Funding cycles and strategies for startups

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Funding cycles and strategy
Authorised and regulated by the Financial Conduct Authority
Fabio La Franca
@lafrancafabio
Investment Director, Station12 Ventures
Expert Rapporteur, European Commission
Member of the European Innovation Council

2. “We back the best and most ambitious entrepreneurs in the UK Sport, Entertainment and Knowledge
industries, whose businesses sell products or services that consumers either watch, listen, play with, or
experience live, anywhere in the world, and for whom we can add value through our extensive
operational experience and insight.”
Station12
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3. • What is the funding path?
• Where are you on that path?
• How fundraising works?
• How the VC model works?
• What are VCs looking for?
• What type of VCs are out there?
• What is your fundraising strategy?
• How to find the perfect investor for your business?
• What is your business strategy and how do you assess it?
• What are the key metrics you identified (”Ladder of proof”)?
• Other
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Key questions to answer today
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4. • Investment has increased massively
• If there is a bubble, it hasn’t burst
• The earlier the round, the riskier it is (risk loving angels vs risk averse later stage VCs)
• 70-80% of investments in 2018 were in Enterprise
• Seeds are the new series A (in terms at least)
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Fundraising trends
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5. • GROWTH!
• Fundraising is part-and-parcel of the trajectory of most successful startups
• Provides the resources needed to achieve rapid growth.
• Fundraising vs bootstrapping
• Ongoing product development: likely biggest cost for startups
• Hiring: remote developers vs Xooglers
• Overheads: unavoidable. Regulatory, licensing costs, hosting, customer support
• Physical premises: kitchen vs offices and networking opportunities
• It takes much longer, usually, to get to Initial Scale (£5m ARR). Usually 4 years longer when you are
bootstrapping
• Competition: quicker to accelerate growth/process with investment
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Startup DNA
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Funding path
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Capital lifecycle
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VC vs risk
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“Valley of Death”
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Who knows the VC business model? (Know Your Customer!)
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“VC funding works like gears”
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12. • First type of fundraising round available to founders
• Typical:
• founding team (often pre-product) receive a small investment to hit one or more of the milestones
• need to ready themselves for "true" seed investment (hiring a critical team member to developing a
prototype product)
• pre-seed financing is often used to bridge the gap to the next round
• Average Funding Amount: <£250k
• Typical Company Valuation: £1-3 million
• Common Investors: Friends and family, early-stage angels, startup accelerators
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Pre seed
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13. • Move beyond its founding team, funds product development, and in some cases, even facilitates early revenue
generation.
• Typical:
• strong signs of Product/Market Fit (PMF) and some some degree of traction (in the form of a growing
wait list, or month-on-month revenue growth)
• Used to be angels but more VC funds now and more startups
• Big variances in seed sizes, median £150k for angels, £750k for VCs
• Pre-seed financing is often used to bridge the gap to the next round
• Average Funding Amount: £1 million
• Typical Company Valuation: £1-4 million
• Common Investors: Angels, early-stage VCs, startup accelerators
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Seed
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14. • Revenue growth is the name of the game
• Typical:
• clear and growing evidence of PMF
• Significant revenue growth from new customers
• Increasing ARPA (Average Revenue Per Account)
• New sales and marketing processes. More than one channel
• Get to grips with ideal customer
• some some degree of traction (in the form of a growing wait list, or month-on-month revenue growth)
• Used to be angels but more VC funds now and more startups
• Big variances in seed sizes, median £150k for angels, £750k for VCs
• pre-seed financing is often used to bridge the gap to the next round
• Average Funding Amount: £1-5million
• Typical Company Valuation: up to £20 million
• Common Investors: VCs dictate, increase in rounds sizes
A
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15. • SCALE!
• Typical:
• Expensive hires across business development, strategic accounts, marketing
• Expand into different market segments, or experiment with different revenue streams
• Average Funding Amount: £15-20 million
• Typical Company Valuation: £50-80 million
• Common Investors: VCs, late-stage VCs
B
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16. • Fuel large-scale expansion, international expansion, fuel acquisitions of other businesses
• Theoretically no limit to the number of investment rounds (E and beyond)
• Relatively low number of startups make it to this point and huge variances in amounts raised
• Typical:
• De-risked, so financial institutions involved
• Huge cheque books
• E.g.: cinematic reality “startup” Magic Leap raised unbelievable $800m series C (possibly biggest round)
• Expensive hires across business development, strategic accounts, marketing
• Expand into different market segments, or experiment with different revenue streams
• Average Funding Amount: £50 million
• Typical Company Valuation: £250m -1bn
• Common Investors: late stage VCs, private equity firms, hedge funds, banks
C+
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VC investment stages
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SAAS funding napkin – Chris Janz @Point Nine
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Ladder of proof
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Vision is good,
but proving your metrics is better.

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What VC for what stage?
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Funding pyramid
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22. • http://blog.eladgil.com/2011/03/how-funding-rounds-differ-seed-series.html
• http://www.paulgraham.com/articles.html
• http://www.paulgraham.com/fr.html
• http://www.paulgraham.com/convince.html
• http://www.paulgraham.com/fundraising.html
• https://medium.com/point-nine-news/the-saas-funding-napkin-2018-ea1b168a5b78
• https://www.nfx.com/post/ladder-of-proof
• https://hbr.org/1998/11/how-venture-capital-works
Recommended
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@lafrancafabio