.
Force multipliers:
Paying customers
High gross margins
Scalable + capital-efficient business model
Unique + differentiated offering
Unique distribution insight / approach
Upstream market players with related strategic needs
Etc.

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

Funding landscape (II)
“ [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."
Bill Burnham, The Great Abdication: Consumer Internet, Venture Capital, and Angels
"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.”
Mike Arrington, On Venture Capital
“ Hard” software startup costs  zero + VC fund sizes  $Billions = Terminal misalignment of goals + incentives

Definitions Type Description Examples Bootstrap
Sell services before products
Whatever it takes to stay in business
Friends + Family
Individuals who know + trust you
Small checks - $5K - $50K
Bootcamps
Selective programs w/ intensive peer and mentor coaching
Small $$ (<$20K), but big screening and network value
TechStars Y Combinator Angels + networks
“ Accredited” investors (>$1MM PNW)
$100K-500K rounds
Diverse interests + motivations
Alliance of Angels Bellingham Angels Seed Funds
$250K-$1MM rounds
Focused investment thesis
Small number of decision-makers
Founder’s Co-op 2 nd Ave Partners Venture Capital
$1MM - $10MM rounds
Investment focus varies by partner
Madrona Ignition

How to ask for $
Have your act together (see “Who should try to raise $”)
Do your homework, i.e., only target investors who…
Have done deals in your space
Have done deals at your stage
You can access via a personal introduction
Create your own momentum
Never ask an investor for permission to get in business
Make a personal connection
Firms don’t invest, people do – they (almost always) have to like you first
Follow-up
Raising money is selling – show your investors you know how to sell

Questions?
Anything goes…
Contact info:
[email_address]
206.801.1080

Local Resources
Alliance of Angels - http://www.allianceofangels.com/
Bellingham Angel Group - http://www.bellinghamangels.com/
Founder’s Co-op – http://www.founderscoop.com
Northwest Energy Angels - http://www.nwenergyangels.com/
Northwest Entrepreneur Network – http://nwen.org
Puget Sound Venture Club - http://www.pugetsoundvc.com/
Tacoma Angel Network - http://www.tacomaangelnetwork.com/
TechStars Seattle - http://www.techstars.org/
Washington Biotechnical & Biomedical Association - http://www.washbio.org/

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Early Stage Fundraising

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