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[PREMONEY 2014] Bullpen Capital >> Paul Martino, "Seed Is The New A: What The Seed Stage Explosion Means For Every Investor"

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"Seed Is The New A: What The Seed Stage Explosion Means For Every Investor"

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[PREMONEY 2014] Bullpen Capital >> Paul Martino, "Seed Is The New A: What The Seed Stage Explosion Means For Every Investor"

  1. 1. “Seed is the New A” (The Post-Seed VC Ecosystem)
  2. 2. The Hero’s Journey  Seed is a process, not an event  Continuous ...  The CEO’s job becomes raising money
  3. 3. Era of Cheap R a isin g $ 5 0 0 k n o t $ 5 m  n e e d $ 5 k l e g a l n o t $ 5 0 k Open Source Cloud 2000 $5m $500k 2005 $50k 2010 source: Mark Suster, Upfront Capital Cost of a Startup
  4. 4. Ever y Boom Comes With a New Financial Flim-Flam Invention Era 1960s 1970s 1980s 1990s 2000s 2010s Instrument Moral Obligation Bond High P/E Conglomerates Highly Confident Letter Dot-Com “Eyeballs” Subprime CDOs Capped Convert Result NYC bankrupt Broke ‘Em Up “Barbarians at the Gates” AOL buys Time-Warner!? Housing Bubble! Seed as a process!
  5. 5. Seed Needed a New Instrument: The Capped Convert  Simple, cheap, fast  Can be stacked – higher caps in later notes  Does not re-price employee options  Socializes the downside  Privatizes the upside Smplicity and cost effectiveness from a legal perspective enabled “Seed “to become a continuous process
  6. 6. Seed is Now a Complex Process Pre- Seed Seed Post Seed < $250k < $2m < $5m > $10mCumulative: Institutional Seed Bullpen Round Friends, Family, Crowd, Incubator “Super-Sized” A Round
  7. 7. Easy Seed  Series A Crunch Source: CBinsight as reported by Dan Primack #Deals 0 200 400 600 800 1000 1200 1400 1600 1800 2000 2009 2010 2011 2012 2013 Seed Seeking Funding Series A Rounds Series A Crunch Seed Shifted Forward A Year .. When They Seek Funding
  8. 8. The Crunch  Post-Seed Round source: Jamie Davidson, Redpoint Ventures
  9. 9. Post-Seed Funding is Increasing O v e r h a l f of s e e d d o l la r s n o w f l o w t o “ p o st -se ed ”
  10. 10. Post Seed Options ① Not ready for A? ② Need to De-Risk? ③ Confident of milestones? ④ Hardware? ① Bridge to A – bridges turn into ‘piers” – halfway there you fall in! ② Go right to A – Dilution vs. De-risk – Star founders do this ③ Post-Seed first – Less dilution, more control – Build a sustainable model – Super-Sized A next! ④ Crowd-Funding first – Kickstarter validates demand
  11. 11. Some Best Practices • If you are a founder: always be raising money in the background vs. doing it periodically in the foreground • If you are in investor: you must add specific value to help companies achieve milestones or you will be commoditized • If you are an LP: seed as a process means that early stage deal flow is being democratized and is frequently syndicated therefore the usual obsession about “sourcing” is less important than picking and value add

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