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Seed Financing Landscape - Launch 2019

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A view of early stage venture financing in 2019.

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Seed Financing Landscape - Launch 2019

  1. 1. Pear LAUNCH Scale 2018 Navigating The New Seed Landscape Mar Hershenson, Managing Partner Pear VC Pear
  2. 2. Pear LAUNCH 20192 Partner @ We help build companies from 0 to 1
  3. 3. State of Early Venture 3
  4. 4. Year 2003 2010 2019 # Funds 0 33 ~800 Number of Seed Funds
  5. 5. Not only 24x funds…
  6. 6. Pear LAUNCH 20196 Source: SEC Form -D filings … but also 4-20x bigger funds I (y. 2004) II (y. 2007) III (y. 2011) IV (y. 2013) V (y. 2016) VI (y. 2019) $200M $100M $85M $35M $7.4M “Example Fund” size increase over Hme
  7. 7. Pear LAUNCH 2019 Rounds have shifted 7 Source:Wing VC. Techcrunch. A quick look at how Series A and seed rounds have ballooned in recent years, fueled by top investors 2010 2019 Age of first institutional Seed 1y 2.5y Total Seed raised before Series A $1.3M $5.6M Series A size $5.1M $15.7M % Companies with revenue at A 15% 82%
  8. 8. Pear LAUNCH 2019 Getting to a Series A is a ~3.5 year Journey 8 $5.6M Raised Before Series A $250k-$750k Pre-seed $1-4M [Seed Plus] Pre-seed 2019 = Seed 2010 Seed 2019 = Series A 2010 Metrics in Seed round matter $2-4M Seed
  9. 9. Where do I have to be to raise Seed and A money?
  10. 10. Pear LAUNCH 201910 Product Market Fit Stage : “0 “0 “0.5 “1 Valuable product I can sell Idea stage. No product No customers Valuable product my team can predictably sell Source : Nikhyl Singhal, CPO at Credit Karma Start-up journey has not changed
  11. 11. Pear LAUNCH 2019 The round names have changed 11 Product Market Fit Stage : “0 to 1” “0” “0.5” “1” Series A Seed Series ASeedPre-Seed 2005 2010 2019 Series A
  12. 12. What are valuations at each stage?
  13. 13. It depends
  14. 14. Pear LAUNCH 201914 Source : Jason Calacanis Blog. The Valuation vs Traction Matrix
  15. 15. Pear LAUNCH 2019 “Elite Status” Start-ups 15 Founder Background Hot Market Hype Location Attended top university Worked at high-growth company Second time founder RPA Crypto AI …. Big investor leading YC Famous founder Silicon Valley!
  16. 16. Pear LAUNCH 201916 “0” “0.5” $3-6M $10-20M “1” $30-50M Typical Startup Series ASeed/Seed +Pre-SeedTypical Startup Elite Startup $10-15M $20-30M $40-80M Series ASeed/Seed +Elite Startup Expected Round Valuation
  17. 17. Pear LAUNCH 2019 Assumptions Forward 17 Average Start-up No Bio/Deep Tech Location: Silicon Valley
  18. 18. Pear LAUNCH 2019 What matters most when* 18 Pre-seed Seed Series A Public Team Traction Market Traction Traction Team Traction Market Market Market Team Team 1 2 3 * Caveat: Typical investors at each stage. A Series A investor will think market first at seed too (eg).
  19. 19. “0” stage, Pre-seed 19
  20. 20. Pear LAUNCH 2019 !20 ~$100k ~$750k Friends, Family & Fools Angels Pre-seed Fund Angels Friends, Family & Fools “Typical” Pre-seed Rounds
  21. 21. Pear LAUNCH 2019 How to raise pre-seed from a fund 21 Pre-seed Team* - Emphasize “singular” achievements - Show you can execute - Attract complementary co-founders Traction - Demonstrate “MVP” (does not mean you need to code) - Keep investors updated as you make progress (even if small) Market Founder/CEO has ambition to build something big 1 2 3 * Assumes non-elite status start-up
  22. 22. “0.5” stage, Seed 22
  23. 23. Pear LAUNCH 2019 !23 ~$2M ~$4M Seed Fund Pre-seed Fund Angels Series A Fund “Typical” Seed Rounds
  24. 24. Pear LAUNCH 2019 Where do I have to be to raise seed 24 Seed Traction Proof of customer “love” A few customers that cannot live without your product Team Core team is ready (Minimum Viable Team) (especially engineering/product) Market Founder/CEO has ambition to build something big 1 2 3 * Caveat: “On average”. Some investors ma
  25. 25. Pear LAUNCH 201925 Test - when you reach “0.5” When you are not changing your to acquire and retain a new customer website sales ppt app
  26. 26. Pear LAUNCH 201926 Specifics on traction at seed Revenue $ 0-200k ARR (~10k MRR) Product Stickiness Fanatic Customers Growth Organic/Viral Plan Clear Plan to reach $1.5-2M ARR in 18 months Most Critical
  27. 27. Pear LAUNCH 2019 Actual data and trends matter at seed 27 Engagement DAUs/WAUs/MAUs Frequency of use 30d/90d/120d Retention Lengths of sessions Customer Love Organic growth Reference accounts 
 Super-fans/addicted users Sings of love (posts/emails…)
  28. 28. Pear LAUNCH 2019 Product Market Fit Measurements 28 58% 0 15 30 45 60 Ini^al Q12017 Q2 2017 Q3 2017 Q4 2017 33% 22% 47% 56% 40% benchmark Source : How Superhuman Built an Engine to find Product/Market Fit by Rahul Vohra
  29. 29. Pear LAUNCH 201929 Why Retention Matters
  30. 30. LAUNCH Scale 2018 Pear 30 Cohort Analysis - Retention Cohort Size 0 1 2 3 4 5 6 7 8 9 110 Jan 100% 33% 21% 16% 14% 13% 12% 12% 10% 12% 186 Feb 100% 31% 21% 14% 13% 12% 11% 11% 9% 184 Mar 100% 29% 18% 16% 14% 12% 10% 9% 225 Apr 100% 35% 29% 22% 20% 17% 15% 231 May 100% 42% 37% 34% 24% 21% 209 June 100% 44% 37% 33% 25% 240 Jul 100% 42% 38% 31% 271 Aug 100% 45% 40% 248 Sep 100% 51% 243 Oct 100% 2,147 Total 100% 39% 30% 24% 18% 15% 12% 11% 10% 12% Source: Diligence at Social Capital Part 2. Medium
  31. 31. Pear LAUNCH 201931 Advice for “0” to “0.5” “Experiment” Mentality • hyp —> test —> measure —> new hyp “Scrappy and Fast” Operations • Build fast. Kill Features. Simplest MVP Ignore “Fake” Signals • Number Employees. Money Raised. Speaking engagements.
  32. 32. Pear LAUNCH 2019 The “0” to “0.5” journey in steps 32 Vision/Idea Build First founder driven sale 1 2 3 Repeat founder driven sale 4 Consumer Companies: 3) Launch to network 4) Organic growth/word of mouth expansion
  33. 33. Pear LAUNCH 201933 Branch - “0” to “0.5” journey Data driven PMF driven “ Photo App (CAC was high!) —> Print SDK (no takers) —> Deeplinking (customers inbound) Duration: 15 months Team: 4 co-founders Cash spent: $50k
  34. 34. “1” stage, Series A 34
  35. 35. Pear LAUNCH 2019 !35 ~$8M ~$20M Series A Fund Seed Fund Series B Fund Corporate Fund “Typical” Series A rounds
  36. 36. Pear LAUNCH 2019 From finding product fit to finding market fit 36 Iterate on formula until finding customer love Iterate on growth engine until economics work Focus on the revenue engine Not the absolute revenue
  37. 37. LAUNCH Scale 2018 Pear 37 Myths on the Street E-commerce $500k-1M MRR 20% m-o-m growth SaaS $100k-200k MRR 100% y-o-y growth Consumer 50k DAUs 25% m-o-m growth Source: Equityzen blog Marketplace $500k-1M GMV 25% m-o-m growth
  38. 38. LAUNCH Scale 2018 Pear Growth is not Enough 38
  39. 39. LAUNCH Scale 2018 Pear 39 SaaS Series A MRR-Valuation Correlation 0 45 90 135 180 20 35 50 65 80 MRR($M) Post Money Valuation ($M) Source: Thomas Tungunz, Redpoint Revenue is not Enough
  40. 40. Pear LAUNCH 201940 Test - when you reach “1” If I hire 1 AE, I will close this $400k ARR new business in 6 months If I spend $10k in ads, I will get 10k new users (or maybe no ad-spend is needed)
  41. 41. Pear LAUNCH 2019 Where do I have to be to raise A? 41 Series A Market Need to convince series A investors this is a $10B+ company Traction Can demonstrate that is a scalable business with efficient growth Team Core product team built. Initial growth hacking/sales team 1 2 3
  42. 42. Pear LAUNCH 201942 Specifics on traction at Series A Most Critical Series A Round Revenue $0.5-4M ARR (~$200k MRR) Product Stickiness Net retention 80-150% Growth Efficient Growth Engine (SE>1, LTV/CAC>3, default alive) Plan Plan to 3-5x in 12/18 months
  43. 43. LAUNCH Scale 2018 Pear 43 Growth Quality
 (Quick Ratio – Added MRR/lost MRR) Source: Diligence at Social Capital Part 1. Medium
  44. 44. Pear LAUNCH 201944 Sample Metrics for Series A SaaS Companies Source: Bessemer. Consumer Series A Metrics Cash Flow Efficiency - Net new ARR/Net Churn CARR - Committed Annual Recurring Revenue METRIC GOOD BETTER BEST CARR % Growth 50-100% 100-200% 200%+ CAC PAYBACK Months 24 12-24 <12 CHURN Monthly 1-3% <1% Net negative CASH FLOW EFFICIENCY <1 ~1 >1
  45. 45. Pear LAUNCH 201945 Advice for “0.5” to “1” Focus on “Growth Engine” rather than “Abolute Growth” • Replicatable and efficient growth are better than just growth Measure “Growth Engine” Efficiency • Use data to measure performance. Build sales & marketing ops teams. Avoid “Fake” Growth • Sales & marketing cost higher than net revenue. GMV vs. actual revenue.
  46. 46. Pear LAUNCH 201946 Doordash - “0.5” to “1” journey Duration: 10 months Business model iterations: First region to “1” Second region to “0.5” Extreme attention to metrics (LTV, CAC, Payback, Margin) Team - Key hires: Engineering. Operations Heads. Cash spent: < $2M
  47. 47. Summary 47
  48. 48. Pear LAUNCH 201948 In Summary Seed Round Series A Round Revenue $ 0-200k ARR (~$10k MRR) $0.5-4M ARR (~$200k MRR) Product Stickiness Fanatic Customers Net retention 80-150% Growth Organic/Viral Efficient Growth Engine (SE>1, LTV/CAC>3, default alive) Plan Clear Plan to reach $1.5-2M ARR in 18 months Plan to 3-5x in 12/18 months
  49. 49. LAUNCH Scale 2018 Pear 49 “What gets measured, gets done” Georg Rheticus, Astronomer 1514-1574
  50. 50. LAUNCH Scale 2018 Pear 50 Make an Ops Plan Q1 Q2 Q3 Q4 Revenue $1M ARR New Hires Product Cash @ end $100k ARR 100 leads 1 Demand Gen 1 Sales Rev 2.0 1 Customer Success 3 Engineers MVP 1 Sales 1 QA Engineer 18 months 15 months 10 months 4 months6 months
  51. 51. Pear LAUNCH 201951 Know your Northstar Focus on building a large business that makes money
  52. 52. Pear LAUNCH 2019 Contact: mar@pear.vc 52

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